EBA publishes final guidance to strengthen the Pillar 2 framework

  • Press Release
  • 30 July 2018
The European Banking Authority (EBA), in accordance with its Pillar 2 Roadmap, published today its final revised Guidelines aimed at further enhancing institutions' risk management and supervisory convergence in the supervisory review and examination process (SREP). The three reviewed Guidelines focus on stress testing, particularly its use in setting Pillar 2 capital guidance (P2G), as well as interest rate risk in the banking book (IRRBB).
 
In particular, the publication includes:
  • Final Report on the Guidelines on the revised common procedures and methodologies for the supervisory review and evaluation process (SREP) and supervisory stress testing; 
  • Revised final Guidelines on the management of interest rate risk arising from non-trading activities (IRRBB Guidelines);
  • Revised final Guidelines on institutions' stress testing.
The comprehensive EU SREP framework, which was introduced by the EBA in 2014, is now well established and in use by supervisors across the EU. Following the global regulatory developments, as well as the EBA's supervisory convergence assessments, specific changes were needed to reinforce the framework as set out in the EBA's Pillar 2 Roadmap
 
The changes to the SREP Guidelines do not alter the overall SREP framework and mainly aim to enhance the requirements for supervisory stress testing and explain how stress testing outcomes will be used in setting P2G. The changes and additions to the SREP Guidelines, which are outlined in the Final Report, include i) a section on Pillar 2 Capital Guidance (P2G), ii) supervisory stress testing requirements, iii) a clarification on the scoring framework, and iv) consistency checks with relevant EBA standards and guidelines, in particular in the areas of internal governance and institution-wide controls assessment. It should be noted that a consolidated version of the revised SREP Guidelines is published alongside the Final Report for convenience purposes. 
 
The revised IRRBB Guidelines reflect developments in the Basel Committee on Banking Supervision (BCBS) and clarify internal governance and supervisory outlier tests requirements during the first phase of the European implementation of the Basel standards. The revisions are, therefore, intended to act as a bridge to the future requirements, which will be incorporated in the CRD V/ CRR2 framework
 
The revised Guidelines on institutions' stress testing update the EBA's 2010 guidelines to reflect industry practices and the incorporation of recovery planning. The revised guidelines provide detailed guidance on the way institutions should design and conduct a stress testing programme, and also feature a common taxonomy on stress testing. 
 

Legal basis and next steps

 
The EBA Guidelines on common procedures and methodology for Supervisory review and Evaluation Process (SREP) have been developed in accordance with Article 107(3) of Directive 2013/36/EU and specify the common procedures and methodologies for the functioning of the supervisory review and evaluation process (SREP) referred to in Articles 97 and 107(1)(a) of Directive 2013/36/EU. In addition, these guidelines aim at providing common methodologies to be used by competent authorities when conducting supervisory stress tests in the context of their SREP as referred to in Article 100(2) of Directive 2013/36/EU. 
The revised Guidelines replace the existing Guidelines and will be applicable from 01 January 2019.
 
The EBA Guidelines on the management of interest rate risk arising from non-trading activities have been developed in accordance with Article 16 of Regulation (EU) No 1093/2010 and Article 98(5) of Directive 2013/36/EU. These guidelines specify the systems to be implemented by institutions for the identification, evaluation and management  and governance arrangements of IRRBB;  sudden and unexpected changes in the interest rate in accordance with Article 98(5) of Directive 2013/36/EU for the purposes of SREP; and general expectations for the identification and management of credit spread risk in the non-trading book (CSRBB).
The revised Guidelines replace the existing Guidelines and will be applicable from 30 June 2019 with transitional arrangements for specific provisions until 31 December 2019.
 
The EBA Guidelines on institutions' stress testing have been developed in accordance with Article 16 of Regulation (EU) No 1093/2010 and update the existing EBA Guidelines on stress testing form 2010. These guidelines aim at providing common organisational requirements, methodologies and processes for the performance of stress testing by institutions as part of their risk management processes. The revised Guidelines replace the existing Guidelines and will be applicable from 01 January 2019.

Documents

Guidelines on common procedures and methodologies for SREP and supervisory stress testing - Consolidated version.pdf

(2.15 MB - PDF) Last update 19 July 2018

Revised Guidelines on SREP (EBA-GL-2018-03).pdf

(1.85 MB - PDF) Last update 19 July 2018

Final report on revised Guidelines on the management of interest rate risk arising from non-trading activities (EBA-GL-2018-02)

(1.03 MB - PDF) Last update 17 January 2019

Guidelines on institutions stress testing (EBA-GL-2018-04)

(1.18 MB - PDF) Last update 23 January 2019

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Franca Rosa Congiu