European Central Bank Banking Supervision outlined an enhanced approach to assessing banks’ internal capital adequacy assessment processes (ICAAP) from 2025 onwards, positioning the ICAAP assessment more firmly within the Supervisory Review and Evaluation Process (SREP) as part of its broader SREP reform to make supervision more efficient, effective and risk-based. Joint Supervisory Teams will apply a multi-year assessment strategy to review ICAAP areas over several years in line with the ECB’s risk tolerance framework, while assessing capital plans annually under baseline and adverse scenarios. Supervisors will also receive updated or new ICAAP documentation throughout the year as it becomes applicable, allowing banks to focus submissions on changes rather than re-submitting full annual packages and enabling earlier identification of issues. The assessment continues to cover the areas set out in the ECB’s 2018 ICAAP Guide, spanning ICAAP integration (governance, controls and use in decision-making), capital management (planning, stress testing and economic perspective), risk controls (risk management and quantification) and data quality and IT infrastructure. Following the 2023 external review of supervisory processes, the ICAAP will no longer be used as the starting point for calibrating Pillar 2 requirements on the basis of individual risks, but the ICAAP’s soundness can still materially affect capital requirements set through the SREP.
European Central Bank - Banking Supervision 2025-05-14
European Central Bank Banking Supervision strengthens ICAAP assessment in SREP with multi-year reviews and year-round documentation updates
The European Central Bank Banking Supervision will enhance its assessment of banks' internal capital adequacy processes (ICAAP) from 2025, integrating it more within the Supervisory Review and Evaluation Process (SREP). Joint Supervisory Teams will use a multi-year strategy to review ICAAP areas, aligning with the ECB’s risk tolerance framework, while assessing capital plans annually. ICAAP will no longer start the calibration of Pillar 2 requirements, but its soundness will still influence capital requirements through the SREP.