The European Central Bank (ECB) Banking Supervision published the guide on fit and proper assessments of members of the management body. The guide covers the management function (executive directors) and the supervisory function (non-executive directors) of all institutions under the direct supervision of ECB; these entities are also known as the significant institutions, whether credit institutions or (mixed) financial holding companies. The guide explains the processes and specifies the key expectations of ECB when conducting suitability assessments. The ECB Banking Supervision also published its supervisory priorities and risk assessment for 2022-2024, along with a related article by Andrea Enria, the Chair of the ECB Supervisory Board, and Mario Quagliariello, the Director of Supervisory Strategy and Risk.
In setting its supervisory priorities, the ECB Banking Supervision drew on an assessment of the main risks and vulnerabilities in the banking sector in Europe. The key risks and vulnerabilities relate to credit risk, market risk, interest rate risk in the banking book (IRRBB), business model, governance, climate and environmental risk, and operational risk. The identified priorities for 2022-2024 aim to ensure that banks emerge from the pandemic healthy, seize the opportunity to address structural weaknesses via effective digitalization strategies and enhanced governance, and tackle emerging risks, including climate-related and environmental risks and information technology and cyber risks. For each priority, the ECB Banking Supervision has developed a set of strategic objectives and underlying work programs, spanning the next three years. The key planned supervisory activities of the ECB Banking Supervision are as follows:
- Targeted reviews in the area of credit risk identification, monitoring, and assessment as well as the relevant dimensions of the IFRS 9 provisioning framework
- Follow-up of the Joint Supervisory Teams with affected banks and targeted investigations into internal model changes under the implementation of the European Banking Authority (EBA) repair program for internal ratings based (IRB) models—or triggered by the impact of the pandemic
- Regular monitoring of bank exposures toward vulnerable sectors, along with the targeted reviews of bank exposures to commercial real estate
- Targeted review of interest rate and credit spread assessment, monitoring, and management, in both trading and banking books
- Survey on digitalization strategies of banks
- Development and implementation of a policy on diversity and a risk-based approach to fit and proper assessments
- Bottom-up climate risk stress test and development of best practices on climate stress testing
- Thematic review of banks’ strategies and governance and risk management frameworks
- Follow-up of the Joint Supervisory Teams on banks’ disclosure practices and adherence to supervisory expectations laid down in the related ECB guide
- Data collection on outsourcing registers of banks and targeted reviews and on-site inspections on cyber resilience and information technology outsourcing arrangements
- Follow-up by the Joint Supervisory Teams on remedial action plans of banks whenever material deficiencies are identified, along with the targeted on-site inspections
- Guide to Fit and Proper Assessments (PDF)
- Supervisory Priorities and Risk Assessment
- Article on Supervisory Priorities
Keywords: Europe, EU, Banking, Fit and Proper Assessments, Guidance, Climate Change Risk, ESG, Governance, IFRS 9, Cyber Risk, Stress Testing, Basel, Regulatory Capital, Banking Supervision, TRIM, Internal Models, Credit Risk, Work Priorities, ECB
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