The European Banking Authority (EBA) published today its final revised Guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP) and supervisory stress testing.  The revisions aim at implementing the amendments to the Capital Requirements Directive (CRD V) and Capital Requirements Regulation (CRR II) and promoting convergence towards best supervisory practices.

The changes to these Guidelines do not alter the overall SREP framework but affect its main elements, including (i) business model analysis, (ii) assessment of internal governance and institution-wide control arrangements, (iii) assessment of risks to capital and adequacy of capital to cover these risks, and (iv) assessment of risks to liquidity and funding and adequacy of liquidity resources to cover these risks.

The main amendments are aiming at:

• better articulating the principle of proportionality, through the categorisation of institutions and the application of the minimum engagement model;
• fully incorporating the assessment of the money laundering and terrorist financing (ML/TF) risks, in line with the EBA Opinion on how to take into account ML/TF risks in the SREP;
• reviewing the provisions on Pillar 2 capital add-ons and the Pillar 2 guidance, to ensure they reflect a purely micro-prudential perspective and appropriately implement the separate stack of own funds requirements based on the leverage ratio;
• aligning the assessment of the interest rate risk in the non-trading book, as well as the assessment of liquidity risk and liquidity adequacy with the current regulatory framework;
• enhancing the dialogue among institutions and supervisors in relation to the setting of the Pillar 2 requirements.

Legal basis and background

The EBA has developed these Guidelines in accordance with Article 107(3) of the CRD, which mandates the Authority to foster sound and effective supervision and to drive supervisory convergence across the EU. These Guidelines are addressed to all competent authorities across the EU.

SREP is an ongoing supervisory process bringing together findings from all supervisory activities into an institution’s comprehensive supervisory overview.

These Guidelines also aim at achieving convergence of practices followed by competent authorities in supervisory stress testing across the EU in accordance with Article 100 of Directive 2013/36/EU.