ICAAP, ILAAP and Recovery plan Design and implementation

The client is a French retail bank and a subsidiary of the largest French insurance group combining the advantages of an online bank and a network of physical branches. It offers a wide range of banking services including: current accounts, loans and insurance.

As a part of the uplift in the supervisory expectations and higher demands of the national competent authorities (‘ACPR’) relating to the SREP exercises and the BRRD implementation, the client was looking to review and strengthen their stress-test scenarios in the Recovery plan and to improve RAF, ICAAP and ILAAP processes. For this purpose, Avantage Reply was mandated to review and improve the recovery plan and its key components as well as designing and implementing RAF, ICAAP and ILAAP frameworks.

The approach consisted of the following steps

• Review of existing processes, documentation and methodologies
• Conduct a gap analysis and designing the target roadmap
• Present and explain the ECB SREP framework and elements of best practice regarding the Recovery plan, the ICAAP and the ILAAP
• Design and implementation of a risk identification and materiality assessment process (risk inventory, materiality definition and grid assessment, risk event evaluation and links to key processes)
• Subject matter support and design of risk quantification methodologies under the economic approach for Pillar 1 and Pillar 2 risks
• Review of Recovery Plan scenarios and options with the use of historical studies and benchmarking
• Define and implement a set of idiosyncratic, market and combined scenarios, including appropriate shock levels for key risk drivers that form inputs into the ILAAP and the Recovery plan
• Simulate and analyse of the outcomes of the stress test exercise on key solvency and liquidity metrics
• Draft all the documents planned for the submission process for the ACPR including the Recovery Plan, ICAAP and ILAAP
• Draft presentations for governance bodies including Executive committees and Risk commitee to the board
• Design and calibrate risk appetite metrics consistent with ICAAP/ILAAP processes

• Delivery of ICAAP, ILAAP, Recovery Plan and Internal Control Report in due time for the submission process
• Provision of a sufficient level of supervisory and quantitative support for Pillar 2 risks, solvency and liquidity stress tests to comply with supervisory requirements and market best practice
• Positive feedbacks was received from the regulator the Bank was supported in integrating SREP exercises in a pro-active way