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Risk and ICAAP benchmarking survey 2017

Risk and ICAAP benchmarking survey 2017

UK asset managers need to brace for capital increases to the tune of 82 percent.

David Yim - Partner


KPMG in the UK


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Asset managers’ risk assessments are falling short of regulators’ expectations according to our 2017 benchmarking survey: Picking up the pace.

Our report analyses the survey responses and Internal Capital Adequacy Assessment Process (ICAAP) documents from 32 investment firms, managing clients’ assets ranging from £5 million to £1 trillion.

Over the last five years every asset manager visited by the Financial Conduct Authority (FCA), in relation to its risk controls, has been asked to hold extra capital. On average the add-on has been a staggering 82 percent. For a mid-sized UK firm this could equate to £31 million.

Some firms have seen their share prices fall and had to cancel dividends or ask parent companies for a cash injection following an increased capital requirement. As the regulator continues to sharpen its focus on this area, FCA visits and subsequent capital add-ons, are happening with increasing frequency.

According to David Yim, audit partner at KPMG in the UK, “firms need to work fast to bridge the gap between the capital levels considered adequate by the internal team and the FCA, otherwise they could find themselves with a sudden and drastic hit to available capital. Every pound held in capital is a pound that can’t be invested in growth, digital or implementing regulation”.

Our 2017 report finds that the regulator is increasingly turning its attention to smaller firms that typically get assessed entirely on paperwork, without any face-to-face interviews. That leaves any smaller firms without robust and documented risk strategies exposed to a potential capital hit.

David warns that: “Since we began this survey in 2015 we have seen a continual improvement in risk management across the industry, however there is still a lot of work to be done. Given the potential damage to business, and in an increasingly tough regulatory and commercial environment, firms need realistic, defendable capital assessments, or else the regulator will soon do it for them.”

Are investment firms becoming more sophisticated – or just responding to pressure from the regulator?

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