EBA published a report on convergence of supervisory practices in 2019. The report provides an update on the policy developments and activities supporting supervisory convergence, along with the supervisory convergence plan for 2020. Overall, in 2019, EBA saw considerable achievements in supervisory convergence and good level of engagement in supervisory colleges across EU. The report finds that the key topics for supervisory attention identified in the 2019 convergence plan have been largely implemented in supervisory work across EU. The key topics that have been identified in the supervisory convergence plan for 2020 include information and communication technology (ICT) risk and operational resilience, loan origination standards, profitability, and capital and liability management.
The report finds that the four key focus areas identified in the convergence plan for 2019—internal governance, ICT risk and operational resilience, non-performing exposures, and benchmarking of internal models—have been largely implemented in supervisory work across EU, although to different degrees. With respect to the Supervisory Review and Evaluation Process (SREP) practices and the associated EBA recommendations, the assessment found improvements and increasing consistency in the application of Pillar 2 requirements. The requirement for the establishment of a nonperforming exposure (NPE) strategy and related operational plan was well-implemented, particularly for institutions with relatively high NPE/non-performing loan levels. Refinement is expected, mainly in the quality of reduction plans, particularly for smaller and less complex institutions. Additional areas that will require further attention include the ongoing assessment of the individual and collective suitability of the members of the management bodies and the formalization of the ICT risk appetite and how it cascades down the organization ICT risk governance and controls.
This report is part of the work of EBA to actively foster and promote supervisory convergence across EU to bring about strong supervisory standards and a common supervisory culture. One of the core elements covered in this report is the practical application of the Single Rulebook by competent authorities in their supervisory activities. For the first time, the report incorporates information on convergence in supervisory colleges that used to be included in a separate report in the past. Supervisory colleges made considerable efforts in 2019 to conduct thorough group risk assessments and the areas that received the most supervisory attention correspond to the key topics that EBA put forward in its 2019 convergence plan. Further convergence is required in the assessment of interest rate risk in the banking book (IRRBB) in some colleges and in channeling the findings of the group recovery plan assessment and the money laundering/terrorist financing risk assessment into the SREP. In addition, colleges should make sure that a stand-alone group liquidity risk assessment report is prepared and shared, a lack of which hampers a thorough assessment of the main components of liquidity risk and is not in line with the legal requirements.
The report also incorporates the supervisory convergence plan for 2020. The plan has identified five key topics for supervisory attention for 2020: ICT risk and operational resilience, loan origination standards, profitability, capital and liability management, and money laundering and terrorism financing (ML/TF) risk and other conduct risk for prudential supervisors. These topics for supervisory attention for 2020 have become even more relevant in the context of the COVID-19 crisis. The plan makes reference to the significant supervisory efforts and resources that will be dedicated to monitoring the crisis preparedness of institutions in 2020 and further implications of COVID-19 on credit institutions` operations and financial soundness. In addition, and based on the observations of this report, EBA intends to further investigate the use of supervisory measures under Pillar 2 and provide additional clarification in the update of the SREP guidelines.
Keywords: Europe, EU, Banking, Credit Risk, NPLs, Loan Origination, Guidelines, Mortgage Credit Directive, ESG, Governance, AML, Fintech, Artificial Intelligence, Big Data, COVID-19, EBA
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticleEBA Publishes Guidelines on Loan Origination and Monitoring
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.
FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.
RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.
The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.
HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.
ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).