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Home > Prudential Regulation Authority > The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP) - SS31/15 UPDATED
 

The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP) - SS31/15 UPDATED

01 February 2017

3 October 2017 – This supervisory statement has been updated, see
 
The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP) - SS31/15 UPDATE
 
For information only, the original publication issued on 1 February 2017 is available below.

Update 1 February 2017: This SS was updated following publication of Policy Statement 3/17, ‘The implementation of ring-fencing: reporting and residual matters – response to CP25/16 and Chapter 5 of CP36/16’. The updated expectations take effect from 1 January 2019. See the appendix for full details. For more information on ring-fencing related policy see ‘Supporting materials – ring-fencing’ webpage.

This supervisory statement is aimed at firms to which CRD IV (see note 1 below) applies and replaces Supervisory Statement 5/13 ‘The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)’ and Supervisory Statement 6/13 ‘Stress testing, scenario analysis and capital planning’.

SS31/15 provides further detail in relation to the high-level expectations outlined in The PRA’s approach to banking supervision and should be read in conjunction with Statement of Policy - The PRA’s methodologies for setting Pillar 2 capital.

Overview

The supervisory statement has five chapters:

Chapter 1: Introduction.

Chapter 2: Expectations of firms undertaking an ICAAP sets out the expectations the PRA has in relation to the ICAAP and the requirements set out in the Internal Capital Adequacy Assessment (ICAA) part of the PRA Rulebook. It sets out the PRA’s expectations regarding firms’ coverage and treatment of interest rate risk in the non-trading book (more commonly referred to as interest rate risk in the banking book or IRRBB), market risk, group risk, operational risk, pension obligation risk and foreign currency lending to unhedged retail and SME borrowers. It also provides additional detail on data that firms are required or expected to submit with their ICAAP document or otherwise as applicable.

Chapter 3: Stress testing, scenario analysis and capital planning sets out the PRA’s expectations of firms in relation to stress testing, scenario analysis and capital planning, and the requirements set out in Chapter 12 of the ICAA Part of the PRA Rulebook.

Chapter 4: Reverse stress testing sets out the PRA’s expectations of firms in relation to reverse stress testing and the requirements set out in Chapter 15 of the ICAA Part of the PRA Rulebook.

Chapter 5: The SREP sets out the factors that the PRA takes into consideration to assess a firm’s ICAAP. It explains the setting of Individual Capital Guidance (ICG) and the PRA buffer, the consequences in the event a firm fails to meet ICG or uses the PRA buffer, and disclosure.

Note 1: The Capital Requirements Directive (2013/36/EU) (CRD) and the Capital Requirements Regulation (575/2013) (CRR), jointly ‘CRD IV’.

Supervisory Statement

The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP) – SS31/15 UPDATED

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