EBA observes good progress in implementation of SREP Guidelines but challenges remain in convergence of capital adequacy assessments and determination of Pillar 2 requirements

The European Banking Authority (EBA) published today its third annual Report on the convergence of supervisory practices across the EU. The Report reviews consistency in the application of the Supervisory Review and Evaluation Process (SREP) in order to promote comparable supervisory approaches and consistency in supervisory outcomes across the single market. This is necessary for a level playing field, effective supervision of cross border groups, and to identify supervisory best practices. 

 

In the Report, the EBA notes that good progress has been made by competent authorities in the implementation of the SREP Guidelines as well as in taking forward recommendations and observations made by the EBA during the 2016 bilateral convergence visits. A significant degree of convergence across the single market has already been achieved through the application of the EBA's SREP guidelines. The Report highlights, however, a number of remaining challenges in converging capital adequacy assessments and determining institution-specific additional own funds requirements (P2R). 

 

In particular, the Report observes different approaches in the use of the outcomes for banks' own internal capital adequacy assessment process (ICAAP), disparity of risk taxonomies, and differences in the clarity of the risk-by-risk determination of P2R, as well as the use of P2R for macroprudential purposes. In turn, this leads to differences in the articulation and communication of P2R to supervised institutions. Finally, the Report notes the widespread use of Pillar 2 Guidance (P2G), but limited experience in this area makes the analysis of the first wave of application of P2G difficult.

 

Further progress on convergence will be supported by ongoing policy work such as adjustments to the SREP framework as well as upcoming revisions to the Pillar 2 framework in the CRR/CRD. The EBA will also continue to promote supervisory convergence through active monitoring and assessment of supervisory practices, which help competent authorities in the effective implementation of agreed policy products, as well as to further expand its supervisory training offering. 

One of the EBA's key mandates is to develop ensure supervisory convergence and consistency of supervisory outcomes within the EU. In addition, Article 107 of Directive 2013/36/EU (CRD) includes a specific mandate for the EBA on consistency of supervisory reviews, evaluations and supervisory measures in Member States. This Article also requires the EBA to report to the EU Parliament and the Council on the degree of convergence of supervisory practices.

 

Based on this mandate, the EBA has collected information and analysed relevant supervisory practices. It has also developed a number of Guidelines and Technical Standards and contributed to the promotion of convergence in supervision through its participation in colleges of supervisors of cross-border institutions, the development of a European Supervisory Handbook, the provision of dedicated training, and the performance of analytical and benchmarking activities.