In early 2011 the Guernsey Financial Services Commission held a workshop for non-executive directors relating to the Internal Capital Adequacy Assessment Process (ICAAP). This update summarises the key take-home points from the workshop for non-executive directors.
- The ICAAP must reflect the key risks of the Guernsey bank. Since the turmoil of the financial crisis, the focus of both the commission and the boards of local subsidiaries has shifted away from the financial strength of the group and directly onto the self-sustainability of the Guernsey subsidiary.
- A key aspect of a non-executive director's role is to ensure that the main risks in the Guernsey bank are identified, addressed, controlled and where necessary allocated an appropriate level of capital.
- A balance must be achieved between identification and understanding of risk in the Guernsey bank by the executive directors and non-executive directors, and reliance being placed on the group's intellectual support. This is particularly relevant for small subsidiaries of large, systemically critical international banks. While it is likely that the group has the technical wherewithal to conduct specific quantitative analysis, it is the responsibility of the local board to identify and understand the risks in the Guernsey bank and the results of any analysis, and to allocate capital as necessary.
- The ICAAP must be integrated into the bank's risk management systems and should be a dynamic work stream. It should not be a one-off, 'tick-the-box' style exercise that does not truly reflect the risks and controls in the Guernsey bank.
For further information on this topic please contact Ian Kirk at Collas Crill by telephone (+44 1481 723 191), fax (+44 1481 711 880) or email ([email protected]).