ICAAP and ILAAP: Final Guidelines on information collected for SREP purposes / Supervisory expectations and Final Guides

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 EU, the ECB assumed responsibility for the supervision of significant institutions (SIs) 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.

In November 2016, the EBA published the Final Guidelines (GL) intended to ensure convergence of supervisory practices in the assessment of ICAAP and ILAAP as required by the SREP. In January 2016, the ECB published its expectations on ICAAP and ILAAP, together with a description of what ICAAP and ILAAP-related information institutions should submit; and in November 2018 the ECB published Final Guides to the ICAAP and to the ILAAP.

This Technical Note summarises the content of the EBA GL, and also the ECB supervisory expectations and the Final Guides on ICAAP and ILAAP.

Executive Summary

The EBA published in November 2016 Final Guidelines on ICAAP and ILAAP information that supervisors should collect for SREP purposes. Further, the ECB published in November 2018 Final Guides to the ICAAP and to the ILAAP for SIs according to the SSM framework.

Area of application

The EBA GL on ICAAP and ILAAP information are applicable to credit institutions and investment firms as defined in the CRR / CRD IV, whereas the ECB supervisory expectations and Final Guides to the ICAAP and ILAAP are applicable to significant institutions within the SSM, as defined in the Guide to the banking supervision.

Main content

EBA GL on ICAAP and ILAAP information:

• General considerations. The GL contain general considerations related to operational procedures, the proportionality principle, additional information and cross-border banking groups. A ‘reader’s manual’ shall be included providing an overview of the documents submitted to the CAs and their status.
• Information common to ICAAP and ILAAP (e.g. business model and strategy, risk governance and management framework or risk appetite framework).
• ICAAP-specific information (e.g. overall ICAAP framework, risk measurement, assessment and aggregation, capital planning or stress testing in ICAAP).
• ILAAP-specific information (e.g. liquidity and funding risk management, funding strategy, strategy on liquidity buffers or cost benefit allocation mechanism).
• Conclusions and QA (i.e. conclusions of the ICAAP and ILAAP and their impact on the risk and overall management, quality assurance and internal audit reports).

ECB supervisory expectations. They include: harmonised collection of information (e.g. specifications on dates, format and content), supervisory expectations on ICAAP (e.g. governance, definition of internal capital, assumptions and key parameters, or stress tenting), and supervisory expectations on ILAAP (e.g. general definition of the ILAAP).

ECB Final Guides to the ICAAP and to the ILAAP. These Guides set out seven principles on ICAAP and seven principles on ILAAP (e.g. governance, management framework, continuity of the institution, or material risks).

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