Telephone 020 3813 2890 for a free no obligation chat about your regulatory requirements with one of our compliance consultants.

© Compound Growth Limited 2012 - 2018 | Terms of Use

Registered in England and Wales as limited company number 07626537 - Registered Office 120 Pall Mall, London, SW1Y 5EA

We use cookies, if you consent to this use, please continue to browse our site.

Here to help with Regulation and Compliance

Compound Growth

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.

• View the Revised SREP Guidelines here

Overview:

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.

Changes to SREP Guidelines:

The changes to SREP guidelines include:

• a section on Pillar 2 capital guidance;
• Supervisory stress testing requirements
• Clarification on the scoring framework; and
• Consistency checks with relevant EBA standards and guidelines, in particular in the areas of internal governance and institution wide controls assessment

Overview of Pillar 2:

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.

Why do changes to SREP matter?

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.

ICAAP Support Services

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.

Read our latest articles, news and views affecting compliance and regulation in the UK Financial Services Industry.