Bank of England: The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)
29 July 2015
This supervisory statement 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.'
This supervisory statement is aimed at firms to which CRD IV 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’.
This supervisory statement will be updated on 3 August 2015 to reflect any changes following a new reverse stress testing section included in CP17/15 PRA Rulebook: Part 3.
The supervisory statement has four chapters:
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Chapter 1: Introduction.
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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.
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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 PRA’s ICAA rules.
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Chapter 4: 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.
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