ICAAP and SRP Guidelines for Foreign Bank Branches

The Monetary Board approved supplemental guidelines for foreign bank branches’ Internal Capital Adequacy Assessment Process (ICAAP) in relation to SRP.
The guidelines apply in accordance with Circular No. 639 dated 15 January 2009.
The Circular requires a proportionate application of the guiding principles in Circular No. 639 to foreign bank branches.
The Circular directs reference to Circular No. 639 for the suggested format of the ICAAP document.
The Circular ties BSP review to Item 2.6 on the Guidelines on the BSP’s Supervisory Review Process in Circular No. 639.

BSP expects foreign bank branches to assess capital in relation to business plans and operations in the Philippines.
BSP requires foreign bank branch ICAAPs to cover risks arising from domestically-oriented scenarios.
BSP looks for explanations showing that the branch’s ICAAP processes and methodologies are appropriate to its business in the Philippines.
BSP focuses supervisory interest on how the foreign bank branch determines capital adequacy relative to operations in the Philippine context.

The guiding principles in Circular No. 639 apply to foreign bank branches on a proportionate basis.
BSP expects variation in foreign banks branches’ ICAAPs depending on the nature, size, and complexity of their business in the Philippines.

A foreign bank branch’s ICAAP must cover risks arising from domestically-oriented scenarios.
A foreign bank branch’s ICAAP must take into account the branch’s specific circumstances, including regulatory commitments tied to special licenses or authorities.
A foreign bank branch must include how capital is allocated to the branch and the factors influencing that allocation.
A foreign bank branch must illustrate how capital is managed and how capital can be made available in a timely manner when needed.
A foreign bank branch must be able to explain that use of head office/parent bank methodology in its ICAAP is appropriate to its Philippine operations.
BSP’s review includes the extent to which the head office/parent bank ICAAP covers risks of the branch in the Philippines, including possible impacts of scenarios affecting the head office/parent bank’s operations and the branch’s capital adequacy.

The ICAAP document of a foreign bank branch must be submitted to BSP’s Central Point of Contact Department (CPCD) on or before 28 February of each year.
A “trial” ICAAP document must be submitted to the CPCD on or before 30 September 2011.
Banks may follow the suggested format in Circular No. 639 for the ICAAP document.
Banks are allowed to modify the ICAAP format and content if certain sections or suggested content do not apply or if presenting information in another way better reflects the branch’s internal capital assessment process.

BSP’s supervisory review refers to the ICAAP developed at the level of the head office/parent bank and the home supervisor’s assessment.
BSP will evaluate how far the head office/parent bank ICAAP covers risks of the branch in the Philippines.
BSP will consider the possible impact of scenarios primarily affecting the head office/parent bank’s operations on the branch’s operations and capital adequacy.

The Circular is adopted on 28 July 2011 by the Monetary Board.
JUAN D. DE ZUNIGA, JR., Officer-in-Charge, signs for the Monetary Board.
The Circular implements supplemental guidelines for foreign bank branches’ ICAAP and the related SRP within the framework of Circular No. 639 dated 15 January 2009.