Embedment of ICAAP & ILAAP exercise

SUMMARY

Avantage Reply has assisted a Private Banking group in the Eurozone in their embedment of Internal Capital Adequacy Assessment Process (ICAAP) & Liquidity Adequacy Assessment Process (ILAAP) exercise, s.c. ICLAAP.

Following the recommendation of the European Central Bank (ECB), bank’s current practice of ICLAAP had to be reviewed and challenged. The results of the review have been presented to the Management Body. In particular, identified gaps and attention points with respective actions to improve the way ICAAP and ILAAP are conducted. The analysis has been enriched with market best practices observed among various financial institutions in the Eurozone.

CUSTOMER GOALS

The client’s main goal was to improve the ICLAAP process and get a better understanding of current best practices in the market to run the exercise. As an intermediary result, the client expected well documented workshops relative to each part of the process, identification of improvement points and actions to be conducted in order to improve the current process.

CHALLENGES

The review of ICLAAP has been conducted in a particularly challenging moment for the client – effective implementation of a new strategy including the expansion of presence to Asian and Latin American markets and additional acquisition in Europe.

Avantage Reply had to challenge the new strategy of the bank and its potential impact on ICLAAP metrics and exercise.

Additionally, the ECB requested our client to document the process of embedment in detail. This measure is expected to yield an extra layer of formalisation from this project.

SOLUTION

Avantage Reply took a 3-step approach to assist the client with reviewing, challenging and improving the ICLAAP process:

• Generic ICAAP & ILAAP workshops were organised across various business lines of the bank with the goal to increase the awareness of ICLAAP exercises and of the better way to conduct the exercise. Avantage Reply was also involved in the ICLAAP embedment process.
• All necessary information has been gathered to perform gap analysis between the client’s practice and what could be observed within comparable financial institutions. A detailed action plan was presented to the Management Body
• Specific workshops held with the modelling department to assist our client in the preparation of ICLAAP assumptions needed for the exercise at the time of review. A deep dive into quantitative and modelling parts of the ICLAAP exercise were also presented to Management Body.

In addition to detailed documentation for each of the parts, Avantage Reply formalised the action plan and assisted in the implementation of first steps towards improved ICAAP & ILAAP processes.