Pillar 2 — ICARA.

What this module does

Pillar 1 answers a standardised question: what does the regulation say this firm must hold? Pillar 2 answers a harder one: what could actually go wrong here, and is the firm holding enough against it?

The ICARA — Internal Capital and Risk Assessment — is the firm's own view. REGREP models four risk categories against your own parameters, compares the result with the Pillar 1 requirement, and shows where the internal assessment exceeds the standardised one. That difference is the additional capital for harms the K-Factors do not capture.

Before you start

Solutions → Regulatory Reporting → Prudential Reporting Engine → Pillar 2 — ICARA.

1. 1Create a session with the + button. Pillar 2 has no Archived Sessions tab — a deleted session is gone.

Creating a session

1. 1Session Selection — choose the Pillar 1 session that supplies the baseline data. This is the field that matters most.

The session workspace

1. 1Session parameters and the navigation to each risk module.
2. 2Own funds available, against the threshold requirement before and after Individual Capital Guidance.
3. 3The K-Factor comparison matrix — Pillar 2 requirement, Pillar 1 requirement, and the additional capital for harms not captured.

The bar chart at the top left compares the three Pillar 1 requirements. The pie chart below shows which risk category drives the Pillar 2 requirement — in a typical investment firm, market risk and operational risk dominate.

EXPORT SESSION RESULTS in the top-right downloads a complete summary of the assessment.

The pages in a session

Session Settings

1. 1SAVE applies the parameters to the session. Nothing recalculates until you re-run each risk module.

Data and volatility

The Data page holds the exposures the risk models work from, split between Counterparty Risk (CPR) and Market Risk (MR) tabs.

• Where a Pillar 1 session is linked, both are populated automatically from it. This is the normal case and nothing needs uploading.

• Where it is not, use the Upload CPR and Upload MR fields and select IMPORT.

• The CPR Data tab shows top exposures for the trial balance, on and off balance sheet, and trading counterparties. The MR Data tab shows banking and trading book exposures with their calculated SMA and EWMA volatility.

The Volatility page lets you upload your own historical price or asset volatility data, which then replaces the defaults for the asset classes it covers. Where no file is uploaded, the defaults from Session Settings apply throughout.

Operational risk

Operational risk is the part of the ICARA that is genuinely yours. The platform supplies a starting register; the judgement about what could go wrong in your firm, how likely it is and how bad it could be, is not something software can supply.

1. 1The action menu — add a custom risk, import the default risk bank, calculate, or export to Excel.
2. 2Input and Output tabs. Output holds the charts and the OpVaR summary.
3. 3K-Factor mapping — assigns each scenario to the K-Factor whose harm it represents, or to K-Other.

Building the register

1. Open the action menu (…) and select DEFAULT RISK BANK to import the standard scenario templates.

2. Add anything specific to your firm with ADD CUSTOM RISK → + ADD NEW. Each scenario needs a name, a likelihood, a typical impact and an extreme but plausible impact.

3. Review every imported scenario. A default scenario with default numbers is not an assessment.

4. Map each scenario to a K-Factor, or to K-Other where no K-Factor captures the harm.

5. Select CALCULATE OPERATIONAL RISK.

Market and counterparty risk

1. 1CALCULATE MARKET RISK runs or refreshes the model; EXPORT EXCEL downloads inputs and outputs.
2. 2Input shows exposures and the VaR at your chosen confidence level; Output holds the analytics.

The Input tab summarises exposure size and VaR for the banking book and the trading book, then breaks the exposures down by currency, asset type and foreign exchange position. The Output tab visualises the same data: VaR by asset class, by currency, by commodity, and a heat map of the twenty largest VaR exposures.

Counterparty risk

The C'party Risk page works the same way. The Input tab groups exposures by currency, showing counterparty counts, converted exposure, expected loss and Credit VaR; the eye icon on any row drills into the individual counterparties behind it. The Output tab summarises average probability of default, expected loss and CVaR, with bar charts by currency.

Select CALCULATE COUNTERPARTY RISK to run the model. Results export to Excel or PDF.

Internal liquidity adequacy

1. 1HISTORICAL LIQUIDITY opens the log of liquidity positions by date; CALCULATE AVAILABLE LIQUIDITY recalculates eligible liquid assets.
2. 2The Pillar 1 basic requirement against the Pillar 2 internal assessment.

The Pillar 1 basic liquidity requirement is one third of the Fixed Overhead Requirement. The Pillar 2 figure is your own assessment, and will normally be higher — it is meant to reflect what the firm would actually need in stress, not a formula.

Use HISTORICAL LIQUIDITY → + ADD NEW to record liquidity positions by date and amount, building the history a supervisor will expect to see.

K-Factors summary

The K-Factors page is where the assessment resolves. It maps every operational risk scenario, market risk input and counterparty exposure onto the individual K-Factor categories, and sets the Pillar 2 own funds requirement beside the Pillar 1 KFR.

The bottom row — the additional capital requirement for harms not captured by the K-Factors — is the output of the whole exercise, and the number your ICARA document has to justify.

A complete ICARA cycle

1. Complete the Pillar 1 session for the same reporting date.

2. Create the Pillar 2 session and link that Pillar 1 session.

3. Set every parameter on Session Settings and save.

4. Review the Data page, then select CALCULATE OWN FUNDS REQUIREMENT.

5. Upload custom volatility data if you use it.

6. Build the operational risk register: import the default bank, add your own scenarios, review every number, map to K-Factors, calculate.

7. Calculate market risk and counterparty risk.

8. Record liquidity positions and calculate available liquidity.

9. Review the K-Factors summary and the additional capital requirement.

10. Export the session results and file them with your ICARA document.

Troubleshooting

Document control

REGREP is an independent software provider. This manual describes how to operate the platform and is not legal, tax or regulatory advice. Confirm scope, thresholds and submission dates with your competent authority before you file.