20 October 2014

AFME responds to EBA consultation on guidelines for common procedures and methodologies for SREP

AFME published its response to the supervisory review and evaluation process (SREP) guidelines. AFME believes the draft guidelines to be too general when it comes to the key decisions of setting of capital and liquidity add-ons in excess of the CRD IV minima.

AFME fears that the guidelines will not achieve the objective of establishing a level playing field across the EU. The proposal leaves scope for ongoing major divergence of practice among national supervisors, and therefore for outcomes that will continue to be divergent and non-comparable. The organization thus believes it necessary to further and better develop in the guidelines a comprehensive framework that specifies the reasoning and details of how SREP scores are translated into capital and liquidity requirements. Overall, the SREP guidelines’ approach to liquidity and funding should be set keeping clearly in mind recent regulatory changes related to these issues in Pillar 1 and to increased mandatory reporting.

AFME takes the view that more clarity should be provided as regards how the supervisory benchmarks will be designed and calibrated. The organization sees the elements on risks to capital included in the guidelines as generally appropriate. However, the language used as regards some areas could be clarified. AFME refers for example to the definitions of conduct risk, counterbalancing capacity, and model risk. The guidelines seem to introduce an alternative approach to regulatory treatments of assets and risks. In AFME’s belief, this might give raise to subjective assessments, and to potential double-counting of risks. The guidelines’ approach to reputational risk seems to ignore the role of internal committees charged with responsibility for reputational risk issues and we would suggest amending the text in order to recognise the role they play.

AFME also cautions on the approach implementing SREP at solo level for consolidated groups and believe that the guidelines should pay particular attention to the SREP application in relation to specific issues on legal entities within cross-border groups. The guidelines should better reflect key elements of the home-host dynamics.

Full AFME response

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