Internal Audit of the ICLAAP

SUMMARY

The client, an independent and privately-owned banking group which provides private banking services, wanted an external expert to support their internal audit team. In particular, the client wanted to review and provide assurance that their Internal Capital & Liquidity Adequacy Assessment Process (ICLAAP) is in line with the latest regulatory requirements and best market practices. The main challenge was the short timeline as the client wanted to have the final report to be finalised in a couple of weeks. Avantage Reply provided a capital and liquidity expert with internal auditing skills who reviewed and assessed the compliance of the ICLAAP and the controls around this process.

CUSTOMER GOALS

The goal was two-fold: 1) to review the ICLAAP and to provide assurance that it is in line with the minimum regulatory requirements and 2) to confirm and validate that the recommended enhancements from the prior audit have been implemented to a satisfactory level.

CHALLENGES

The primary challenge was the short deadline for the delivery of the final audit report within a couple of weeks from the start.

SOLUTION

Avantage Reply provided a capital and liquidity expert to conduct the regulatory review and audit assessment for the processes put in place. The expert performed the following:

• Risk appetite statement and framework: 1) review of the risk appetite framework, including key risk indicators, internal limits, early warnings and threshold in the light of ECB requirements, 2) assessment of the consistency of the risk appetite framework with the business strategy of the banking institution, 3) assessment of the internal governance over the periodic review and validation of the risk appetite framework (at both local and Group level).
• ICLAAP: 1) review of the governance framework around the ICAAP/ILAAP, including the roles and responsibilities of the board of directors/authorised management/chief risk officer, 2) review of the stress-testing program, including sensitivity analysis, reverse stress testing and scenario analysis.
• Group risk management function and related frameworks: 1) review the organisation, nature and purpose of the risk management function (role, responsibilities, and duties), 2) review the risk monitoring program that is part of the risk appetite framework, 3) review the risk inventory and measurement process for each type of risks and 3) review of the interest rate risk for the banking book (“IRRBB”) policy.