The ICAAP – a non-exec’s view
Stephen Kingsley
Senior managing director – FTI Consulting
Non-executive director – The Cooperative Financial Services Group
Content
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What is an ICAAP?
What are the challenges at a high level?
What does a NED need to understand and probe?
Does it have any real benefits?
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What is an ICAAP?
The purpose of the ICAAP document is to inform the Board of
the ongoing assessment of the firm's risks, how the firm
intends to mitigate those risks and how much current and
future capital is necessary having considered other mitigating
factors.
The ICAAP document is also how the firm
explains to the FSA its internal capital adequacy assessment
process.
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What are the high level challenges?
• It’s hard to do one well - disciplined, rigorous,
comprehensive and demanding
• The Board needs to understand it – this takes time and, for
the NED’s, interaction between them and the executives
• It must be real – getting a consultant to do it ought to be a
non-starter
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What does a NED need to understand and
probe?
• How risk appetite – credit, liquidity, operations, capital
adequacy – is established. Is it reasonable? Is there a
credible link between the different elements?
• The linkage between the framework and decision-taking at
all levels.
• Management actions – are they credible?
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Does it have any real benefits?
• Forces the management team to document the way it
thinks about risk, and manages it
• Improves all-round understanding of what drives the
business
• Forms the basis of a dialogue around the board table
• Forces NED’s to think about governance in the firm –
particularly challenge and oversight within the executive
team, as well as around it
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