Capital Management Action Plan

The client is a French multinational financial services firm specialized in asset & wealth management, corporate & investment banking, insurance and payments. It is a subsidiary of one of largest banking group in France and its clients include corporations, financial institutions, sovereign and supranational organizations, and customers of the Group’s network.

The challenge was to establish a roadmap for completing the ICAAP and capital management framework in accordance with JST recommendations and internal audit findings. The roadmap highlighted the actions the bank should implement in order to address the identified areas of improvement, covering several dimensions, including governance, the economic definitions of internal capital and own funds, identification & quantification of economic risks and the interaction between both normative and economic perspectives when assessing capital adequacy.

A gap analysis was prepared by Avantage Reply, which provided a structured assessment of the client’s situation based on regulatory requirements and audit findings. Avantage Reply proposed a roadmap to remediate these gaps, keeping in mind the importance of considering the ICAAP as a valuable tool to steer the bank’s strategic processes (capital planning, risk management and budget development).

To address the various identified shortcomings, the below was covered:

• Implementation of the new capital management governance structure, reinforcing ownership of the ICAAP by the management body;
• Economic capital allocation scheme and its use in the context of the budget process, evidencing the ICAAP’s use as a management tool;
• Capital contingency planning and the linkage between the ICAAP and the RAF in terms of monitoring and escalation processes;
• Management actions impacting quantification and testing in internal stress tests exercise;
• Assessment and enhancement of the risk identification process, materiality assessment and risk appetite framework.

These improvements provided the client with an appropriate level of integration of the ICAAP within the institution and ultimately making use of the report and related processes to drive strategic decision-making on topics such as capital planning, capital allocation and the follow-up of business line activities ensuring they are carried out within acceptable limits and without compromising overall business objectives.