Capital and liquidity requirements, also known as prudential requirements, encompass more than just numbers and calculations. They also extend to governance, risk management, controls, firms’ own assessment of their capital and liquidity needs, how firms would cope in a crisis and how they would be wound down.
Ownership over these areas should ultimately rest at Board level. However, within the firm it is often shared amongst finance, risk and compliance, which can leave firms exposed. It is therefore vital to ensure that all your prudential policies and procedures are joined up and that everyone knows their roles and responsibilities.
If you get it wrong or do not give areas such as ICAAP enough attention, it could be costly as you may be required by regulators to hold more capital or liquid assets. In a worst case scenario, this could restrict the amount of business you are able to do and therefore impact on your shareholders’ return on equity.
Our team at Bovill has a wealth of experience gained both at the regulator and in-house, our prudential services team can support your firm in the following ways:
- Calculating and reviewing Pillar 1 capital requirements
We can review your capital requirements, and can assist with capital planning arising from changes in your business, including for example, takeovers/mergers or a re-structure of your balance sheet. If you need to issue more capital, we can advise on the most appropriate capital composition in respect of regulatory requirements and also assist with the application to the regulator. The European Commission is about to finalise new rules on investment firms’ Pillar 1 capital requirements. We can help you assess the impact of these changes on your business.
- Preparation and review of regulatory reporting
Our team of experienced, qualified accountants have the skills and software to make reporting as painless as possible for you. In particular, we can prepare or review GABRIEL, COREP and Annex IV reports. Having recently carried out a s166 skilled person review covering capital, liquidity and COREP reporting for the PRA, we know just what the regulator is expecting to see.
- Review of ICAAPs and stress and scenario testing
Bovill can help you ensure your ICAAP, stress testing and stress scenarios demonstrate sound risk management and control processes. Whether you’re a bank or an investment firm, this is key to avoiding the imposition of, or to minimising, capital add-ons.
- Review of ILAAs, ILAAPs, liquidity requirements and stress and scenario testing
We can review and advise on your liquidity risk, ILAA or ILAAP documents, your contingency funding plan or liquidity contingency plan and ensure compliance with the relevant regulations. We can also help you prepare for supervisory reviews and any regulatory interventions.
- Review of wind down plans, recovery plans and resolution packs
Our specialist team’s experience can help you make sure that your wind down plan (if you’re an investment firm), or Recovery Plan and Resolution Pack (RRP) (if you’re a bank), is complaint. This is an area that is of particular interest to the regulator and also helps you build robustness into your firm’s business planning activities.