ILAAP Design and implementation

The client is a Belgium bank and is the result of a 50/50 partnership between the local delivery company and a large European bank managed completely independently within the framework of equivalence between the two shareholders. The local delivery company is the exclusive distributor of the products marketed by the bank while benefiting from the banking expertise of a large group for the development and launch of its products.

Avantage Reply has been selected by the client to provide subject matter expertise regarding the ILAAP process and its key components. In fact, it was a relatively new project for the Bank, which began the exercise just two years before. In the third year, the ALM department took the lead in drafting the ILAAP report and wanted to reinforce the overall framework to meet the expectation of the regulator, and to deliver it in a proper format to comply with the submission process.

After analysing the gaps between previous reports and supervisory expectations, the report needed improvements in several areas, especially the governance, the risk identification and materiality assessment and internal stress testing etc., as all these areas were almost empty in the previous ILAAP reports. With insufficient capabilities, there were numerous challenges to improve the report and initiate internal stress testing in a short period of time.

The approach retained by Avantage Reply and validated by the client’s management was divided into the following buildings blocks:

• Gap analysis between 2017 ILAAP Report and regulator’s expectation;
• Proposition of a new and more completed structure of the report and validation by client;
• Workshops with the client on the topics: Governance, risk identification and internal stress testing;
• Specific work including funding and liquidity risk assessment as well as designing and implementing a simple liquidity stress tests;
• Propositions on a new target governance framework (mission statement, role, responsibilities, committees…); and
• Preparation of an ILAAP report for validation of clients and submission to the local regulator.

At the end of this assignment, the ILAAP framework was restructured into being more completed and robust than previous ones including:

• A strengthened ILAAP governance framework better integrated into ALM governance;
• The Risk identification assessment within ALM team taken in account for the first time;
• Several stress tests scenarios conceived and implemented for the first time; and
• A reinforced ICAAP report complying with local supervisor expectations.