Business Model Analysis and Capital Management Governance

Subject to increasing supervisory requirements, the client was looking to strengthen its internal processes and comply with the annual SSM SREP.

Avantage Reply was engaged to help the set up a new capital management governance and conduct a range of dedicated work to strengthen the linkage between the BMA and the ICAAP.

THE CLIENT

The client is one of the largest banking groups in France, active in retail banking and insurance in France, as well as an international business focused on asset management, corporate & investment banking and payments.

THE CHALLENGE

Avantage Reply was asked by this client to provide subject matter expert and project steering support on the following themes relating to capital management, economic methodologies for the ICAAP process and regulatory requirements:

• Establish and implement the governance of capital management and economic methodologies
• Definition of general content and key missions of each committee;
• Definition of roles and responsibilities, and;
• Definition of the escalation process.
• Strengthening the link between Business Model Analysis, Risk, and Capital Assessment:
• Framing and draft the Business Model Analysis, to describe the viability and sustainability of the business model
• Identification for key businesses’ vulnerabilities and associated risks drivers
• Preliminary mapping of risk drivers and vulnerabilities to the risks to be quantified and capitalised in the economic approach
• Studies to analyse and rationalise the link between the outcomes of the two ICAAP methodology approaches (normative and economic).

APPROACH AND SOLUTION

To meet the client’s expectations, Avantage Reply has deployed an experienced team with strong expertise composed of a senior manager and two consultants. The approach has consisted of providing elements of best practices of other large GSIB, conducting quantitates studies, steering several workshops with key Risk and Finance stakeholders and project governance.

The Avantage Reply team used the outcomes of the different exchanges to capture the visions of senior stakeholders and to produce and propose appropriate solutions to meet the needs of both the client and the regulator.

The key deliverables were:

• Capital policy, ICAAP governance policy and operational charters;
• Committees governance presentation;
• Note describing the linkage between the Business Model Analysis and the risks to capital completed by an excel template used to manage the risk inventory for the ICAAP, plus a detailed mapping of them to the group's strategic processes.
• Proposals to enhance institutions’ economic models used in the capital assessment.
• Quantitative studies demonstrating the interaction between the economic and prudential approaches within the framework of the ICAAP.

RESULTS AND BENEFITS

Most of the ECB's recommendations have been addressed, including the creation of capital governance bodies, and the economic re-evaluation of Pillar 2 risks. Avantage Reply continues to assist the client in piloting its internal capital adequacy assessment processes.