Title 9 Overall SREP liquidity assessment and communication
9.1 General considerations
505442. CompetentThis authoritiestitle shouldcovers determinehow through the SREPfindings liquidityfrom assessment whether the liquidityassessments and stable funding held by the institution provides appropriate coverage of theeach risks to liquidity and funding assessed in accordance with Title 8. Competent authorities should also determine through the SREP liquidityelements assessmentare whethercombined itinto is necessary to set specific liquidity requirements to cover risks to liquidity and funding to which an institution is or might be exposed.
506. Competent authorities should consider the institution’soverall liquiditySREP buffersassessment, counterbalancing capacity and funding profile, as well as itshow ILAAPthe andrespective arrangements,outcome policies,is processescommunicated and– mechanismsincluding forthe measuringarticulation and managingjustification liquidity and funding risk, as a key determinant of theown institution’sfunds viability.requirements This determination should be summarised and reflectedguidance. inIt aalso scoreaddresses basedhow on the criterianon-exhaustive specifiedsupervisory measures listed at the end of thiseach title.
507.relevant Thesections outcomesand titles of thethese ILAAP,guidelines whereinteract applicablewith andother relevant, shouldframeworks inform the competent authority’s conclusion on liquidity adequacy(i.
508e. Competentearly authoritiesintervention shouldmeasures, conductresolution theauthorities’ SREPassessments, liquiditymacroprudential assessment process using the following steps:
a. overall assessment of liquidity;
b. determination of the need for specific liquidity measures;
c. quantification of potential specific liquidity requirements – benchmark calculations;
d. articulation of specific liquidity requirements; and
e. determination of the liquidity scoreAML/CFT).
9.2 Overall assessmentSREP of liquidityassessment
509443. ToIn assessdetermining whether the liquidityoverall heldSREP by an institution provides appropriate coverage of risks to liquidity and fundingassessment, competent authorities should useconsider the followingfindings sources of information:
a. the institution’sassessments ILAAP;
b. the outcomes of the assessmentSREP of liquidity risk;
c. the outcomes of the assessment of funding risk;
d. the outcome of the supervisory benchmark calculation; and
e. other relevant inputs (from on-site inspectionselements, peer group analysis, stress testing, etc.).
510. Competent authorities should consider the reliability of the institution’s ILAAP, including metrics for liquidity and funding risk used by the institution.
511. When assessing the institution’s ILAAP framework – including, where relevant, internal methodologies for the calculation of internal liquidity requirements – competent authorities should assess whether ILAAP calculations arespecifically:
a. credible: whether the calculations/methodologies used properly cover the risks they are looking to address;which and
b. understandable: whether there is a clear breakdown and summary of the underlying components of the ILAAP calculations.
512. For the assessment of the institution’s liquidityis adequacy, competent authorities should also combine their assessments of liquidity risk and funding risk. in particular, they should take into account findings regarding:
a. risks not covered by liquidity requirements specified in Commission Delegated Regulation (EU) 2015/61, as regards the LCR, or inmay thebe Regulation (EU) No 575/2013 as regards the NSFR, including intraday liquidity risk and liquidity risk beyond the 30-day time period as well as funding risk beyond 1 yearexposed;
b. other risks not adequately covered and measured by the institution,likelihood as a result of underestimation of outflows, overestimation of inflows, overestimation of the liquidity value of buffer assets or counterbalancing capacity, or unavailability from an operational point of view of liquid assets (assets not available for sale, assets that are encumbered, etc.);
c. specific concentrations of counterbalancing capacity and/or funding by counterparty and/or product/type;
d. funding gaps in specific maturity buckets in the short, medium and long term;
e. appropriate coverage of funding gaps in different currencies;
f. cliff effects; and
g. other relevant outcomes of the supervisory liquidity stress tests.
513. Competent authorities should translate this overall assessment into a liquidity score, which should reflect the view of competent authorities on the threats to the institution’s viabilitygovernance, thatcontrol maydeficiencies arise from risks to liquidity and/or funding.
9.3 Determining the need for specific liquidity requirements
514. Competent authorities should decide on the necessity of specific supervisory liquidity requirements for the institution based on their supervisory judgement and following dialogue with the institution, taking into account the following:
a. the institution’s business model andor strategy andare thelikely supervisory assessment of them;
b. information from the institution’s ILAAP; and
c. the supervisory assessment of risks to liquidity and funding, including the assessment of inherent liquidity risk, inherent funding risk and liquidity and funding risk management and controls, taking into account the possibility that risks and vulnerabilities identified may exacerbate eachor other.
