FAQ on the SREP of tomorrow
29 May 2024
..delivering on our mandate to keep Europe’s banks safe, we reviewed the SREP to make sure that it stays fit for purpose and that our supervisory processes are more effective and efficient than ever.
Why did we review the SREP?
Our supervisory processes have served us well, but the landscape in which we operate is changing, with structural shifts, outside shocks and new risks creating an environment of high uncertainty. To continue delivering on our mandate to keep Europe’s banks safe, we reviewed the SREP to make sure that it stays fit for purpose and that our supervisory processes are more effective and efficient than ever. We have therefore taken into account feedback, from the Expert Group’s review of the SREP and a report published by the European Court of Auditors, on how to streamline the SREP.
What did we aim to achieve with the SREP review?
The actions taken as a result of the review will result in simpler, more flexible supervisory processes and a shorter SREP timeline. They also aim to foster and maintain a supervisory culture that focuses more intently on key risks, promotes bank-specific qualitative judgement, and encourages strong, timely action when needed. Finally, the changes will help us communicate more clearly with the banks we supervise and make our work more efficient, transparent and predictable.
How are we changing the SREP?
- Comprehensive planning: our supervisory activities will increasingly reflect and be related to the supervisory priorities set each year by the Supervisory Board. This will help supervisors plan their activities throughout the year, taking into consideration the external environment and bank-specific risks.
- Multi-year assessment (MYA): based on our positive experience with the MYA, which we first introduced in the 2023 and 2024 SREP assessment cycles, we will fully deploy this approach for the SREP going forward. This means that we will keep assessing banks’ risks in a holistic manner, but our teams will prioritise a few specific modules each year, assessing the rest at a later point in accordance with the risk tolerance framework (RTF).
- Flexible risk assessment system (RAS): certain risk assessments that are not linked to the publication of annual financial reports in March – including assessments of business models, internal governance and other qualitative topics – can be completed more flexibly throughout the year at the discretion of the Joint Supervisory Team (JST). This will allow greater efficiency when running quantitative assessments, while also reducing the length of the overall process.
- Proportionality: this principle is embedded in ECB Banking Supervision and will be increasingly applied to the overall SREP. We will, for instance, simplify our internal reporting for smaller banks.
- Supervisory methodologies: our methodology has a strong foundation, and we will strive to focus our future reviews on emerging risks and simplification efforts. For example, we are currently revising our Pillar 2 requirement (P2R) methodology to make it simpler and more transparent.
- IT and analytical tools: we will keep leveraging supervisory technologies to transform and optimise our processes with support from the latest available innovations.
- Clear and concise decisions: we will reduce the length of SREP decisions by focusing on the key supervisory concerns, outlining expectations and including actionable measures where needed. This will also shorten the SREP timeline, as less time will be needed for drafting, legal review and translation.
Will you change the way that you calculate capital requirements? If so, when?
We want to make our process for determining capital requirements more efficient. The P2R will remain anchored to the SREP and reflect the supervisors’ comprehensive view of a bank’s risk profile. The revised P2R methodology will undergo an initial test phase and will not be implemented until 2026. Stakeholders and industry will be informed of potential changes in a timely manner....
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