• Internal Liquidity Adequacy Assessment Process (ILAAP)

    We partner closely on your ILAAP to ensure it reflects your unique liquidity and funding risk profile, meets regulatory expectations, and provides a comprehensive, proportionate, and forward-looking assessment. It is integrated with your ICAAP and Recovery Plan to support smarter risk management decisions.

Key activities

An ILAAP assesses whether a bank holds adequate liquidity and has robust funding arrangements in place to support its business strategy under both normal and stressed conditions. It should be updated annually or whenever there are significant changes in the firm’s risk profile, business model, or external environment. The ILAAP must be documented in a format that is accessible to the regulator and consistent with internal governance expectations. This should be updated at least annually or in the event that significant changes to the bank’s business, risk profile or operating environment.

To ensure your ILAAP is aligned with regulatory guidance and best industry practices, we offer a structured and collaborative service model:

  • An ILAAP captures relevant aspects of the banks liquidity and funding risk management, governance, liquidity policies, funding strategy, funding plan, and liquidity contingency plan. It identifies material liquidity and funding risks, assess mitigants, and defines severe but plausible stress scenarios tailored to the bank’s business model.

    • Liquidity stress testing and cash flow forecasting over a range of time horizons, incorporating both idiosyncratic and market-wide shocks.

    • Assessment of survival periods and buffer levels under stress conditions.

    • Analysis of funding concentration risks, funding gaps, and access to contingency funding.

    • Review of the internal control framework governing liquidity risk management and the use of early warning indicators.

    • Review and analysis of your Pillar 2 liquidity requirement (e.g., intra-day liquidity), which is not already covered under Pillar 1.

    • Linkage with Recovery Plan options that support liquidity restoration in times of stress.

  • Preparation of the ILAAP document, structured to clearly articulate your liquidity risk profile, stress testing results, governance, and risk appetite framework. We ensure consistency with your ICAAP and alignment with the Recovery Plan. We also prepare supporting documents, such as liquidity a roadmap for any remediation actions.

  • The draft ILAAP is presented to the relevant maagement committee (e.g., Asset and Liability Committee and Board Risk Committee) for challenge and refinement. Final approval is obtained from the Board, with supporting packs tailored for executive discussion and regulatory submission.

What we offer

  • End to end solution

    End to end solution

    We work collaboratively with your senior team and boards, tailoring our approach to your business to develop a bespoke project plan for your ILAAP and the production of a document and regulatory returns.

  • Elective services

    Elective services

    You may just require support for specific tasks, such as scenario and risk evaluation workshops, stress testing, and training on industry guidance and best practices. Whatever support you need we’d be glad to be an extension of your team.

  • Review & assurance

    Review & assurance

    You may undertake the ILAAP internally. In this event, we will be pleased to review the inputs and outputs of the process including the ILAAP document to provide assurance that you have followed regulatory guidance and industry best practice.

Ready for your ILAAP?

Get in touch

Why choose us

  • Deep practical knowledge of the regulations and how to apply them proportionately for small and medium sized banks, ensuring you efficiently utilise capital and liquidity resources.

  • We’ve undertaken a significant number of ICAAPs for our clients so keep abreast of the latest PRA guidelines and industry best practices.

  • Effective project delivery with an efficient and high-quality engagement that saves you time and reduces the regulatory burden. This includes k-alm® our software as a service that includes robust, in-built stress testing models.

  • What really defines our success is the strong, strategic partnerships we form with our clients. We listen carefully to their requirements to achieve positive results and make a lasting impact. Time and again clients comment on our responsiveness and the accessibility of our senior team.

  • A professional and fit for purpose ILAAP document that has a a clear flow and structure. It assists with the management and mitigation of those risks and ensures adequate systems and controls are designed and implemented.

  • Our clients are able to use the inputs and final ILAAP document on an ongoing basis as part of their wider risk-management practices.

What are we talking about

ILAAP
Regulatory updates, Stress testing, ILAAP
CP5/26: Modernising the Liquidity Policy Framework
Regulatory updates, Stress testing, ILAAP

The PRA’s latest consultation (CP5/26) marks a notable evolution in the UK liquidity framework.

Rather than increasing quantitative requirements, focus is shifting toward liquidity usability and operational readiness, reflecting lessons from recent market events and the accelerating impact of digital banking on deposit behaviour.

