Chappuis Halder - SREP one pager april 2015

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Risk Assessment Score ILAAP Internal Target ECB in the starting block for SREP review The Supervisory Review and Evaluation Process (SREP) is a wide risk assessment of the bank business model, governance, capital and liquidity performed by the European Central Bank (ECB) starting end of 2015 SREP quantitative assessment will be based on banks regulatory reportings (COREP, FINREP, STE, …), whereas qualitative assessment will be performed through the supervisory dialog Final objectives of the supervisor are to quantify Pillar II capital and liquidity extra requirements and to start building benchmarks for banks under it’s supervision Supervisory Review and Evaluation Process SREP Score is made of three distinct parts 1 2 3 4 F SREP SCORE SREP QUANTIFICATION SREP ASSESSMENT A B C Business Model Assessment Governance and Risk Model Risk by Risk Capital Assessment Liquidity Assessment Visibility and sustainability of Business Model Adequacy of governance and risk model ICAAP benchmarking Stressed ICAAP benchmarking Risk Assessment Score Pillar II capital requirement(s) Pillar II liquidity requirement(s) A1 A2 A3 B1 B2 A4 B3 B SREP ASSESSMENT Rating between 1 and F (failure) communicated annually to boards of banks A C + + Overall score SREP evaluation will be based on the following criteria: Governance | Analysing consistency in internal governance and controls, procedures and processes Business models | Studying the business environment as well as the sustainability of the strategy, financial plans, profitability forecasts Capital adequacy | Assessing risk contributions to capital (Pillar I as well as Pillar II risks / ICAAP and Stressed ICAAP) and the consistency of risk measures Liquidity and funding| Identifying risks to liquidity, as well as liquidity sources and resources and their capacity to cover liquidity and funding needs in terms of financial and economic distress (including ILAAP / article 86 of CRD IV) 1/2 SREP Methodology overview

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Transcript of Chappuis Halder - SREP one pager april 2015

  • Risk Assessment

    Score

    ILAAP

    Internal Target

    ECB in the starting block for SREP review

    The Supervisory Review and Evaluation Process (SREP) is a wide risk assessment of the bank businessmodel, governance, capital and liquidity performed by the European Central Bank (ECB) starting endof 2015

    SREP quantitative assessment will be based on banks regulatory reportings (COREP, FINREP, STE, ),whereas qualitative assessmentwill be performed through the supervisory dialog

    Final objectives of the supervisor are to quantify Pillar II capital and liquidity extra requirements andto start building benchmarks for banks under its supervision

    Supervisory Review and Evaluation Process

    SREP Score is made ofthree distinct parts

    1 2 3 4 F

    SREP SCORE SREP QUANTIFICATION SREP ASSESSMENTA B C

    Business Model Assessment

    Governance and Risk Model Risk by Risk Capital Assessment Liquidity Assessment

    Visibility and sustainability of Business Model

    Adequacy of governance and risk

    model

    ICAAP

    benchmarking

    Stressed ICAAP

    benchmarking

    Risk Assessment

    Score

    Pillar II capital requirement(s)

    Pillar II liquidity requirement(s)

    A1 A2 A3 B1 B2 A4 B3

    B SREP ASSESSMENTRating between 1 and F(failure) communicatedannually to boards ofbanks

    A C+ +Overall score

    SREP evaluation will be based on the following criteria: Governance | Analysing consistency in internal governance and controls, procedures and processes Business models | Studying the business environment as well as the sustainability of the strategy,

    financial plans, profitability forecasts Capital adequacy | Assessing risk contributions to capital (Pillar I as well as Pillar II risks / ICAAP and

    Stressed ICAAP) and the consistency of risk measures Liquidity and funding| Identifying risks to liquidity, as well as liquidity sources and resources and

    their capacity to cover liquidity and funding needs in terms of financial and economic distress (including ILAAP / article 86 of CRD IV) 1/2

    SREP Methodology overview

  • Governance / capital & liquidity allocation

    Methodologies, models, data

    EBA underlying objectives Implications for the financial institutions

    Control & processes

    Strengthen risk appetite definition and documentation

    Harmonisation of ICAAP, stressed ICAAP and ILAAP frameworks

    Homogenise capital & liquidity measures Understand detailed banks business

    models (profitability, forecasting, operational efficiency)

    Ensure Pillar II coverage of all risks (rate risk - IRRBB, concentration, diversification effect, reputation) not measured with Pillar 1

    Ensure comprehensiveness of data framework (linkages with BCBS 239 and post-AQR action plan)

    Simplification, strengthening and harmonisation of control & monitoring framework

    Review of ICAAP & ILAAP framework Adjustment of risks to capital profile

    & liquidity and funding risk profile Less flexibility in terms of capital &

    liquidity allocation

    Challenge of all deviations, exceptions, exemptions validated by the local regulator so far

    Potential P&L and Balance Sheet impacts

    Less flexibility in terms of methodology andmodel design

    Establish new control processes between regulatory reporting

    Enhance monitoring and reporting tools

    Improve IT architecture

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    Supervisory Review and Evaluation Process

    Vincent [email protected]

    Charles [email protected]

    SREP induces 3 major challenges for the Financial Institutions

    Our approach

    We have built a methodology in order to anticipate SREP process based on market practice and our Pillar II expertise

    We have prepared a benchmark and sensitivity analysis to anticipate the key drivers your SREP process

    As a result we are able to prepare a detailed work plan in order to help bank to be ready for the supervisory dialog