Investment firms warned of IFPR’s ‘compliance complacency’

Many investment firms have not started the fundamental calculations needed for new IFPR rules, which come into effect in just weeks, KPMG warned.

The Financial Conduct Authority’s (FCA) IFPR rules will replace the ICAAP with an Internal Capital Adequacy and Risk Assessment Review (ICARA), which will come into effect on January 1, 2022, with the regulator expecting compliance from “day one”.

This will significantly affect capital and liquidity requirements, risk management frameworks and compensation. However, after survey Of 40 firms of varying sizes in the investment management industry, KPMG found that 18% had yet to complete their Pillar 1 calculations.

Among companies that had assessed their ICARA capital requirements, 54% said they did not believe the reforms would have a noticeable impact, although 16% saw a change in their requirements of more than 10% in either direction.

David Yim, asset management partner at KPMG UK, warned that many companies may be underestimating the work they still need to do, which could create “a difficult time ahead”.

“IFPR has created a set of regulations that are much more tailored to the investment management industry on capital requirements that better match its risk profile, but it feels like this is just one way different and more difficult towards the same destination,” he continued. .

“When you dig deeper into our research, you see that while many companies don’t expect much of an impact on their capital needs, there are still some that may need to make significant adjustments.

“The danger is that there could be a significant minority of businesses that are in a state of compliance complacency, underestimating the work they are required to do to comply with IFPR.”

The survey confirmed that many companies expect the IFPR to have only a moderate impact on their entire organization, particularly in areas such as governance and prudential consolidation.

Half of the respondents said they had no intention of changing their risk management framework, suggesting that many of them are comfortable with the work they have already done or under. -estimate the potential changes required.

Additionally, the results show that a whopping 97% did not agree to new ratio requirements for compensation structures.

“Fundamentally, IFPR is not just about the numbers, and there will be qualitative requirements from day one, including wholesale changes to risk frameworks, compensation and governance – essentially a fundamental change, a process more outward facing and granular that will require considerable attention. for compliance,” said Rob Crawford, senior director of the financial risk management practice at KPMG UK.

“As the industry is going through rather unpredictable times, the request for such far-reaching financial resilience is timely and will complement the upcoming operational resilience reforms next spring.”

Photo credit: iStock

Author: Chris Seeking