Continuous assessment of risks, escalation framework and supervisory measures
Competent authorities should continuously assess the risks to which the institution is or might be exposed through their supervisory activities in accordance with the SREP engagement model set out in section 2.4.
Competent authorities should ensure that the findings of their assessments are clearly documented, with a focus on the root causes of the identified deficiencies. These findings should be reflected in the SREP scores assigned in accordance with these guidelines and should inform subsequent supervisory measures that competent authorities may apply as specified in Articles 102, 104 and 105 of Directive 2013/36/EU and national law, and, when applicable, early intervention measures as specified in Article 27 of Directive 2014/59/EU, or any combination of the above.
As part of their ongoing supervisory activities, competent authorities should undertake appropriate and timely follow-up activities to ensure that an institution has effectively addressed the identified deficiencies. In this regard, competent authorities should establish a high-level escalation framework for supervisory measures, supporting the selection of the most appropriate measures (both quantitative and qualitative) to address the identified deficiencies. This is without prejudice to the supervisory powers provided under the applicable legal framework and the competent authorities’ discretion to determine the most appropriate measures based on the specific circumstances and deficiencies.
The framework referred to in the previous paragraph should consider the following actions, which are not to be intended to be strictly sequential and may be escalated or de-escalated as appropriate:
engaging in an enhanced supervisory dialogue with the institution, such as holding a meeting with the management body or requiring a self-assessment from the institution;
communicating corrective actions expected from the institution (non-binding measures), such as supervisory expectations or recommendations;
requiring specific corrective action(s) from the institution (binding measures), such as setting qualitative measures the institution needs to comply with and/or setting/increasing Pillar 2 requirement or liquidity requirements;
enforcing supervisory measures to remedy the deficiencies identified, such as administrative penalties, remedial measures or fines.
When selecting supervisory measures, competent authorities should identify the full escalation path, taking into account the information available, the nature, size and complexity of the institution and the need to ensure timely remediation of identified deficiencies. The selection should be guided by the following considerations, as applicable:
the intended outcome that the measures aim to achieve and, where feasible, the expected timelines for the institution to address the deficiencies;
the severity of the deficiencies and the potential prudential impact of not addressing the issue (i.e. whether it is necessary to address the issue with a specific measure) and whether the deficiencies have already been addressed/covered by other measures;
the demonstrated ability or intention of the institution to remediate to the deficiencies;
whether other measures would achieve the same objective with less of an administrative and financial impact on the institution;
the possibility that risks and vulnerabilities identified may be correlated or self-reinforcing, or both, meriting an increase in the rigorousness of supervisory measures;
any other factors deemed relevant by the competent authorities.
Without prejudice to the discretion of the competent authorities in selecting the most appropriate measures, all available quantitative and qualitative measures should be used in a way that allows to best address the risk level and/or deficiencies. This should take into account the nature of the risk (quantitative and/or qualitative), the escalation process, and the fact that quantitative measures should be applied to address deficiencies in internal governance, including internal control arrangements, and other issues, where other supervisory measures have not been effective or are considered insufficient to address the identified deficiencies within an appropriate timeframe(16).
The provisions of this title are without prejudice to the possibility of competent authorities taking supervisory measures directly linked to the outcomes of any supervisory activities (e.g. on-site examinations or assessments of the suitability of members of the management body and key functions) where the outcomes of such activities necessitate immediate application of supervisory measures to address material deficiencies.