ECB Sets Out Work Priorities for 2023-2025
The European Central Bank (ECB) has set out its supervisory priorities for 2023-2025 for the Banking Supervision. The work program builds on a thorough assessment of the main risks and vulnerabilities for supervised banks, considers the progress made on the priorities endorsed last year, and draws on the outcome of the 2022 Supervisory Review and Evaluation Process (SREP).
The planned work for the next three years has been categorized into three supervisory priorities set by the regulator:
- Strengthen resilience to immediate macro-financial and geopolitical shocks. The 2023 EU-wide stress test exercise, coordinated by the European Banking Authority (EBA), will support the ECB intention ensure that directly supervised banks strengthen their resilience to immediate macro-financial and geopolitical shocks. The key vulnerabilities to be addressed include shortcomings in credit risk management, including exposures to vulnerable sectors, and lack of diversification of funding sources and deficiencies in funding. The work program includes targeted reviews of IFRS 9 and of loan origination and monitoring, on-site inspection campaigns on IFRS 9, targeted joint on-site/internal model investigations, follow-ups by supervisory teams to assess internal ratings-based, or IRB, model changes related to new regulatory requirements, and targeted review of TLTRO III exit strategies for banks with material reliance on this funding source.
- Address digitalization challenges and strengthen management bodies’ steering capabilities. This priority involves focus on deficiencies in digital transformation strategies, operational resilience frameworks, functioning of management bodies, and risk data aggregation and reporting. The work program includes targeted reviews of banks’ digital transformation strategies, their use of innovative technologies, assessment of their business models, and targeted reviews and on-site inspections of outsourcing arrangements, cyber-security management. With respect to risk data and aggregation, the work program includes refinement and communication to banks of supervisory expectations related to the implementation of risk data aggregation and risk reporting principles, targeted engagement and horizontal analysis across supervisory teams and/or on-site inspections for banks with persistent shortcomings, and an on-site inspection campaign on risk data aggregation and reporting (extension from 2022).
- Step-up efforts in addressing climate change. Supervisors will follow up on the deficiencies identified during the 2022 climate risk stress test and thematic review, monitor progress, and take enforcement action if necessary. For this, supervisors have set institution-specific remediation timelines for achieving full alignment with expectations by the end of 2024. The work plan includes targeted deep dives to follow up on shortcomings identified in the context of the 2022 climate risk stress test and thematic review, review of banks’ compliance with new reporting and Pillar 3 disclosure requirements related to climate risk, benchmarking of bank practices against supervisory expectations, and deep dives on reputational and litigation risk associated with climate-related and environmental strategies and risk profiles for selected banks. Additional work activities will focus on preparatory work for reviews of banks’ transition planning capabilities and readiness for environmental, social and governance (ESG) related mandates expected in the sixth Capital Requirements Directive (CRD VI) and targeted on-site inspections on climate-related aspects, either on a stand-alone basis or within reviews of individual risks (for example, credit risk, governance, business model).
Related Links
Keywords: Europe, EU, Banking, Basel, ESG, Climate Change Risk, Stress Testing, Scenario Analysis, Credit Risk, IFRS 9, Regtech, Outsourcing Risk, Cyber Risk, Operational Resilience, CRD, ECB
Featured Experts
James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager
Previous Article
EBA Sets Out Roadmap on Sustainable FinanceRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