Read more →
Regulatory updates, Stress testing, ILAAP
Regulatory updates, Climate Risk, Stress testing, ICAAP, ILAAP
Evolving Climate Risk Expectations for UK Banks (SS5/25 via PS25/25)
Regulatory updates, Climate Risk, Stress testing, ICAAP, ILAAP

On 3 December 2025, the PRA published its final Policy Statement PS25/25 on climate-related financial risks. The final expectations now sit in Supervisory Statement SS5/25 ‘Enhancing banks’ and insurers’ approaches to managing climate-related risks’, which immediately replaces the old SS3/19. The changes enhance requirements in areas such as governance, risk management, scenario analysis, data, and disclosure.

Read more →
Regulatory updates, Climate Risk, Stress testing, ICAAP, ILAAP
Liquidity Risk, Risk management, ILAAP, Stress testing
How Severe Should a Liquidity Stress Test Be?
Liquidity Risk, Risk management, ILAAP, Stress testing

Liquidity stress testing remains a cornerstone of effective risk management and regulatory compliance for banks. However, a persistent challenge lies in interpreting what constitutes a “severe but plausible” stress scenario, particularly in the context of evolving depositor behaviours and increasing digitalisation of banking.

This paper aims to address this challenge by examining how stress scenarios can be robustly calibrated using empirical evidence backed by statistical methods, with particular focus on liquidity stress testing informing the Internal Liquidity Adequacy Assessment Process (ILAAP).

Read more →
Liquidity Risk, Risk management, ILAAP, Stress testing
Stress testing, Regulatory updates, Risk management, ILAAP, ICAAP
The 2025 ICAAP Scenarios — Stress Testing for Small- and Medium-sized Banks
Stress testing, Regulatory updates, Risk management, ILAAP, ICAAP

Arriving hot on the heels of our earlier article on what the 2025 Bank Capital Test Means for small- and medium-sized banks, the Prudential Regulation Authority (PRA) has quietly published an accompanying set of stress parameters. These include both rates-up (supply shock) and rates-down (demand shock) scenarios, and can serve as a useful benchmark for firms not participating in concurrent stress testing. They may be particularly helpful for use in internal stress testing exercises, including within the Internal Capital Adequacy Assessment Process (ICAAP).

Read more →
Stress testing, Regulatory updates, Risk management, ILAAP, ICAAP
Stress testing, Regulatory updates, ICAAP, Risk management, ILAAP
Stress Signals: What the 2025 Capital Test Means for Small- and Medium-sized Banks
Stress testing, Regulatory updates, ICAAP, Risk management, ILAAP

With the Bank of England’s 2025 Bank Capital Stress Test now in motion, small and medium-sized banks should take note. While only the large banks participate directly, it is nonetheless of interest for other firms as they approach their next stress testing exercise. The latest publications bring stress parameters up to date from the 2024 Desk-based Stress Test, and some elements have changed. This article explores what banks can take away from the latest stress programme and how to reflect those developments in their own risk management processes.

Read more →
Stress testing, Regulatory updates, ICAAP, Risk management, ILAAP
Stress testing, ICAAP, ILAAP, Risk management
PRA’s 2024 ICAAP Stress Test Scenarios for Non-Systemic Banks
Stress testing, ICAAP, ILAAP, Risk management

On 27th June 2024, the Prudential Regulation Authority (“PRA”) published the ICAAP Scenarios for non-systemic UK banks, which are the supply shock scenario and the demand shock scenario. This article summarises the key factors of the scenarios and provides specific points on how small- and medium-sized banks should approach there stress testing design processes, with relation to the 2024 ICAAP Scenarios.

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Stress testing, ICAAP, ILAAP, Risk management
ILAAP
ILAAP, Stress testing & Pillar 2
ILAAP

A key purpose of the Internal Liquidity Adequacy Assessment Process (ILAAP) is to document and demonstrate overall liquidity adequacy. The document informs the bank’s Board and regulators of the ongoing assessment and quantification of the bank's liquidity and funding risks, how the bank intends to mitigate those risks and how much current and future liquidity is required.

Read more →
ILAAP

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k-alm® is a software-as-a-service solution that we’ve specifically designed to help small and medium-sized banks conduct stress tests, evaluate funds transfer pricing, and manage liquidity and interest rate risks, without the cost or complexity that is often associated with enterprise solutions.

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