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    EBA Issues Guidelines on Approach to 2020 SREP in Light of Pandemic

    July 23, 2020

    EBA published guidelines for the pragmatic supervisory review and evaluation process (SREP) for 2020, in light of the COVID-19 pandemic. The guidelines have been published following the publication of an EBA statement, in April 2020, on additional supervisory measures in relation to the COVID-19 pandemic. These guidelines complement the SREP guidelines (EBA/GL/2014/13), are addressed to competent authorities, and aim to demonstrate how flexibility and pragmatism could be exercised in relation to the SREP framework in the context of this crisis. The guidelines establish a special procedure for SREP for 2020 and will apply from July 23, 2020.

    The risk‐driven approach put forward by these guidelines builds on the existing requirements of the Capital Requirements Directive and the SREP guidelines and adapts them to the exceptional circumstances of the COVID‐19 pandemic; this approach ensures the exercise of supervisory judgment to the greatest possible extent. These guidelines focus on the key aspects of SREP, such as the pragmatic SREP, the overall SREP assessment and scoring, the supervisory measures, and the conduct of SREP in cross‐border context. In terms of the supervisory measures applied in the 2020 cycle, the guidelines express a preference for qualitative measures in the first instance. Due to pragmatic nature of the 2020 SREP, Pillar 2 requirements could remain stable, if it is appropriate, and should be met by the institution at all times.

    The guidelines ensure the possibility for competent authorities to leave Pillar 2 guidance stable in 2020, if so warranted by the current uncertainties. Similar to the capital buffers that are designed to absorb losses and ensure continued lending to the economy during a downturn, the usability of the Pillar 2 guidance is important to ensure that institutions can provide the necessary support to households and the corporate sector. These guidelines acknowledge the usability of the Pillar 2 guidance in the current circumstances and provide for an enhanced supervisory follow‐up to ensure eventual restoration. Regardless of the periodic SREP assessment, competent authorities are encouraged to apply supervisory measures, where needed, to address immediate concerns arising from the continuous assessment of risks. 

    According to Article 16(3) of Regulation 1093/2010, competent authorities must notify EBA whether they comply or intend to comply with these guidelines, along with the reasons for non‐compliance (in case of non-compliance), by September 25, 2020. In the absence of notification by this deadline, EBA will consider the competent authority to be non‐compliant with these guidelines. Competent authorities may continue to apply the SREP guidelines as they currently stand, if they wish to do so. However, there is a need to ensure that competent authorities have the option to apply instead for the alternative specific process for the 2020 exercise, which may be necessary in response to the COVID‐19 pandemic and is set out in a harmonized manner in these guidelines. Due to the urgency of the matter and the limited focus of these guidelines on COVID‐19 pandemic‐related features as well as the continued validity of the SREP guidelines as they stand, EBA decided not to carry out public consultations or a cost–benefit analysis.

     

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    Keywords: Europe, EU, Banking, COVID-19, SREP, Pillar 2, Cross-Border, Capital Buffer, Risk Assessment, Credit Risk, Liquidity Risk, CRD, EBA

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