The FSA has published two newsletters:

  • Pillar 2 – some initial observations for small investment firms
  • Pillar 2 – initial observations for small to medium sized credit institutions

In the newsletters the FSA sets out its observations on the responses received from small investment firms and small to medium sized banks and building societies on the Internal Capital Adequacy Assessment Process (ICAAP). The FSA has observed the following:

  • Many of the ICAAPs received have been of poor quality, with only a minority being sufficient to enable the FSA to carry out a supervisory review and evaluation process (SREP) without asking firms to improve or re-submit the ICAAP.
  • The FSA found that firms are taking longer to develop an ICAAP than expected and this is resulting in firms having to delay their intended CRD implementation date.
  • The lack of clarity in firms' Pillar 1 and Pillar 2 figures. The FSA would prefer appendices to the ICAAP that explain and support calculations and conclusions.
  • The FSA states that a firm's ICAAP needs to be signed off by its board and firms need to demonstrate both that the ICAAP plays an integral part in a firm's processes and that its board and senior management are actively involved in development or challenge of the ICAAP.
  • The FSA believes that firms can benefit from early discussion on progress of the ICAAP with their FSA supervisor.
  • The FSA urges firms to consider its detailed observations when preparing their ICAAPs and advises that it will provide further updates as issues arise.
  • Firms are required to have an ICAAP in place at the date they adopt the Capital Requirements Directive (CRD), the latest date for which is 1 January 2008.

View Pillar 2 - small investment firms, (PDF 30.8KB), 31 August 2007

View Pillar 2 - small to medium sized banks and building societies, (PDF 24.2KB), 31 August 2007