Supervisory review - Article 144(c)
Competent authorities are required to disclose the general criteria and methodologies they use in the review and evaluation referred to in Article 124 (the Supervisory Review and Evaluation Process) of the Capital Requirements Directive.
The Supervisory Review and Evaluation Process (SREP) is part of the larger Supervisory Review Process. The competent authority conducts the SREP. It is a comprehensive process which supervisors use to review and evaluate the institution's exposure to risks. It is also used to review and evaluate the adequacy and reliability of the institution's Internal Capital Adequacy Assessment Process (ICAAP), and the adequacy of the institution's own funds and internal capital in relation to the assessment of its overall risk profile. It is done to monitor ongoing compliance with standards laid down in the CRD and to identify any weakness or inadequacies and necessary prudential measures.
The ICAAP is another element of Supervisory Review. The institution conducts the ICAAP. It is a comprehensive process including the management body and senior management oversight, monitoring, reporting and internal control reviews that institutions must have to identify and measure their risks. This allows them to ensure they make adequate provisions for holding internal capital in relation to their risk profile.
The supervisory disclosure framework provides information on both minimum standards and requirements for ICAAP and on how competent authorities conduct SREPs.
The Committee of European Banking Supervisors (CEBS)1 has identified four building blocks of supervisory activity that form the core SREP. They are common to all competent authorities:
- Scope of application (including proportionality)
- Individual risk assessment
- Review and evaluation of ICAAP
- Overall assessment and supervisory measures
Supervisory review template [ Excel ]
We have disclosed the criteria and methods used in the first three categories and for the overall assessments in the fourth category. However, we have made no disclosures about decisions on individual institutions.
Disclosures relating to the SREP employ a two-tiered architecture. First, guidelines and explanatory notes posted on the CEBS website provide an over understanding of the general features to be implemented by national authorities under each category. And second, an executive summary giving an overview of how the UK implements its SREP.
Footnote
1CEBS' Guidelines on the Application of the Supervisory Review Process under Pillar 2
CEBS' Guidelines on Supervisory cooperation for cross-border banking and investment firms groups.