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JFSC Findings for ICAAP themed examination programme

18/03/2020

JFSC publish the key findings from THEIR thematic examination programme for Internal Capital Adequacy Assessment Process (ICAAP) after visiting four Jersey Incorporated Banks (JIBs)

BACKGROUND

Over recent years, our review of the Internal Capital Adequacy Assessment Process (ICAAP) for Jersey Incorporated Banks (JIBs) has been desk-based. In 2019 The JFSC performed onsite examinations as part of these Supervisory Review and Evaluation Process (SREP) assessments.

The first requirement for the ICAAP covers an assessment of capital has been expanded in Jersey, and it now also includes a liquidity adequacy assessment, and the recovery plan. The supervisory expectations for the content, production and use of the ICAAP are set out in the Pillar 2 Guidance Note (Pillar 2 in Jersey), and these are underpinned by the requirements of the Deposit-taking Business Code of Practice, in particular, principle 3 (risk management) and principle 5 (financial resources).

WHAT WAS LOOKED AT

The scope of the thematic examination focused on the following three areas, concerning the content, production and use of the ICAAP:

  1. Governance
  2. Operational Risk and
  3. Recovery Planning.

ON THES MATTERS

  1. GOVERNMENT
    1. THE review of ICAAP governance has given insights into the functioning of the Board generally, the role of non-executives, organisational culture, and sign-off procedures more widely.
  2. OPERATIONAL RISK
    1. The JFSC explored how
      1. the banks assess their operational risk exposures,
      2. how these are reported, and
  • the extent to which mitigants are put in place.
  1. There is a growing school of thought that the next crisis may stem from the crystallisation of operational risk. This extensive area can include
    1. financial crime risk,
    2. regulatory risk,
  • fraud,
  1. cyber
  2. and a range of other risk types.
  1. Recovery planning
    1. Recovery planning was introduced in the Pillar 2 Guidance Note in 2017. Therefore, The JFSC wanted to see how well-embedded recovery planning is becoming and how it is being used to complement stress testing and reverse stress testing.
    2. Where appropriate, other risks relevant to an individual bank’s business model was also explored and assessed during the examination. In addition to the core focus areas set out above, we identified common findings in relation to stress testing and reverse stress testing. The SREP assessments were completed desk-based; capital minima and Liquidity Coverage Ratio (LCR) adjustments were agreed with banks individually, and individual examination reports were issued, setting out findings.

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