Supervisory Review and Evaluation Process - EBA Final Guidelines on SREP methodologies and processes
The EBA published on 19 December 2014 its final guidelines for common procedures and methodologies for the Supervisory Review and Evaluation Process (SREP). These guidelines represent a major step forward in forging a consistent supervisory culture across the Single Market and provide a common framework for the work of supervisors in the assessment of risks to banks' business models, their solvency and liquidity.
The guidelines have been developed in accordance with the Capital Requirements Directive (CRD) and aim at promoting common procedures and methodologies for the supervisory review and evaluation process (SREP). They are intended to improve the functioning of the internal market and to make regulation and supervision effective and consistent, in the banking sector.
The guidelines are based on four components:
- Business model analysis;
- Assessment of internal governance;
- Assessment of risks to capital and adequacy of capital;
- Assessment of risks to liquidity and adequacy of liquidity
The assessment shall be summarised in a common scoring and leads to a consistent approach in setting supervisory requirements to hold additional capital and liquidity resources. These Guidelines recognise the proportionality principle and the importance of supervisory judgement, providing a flexible but constrained framework for all EU supervisors. Moreover, they also recognise longer transitional arrangements for the application of certain quantitative liquidity and capital supervisory provisions.
The Guidelines will apply from 1 January 2016 and are addressed to all competent authorities across the Union, including the SSM, who are expected to comply by incorporating them into their supervisory practices.