Single Supervisory Mechanism: the specifics of SREP

SSM: specifics of SREP

A review of the common set of methodologies and standards to cover SREP.

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The main features of the Single Supervisory Mechanism (SSM) Supervisory Review and Evaluation Process (SREP) are defined in the Capital Requirements Directive IV (CRDIV) package and the European Banking Authority (EBA) guidelines (EBA/GL/2014/13) on common procedures and methodologies for the supervisory review and evaluation process.

Based on this homogenous framework for all financial institutions throughout the European Union (EU), the SSM has developed a common set of methodologies and standards to cover topics such as the details of the SREP and it is applied proportionately to both significant and less significant institutions.  

Main elements

In the SSM SREP approach we can clearly identify these three elements:

  • Risk assessment system (RAS) to assess banks´ risk level and controls.
  • Comprehensive review of the banks´ Internal Capital Adequacy Assessment Process (ICAAP) and the Internal Liquidity Adequacy Assessment Process (ILAAP).
  • Supervisory proxies are a key element of the new supervision. In other words, it would mean a capital and liquidity supervisory quantification methodology to evaluate (and challenge) banks‘ capital and liquidity needs given the results of the risk assessment. They would use a wide range of backward and forward-looking information.  

Main characteristics

Some of the main features of the new supervisory framework are the following:

  • Extensive analysis of business model, risk situation, governance and processes.
  • Independent assessment and quantification of the capital and liquidity
    situation by supervisors, including the use of "challenger models.”
  • Significantly extended scope and standardization of supervisory collection and analysis of key indicators. Active monitoring and management of key indicators by banks becomes even more important.
  • Risk-based approach - there is a direct link between a bank´s overall
    risk profile assessment and the level of the supervisory engagement.
  • Proportionality - for the application of this principle, institutions are classified into categories defining the frequency of elements of the SREP.

SSM SREP Timeline

The supervisory cycle is an ongoing process in a continuous movement. The key milestones are included in the table below.

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