Revised Guidelines on SREP and supervisory stress testing

Revised EBA-Guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP) and supervisory stress testing.

The European Banking Authority (EBA) published on the 18th of March its final revised Guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP) and supervisory stress testing. (EBA/GL/2022/03) The revisions aim at implementing the amendments to the Capital Requirements Directive (CRD V) and Capital Requirements Regulation (CRR II) and promoting convergence towards best supervisory practices.

The changes to these Guidelines affect main elements of the overall SREP framework, including (i) business model analysis, (ii) assessment of internal governance and institution-wide control arrangements, (iii) assessment of risks to capital and adequacy of capital to cover these risks, and (iv) assessment of risks to liquidity and funding and adequacy of liquidity resources to cover these risks.

The main amendments concern the following points:

  • Adjustments in the categorization of institutions (especially related to smaller and non complex institutions) to anchor the proportionality principle;
  • Inclusion of money laundering and terrorist financing risks (AML & CFT);
  • Revise provisions on Pillar 2 capital add-ons (P2R) and Pillar 2 capital guidance (P2G);
  • Assessing the risk of excessive leverage and setting related Pillar 2 capital requirements and recommendations (TSLRR and OLRR);
  • Assessing the impact of ESG risks;
  • Adjustments related to the assessment of interest rate risk in the banking book and liquidity risk and adequacy.

Due to their significant importance, this blog post focuses on the changes related to the estimation of the Pillar 2 capital add-on (P2R) and the newly introduced calculations for risk of excessive leverage (TSLRR/OLRR). More information and details regarding these major changes is available at free registration area at our PwCPlus research application: Link to PwCPlus.

You want to be prepared for the new guidelines on SREP and supervisory stress testing? Please do not hesitate to contact us. Our Risk & Regulation experts have extensive experience in the SREP process and with the ECB.

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