copyright © october 15 bdo stoy hayward llp. all rights reserved. icaap – what you really need to...
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![Page 1: Copyright © October 15 BDO Stoy Hayward LLP. All rights reserved. ICAAP – what you really need to know Fiona Raistrick, Senior Manager, Financial Services](https://reader035.vdocument.in/reader035/viewer/2022062718/56649e745503460f94b75527/html5/thumbnails/1.jpg)
Copyright © Apr 19, 2023 BDO Stoy Hayward LLP. All rights reserved.
ICAAP – what you really need to knowFiona Raistrick, Senior Manager, Financial Services Regulatory Practice
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Agenda
• • Background to Basel II
• • Outline of Pillar 1 requirement
• • Purpose of ICAAP/Pillar 2
• • Structure of ICAAP
• • Risk considerations required
• • ICAAP document
• • Ongoing ICAAP procedures
• • FSA Supervisory review (SREP)
• • Q&A
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Background to Basel II
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Outline of Pillar 1 requirement
• Capital resources vs Capital resource requirement
• Capital resource requirement:
─ Credit risk
─ Credit risk component
─ Counterparty risk component
─ Concentration risk component
─ Market risk
─ Operational risk or Fixed Overhead Requirement (FOR)
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Purpose of Pillar 2
• Identify any risks not previously considered within Pillar 1 requirements
• Identify capital relating to these risks
• Ensure business has sufficient capital to cover all relevant risks
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ICAAP
• BIPRU 2.2
• Different methods possible
─ Pillar I Plus - take Pillar I capital and assess additional capital proportionate to non-pillar I risks
─ Building block approach – Start with zero and build own capital structure
─ Start with actual capital - break down into material risks
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ICAAP
Steps to be taken
1. Risk identification – prepare a list of all material risks, interview relevant staff, assess likelihood of risks occurring
2. Capital assessment – consider how much capital a risk would absorb were it to materialise
3. Forward capital planning – assess how firms capital calculated in 2) might change in line with its business plans and how it might respond to these changes – perform stress testing/sensitivity analysis
4. ICAAP outcome – document ranges of capital identified and form an overall view on the amount of internal capital firm should hold
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Structure of the ICAAP
1. Executive Summary
2. Background – the ICAAP Process
3. Statement of risk appetite
4. Business strategy
5. Material risks
6. Capital planning and Stress and scenario tests
7. Challenge and adoption of the ICAAP
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Risks to consider
• Credit risk
• Market risk
• Operational risk
• Liquidity risk
• Insurance risk
• Concentration risk
• Residual risk
• Securitisation risk
• Business risk
• Interest rate risk
• Pension obligation risk; and
• Any other risks identified
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ICAAP documentation
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http://www.fsa.gov.uk/Pages/About/What/International/basel/info/pil2/index.shtml
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Ongoing ICAAP procedures
• Regular review
• Procedures to identify when a risk arises and the impact this will have on the overall capital adequacy
• Annual review of ICAAP document
• FSA019 questionnaire - annual
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FSA Supervisory Review Evaluation Process (SREP)
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Any questions?
Fiona Raistrick – Senior Manager, Regulatory Practice
Email: [email protected] Tel: 020 7893 2529
Peter Chidgey – Head of Financial Services Email: [email protected] Tel: 020 7893 2110
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