INTERNAL CAPITAL ADEQUACY ASSESSMENT PROCESS (ICAAP)

If your firm is within the scope of the CRD, new FSA regulations mean that you have until 1st January 2008 to comply with its requirements in full. To do so, your firm will have to calculate its capital adequacy in a new way.

In addition to the familiar accounts-based capital adequacy calculations, the FSA now requires firms to use its new Internal Capital Adequacy Assessment Process (ICAAP).

The ICAAP has four key steps:

A Risk Survey to identify the risks your business faces

A Risk Assessment to establish the likelihood of those risks materialising and their potential impact on your firm

Stress Testing to model how well your business as a whole would survive this impact

A Capital Calculation to work out the amount of additional risk capital your firm needs to hold

The FSA requires the whole process to be fully documented in an ICAAP report which your firm must review regularly and keep up to date.

We have devised a Risk Assessment and Stress Testing (RAST) Action Programme to take you and your management team through these crucial steps to the creation of a comprehensive ICAAP report.

Our aim is to show you how to develop a robust process that senior management in your firm can use in the future and which will enable you to comply with FSA requirements.

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