Summary of findings, scoring and supervisory measures
Following the above assessments, competent authorities should form a view on the institution’s IRRBB and CSRBB. This view should be reflected in a summary of findings, accompanied by a score based on the considerations specified in table 12. If, based on the materiality of certain risk subcategories, the competent authority decides to assess and score them individually, the guidance provided in this table should be applied, as far as possible, by analogy.
Table 12. Supervisory considerations for assigning an IRRBB and CSRBB score
Supervisory view | Considerations in relation to Considerations in relation to inherent risk adequate management and controls |
There is a low risk of significant prudential impact on the institution considering the level of inherent risk and the management and controls. There is a medium-low risk of significant prudential impact on the institution considering the level of inherent risk and the management and controls. | For IRRBB: For IRRBB and CSRBB: • The sensitivity of the economic • There is consistency between the value to changes in interest rates institutions risk policy and is not material/very low. strategy for interest rate- and • The sensitivity of earnings to credit spread risk and its overall changes in interest rates is not strategy and risk appetite. material/very low. • The organisational framework for • The sensitivity of the economic interest rate and credit spread value and earnings to changes in risk is robust with clear the underlying assumptions (e.g. responsibilities and a clear in the case of products with separation of tasks between risk-embedded customer optionality) takers and management and are not material/very low. control functions. For IRRBB: • Interest rate and credit spread • The sensitivity of the economic risk measurement, monitoring value to changes in interest rates and reporting systems are is low to medium. appropriate. • The sensitivity of earnings to • There are clearly defined internal changes in interest rates is low to policy limits together with their medium. associated risk mitigation • The sensitivity of the economic measures, and the control value and earnings to changes in framework for interest rate and the underlying assumptions (e.g. credit spread risk (if material) that in the case of products with are sound and are in line with the embedded customer optionality) institution’s risk strategy and risk is low to medium. . appetite. |
There is a medium-high risk of significant prudential | For IRRBB: • There is inconsistency between • The sensitivity of the economic the institution’s risk policy and value to changes in interest rates strategy for interest rate- and is medium to high. |
Risk score
1
2
3
Supervisory view | Considerations in relation to Considerations in relation to inherent risk adequate management and controls |
impact on the institution considering the level of inherent risk and the management and controls. There is a high risk of significant prudential impact on the institution considering the level of inherent risk and the management and controls. | • The sensitivity of earnings to credit spread risk and its overall changes in interest rates is strategy and risk appetite. medium to high. • The organisational framework for • The sensitivity of the economic interest rate and credit spread value and earnings to changes in risk does not sufficiently separate the underlying assumptions (e.g. responsibilities and tasks in the case of products with between risk-takers and embedded customer optionality) management and control is medium to high. functions. • Interest rate and credit spread For IRRBB: risk measurement, monitoring • The sensitivity of the economic and reporting systems are not value to changes in interest rates undertaken with sufficient is high. accuracy and frequency. • The sensitivity of earnings to • Internal policy limits, risk changes in interest rates is high. mitigation measures and/or the • The sensitivity of the economic control framework for interest value and earnings to changes in rate and credit spread risk (if the underlying assumptions (e.g. material) are not aligned among in the case of products with themselves or not in line with the embedded customer optionality institution’s risk strategy and risk is high.) appetite. |
Risk score
4
The table below presents a non-exhaustive list of supervisory measures that competent authorities may take in case of identified deficiencies in the institution’s IRRBB and CSRBB management framework. Competent authorities should decide on the type of the measure based on its effectiveness to the specific identified deficiency. Competent authorities may apply additional supervisory measures (including quantitative measures in accordance with Article 104(1)(a) of the Directive 2013/36/EU) or a combination of them if these are deemed more appropriate to address the identified deficiencies.
Table 13. Potential and non-exhaustive supervisory measures for IRRBB and CSRBB Potential supervisory measures for competent authorities in accordance with Article 104(1), points (b), (d), (e), (f), (j), and (l) and Article 84(3) of Directive 2013/36/EU – Competent authorities may require the institution to: A. enhance their stress testing capacity; B. enhance the reporting of IRRBB management information to the management body and senior management; C. apply variations to internal limits to reduce the risk inherent in activities, products and systems; D. provide additional or more frequent reporting of the institutions’ IRRBB positions; E. use the standardised methodology for IRRBB; F. specify modelling and parametric assumptions, other than those identified by the EBA RTS (in accordance with the last paragraph of Article 98(5) of Directive 2013/36/EU.