EBA Issues Guidelines on Approach to 2020 SREP in Light of Pandemic
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.
Related Links
Keywords: Europe, EU, Banking, COVID-19, SREP, Pillar 2, Cross-Border, Capital Buffer, Risk Assessment, Credit Risk, Liquidity Risk, CRD, EBA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Victor Calanog, Ph.D.
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Related Articles
ESAs Issue Multiple Regulatory Updates for Financial Sector Entities
The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.
ISSB Makes Announcements at COP27; IASB to Propose IFRS 9 Amendments
The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.
IOSCO Prioritizes Green Disclosures, Greenwashing, and Carbon Markets
The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.
EBA Finalizes Methodology for Stress Tests, Issues Other Updates
The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups
OSFI Sets Out Work Priorities and Reporting Updates for Banks
The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.
APRA Finalizes Changes to Capital Framework, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.
BIS Hub and Central Banks Conduct CBDC and DeFI Pilots
The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.
ECB Sets Deadline for Banks to Meet Its Climate Risk Expectations
The European Central Bank (ECB) published the results of its thematic review, which shows that banks are still far from adequately managing climate and environmental risks.
ESAs, ECB, & EC Issue Multiple Regulatory Updates for Financial Sector
Among its recent publications, the European Banking Authority (EBA) published the final standards and guidelines on interest rate risk arising from non-trading book activities (IRRBB)
EC Adopts Final Rules Under CRR, BRRD, and Crowdfunding Regulation
The European Commission (EC) recently adopted regulations with respect to the calculation of own funds requirements for market risk, the prudential treatment of global systemically important institutions (G-SIIs)
