European Banking Authority peer review finds SREP proportionality largely implemented but calls for follow-up measures to address deficiencies

The European Banking Authority published a peer review on how competent authorities apply proportionality in the Supervisory Review and Evaluation Process (SREP), including the liquidity assessment under SREP. It found proportionality is largely implemented by the authorities reviewed, with adaptations reflecting local context and supervised institutions’ risk profiles, but set out follow-up measures to address identified shortcomings and encouraged broader use of proportionality tools embedded in the SREP Guidelines. The review covered six competent authorities and highlighted deficiencies affecting consistency in implementing the SREP Guidelines, the sources used for SREP categorisation, and application of the minimum supervisory engagement model. While these were not assessed as leaving material risks unaddressed, they were seen as undermining the Guidelines’ objective of a more consistent EU approach. Follow-up measures addressed to all European Economic Area competent authorities include reflecting the Capital Requirements Regulation classification of ‘large’ and ‘small and non-complex’ institutions in SREP categorisation, and aligning practices to the minimum supervisory engagement model, including for liquidity stress testing. The report also noted best practices such as benchmarking tools, ‘pilot inspections’ where several institutions use the same service provider, and spot checks on the quality of information provided in self-assessment questionnaires, alongside underused proportionality options such as risk-profile-based tailoring irrespective of categorisation, tailored methodologies for similar risk profiles, and thematic assessments conducted as clustered reviews. The EBA will conduct a follow-up peer review on implementation of the report’s measures in two years and will feed the findings into its upcoming review of the SREP Guidelines, including potential clarification on adapting SREP focus and granularity to institutions’ risk profiles and on the scope and level of assessments under the minimum supervisory engagement model.