EBA announced that individual results for the banks participating in the 2021 EU-wide stress test, along with a report summarizing the results in aggregate terms, will be published on July 30, 2021. In addition, EBA launched a public consultation on the revised guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP) and supervisory stress testing. The comprehensive revisions are intended to implement recent amendments to the Capital Requirements Directive (CRD5) and the Capital Requirements Regulation (CRR2) as well as to align the guidelines with other regulatory developments and best supervisory practices. The comment period for the proposed guidelines ends on September 28, 2021.
SREP is an ongoing supervisory process bringing together findings from all supervisory activities into a comprehensive supervisory overview of an institution. The guidelines being revised are aimed to achieve convergence of practices followed by competent authorities across EU, in their SREP and supervisory stress testing processes. This ongoing review of the SREP guidelines affects all main SREP elements, including business model analysis, assessment of internal governance and institution-wide control arrangements, assessment of risks to capital and capital adequacy to cover these risks, and assessment of liquidity and funding risks and adequacy of liquidity resources to cover such risks. The main amendments implementing the requirements laid down in the CRD5 and CRR2 include the following:
- Reviewing institutions’ categorization and application of the minimum engagement model to reflect the new definitions on small and non-complex as well as large institutions, thus better embedding the proportionality principle
- Incorporating an assessment of money laundering and terrorist financing (ML/TF) risks, in line with the EBA opinion on how to take into account ML/TF risks in the SREP published in November 2020
- Reviewing the provisions on Pillar 2 capital add-ons and the Pillar 2 guidance in accordance with Articles 104a and 104b of CRD4, to ensure that they reflect a purely micro-prudential perspective
- Providing clarifications on the assessment of the risk of excessive leverage and the related Pillar 2 capital add-ons and the Pillar 2 guidance to reflect the separate stack of own funds requirements based on the leverage ratio
- Adjusting the requirements for the assessment of the interest rate risk in the non-trading book as well as assessing liquidity risk and liquidity adequacy to align them with the current regulatory framework
EBA is consulting only on changes to the existing SREP guidelines and plans to finalize the guidelines once the consultation responses have been assessed. On publication of the final guidelines, the existing SREP guidelines will be repealed and replaced.
- Press Release on Stress Test Results
- Press Release on SREP Guidelines
- Consultation Paper on SREP Guidelines (PDF)
Comment Due Date: September 28, 2021
Keywords: Europe, EU, Banking, SREP, Stress Testing, CRR2, CRD5, Basel, Pillar 2, Regulatory Capital, IRRBB, Liquidity Risk, 2021 Stress Test, ML/TF Risk, EBA
Previous ArticleBOM Publishes Several Regulatory Updates in June 2021
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.
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.
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.
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
The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.
The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.
The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.
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.
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)
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)