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Revised SREP Guidelines published by EBA
23rd July 2018
EBA Publishes Revised SREP Guidelines
Last week (on 19 July 2018) the European Banking Authority (EBA) published both the Revised final guidelines on institutions' stress testing and the final report on the guidelines on the common procedures and methodologies for the Supervisory Review and Evaluation Process (SREP) and supervisory stress testing.
With the publication of these documents, come changes to the supervisory review and evaluation process, or SREP for short. Whilst they do not alter the overall framework, they do seek to enhance the requirements for supervisory stress testing and explain how stress testing outcomes will be used in setting Pillar 2 capital guidance.
The changes to SREP guidelines include:
As a quick recap, the aims of the Pillar 2 processes are to enhance the link between an institution's risk profile, risk management and risk mitigation systems - and its capital planning. It’s major components can be divided as follows:
(1) Aimed at institutions: where those are expected to establish sound, effective and complete strategies and processes to assess and maintain, on an ongoing basis, the amounts, types and distribution of internal capital appropriate to their risk profiles (ICAAP), as well as robust governance and internal control arrangements.
(2) The supervisory review and evaluation process (SREP): The key purpose of the supervisory review and evaluation process (SREP) is to ensure that institutions have adequate arrangements, strategies, processes and mechanisms as well as capital and liquidity to ensure sound management and adequate coverage of their risks to which they are or might be exposed, including those revealed by stress testing and those risks institutions may pose to the financial system.
See here for more background information about Prudential requirements, ICAAP & SREP.
The SREP is a core part of the obligations placed upon the Financial Conduct Authority under CRD IV and requires the regulator to determine the adequacy of a firm’s Internal Capital Adequacy Assessment Processes (ICAAP).
Since the EBA's SREP Guidelines lay out the approach the FCA must take in their prudential assessments, firms will find the details useful in preparing suitable systems and controls, policies and procedures for their ICAAPs.
Should your firm require ICAAP support services such as assistance in examining your ICAAP to ensure it is appropriately assessed for your current business plan and activities or require assistance in documenting this review, our experienced ICAAP Consultants can help, so get in touch.
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