Guidelines on the Internal Liquidity Adequacy Assessment Plan (ILAAP)

ILAAP Governance The ILAAP process should remain the responsibility of the Board of Directors and Senior Management of the bank. The ILAAP should be well integrated into the bank’s processes and decision-making culture. In this regard, banks are required to ensure the following: i. The Board of Directors has the ultimate responsibility for the implementation of the ILAAP, and the Board of Directors or its delegated authority is required to approve an ILAAP governance framework with a clear and transparent assignment of responsibilities, adhering to the segregation of functions. The governance framework should include a clear approach to the regular internal review and validation of the ILAAP. ii. All of the key elements of the ILAAP should be approved by the Board of Directors or its delegated authority, and be consistent with the risk appetite set by the Board of Directors, and with the bank’s approach for measuring and managing liquidity and funding risks. iii. The Board of Directors or its delegated authority, Senior Management and relevant committees are required to discuss and challenge the ILAAP effectively. iv. Each year, the Board of Directors or its delegated authority is required to provide its assessment of the liquidity adequacy of the bank, supported by ILAAP outcomes and any other relevant information, by reviewing and approving the bank’s ILAAP. 5.2 Strategic and Liquidity Planning i. The ILAAP should support strategic decision-making and, at the same time, be operationally aimed at ensuring that the bank maintains adequate liquidity on an ongoing basis, thereby promoting an appropriate relationship between risks and rewards. All methods and processes used by the bank to steer its liquidity as part of the strategic or operational liquidity management process are expected to be approved, thoroughly reviewed, and properly included in the ILAAP and its documentation. The quantitative and qualitative aspects of the ILAAP should be consistent with each other and with the bank’s business strategy and risk appetite. ii. The ILAAP should be aligned with the business, decision-making and risk management processes of the bank. It should also be consistent and coherent throughout the group. 5.3 Documentation Banks are required to maintain sound and effective overall ILAAP architecture and documentation of the interplay between the ILAAP elements and the integration of the ILAAP into the bank’s overall governance and management framework. 5.4 Comprehensive Risk Quantification The ILAAP should ensure that risks, that a bank is or may be exposed to, are adequately quantified. The bank is required to do the following: i. Implement risk quantification methodologies that are tailored to its individual circumstances, i.e. they are expected to be in line with the bank’s risk appetite, market expectations, business model, risk profile, size and complexity. ii. Determine sufficiently conservative risk figures, taking into consideration all relevant information. iii. Ensure adequacy and consistency in its choice of risk quantification methodologies. iv. Ensure that key parameters and assumptions cover, among other things, confidence levels and scenario generation assumptions.