ICAAP and ILAAP Enhancement

SUMMARY
Avantage Reply undertook a project to assist a corporate and investment bank in enhancing its Internal Capital Adequacy Assessment Process (ICAAP) and its Internal Liquidity Adequacy Assessment Process (ILAAP) documentation based on the latest regulatory requirements, the local regulator‘s feedback, and the internal audit‘s feedback. 

CUSTOMER GOALS
The Bank sought external support to review its ICAAP and ILAAP documentation and recommendations to ’refresh’ its content and presentation. This allowed it to be better aligned with regulatory requirements, best market practices and to address recent internal audit findings.

The client's primary objectives were as follows:

• Splitting the joint ICAAP/ILAAP reports into two separate reports
• Restructuring the ICAAP and ILAAP documents to fit evolving market practices and to enhance its clarity and readability
• Initiating the preparation of the ICAAP and ILAAP documents that are to be submitted to the supervisory authorities

CHALLENGES
One of the main challenges faced was the organisation’s recent changes in their business model, which required further examination to understand the changes in the risk profile and the implications in terms of risk quantification and capital/liquidity adequacy assessment. Another challenge was the resource constraint on the client’s side, which meant that required information was sometimes not received promptly.

SOLUTION
To address these challenges, Avantage Reply gained an understanding of the bank’s business activities and related risks. Then, using a gap analysis, Avantage Reply assessed the existing ICAAP/ILAAP reports against the latest regulatory requirements, regulatory feedback (e.g., during the latest SREP process), internal audit identified gaps and the observed good market practice.

Once the strawman ICAAP and ILAAP documents were revised (as well as split from the previous single document) and approved, Avantage Reply initiated the preparation of the ICAAP and ILAAP documents to be submitted to the supervisory authorities by updating the qualitative content (e.g., governance and overall ICAAP/ILAAP framework) and refitting the overall narrative (including adequacy from economic and normative perspectives).

CUSTOMER DESCRIPTION
A corporate and investment bank which provides advisory, investment banking, financing, corporate banking and capital market services to corporations, financial institutions, financial sponsors and sovereign and supranational organisations worldwide.