BANK 3.1.5 Internal capital adequacy assessment

(1) A banking business firm's internal capital adequacy assessment process or ICAAP is the process by which the firm continuously demonstrates that it has implemented methods and procedures to ensure that it has adequate capital resources to support the nature and level of its risks.
(2) A firm's ICAAP (and any significant changes to it) must be in writing and must have been approved by the firm's governing body. A copy of the ICAAP must be given to the Regulatory Authority on request.
(3) An ICAAP must reflect the nature, scale and complexity of the firm's operations and must include:
(a) adequate policies and staff to continuously identify, measure, evaluate, manage and control or mitigate the risks arising from its activities, and monitor the capital held against such risks;
(b) a strategy for ensuring that adequate capital is maintained over time, including specific capital targets set out in the context of its risk tolerance, risk profile and capital requirements;
(c) plans for how capital targets are to be met and the means available for obtaining additional capital, if required;
(d) procedures for monitoring its compliance with its capital requirements and capital targets;
(e) triggers to alert senior management to, and specified actions to avert and rectify, possible breaches of capital requirements;
(f) procedures for reporting on the ICAAP and its outcomes to the firm's governing body and senior management, and for ensuring that the ICAAP is taken into account in making business decisions;
(g) policies about the effect on capital of significant risks not covered by explicit capital requirements;
(h) triggers, scope and procedures for reviewing the ICAAP under rule 1.1.7(3) and in the light of changed conditions and factors affecting the firm's risk tolerance, risk profile and capital;
(i) procedures for stress-testing and the review of stress scenarios;
(j) procedures for reporting the results of reviews; and
(k) an adequate recovery plan for restoring the firm's financial situation after a significant deterioration.
(4) In addition to the periodic review under rule 1.1.7(3), a firm's ICAAP must be reviewed by an appropriately qualified person at least once every 3 years. The person must be independent of the conduct of the firm's capital management.
Derived from QFCRA RM/2014-2 (as from 1st January 2015).