On 28 June 2021, the European Banking Authority (EBA) issued a consultation on revised guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP) and supervisory stress testing. The purpose of the revisions is to implement recent changes introduced by the Capital Requirements Directive V and the Capital Requirements Regulation II, as well as aligning with other regulatory developments and best supervisory practices.
Such changes include:
- Reviewing institutions’ categorisation and application of the minimum engagement model to reflect the new definitions on small and non-complex as well as large institutions, thus better embedding the proportionality principle.
- Incorporating an assessment of 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 published in November 2020.
- Reviewing the provisions on Pillar 2 capital add-ons and the Pillar 2 guidance in accordance with Articles 104a and 104b of the Capital Requirements Directive IV, to ensure that they reflect a purely micro-prudential perspective.
- Providing clarifications on the assessment of the risk of excessive leverage and the related Pillar 2 capital add-ons and the Pillar 2 guidance in order to reflect the separate stack of own funds requirements based on the leverage ratio.
- Adjusting the requirements for the assessment of the interest rate risk in the non-trading book, as well as the assessment of liquidity risk and liquidity adequacy to align them with the current regulatory framework.
The proposed changes affects all main SREP 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 deadline for comments on the consultation is 28 September 2021.