Featured Product

    EBA Report Notes Loan Origination Should Remain in Supervisory Focus

    May 12, 2021

    EBA published a report that examines the convergence of prudential supervisory practices in 2020 and offers conclusions of the EBA college monitoring activity. Overall, the report finds that supervisors converged in using the key topics of the EBA 2020 Convergence Plan in their supervisory work in 2020 and good progress in supervisors’ efforts could be achieved across EU. This is despite a refocusing of supervisory practices toward the areas impacted by the COVID-19 crisis, in line with the EBA guidelines on the pragmatic 2020 Supervisory Review and Evaluation Process (SREP).

    The report finds that, in 2020, increased supervisory attention was given to the assessment of profitability and the business model (closely linked to asset quality) as well as to selected areas of ICT risk and operational resilience, while the loan origination key topic received less supervisory attention as COVID-19 shifted the focus within the "life cycle" from loan origination to the management of distressed debtors and to the monitoring of risk exposures. Therefore, loan origination practices should remain an area of attention for supervisors in 2021 and onward. EBA had published guidelines on loan origination and monitoring in May 2020 and these guidelines will apply from June 30, 2021, but institutions could benefit from a series of transitional arrangements, with possible data gaps to be addressed until June 30, 2024 together with the adjustment of monitoring frameworks and infrastructure. The 2020 Convergence Plan had invited competent authorities to work with institutions to improve their loan origination practices in preparation for the implementation of the guidelines by undertaking a gap analysis, allowing room for a pragmatic and proportionate approach to monitoring the implementation of the guidelines, and exercising supervisory judgment, while considering the operational challenges and priorities institutions may have due to the COVID-19 crisis. The report notes that loan origination will be an integral part of the overall "asset quality and credit risk management" key topic in the 2021 Convergence Plan.

    In addition, EBA observed continued efforts by competent authorities to cooperate with their resolution authority counterparts. It was also noted that prudential supervisory practices have  been converging in the context of money laundering and terrorist financing risk. Nevertheless, some differences remain in supervisory practices both in the context of the Convergence Plan as well as in the broader Pillar 2 framework, affecting the setting of Pillar 2 Requirements and Pillar 2 Guidance. Another key element of the report is the convergence in supervisory colleges, where EBA observed increased interaction in 2020, compared to 2019, due to the close cooperation among college members during the pandemic and the colleges definitely becoming the natural platform for exchanges when it comes to cross-border banks. This report also incorporates the EBA 2021 Convergence Plan that guides supervisory efforts in 2021. Under the 2021 Convergence Plan, EBA has set out four key topics, which, in 2021, will require heightened supervisory attention: asset quality and credit risk management; ICT and security risk, operational resilience; profitability and business model; and capital and liability management. The selection of these key areas for 2021 were primarily driven by the implications of the COVID-19 pandemic while they also ensure continuity in other areas to enhance supervisory efforts toward further convergence.

    EBA actively drives the convergence efforts by establishing the annual Convergence Plan, the implementation of which is then followed up by EBA, together with other aspects of the supervisory review process. In the context of the SREP, EBA is mandated to annually report to the European Parliament and the Council on the degree of convergence of the application of the supervisory review as mandated by Article 107 of the Capital Requirements Directive (CRD). Thus, EBA has prepared this report in line with this mandate to inform the Parliament and the Council on the degree of convergence of supervisory practices in 2020.

     

    Related Links

    Keywords: Europe, EU, Banking, SREP, CRD, Loan Origination, Credit Risk, Operational Resilience, COVID-19, Supervisory Convergence, Pillar 2, AML/CFT, EBA

    Featured Experts
    Related Articles
    News

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News
    News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.

    January 01, 2023 WebPage Regulatory News
    News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.

    December 30, 2022 WebPage Regulatory News
    News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.

    December 29, 2022 WebPage Regulatory News
    News

    CBIRC Revises Measures on Corporate Governance Supervision

    The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.

    December 29, 2022 WebPage Regulatory News
    News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News
    News

    EBA Updates Address Basel and NPL Requirements for Banks

    The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.

    December 22, 2022 WebPage Regulatory News
    News

    ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite

    The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.

    December 22, 2022 WebPage Regulatory News
    News

    FCA Sets up ESG Committee, Imposes Penalties, and Issues Other Updates

    The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.

    December 20, 2022 WebPage Regulatory News
    News

    FSB Reports Assess NBFI Sector and Progress on LIBOR Transition

    The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.

    December 20, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8697