​EBA publishes its Peer Review on the application of proportionality under the Supervisory Review and Evaluation Process

​The European Banking Authority (EBA) today published its Peer Review on the application of proportionality under the Supervisory Review and Evaluation Process (SREP). The Peer Review found that proportionality in the SREP, and in the liquidity assessment under the SREP, is largely implemented by the competent authorities under review, though with some adaptations to the local context and the risk profile of the institutions under their supervisory remit. However, the EBA set out a series of follow-up measures to address the deficiencies identified. In particular, the EBA encourages all competent authorities to ensure that they make use of the proportionality mechanisms embedded in the SREP Guidelines. The EBA will also consider the outcome of this Peer Review in the context of the upcoming review of the SREP Guidelines.​The Peer Review was conducted on six competent authorities selected to be broadly representative of the range of prudential supervisors across the EU. Despite the overall positive results of the peer review on the application on proportionality in SREP and in the liquidity risk assessment under SREP, the deficiencies identified concerned consistency of implementation of the SREP Guidelines, sources used for SREP categorisation and implementation of the minimum supervisory engagement model. While these do not lead to material risks being unaddressed, they undermine the aim of the SREP Guidelines of having a more consistent approach across the EU. ​To address these deficiencies, the EBA identified a number of follow-up measures addressed to all competent authorities across the European Economic Area (EEA). These include incorporating the classification of ‘large’ and ‘small and non-complex’ institutions under the Capital Requirements Regulation (CRR) into the categorisation of institutions for SREP purposes, and aligning to the minimum supervisory engagement model and in the area of liquidity stress testing. ​In addition, the Report sets out a number of best practices observed such as the use of benchmarking tools, ‘pilot inspections’ where several institutions use the same service provider, and spot checks on the quality, accuracy and reliability of information provided by institutions in self-assessment questionnaires.​​The EBA strongly encourages the use of provisions included in the SREP Guidelines for the application of proportionality in the SREP. The Peer Review exercise found that some of these were not being used in practice or not to their full extent. Examples include provisions allowing supervisors to: ​adapting the focus and granularity of the SREP assessments according to the risk profile of the institution regardless of their categorisation; ​using tailored methodologies for institutions with similar risk profiles; and, ​conducting thematic SREP assessments on multiple institutions as a single assessment (‘clustering’).​Legal basis and next steps​The EBA will conduct a follow-up peer review of the implementation of the measures included in the Report in two years.​The EBA will consider the outcome of this Peer Review in the context of the upcoming review of the SREP Guidelines. In particular, the EBA will consider providing more clarity on how the focus and granularity of the SREP assessment could be adapted to the risk profile of the institution and on the scope and level of assessments to be performed under the minimum supervisory engagement model.