Client background 

Our client was a financial services company that offers several wholesale services across multiple asset classes, including Energy and Commodities.

The challenge 

Further to the FCA publishing their final policy statement PS 21/19 Implementation of Investment Firms Prudential Rules, our client prioritised the calculation and reporting processes associated with the relevant K-Factors and was not able to dedicate resources to the completion of the ICARA or Wind Down Planning documentation. Their operational, market and credit risk management framework operated separately from their liquidity risk management framework and could not easily be brought together from a process or documentation perspective. Furthermore, their risk assessment process, while adequate under the old regime, did not adequately explore the risk of harm to clients or the market.

Our approach and contribution 

Working in close partnership with the firm’s senior risk and finance representatives we:

• Conducted a detailed review of the firm’s ICAAP, ILAAP, and Recovery Plan to ascertain where there were opportunities to consolidate information.

• Immediately looked for any areas that required enhancement, one of which was to create a standalone Wind Down Plan document that was traceable back to the FCA’s own wind down planning guide (WDPG), the relevant sections of MIFIDPRU, and other regulatory publications such as FG 20/1 and TR 22/1.

• Took the client on an educational journey (whilst preparing the wind down document) explaining, with examples, how any recommendations could be implemented in practical terms.

• Worked with the client to adapt their existing operational risk framework and scenario analysis so that it could be demonstrably linked to the risk assessments taking place in the business and identify the material harms and the controls in place to mitigate the harms.

• Worked with the client to harmonise their stress testing for capital and liquidity so that own funds could be assessed consistently.

• Managed the editorial process for the ICARA and Wind Down Plan documents. We “held the pen” until the documents were sufficiently mature for the client to take a handover from us.

• Supported the client with preparation for the initial sessions with the regulator, subsequent to the document submission.

The outcome 

As a result of our engagement:

• The client achieved ICARA and Wind Down Plan documents that were traceable back to the relevant rules and guidelines.

• The client was well prepared to discuss the documents with the regulator.

• The client was able to look at its liquidity risks in a consistent way with other risk factors.

• The client matured their ICARA and Wind Down Plan capabilities, and was able to repeat the exercise for other entities in the group with less external support.