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

    PRA Proposes Changes to Consolidated Prudential Rules Under CRD5/CRR2

    PRA proposed rules (in CP12/21) for the application of existing consolidated prudential requirements to financial holding companies and mixed financial holding companies that have been approved or designated in accordance with Part 12B of the Financial Services and Markets Act 2000 (FSMA).

    June 21, 2021 WebPage Regulatory News
    News

    ECB Extends Leverage Ratio Relief for Banks Until March 2022

    ECB Banking Supervision announced that euro area banks it directly supervises may continue to exclude certain central bank exposures from the leverage ratio until March 2022.

    June 18, 2021 WebPage Regulatory News
    News

    OSFI Consults on Treatment of Credit Valuation Adjustments

    OSFI decided to increase the Domestic Stability Buffer from 1.00% to 2.50% of total risk-weighted assets, with effect from October 31, 2021.

    June 18, 2021 WebPage Regulatory News
    News

    HKMA Requires Banks to Submit Plans for Fintech Adoption

    HKMA is requesting banks to participate in a tech baseline assessment, which forms part of the HKMA Fintech 2025 strategy.

    June 18, 2021 WebPage Regulatory News
    News

    OSFI Consults on Operational Risk Capital Data Management Expectations

    OSFI published two documents to consult on the management of operational risk capital data for institutions required, or for those applying, to use the Basel III standardized approach for operational risk capital in Canada.

    June 18, 2021 WebPage Regulatory News
    News

    NGFS on Addressing Financial Stability Issues from Biodiversity Loss

    The NGFS Study Group on Biodiversity and Financial Stability published a Vision paper exploring the case for action in addressing the financial stability concerns arising from biodiversity loss.

    June 18, 2021 WebPage Regulatory News
    News

    ACPR Publishes CREDITIMMO Version 2.3.0 Taxonomy for Banks

    ACPR published the final version of CREDITIMMO 2.3.0 taxonomy for the decree of October 31, 2021.

    June 18, 2021 WebPage Regulatory News
    News

    EC Prolongs Italian Guarantee Scheme for Non-Performing Loans

    EC, has approved, under the EU State Aid rules, the fourth prolongation of the Italian guarantee scheme to facilitate the securitization of non-performing loans.

    June 18, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Temporary Collateral Easing Measures

    ECB published Guideline 2021/975, which amends Guideline ECB/2014/31, on the additional temporary measures relating to Eurosystem refinancing operations and eligibility of collateral.

    June 17, 2021 WebPage Regulatory News
    News

    EIOPA Releases Report on Artificial Intelligence Governance Principles

    EIOPA published a report, from the Consultative Expert Group on Digital Ethics, that sets out artificial intelligence governance principles for an ethical and trustworthy artificial intelligence in the insurance sector in EU.

    June 17, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7128