EBA publishes final guidance to strengthen the Pillar 2 framework

19 July 2018

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

• a section on Pillar 2 Capital Guidance (P2G),
• supervisory stress testing requirements,
• a clarification on the scoring framework, and
• consistency checks with relevant EBA standards and guidelines, in particular in the areas of internal governance and institution-wide controls assessment.

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.

Press release

Revised Guidelines on_SREP

Guidelines on common procedures and methodologies for SREP_and supervisory stress testing

Guidelines on the management of interest rate risk arising from non-trading activities

Guidelines on institutions stress testing

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