11 May 2022

EBA sees progress in the implementation of the supervisory review and evaluation process and of the supervisory priorities for 2021 but flag

The EBA concluded that the Pillar 2 Requirements (P2R) are now legally binding across the European Union (EU) and consistently considered when calculating the trigger point for the maximum distributable amount (MDA) restrictions.

The European Banking Authority (EBA) today published its annual Report on convergence of supervisory practices for 2021. Competent Authorities made progress in the implementation of the EBA Guidelines on supervisory review and evaluation process (SREP). The Report also reflects consistent implementation into their supervisory practices of the key supervisory priorities for 2021. However, the Report sets expectations for additional efforts from Competent Authorities on topics such as ICT risks, namely cyber risk and business model challenges and the respective digital transformation. In addition, the Report highlights the need for more harmonised practices in the determination of capital add-ons.

The EBA concluded that the Pillar 2 Requirements (P2R) are now legally binding across the European Union (EU) and consistently considered when calculating the trigger point for the maximum distributable amount (MDA) restrictions. Competent Authorities also ensured communication to all institutions under their remit of the total SREP capital requirement (TSCR), as described in the EBA SREP Guidelines.

One of the key activities undertaken by the EBA to strengthen supervisory convergence across the EU is to set on an annual basis key topics deserving heightened supervisory attention. The EBA then assesses whether and how the selected topics were covered in Competent Authorities’ supervisory priorities and activities, including in the context of supervisory colleges.

The core of the supervisory attention in 2021 focused on the key topic of capital and liability management and asset quality and credit risk management, due to the close monitoring of the impact of the COVID-19 pandemic on institutions’ credit quality and the levels of their non-performing exposures (NPEs). The ICT and security risk, operational resilience, as well as profitability and business model, received overall less supervisory attention compared to the other two topics.

There is still room for further convergence in the use of internal capital adequacy assessment (ICAAP) as well as in the consistent treatment of risks across the EU and in the setting of the Pillar 2 Guidance (P2G).

The Report acknowledged Competent Authorities’ considerable efforts in the group risk assessment process in supervisory colleges, but flagged important shortcomings observed in some colleges.

EBA

© EBA