Supervisory expectations of the ICAAP and ILAAP continue to evolve. The latest guidance papers from the European Central Bank (ECB) and the European Banking Authority (EBA) on them seek to enhance their thoroughness and explore how “internal” the processes are – that is, ensuring that they are fully embedded within a bank’s operations and business decision-making, and integrated with the supervisory and risk management framework, and “strategic steering”. Banks are being challenged to move beyond a pure compliance mindset and invest resources to enhance how strategy and risk are jointly managed within the business.
Deloitte’s third Banking Union Supervisory Survey examines the current approach of 52 banks from 15 Eurozone countries supervised by the ECB’s Single Supervisory Mechanism (SSM), and in particular explores whether Boards and senior management teams are sufficiently focused on the demand from supervisors, and the benefit to their businesses, of better integration and embedding of the ICAAP and ILAAP.
In this paper, we consider why, given the potential benefits, SSM supervised banks have not yet made the required investment to better integrate and embed the ICAAP and ILAAP, and what could be done to catalyse change. We identify a number of enablers to achieve alignment between the objectives of the bank and its supervisors. These include risk data and IT infrastructure, risk-adjusted performance measurement, alignment of management incentives, and governance. We further examine the management of non-financial risk (NFR) as a case study, an area where supervisors are developing their expectations.
The Deloitte Centre for Regulatory Strategy is a powerful resource of information and insight, designed to assist financial institutions manage the complexity and convergence of rapidly increasing new regulation. With regional hubs in the Americas, Asia Pacific and EMEA, the Centre combines the strength of Deloitte’s regional and international network of experienced risk, regulatory, and industry professionals – including a deep roster of former regulators, industry specialists, and business advisers – with a rich understanding of the impact of regulations on business models and strategy.
The Deloitte BUCF was established to provide an expert team to support banks with tackling the challenges, as well as respond to the needs of, the SSM in the most efficient and effective manner. It works closely with Deloitte’s Single Resolution Mechanism team based in Brussels.