Risk and ICAAP benchmarking survey 2020

Risk and ICAAP benchmarking survey 2020

65% of firms performed additional stress tests; 30% of firms have implemented management actions to increase levels of capital and liquidity.

  • 65% of firms performed additional stress tests; 30% of firms have implemented management actions to increase levels of capital and liquidity
  • 28% hold more capital due to COVID-19
  • Few firms have assessed the impact of all requirements in full for incoming regulation – the Investment Firm Prudential Regime (IFPR)

KPMG’s annual Risk and ICAAP benchmarking survey, Ready for change? A new era of risk, highlights that many firms have taken action to react to the risks, challenges and stresses caused by the COVID- 19 pandemic. Two-thirds (65%) of firms performed additional stress tests; with these leading to 30% taking management actions to increase resources of both capital and liquidity.

Given the scale of the impact of the pandemic, it is maybe surprising that only just over a quarter of firms (28%) saw an increase in operational risk events and 15% reported an increase in size of operational risk losses. However, it has led firms to reassess their ICAAP risks, with 58% re-assessing the inputs into operational risk scenarios; and 28% ultimately opting to hold more capital directly as a result. Interestingly, while it is the larger firms who have performed more stress testing and enacted management actions, it is the smaller ones who have made more efforts to reassess the ICAAP and hold more operational risk capital.  

David Yim, Asset Management Partner, KPMG UK, and author of the report, said:

“There is no escaping the impact COVID-19 has had on the industry, but it’s clear risk functions have played a vital role in helping firms navigate the crisis.  The widespread response by firms - 92% of participants took action to address the impact on their risk profile and financial resilience - demonstrates risk management in action and the value that an embedded risk framework brings during periods of stress.”

Despite the delay to the incoming new regulation – IFPR – which is now due to come into force in January 2022, it will still present challenges for investment firms. While most (70%) have considered the impact of the regulations, the focus has been on capital and liquidity – only 30% of firms to date have performed detailed analysis to fully assess the liquidity and K-factor requirements.

David Yim concluded:

“The other components of the IFPR around governance, remuneration, reporting and disclosure, including new ESG requirements, may contain surprises for the firms who have focused only on quantitative changes so far. Only 13% of firms have fully assessed the remuneration policy and pay-out rule requirements under the IFPR, while these new requirements will likely bring significant changes for some firms’ reward structures. While the implementation date has moved back, firms should not delay and instead use the time to adopt a more strategic than reactionary approach to realising the new regime.”


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