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.
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.
Note to the editors
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.