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Case Study

ILAAP Internal Audit Support

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SUMMARY

Avantage Reply assisted the internal audit department of a leading private bank in the Eurozone, a less significant institution (LSI) that is part of an international group.

Following the supervisory review and evaluation process (SREP), the bank received a letter from the respective national Central Bank highlighting several weaknesses concerning its ILAAP and outlining a number of recommendations the bank needed to implement. The bank submitted a response to the competent supervisory authority committing to perform an independent review from the 3rd LoD to the Internal Liquidity Adequacy Assessment Process (ILAAP). In this context, the bank requested assistance from outside experts in liquidity risk management to support the internal audit function in the review and confirmation that the ILAAP was satisfactory and aligned with the applicable regulations and market practices.


CUSTOMER GOALS

The customer’s goal had two main aspects:

  1. Enhancement of the internal audit expertise in the ILAAP by on-boarding external liquidity expert(s)
  2. Confirmation and validation that the Bank’s ILAAP was satisfactory and compliant with the applicable regulations and market practices

CHALLENGES

There were two primary challenges:

  • The simultaneous work on the next version of the ILAAP put a strain on the internal resources to be able to provide the required proof for the validation while incorporating the changes into the ILAAP report;
  • The simultaneous transition of the client’s headquarters to another jurisdiction, which made it more challenging to ensure that the proposed action plans and recommendations would also ensure compliance with the applicable regulation from the new regulator.

SOLUTION

Avantage Reply approached the problem in a structured and efficient manner, tackling the internal review by systematically executing numerous tasks:

  • Interviewing all relevant stakeholders
  • Reviewing the relevant internal policies and procedures
  • Reviewing the relevant methodological documentation
  • Reviewing the meeting minutes and approvals of the ILAAP
  • Reviewing the relevant controls
  • Participating in the walkthrough of the implemented tool(s)

The overall deliverable from the assignment was a complete audit report with the main conclusions and key findings and comprehensive documentation in the Bank’s audit tool of the approach. The review consisted in assessing the following areas:

  • Review the compliance and adequacy of the quality assurance process with CRDIV and EBA guidelines (EBA/GL/2016/10)
  • Review the key risk metrics used in the context of the risk identification and materiality assessment
  • Analyse the qualitative assessment and conclusion regarding the risk materiality
  • Examination of the assumptions applied for the stress scenarios and their consistency with the identified material liquidity risk
  • Review of the compliance of the stress testing approach with the EBA guidelines (EBA/GL/2016/10)
  • Assess the corrective measures implemented to address BCL recommendation on data quality and the 2021 ILAAP report