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July 19, 2018

EBA, in accordance with its Pillar 2 Roadmap, published the final revised guidelines to further enhance institutions' risk management and supervisory convergence in the supervisory review and examination process (SREP). The package includes three guidelines that focus on interest rate risk in the banking book (IRRBB) and on stress testing, particularly its use in setting Pillar 2 capital guidance.

Final report on the guidelines on the revised common procedures and methodologies for SREP and supervisory stress testingThe changes to the SREP Guidelines do not alter the overall SREP framework and mainly aim to enhance the requirements for supervisory stress testing and explain how stress testing outcomes will be used in setting Pillar 2 Guidance. A consolidated version of the revised SREP guidelines has been published along with the Final Report. The revised guidelines replace the existing guidelines and will be applicable from January 01, 2019. The changes and additions to the SREP guidelines, which are outlined in the Final Report, include

  • A section on Pillar 2 Capital Guidance
  • Supervisory stress testing requirements
  • A clarification on the scoring framework
  • Consistency checks with relevant EBA standards and guidelines, in the areas of internal governance and institution-wide controls assessment

Revised guidelines on the management of interest rate risk arising from non-trading activities. The revised IRRBB guidelines reflect developments in BCBS standards and clarify internal governance and supervisory outlier tests requirements during the first phase of the European implementation of the Basel standards. The revisions are, therefore, intended to act as a bridge to the future requirements, which will be incorporated in the CRD V/CRR2 framework. The revised guidelines replace the existing guidelines and will be applicable from June 30, 2019 with transitional arrangements for specific provisions until December 31, 2019.

Revised final guidelines on stress testing of institutions. The revised guidelines update the 2010 guidelines of EBA to reflect the industry practices and the incorporation of recovery planning. The revised guidelines provide detailed guidance on the way institutions should design and conduct a stress testing program; they also feature a common taxonomy on stress testing. The revised guidelines replace the existing guidelines and will be applicable from January 01, 2019. 

The comprehensive EU SREP framework, which was introduced by EBA in 2014, is now well-established and in use by supervisors across EU. Following the global regulatory developments, as well as the supervisory convergence assessments of EBA, specific changes were needed to reinforce the framework as set out in the Pillar 2 Roadmap of EBA. 

 

Related Links

Effective Date: January 01, 2019 (Stress Testing Guidelines); June 30, 2019 (IRRBB Guidelines) 
Keywords: Europe, EU, Banking, Stress Testing, SREP, IRRBB, Guidelines, Pillar 2, EBA

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