IRRBB Audit Follow-Up

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, in the final steps of an internal review of the Interest Rate Risk in the Banking Book (IRRBB) framework. In summer 2019, Avantage Reply assisted the client following an audit by the national regulator regarding IRRBB and established an action plan to deal with the shortcomings identified during the regulator’s on-site inspection. The goal was to identify the status of these shortcomings and possible mitigations in order to achieve full compliance with regulatory requirements.

CUSTOMER GOALS

The primary goal of the client was to assess whether gaps observed by the regulator regarding the IRRBB framework were closed and to update the existing action plan defined within a previous Avantage Reply assignment. The steps agreed with the client entailed an assessment of action plan completeness as response to the concerns raised by the regulator and its effective implementation.

CHALLENGES

The customer’s deadlines were ambitious, as the previously identified gaps had to be closed in time for the solutions to be approved in the following quarterly board meeting and before the next audit by the regulator. In addition, multiple departments and stakeholders had to be consulted as the missions affected a vast array of stakeholders. Furthermore, changes in personnel and organization meant that some people had to implement solutions for the development of which they were not involved. This, however, did not create any major issues.

SOLUTION

Avantage Reply’s team performed a detailed review of the remediation work conducted in respect of the regulators’ comments in their previous intervention, considering the scope covered in the first assignment as well as the quality and completeness of the delivered work. This challenged the work already delivered and resulted in further recommendations, where appropriate, for improvements. When reviewing the above points, Avantage Reply took into account the updated organization and governance applicable to IRRBB to ensure conformance with the ‘Three Lines of Defense’ governance model as well as the methods used to identify, assess, monitor and mitigate interest rate risk.

For each (sub-) finding, the Avantage Reply team used the following approach:

• Reviewed the remediation plan relative to the corresponding regulator finding(s). The team challenged those areas in which the plan appeared to be incomplete, to make sure that the plan addressed, in full, the supervisory concern.
• Reviewed the actions taken relative to the remediation plan, to ensure that the plan had been effectively executed.