The CRD IV requires institutions to have in place an internal capital adequacy assessment process (ICAAP); and an internal liquidity adequacy assessment process (ILAAP). These processes are key risk management instruments for institutions, and competent authorities (CAs) review them as part of the Supervisory Review and Evaluation Process (SREP).
In the European Union, the European Central Bank (ECB) assumed responsibility for the supervision of significant institutions within the Single Supervisory Mechanism (SSM) from November 2014 onwards. Thus, the ECB is responsible for carrying out the SREP with respect to these institutions.
The EBA published in December 2015 a Consultation Paper on Draft Guidelines intended to ensure convergence of supervisory practices in the assessment of ICAAP and ILAAP as required by the SREP.
Following the publication of the Guidelines by the EBA, the ECB published in January 2016 a document addressed to the management of significant institutions within the SSM on this matter.
The technical note prepared by Management Solutions’ R&D department analyzes and summarizes the Draft Guidelines published by the EBA. Moreover, an analysis of the ECB document addressed to the management of significant institutions is included.
Regarding the Guidelines, the information items to be collected by CAs are divided into four categories: information common to ICAAP and ILAAP, ICAAP-specific information, ILAAP-specific information, conclusions and quality assurance.
The ECB document encourages institutions to develop and maintain high-quality ICAAPs and ILAAPs, and to clarify the type of information they should share with the SSM on these. It includes specifications regarding the EBA Guidelines, and supervisory expectations on the ICAAP and ILAAP.
Scope of application:
The Guidelines apply to institutions, as defined in the CRR/CRD IV: credit institutions and investment firms. The ECB document applies to significant institutions within the SSM, as defined in the Guide to banking supervision.
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