The European Central Bank has announced a number of reforms to its Supervisory Review and Evaluation Process (SREP), aiming to make its supervision more efficient and effective.
Beginning this summer, banks will receive streamlined SREP decisions that prioritize strategic risk drivers and material weaknesses — marking a move away from exhaustive documentation toward more targeted, dialogue-driven oversight. Qualitative recommendations will shift to the annexes. In so doing, the ECB hopes to facilitate a clearer understanding of supervisory expectations on the part of banks. Importantly, while the form is changing, the supervisory substance is not — banks remain accountable for all outstanding measures regardless of their priority.
At the same time, the ECB is revising its approach to identifying shortcomings, or "findings," by adopting a "tiered" approach, which will roll out this July. Severe issues (F3/F4) will still undergo detailed scrutiny, but less critical findings (F1/F2) will be subject to bank-led resolution, under internal governance. "The new approach to findings and measures aims to shift the focus towards the risks and issues which merit the most attention, i.e. the most material shortcomings," the ECB wrote. "This will provide more flexibility to banks and lead to a reduction in the resources required for addressing and checking the low-severity findings."
Join The Discussion