Application of the SREP to cross-border groups
This title addresses the application of the common SREP procedures and methodology as specified in these guidelines in relation to cross-border groups and their entities. It also provides links with the joint assessment and decision process to be carried out pursuant to Article 113 of Directive 2013/36/EU and Commission Implementing Regulation (EU) No 710/2014 with regard to conditions of application of the joint decision process for institution-specific prudential requirements.
In the SREP, competent authorities should also consider the potential ML/TF risks, taking into account input received from the AML/CFT competent authority of the Member State where a parent undertaking is established as well as AML/CFT supervisors responsible for the AML/CFT supervision of establishments of the group in different jurisdictions, in particular the assessments of ML/TF risks, material weaknesses and breaches of AML/CFT legislation, that are linked to the cross-border banking group structure.
When assessing prudential implications of ML/TF risks in the SREP for a cross-border group, competent authorities should leverage the information obtained through bilateral engagements with relevant AML/CFT competent authorities in accordance with the AML/CFT Cooperation Guidelines and through their participation in AML/CFT colleges(54) and prudential colleges.
11.1Application of the SREP to cross-border groups
When applying the SREP and these guidelines to cross-border groups, competent authorities should assess the viability of the group as a whole, as well as its individual entities. This can be done by dividing the process into two stages: (1) competent authorities make an initial assessment of entities under their direct supervision, and (2) competent authorities jointly discuss and finalise the assessment within the framework of colleges of supervisors pursuant to the requirements of Articles 113 and 116 of Directive 2013/36/EU.
consolidating supervisors should perform the initial assessment of the parent undertaking and the group of institutions on a consolidated level; and
competent authorities should perform the initial assessment on the entities under their supervision (individual, or sub-consolidated, where relevant).
Where these guidelines are applied to the subsidiaries of a cross-border group as specified in the paragraph above, competent authorities for subsidiaries should, when performing their initial assessment, primarily consider institutions on an individual basis, i.e. assess the business model, strategy, internal governance and institution-wide controls, risks to capital and liquidity, and capital and liquidity adequacy of an entity as they would a standalone institution. The findings from such initial assessments, where relevant, should also include identification of key vulnerabilities in the cross-border or group context, which may be related to the reliance of an institution on its parent/group for funding, capital, technological support, etc. In their initial assessments made on an individual basis, competent authorities should also reflect strengths and mitigating factors related to the entity being part of the group, which may be related to group technological support, financial support arrangements, etc.
The results of any such initial assessment of the SREP elements, including, if identified, views on key dependencies on the parent/group, should serve as an input into the joint assessment and decision process pursuant to the requirements of Article 113 of Directive 2013/36/EU, and should therefore be discussed by the competent authorities within the framework of the colleges of supervisors established pursuant to Article 116 of Directive 2013/36/EU.
Following the discussions within the framework of colleges of supervisors and outcomes of the joint assessment process, competent authorities should finalise their respective SREP assessments, making the necessary adjustments based on the outcomes of the college discussions.
Where a competent authority’s initial assessment has revealed specific deficiencies related to intra-group positions (e.g. high concentration of exposures to the parent undertaking, reliance on intra-group funding, concerns about the sustainability of an entity’s strategy, etc.) negatively affecting the overall viability of the entity on an individual basis, competent authorities should, within the framework of the colleges of supervisors, discuss whether the final assessment of an entity should be changed considering the overall group dimension, including the consolidated group business model, strategy and existence and specific features of intra-group financial support arrangements.
Competent authorities should discuss and coordinate the following within the framework of colleges of supervisors:
planning, including frequency, and timelines for performing the assessment of various SREP elements for the consolidated group and its entities to facilitate preparation of the group risk and liquidity risk reports required for the joint decisions as specified in Article 113 of Directive 2013/36/EU;
details of the application of benchmarks used for the assessment of SREP elements;
approach to assessing and scoring subcategories of risks individually, where such subcategories have been identified as material;
inputs required from the institution at consolidated and entity level for conducting the assessment of SREP elements, including those from the ICAAP and ILAAP;
outcomes of the assessment, including the SREP scores assigned to various elements, and the overall SREP assessment and overall SREP score at consolidated and entity level. When discussing the assessment of individual risks to capital and liquidity, competent authorities should focus on the risks that are identified as material for the respective entities;
cross-border prudential implications of ML/TF risks and concerns; and
planned supervisory and early intervention measures, if relevant.
When preparing the summary of the overall SREP assessment for the cross-border group and its entities, competent authorities should structure it in a way that will facilitate filling in the templates for the SREP report, group risk report, liquidity risk assessment and group liquidity risk assessment report templates required for the joint decision under Article 113 of Directive 2013/36/EU as specified in the Commission Implementing Regulation (EU) No 710/2014 with regard to conditions of application of the joint decision process for institution-specific prudential requirements.
