Since 2008, all BIPRU firms authorised by the FSA have been required to put together an annual Internal Capital Adequacy Assessment Process (ICAAP), a review of a company’s capital financial resources against the risks that it is subject to. This is to determine whether extra capital needs to be set aside in addition to the minimum capital requirement as set out within FSA regulations. The assessment includes:

• Identifying the major sources of risk and informing senior management of the process of ongoing assessment of the firm’s ability to meet its liabilities as they become due;
• Detailing how the firm intends to mitigate those risks;
• Performing an assessment of the amounts, types and distribution of financial resources, capital resources and internal capital that are adequate to cover the nature and level of the risks to which the firm is or might be exposed;
• Conducting stress tests to identify how much current and future capital is necessary;
• Providing all relevant information for senior management to make an informed decision on the appropriate capital level and risk management approach.

In our experience, and a point also made by the FSA, many of the ICAAPs prepared by firms have been insufficient and have not addressed all the areas required by FSA regulations. Laven Partners works with many firms to review their ICAAPs and to provide the additional qualitative input to ensure they meet the latest best market practice and regulatory expectations.

The Laven Partners team can work with you to either prepare a complete capital adequacy assessment tailored to your firm’s risk factors and capital requirements or to help with the review of your existing ICAAP for a one-off check or for annual updates, alerting you to the latest expectations and market practices to ensure that you get maximum value from the ICAAP process and satisfy the FSA’s secondary requirements.