EBF adviser: Saif Chaibi 

Publication date: 31 January 2018

Key points:

• The EBF supports this general review of the Supervisory Review and Evaluation Process (SREP) guidelines since it would enhance the current framework improving clarity on certain aspects and ensuring greater harmonization. In this sense, the clarifications on the Pillar 2G and the link between other supervisory activities and the SREP decisions are welcomed.
• We appreciate EBA’s efforts to improve proportionality and recommend adapting all aspects of the Guidelines to the proportionality principle. It is important that the SREP process reflects differences in size, complexity and business models.
• Transparency must be ensured regarding the use of peer groups, these should be explicitly communicated to institutions, including the methodology for their constitution. Entities must be able to understand their relative positioning which is a key information for a total understanding of their SREP assessment.
• The benefits of diversification are not adequately recognized in the guidelines, both between risks and across geographies. We consider the approach to Pillar II should not be just a Pillar I plus some add-ons, but a comprehensive overview of the risk profile of an institution.
• The EBF welcomes the efforts undertaken in order to ensure transparency in relation to the methodology of computation of the Pillar 2 Guidance and the clarification provided in relation to its link to relevant supervisory stress tests. Notwithstanding this, EBA must specify how results of supervisory stress tests are used to determine P2G and provide more detailed, quantitative explanations on the inclusion of stress test results in P2G.
• The EBF recommends to EBA to specify that P2G disclosure should not be required by local authorities under any circumstances. concerns arise from the possibility that local market authorities may require the disclosure of P2G which has no relevance for the Maximum Distributable Amount. This may create disclosure pressure across the markets and possibly make the requirement binding.
• The EBF opposes the requirement that imposes on institutions to meet their P2G requirement only with CET1 instruments. Institutions must be allowed to use other instruments to meet their P2G requirements such as AT1 and T2 capital instruments. On the other hand P2G should also be used to cover a AT1 or T2 shortfall. This is supported by the definition of the stacking order.
• Overlaps between P2G and other applicable macro-prudential measures should be avoided. In this sense, competent authorities should consider the extent to which the existing combined buffer requirements and other applicable macro-prudential measures already cover risks revealed by stress testing. The P2G should in general be offset against the capital conservation buffer and in some cases the countercyclical capital buffer.