Consultations launched by the EBA to strengthen the Pillar 2 framework

01 November 2017

The European Banking Authority (EBA) in accordance with its Pillar 2 Roadmap launched a public consultation to review three guidelines aimed at further enhancing institutions’ risk management and supervisory convergence in the supervisory review and examination process (SREP). The revisions focus on stress testing, particularly its use in setting Pillar 2 capital guidance (P2G), as well as interest rate risk in the banking book (IRRBB). The consultations on all three guidelines run until 31 January 2018.

In particular, the publication includes:

  • an update of the EBA guidelines on common procedures and methodology for Supervisory Review and Evaluation Process (SREP Guidelines);
  • an update of the EBA guidelines on the management of interest rate risk arising from non-trading activities (IRRBB Guidelines); and
  • an update of the EBA guidelines on institutions’ stress testing.

The comprehensive EU SREP framework, which was introduced by the EBA in 2014, is now well established and in use by supervisors across the EU. Following the global regulatory developments, as well as the EBA’s supervisory convergence assessments, specific changes are needed to reinforce the framework as set out in the EBA’s Pillar 2 Roadmap.
The overall SREP framework and the Guidelines remain intact and the consultation is only focused on the elements being updated. In particular, the revisions enhance the requirements for supervisory stress testing and explain how stress testing outcomes will be used in setting P2G. The guidelines have also been updated with assessments of internal governance based on the recently revised EBA Guidelines on internal governance.
IRRBB Guidelines
The revised IRRBB Guidelines reflect developments in the Basel Committee on Banking Supervision (BCBS) and clarify internal governance and supervisory outlier tests requirements during the first phase of the European implementation of the Basel standards. The revisions are, therefore, intended to act as a bridge to the future requirements, which will be incorporated in the CRD V/ CRR2 framework.
Stress testing update
The revised guidelines on institutions’ stress testing update the EBA’s 2010 guidelines to reflect industry practices and the incorporation of recovery planning. The revised guidelines also feature a common taxonomy on stress testing.
Implemention expected by 1 January 2019
In accordance with the Pillar 2 Roadmap, these three guidelines are being consulted in parallel and are expected to be implemented by 1 January 2019 for the 2019 cycle of SREP and joint decisions on institution-specific prudential requirements.
For information about the consultation process, please visite website of the EBA.

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