ICAAP and Capital Management: Remediation plan and roadmap

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THE CLIENT

The client is one of the largest financial institutions in France. It offers its clients a wide range of products and services: savings, investment, treasury, financing, insurance and investment solutions.

THE CHALLENGE

The Group central body was subject to an ECB on-site inspection concerning its Internal Capital Adequacy Assessment Process (ICAAP), in which the overall framework has been assessed. This inspection has resulted in 25 findings and more than 60 recommendations to be addressed in one and a half years. Avantage Reply’s mission acted post ECB inspection, with the purpose of assisting the client to design a multiyear roadmap in order to implement the findings identified by the supervisor but also to improve both ICAAP and capital management frameworks.

APPROACH AND SOLUTION

In light of the findings of the ECB mission, our work has consisted of: (i) performing a thorough analysis on the ICAAP management framework and its key components; (ii) putting the findings of the ECB mission into perspective with the expectations specified in recent publications of the ECB and market practices; and; (iii) organizing thematic workshops with Risk and Finance stakeholders to brainstorm the improvements to be realized for the future ICAAP exercises, and design the multi-year roadmap.

Considering the findings of the ECB mission and key proposals, we designed a roadmap framed around key building blocks, in particular:

ICAAP governance and internal control;
Business model analysis, risk identification and materiality assessment;
Risk quantification methods under normative and economic perspectives;
Capital management, steering and allocation;
Interactions between ICAAP and other strategic processes (budget, RAF….

The remediation plan has been established through the organization of thematic workshops with senior Risk & Finance stakeholders, in which we provided elements of best practices for the clients to both benchmark their practice, and to brainstorm on the improvements to be realized in the future.

RESULTS AND BENEFITS

The final deliverable of the mission is a “2-year ICAAP roadmap”, outlining the key building blocks, the responsible parties, the methodologies as well as and the key deadlines and milestones for each recommendation specified by the ECB. A strong project governance steered by the CFO has also been introduced to follow and ensure that the action plan is properly implemented.

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