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Deloitte SREP Roundtable & Transformation methodology

Banking alert

Banking alert | 3 March 2016 | Deloitte SREP Roundtable & Transformation methodology

"On behalf of Deloitte Malta, I would like to thank you for attending our discussion on SREP and its impact on the local banking sector."

A message from Dimitrios Goranitis | Banking Leader

What was discussed

The event was opened by Karol Gabarretta, Director of the Banking Supervision Unit (MFSA), who reiterated harmonisation of regulation and supervision for all banks, including Less Significant Institutions (LSI) through the SREP process.

Helmut Bauer, Deloitte’s EU Ambassador specialising in European Union regulation and formerly Chief Executive Director and Head of Banking Supervision at the Federal Financial Services Supervisory Authority in Germany gave an overview of SSM developments and the holistic SREP approach.

Vishwas Khanna, a senior manager within Risk and Regulation Advisory Services at Deloitte UK, and I discussed the SREP priorities for 2016, with ECB placing banks’ business models and profitability, as well as governance at the top of the list.

The event was closed with a roundtable discussion in which the majority of questions revolved around business model analysis as well as the issue of proportionality.

Overview of our holistic SREP approach

The SREP approach categorises banks into four categories (Level 1 to 4), according to the systemic risk they represent, and assesses them on the following four elements:

  1. Business Model Analysis (BMA) and Profitability Risk
  2. Assessment of Internal Governance
  3. Assessment of Risks to Capital and Adequacy of Capital
  4. Assessment of Risks to Liquidity and Adequacy of Liquidity

BMA

The purpose of this element is to assess the viability of the bank’s business model as well as the sustainability of its strategy. BMA is core to the new paradigm of forward-looking, judgement-based supervision. Banks need to take a holistic approach to ensure that all components, including the risk appetite framework (RAF), ICAAP and ILAAP, are aligned and interlinked.

Assessment of internal governance and controls

Effective internal governance arrangements are fundamental if institutions, individually, and the banking system, are to operate well. The key areas of assessment include the following:

  • Overall governance framework
  • Corporate and risk culture
  • Organisation and functioning of management body
  • Remuneration policies and practices
  • Internal control framework
  • Risk management framework
  • Information systems and BCP

Recovery planning arrangement

Scrutinising ICAAP and ILAAP

Banks are expected to have their ICAAP and ILAAP processes intertwined with their business model and strategy. Assessment of risks to capital and liquidity will focus on the use of the bank’s ICAAP and ILAAP as its main management tools, and not simply as regulatory documents.

How can we help?

Our holistic SREP approach ensures that your business model and strategy are viable and sustainable, and closely interlinked to the ICAAP and ILAAP. Our gap analysis approach will bring your governance policies and procedures in line with EBA guidelines, while our tailored training solutions ensure that board members are up to date with the latest risk and regulatory developments.

Please download our informative brochure, which summarises the content discussed during the event as well as our SREP Transformation approach.

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