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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 UPDATE
 

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

03 October 2017

Update 3 October 2017: This SS was updated following publication of Policy Statement 22/17, ‘Refining the PRA’s Pillar 2A capital framework’.

This supervisory statement is aimed at firms to which CRD IV applies and replaces PRA Supervisory Statement (SS) 5/13 and PRA SS6/13. It provides further detail in relation to the high-level expectations outlined in ‘The Prudential Regulation Authority’s approach to banking supervision’.

The supervisory statement has five chapters:

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 Internal Capital Adequacy Assessment 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 Internal Capital Adequacy Assessment 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. It also sets out the factors that the PRA takes into consideration to assess a firm’s reverse stress-testing approach including the PRA response to weaknesses in the process.

This supervisory statement should be read in conjunction with the Statement of Policy ‘The PRA’s methodologies for setting Pillar 2 capital’. For ring-fenced bodies (RFBs), as defined in the Financial Services and Markets Act 2000 (FSMA), section 142A, and banking groups containing RFBs, this statement should be read alongside SS8/16 ‘Ring-fenced Bodies (RFBs)’.

Supervisory statement 

​Date of publication Supervisory statement​ ​​Update detail Effective from​
​Current version ​ ​ ​
​August 2015 SS31/15 UPDATE​ ​This SS was updated following publication of PS19/15 - The PRA Rulebook: Part 3.
​Future version ​ ​ ​
​October 2017 SS31/15 UPDATE ​This SS was updated following publication of PS22/17 ‘Refining the PRA’s Pillar 2A capital framework’. ​1 January 2018.
The parts relevant for ring-fenced banks apply from 1 January 2019.
​Past versions ​ ​ ​
​February 2017 SS31/15 UPDATE ​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’. ​No longer effective (superseded by October 2017 version)
​July 2015 SS31/15​ ​Initial publication following PS17/15 ‘Assessing capital adequacy under Pillar 2 ​No longer effective
  
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