Professional Documents
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to know
Fiona Raistrick, Senior Manager, Financial Services Regulatory Practice
Copyright © 7 Dec 2021 BDO Stoy Hayward LLP. All rights reserved.
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
Background to Basel II
Outline of Pillar 1 requirement
• 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
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
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
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
ICAAP documentation
http://www.fsa.gov.uk/Pages/About/What/Int
ernational/basel/info/pil2/index.shtml
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
FSA Supervisory Review Evaluation
Process (SREP)
Any questions?
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