Final and translated into the EU official languages
These Guidelines make available to competent authorities a special procedure for the supervisory review and evaluation process (SREP) for the year 2020. In particular, they identify how flexibility and pragmatism could be exercised in relation to the SREP framework in the context of the COVID-19 pandemic.
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.
Following the publication of its statement on additional supervisory measures in relation to the COVID-19 pandemic, the European Banking Authority (EBA) published today Guidelines that make available to competent authorities a special procedure for the supervisory review and evaluation process (SREP) for the year 2020. The new Guidelines identify how flexibility and pragmatism could be exercised in relation to the SREP framework in the context of this pandemic.
The risk-driven approach put forward by these Guidelines builds on the existing requirements of the Capital Requirements Directive (CRD) and the SREP Guidelines and adapts them to the exceptional circumstances of the COVID-19 pandemic, while ensuring the exercise of supervisory judgement to the greatest possible extent.
These Guidelines, are addressed to competent authorities and elaborate on the key aspects of SREP for the year 2020: (i) focus of the pragmatic SREP; (ii) overall SREP assessment and scoring; (iii) supervisory measures; and (i) conduct of the SREP in cross-border contexts.
The development of these Guidelines relied on a close engagement with competent authorities to ensure that the content of these Guidelines was shared by the supervisory community early on in the 2020 SREP cycle. This engagement will safeguard and preserve convergent supervisory approaches and outcomes in the context of this crisis.
These Guidelines have been drafted in accordance with Article 16 of Regulation (EU) No 1093/2010 (EBA Founding Regulation), which mandates the Authority to issue guidelines addressed to all competent authorities or all financial institutions and issue recommendations to one or more competent authorities or to one or more financial institutions, with a view to establishing consistent, efficient and effective supervisory practices within the ESFS, and to ensuring the common, uniform and consistent application of Union law.