Level of application and principle of proportionality 

Application of the requirements regarding the ICAAP

The regulations on the Internal Capital Adequacy Assessment Process (ICAAP) are applied, on an institutional basis, to credit institutions, investment firms and fund management companies providing asset management services. The supervisory review and evaluation of the ICAAP undertaken by the FIN-FSA may concern an individual supervised entity, a consolidation group or an individual supervised entity within a consolidation group.

The application of the ICAAP at a consolidated level means that the parent company of a group must prepare an ICAAP plan for the entire group. On certain grounds, the FIN-FSA may, upon the application of the parent company of a consolidation group, grant an individual supervised entity within the group an exemption from the requirement to comply with the ICAAP requirements at individual level. The FIN-FSA undertakes the supervisory review and evaluation of an exempt entity only as part of the group.

ICAAP in cross-border conglomerates

Cross-border consolidation groups must also have in place a capital plan covering all the members of the conglomerate in different countries to ensure appropriate capital adequacy assessment. The cross-border consolidation group of a credit institution often has sub-consolidation groups in different countries the parent companies of which are required to prepare country-specific capital plans for the ICAAP.

The FIN-FSA considers it important that cross-border conglomerates may apply the practices and methods of centralised group governance to the ICAAP and its implementation. In international supervisory cooperation, the FIN-FSA must always be convinced that the efficient and transparent implementation of an ICAAP planned at consolidation level also ensures the stability of a Finnish credit institution or other supervised entity.

ICAAP in relation to the nature, scope and diversity of operations

The Supervisory Review and Evaluation Process is adjusted to the business priorities and requirements of the supervised entity as well as the specific features of the risk profile. This principle of proportionality is especially highlighted in the methods employed to assess risk-based capital needs. To concretise the principle of proportionality, the FIN-FSA introduces the concepts of large and small supervised entity in its ICAAP standard. Large supervised entity refers to a supervised entity with extensive and diverse operations which is a major player in the financial sector and engages in international operations and/or various fields of business. Small supervised entity refers to a supervised entity whose business is not extensive and does not constitute a diverse whole. Small supervised entities are active in Finland and have no international operations to speak of.

2 June 2009