11.2SREP capital assessment and institution-specific prudential requirements
The determination of capital adequacy and related requirements and guidance in accordance with the process described in Title 7 for cross-border groups is part of the competent authorities’ joint decision process pursuant to Article 113 of Directive 2013/36/EU.
The exercise of supervisory powers and the taking of supervisory measures, including with regard to imposing additional own funds pursuant to Article 104(1)(a) at consolidated or individual entity level as specified in Title 7 should be subject to the joint decision of the competent authorities pursuant to Article 113 of Directive 2013/36/EU.
For parent or subsidiary institutions of a cross-border group, the application of additional own funds requirements pursuant to Article 104(1)(a) of Directive 2013/36/EU should be carried out in accordance with the joint decision process provided for in Article 113(1)(a) of that Directive.
In the context of discussions on the adequacy of the level of own funds and determining additional own funds requirements, competent authorities should consider:
the assessment of the materiality of risks and deficiencies identified at both consolidated and individual entity level (i.e. which risks are material to the group as a whole and which are material to just one entity) and the level of own funds required to cover such risks;
where deficiencies identified are common across all entities (e.g. same governance deficiencies present in all entities, or deficiencies in the models used across several entities), coordinating the assessment and supervisory response, and in particular, deciding whether measures should be imposed at a consolidated level or proportionally at entity level for the entities where common deficiencies are present;
outcomes of ICAAP assessments and views on the reliability of ICAAP calculations and their use as an input in determining additional own funds requirements;
outcomes of the supervisory benchmark calculations used to determine additional own funds requirements for all entities within the group and at a consolidated level; and
additional own funds requirements to be imposed on entities and at a consolidated level to ensure there is consistency of final own funds requirements and whether there is a need for transferring own funds from consolidated to entity level.
To determine the TSCR as specified in Title 7, competent authorities should consider the same level of application as the joint decision requirements under Article 113(1)(a) of Directive 2013/36/EU. In particular, the TSCR and other capital measures, if applicable, should be set at consolidated and solo levels for entities operating in other Member States. For the sub-consolidated level, the TSCR and other capital measures should cover only the parent undertaking of the sub-consolidated group to avoid double counting of additional own funds requirements considered by competent authorities for subsidiaries in other Member States.
If the outcome of the supervisory assessment of the risk of excessive leverage for the parent or subsidiary institutions of a cross-border group is that additional own funds requirements to address the risk of excessive leverage should be set, that should be carried out in accordance with the joint decision process provided for in Article 113(1)(a) CRD and reflect the separate stack of own funds requirements based on the leverage ratio.
In the context of the discussions on the adequacy of the level of own funds to cover the risk of excessive leverage and determining additional own funds requirements, competent authorities should consider:
aspects included in paragraph 394;
additional own funds requirements to cover the risk of excessive leverage imposed on entities and at a consolidated level to ensure there is consistency of final own funds requirements and whether there is a need for transferring own funds from consolidated to entity level.
All the relevant information regarding the determination of P2G (including its size, the composition of own funds to cover it, and supervisory reaction) for parent or subsidiary institutions of a cross-border group should be shared among competent authorities and the setting of the P2G and P2G-LR should be carried out in accordance with the joint decision process pursuant to Article 113(1)(c), of Directive 2013/36/EU. In particular, competent authorities should discuss the approach to establishing P2G at solo level where no data from the supervisory stress tests is available at solo level, or, where relevant, agree on the application of P2G at consolidated level only.
The P2G and P2G-LR should be subject to joint decision of the competent authorities pursuant to Article 113(1)(c) of Directive 2013/36/EU and should be duly reflected in the joint decision document prepared in accordance with Article 113 of Directive 2013/36/EU.
11.3SREP liquidity assessment and institution-specific prudential requirements
For Article 113(1)(b) of Directive 2013/36/EU, competent authorities should consider ‘matters’ to be significant and/or ‘findings’ to be material at least where:
11.4Application of other supervisory measures
Competent authorities responsible for the supervision of cross-border groups and their entities should discuss and coordinate, where possible, application of all supervisory and early intervention measures to the group and/or its material entities to ensure that the most appropriate measures are consistently applied to the identified vulnerabilities, taking into account the group dimension, including inter-dependencies and intra-group arrangements as discussed above.
Competent authorities responsible for the prudential supervision of entities of a cross-border group should, when imposing supervisory or administrative measures including sanctions on institutions for their failure to address deficiencies related to ML/TF risks adequately, liaise with the relevant AML/CFT supervisors in accordance with Section 8 of the AML/CFT Cooperation Guidelines(55) and in line with the respective authorities’ mandates and functions, consider the most appropriate prudential supervisory measures to address these deficiencies and risks in addition to any measures taken by the AML/CFT supervisors.