Guidelines for common procedures and methodologies for the supervisory review and evaluation process (SREP) and supervisory stress testing

Status: Final (awaiting translation into the EU official languages)

The Guidelines for common procedures and methodologies for the supervisory review and evaluation process (SREP) and supervisory stress testing will be applied in the supervision of all institutions across the Union and represent a major step forward in forging a consistent supervisory culture across the single market. These Guidelines provide a common framework for the work of supervisors in their assessment of risks to banks’ business models’, their solvency and liquidity as well as the conduct of supervisory stress testing.

EBA publishes final guidance to strengthen the Pillar 2 framework

EBA publishes final guidance to strengthen the Pillar 2 framework

19 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.

Press contacts:

Franca Rosa Congiu

E-mail: press@eba.europa.eu - Tel: +44 (0) 207 382 1772

EBA publishes final Guidelines on SREP methodologies and processes

EBA publishes final Guidelines on SREP methodologies and processes

19 December 2014

The European Banking Authority (EBA) published today its final Guidelines for common procedures and methodologies for the supervisory review and evaluation process (SREP). These Guidelines represent a major step forward in forging a consistent supervisory culture across the Single Market and provide a common framework for the work of supervisors in the assessment of risks to banks' business models, their solvency and liquidity. These Guidelines will be a key component of the EU Single Rulebook, which aims at improving the functioning of the internal market, including a sound, effective and consistent level of regulation and supervision in the banking sector. 
 
The Guidelines hinge on four main components: (i) business model analysis; (ii) assessment of internal governance; (iii) assessment of risks to capital and adequacy of capital; (iv) assessment of risks to liquidity and adequacy of liquidity. The assessment is summarised in a common scoring and leads to a consistent approach in setting supervisory requirements to hold additional capital and liquidity resources, as needed.
 
These Guidelines recognise the proportionality principle and the importance of supervisory judgement, providing a flexible but constrained framework for all EU supervisors. Moreover, they also recognise longer transitional arrangements for the application of certain quantitative liquidity and capital supervisory provisions.
 
The Guidelines will apply from 1 January 2016 and are addressed to all competent authorities across the Union, including the SSM, who are expected to comply by incorporating them into their supervisory practices, thus amending their respective legal frameworks or their supervisory processes accordingly. All Competent Authorities will ensure that EU credit institutions, including cross-border banking groups operating both within and outside the Eurozone, implement them when assessing risks as well as capital and liquidity adequacy.

Legal basis and next steps

The Guidelines have been developed according to Article 107(3) of the capital Requirements Directive (CRD) and aim at promoting common procedures and methodologies for the supervisory review and evaluation process (SREP) referred to in Article 97 of the CRD and for the assessment of the organisation and treatment of risks referred to in Articles 76 to 87 of the CRD.
 

Press contacts:

Franca Rosa Congiu

E-mail: press@eba.europa.eu - Tel: +44 (0) 207 382 1772

EBA consults on a framework for common supervisory procedures and methodologies

EBA consults on a framework for common supervisory procedures and methodologies

07 July 2014

The European Banking Authority (EBA) launched today a consultation on its draft Guidelines for common procedures and methodologies for the supervisory review and evaluation process (SREP). These guidelines will be applied in the supervision of all institutions across the Union and represent a major step forward in forging a consistent supervisory culture across the single market.  The guidelines provide a common framework for the work of supervisors in their assessment of risks to banks' business models', their solvency and liquidity.  These guidelines will be a key component of the EU Single Rulebook aimed at improving the functioning of the internal market, including a sound, effective and consistent level of regulation and supervision in the banking sector. The consultation deadline has been extended until 20 October 2014.

The guidelines hinge on four main components: (i) business model analysis; (ii) assessment of internal governance; (iii) assessment of risks to capital and adequacy of capital; (iv) assessment of risks to liquidity and adequacy of liquidity.  The assessment will be summarised in a common scoring and will lead to a consistency in setting supervisory requirements to hold additional capital and liquidity resources as needed.

The guidelines are addressed to all competent authorities across the Union, including the SSM, who will ensure all EU institutions, including cross-border banking groups operating both within and outside the Eurozone, apply them when assessing risks as well as capital and liquidity adequacy.

These guidelines recognise the proportionality principle and the importance of supervisory judgement, providing a flexible but constrained framework for all EU supervisors.

These Guidelines are issued for public consultation and are expected to be applied by 01 January 2016, taking into account the results of the public consultation. These guidelines recognise longer transitional arrangements for the application of certain quantitative liquidity and capital supervisory provisions.

Consultation process

Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments has been extended to 20 October 2014.

All contributions received will be published following the close of the consultation, unless requested otherwise. A public hearing will take place at the EBA premises on Tuesday 9 September from  10:30 to 13:00 UK time.

Legal basis and next steps

The proposed guidelines, developed pursuant to Article 107(3) of Directive 2013/36/EU (Capital Requirements Directive - CRD), are addressed to competent authorities and aim at promoting common procedures and methodologies for the supervisory review and evaluation process (SREP) referred to in Article 97 of Directive 2013/36/EU and for the assessment of the organisation and treatment of risks referred to in Articles 76 to 87 of Directive 2013/36/EU.

Press contacts:

Franca Rosa Congiu

E-mail: press@eba.europa.eu - Tel: +44 (0) 207 382 1772