12 May 2021
The European Banking Authority (EBA) published today its Report on convergence of supervisory practices in 2020. Notwithstanding a refocusing of supervisory practices towards the areas impacted by the COVID 19 crisis, in line with the EBA Guidelines on the pragmatic 2020 supervisory review and evaluation process in light of the COVID‐19 crisis, 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 the EU.
The Report forms part of the EBA’s work to actively foster and promote supervisory convergence across the Union and ensure the consistent, efficient and effective application of the Union law.
The EBA actively drives the convergence efforts by establishing the annual Convergence Plan, the implementation of which is then followed up by the EBA, together with other aspects of the supervisory review process.
Overall, 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 onwards.
The EBA also observed continued efforts by competent authorities to cooperate with their resolution authority counterparts and prudential supervisory practices have also 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 the 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.
Under the 2021 Convergence Plan, the EBA also published four key topics, which in 2021 will require heightened supervisory attention: i) asset quality and credit risk management; ii) ICT and security risk, operational resilience; iii) profitability and business model; and iv) 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 towards further convergence.
According to its founding regulation, the EBA shall contribute to enhancing supervisory convergence across the internal market and building a common supervisory culture. Specifically in the context of the supervisory review and evaluation process (SREP), the 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).
In line with the aforementioned mandate, the EBA prepared this Report to inform the Parliament and the Council on the degree of convergence of supervisory practices in 2020.
Franca Rosa Congiu