Publication 29 May 2020 - EBA sees considerable achievements in supervisory convergence and good level of engagement in supervisory colleges across the EU
The European Banking Authority (EBA) published today its Report on convergence of supervisory practices in 2019. Overall, the Report finds that the key topics for supervisory attention identified in the EBA 2019 convergence plan have been largely implemented in supervisory work across the EU. The Report is part of the EBA’s work to actively foster and promote supervisory convergence across the Union in order to bring about strong supervisory standards and a common supervisory culture.
One of the core elements covered in this Report is the practical application of the Single Rulebook by competent authorities (CAs) in their supervisory activities. The Report also provides an update on the policy developments and training activities supporting supervisory convergence. For the first time, the Report incorporates information on convergence in supervisory colleges that used to be included in a separate report in the past.
The Report finds that the four key topics for supervisory attention identified in the EBA 2019 convergence plan – internal governance, ICT risk and operational resilience, non-performing exposures, and benchmarking of internal models - have been largely implemented in supervisory work across the EU, although to different degrees. Areas that will require further attention include the formalisation of the ICT risk appetite and how it cascades down the organisation ICT risk governance and controls and the ongoing assessment of the individual and collective suitability of the members of the management bodies.
Supervisory colleges made considerable efforts in 2019 to conduct thorough group risk assessments, and the areas that received the most supervisory attention correspond to the key topics that the EBA put forward in its 2019 convergence plan.
The Report incorporates the 2020 convergence plan. The plan has identified five key topics for supervisory attention for 2020: ICT risk and operational resilience, loan origination standards, profitability, capital and liability management and money laundering and terrorism financing (ML/TF) risk and other conduct risk for prudential supervisors. These topics for supervisory attention for 2020 have become even more relevant in the context of this COVID-19 crisis. The plan makes reference to the significant supervisory efforts and resources that will be dedicated to monitoring the crisis preparedness of institutions in 2020 and further implications of COVID-19 on credit institutions` operations and financial soundness.
Note to the editors
Article 107 of the Capital Requirements Directive (CRD) mandates the EBA to annually report to the European Parliament and the Council on the degree of convergence of the application of the Supervisory Review and Evaluation Process (SREP) and supervisory measures.
The EBA has a number of tools at its disposal to deliver on this mandate and to effectively promote supervisory convergence across the Union. The three main convergence tools of the EBA are i) the development of regulatory and policy products; ii) training and iii) monitoring and assessment. The Report builds around these convergence tools and explains how the EBA pursued supervisory convergence in 2019.
Report on Convergence of supervisory practices for 2019
Executive summary
In line with Article 107 of Directive 2013/36/EU (the Capital Requirements Directive — CRD), which mandates the EBA to report on the degree of convergence of supervisory practices to the European Parliament and the Council, this report summarises (i) the EBA’s observations on the convergence of supervisory practices across the EU in 2019 and (ii) the main activities undertaken by the EBA to enhance such convergence in 2019 and beyond.
The integrity of the single market and the level playing field in financial services requires that supervisory practices across the EU converge, in particular in the context of the supervisory review and evaluation process (SREP), which may entail the application of supervisory measures, qualitative and/or quantitative. The EBA’s role is particularly important in ensuring that relevant standards and guidelines are implemented consistently across the single market.
The EBA, in 2019, drove this process by establishing the 2019 convergence plan, which identified four key topics for heightened prudential supervisory attention, aimed at (i) informing competent authorities’ (CAs’) processes for selecting supervisory priorities for 2019 and (ii) drawing CAs’ attention to the consistent implementation of the related policy products. The four key topics identified for 2019 were (i) internal governance; (ii) information and communication technology (ICT) risk and operational resilience; (iii) non-performing exposures (NPEs); and (iv) the use of the benchmarking exercise for internal models. While the key element of the report is the stocktake of the degree of convergence of supervisory practices on the key topics, it also summarises the EBA’s observations on the implementation of a wider array of policy products. The EBA used various tools at its disposal, in particular desk-based reviews and peer reviews, college monitoring activity and follow-up on previous recommendations, and collected and analysed information on relevant supervisory practices; the outcomes of this work are summarised in this report.
Converging practices and methodologies contribute to achieving more consistency in SREP outcomes across the EU, which is indispensable in the context of cross-border banking groups. Therefore, colleges of supervisors are an important forum for driving such convergence through the sharing and discussing of supervisory assessments and outcomes.
page source https://eba.europa.eu/
