ICAEW’s framework for assuring bank regulatory ratios

Today we are publishing our framework for assuring bank capital numbers. Its aim is to deliver confidence in the key measures of resilience for banks.

Capital ratios are one of the most important ways to assess a bank’s stability, but they are currently unaudited. It is crucial that the public, regulators and banks themselves can trust these numbers, and developments since the financial crisis have heightened the importance of this.

The guidance is the result of a project we started in 2014, when we were asked by Andrew Bailey, then Chief Executive of the Prudential Regulatory Authority, to consider how assurance could be used to underpin trustworthiness and credibility in banks’ capital ratios and risk-weighted assets.

The framework is designed to be applicable to all regulatory ratios, including capital, liquidity and leverage. It was drawn up in consultation with banks, auditors and regulators. We listened carefully to the feedback we received on our 2015 discussion paper, and consulted again in a 2015 exposure draft which received broad support.

The guidance proposes a modular framework, reflecting the range of circumstances in which assurance work may be provided. It is intended to provide flexibility for users and is neutral to the type of work being performed and who performs it. This means that although the framework has been designed for banks, it can also be applied to other businesses facing prudential regulation, such as investment firms. It has been developed for international use, and is not specific to a particular jurisdiction or regulatory regime.

The guidance is available here.