515.mitigate Whenthese competent authorities conclude that specific liquidity requirements are needed to address liquidity and funding concernsrisks, they should decide on the application of quantitative requirements, as covered in this title, and/or onexpose the applicationinstitution of qualitative requirements, as covered in Title 10.
516. When setting structural, long-term supervisory requirements, competent authorities should consider the need for additional short/medium-term requirements as an interim solution to mitigatenew thesources risksof that persist while the structural requirements produce the desired effects.risk;
517c. Wherewhether competent authorities conclude that there is a high risk that the institution’s cost of funding will increase unacceptably, they should consider measures, including setting additional own funds requirements (as covered in Title 7) to compensate for the increased P&L impact if the institution cannot pass the increased costs of funding to its customers, or requesting changes to the funding structure, to mitigate the funding-cost risk.
9.4 Determination of specific quantitative liquidity requirements
518. Competent authorities should develop and apply supervisory liquidity benchmarksresources asprovide quantitative tools to support their assessment of whether the liquidity held by the institution provides sound coverage of risksthese to liquidity and funding. They should be used to provide a prudent, consistent, transparent and comparable benchmark with which to calculate and compare specific quantitative liquidity requirements for institutions.
519. When developing supervisory liquidity benchmarks, competent authorities should take into account the following criteria:
a. benchmarks should be prudent, consistent and transparent;
b. benchmarks should be developed using the supervisory assessment of risks to liquidity and funding and the supervisory liquidity stress tests; supervisory liquidity stress testing should be a core part of the benchmark;
c. benchmarks should provide comparable outcomes and calculations so that quantifications of liquidity requirements for institutions with similar business models and risk profiles can be compared; and
d. benchmarks should help supervisors to specify the appropriatepotential level of liquidity for anpositive institution.
520. Given the variety of different business models operated by institutions, the outcome of the supervisory benchmarks may not be appropriate in every instance for every institution. Competent authorities should address this by using the most appropriate benchmark where alternatives are available, and/or bynegative applyinginteraction judgementbetween to the outcomeelements of the benchmark to account for business-model-specific considerations(e.
521g. Competent authorities should assess the suitability of any benchmarks applied to institutions and continually review and update them in light of the experience of using them.
522. When competent authorities takemay supervisoryconsider benchmarksa intostrong considerationcapital forposition the determination of specific liquidity requirements, as part of the dialogue, they should explain to thebe institutiona thepotential rationalemitigating andfactor general underlying principles behind the benchmarks.
523. Where competent authorities have not developed their own benchmark for thecertain quantificationconcerns ofidentified specific quantitative liquidity requirements, they can apply a benchmark using the following steps particularly in the casearea of liquidity risk:
a. comparative analysis, under stressed conditions, of net cash outflows and eligible liquid assets over a set of time horizons: up to 1 month (including overnight)funding, fromor 1by month to 3 months and from 3 months to 1 year; for this purposecontrast, competentthat authorities should project net outflows (gross outflows and inflows) and counterbalancing capacity throughout different maturity buckets, considering stressed conditions (for example, prudent valuation under stress assumptions for liquid assets versus current valuation under normal conditions and after a haircut),weak buildingcapital aposition stressedmay maturityexacerbate ladderconcerns forin thethat year ahead;area).
b444. basedOn on the assessmentbasis of thethese stressed maturity ladderconsiderations, estimationcompetent ofauthorities theshould survivaldetermine period of the institution;
c. determination of the desired/supervisory minimum survival period, taking into account the institution’s risk profile and market and macroeconomic conditions; and
d. if the desired/supervisory minimum survival period is longer than the institution’s current survival periodviability, competentdefined authoritiesas may estimate additional amounts of liquid assets (additional liquidity buffers) to be held by the institution to extend its survivalproximity period to thea minimumpoint required.
524. A key input to the competent authority’s benchmarks for the quantification of specificnon-viability quantitativeon liquidity requirements will be the data collected through the supervisory reporting under Article 415 of Regulation (EU) No 575/2013 on liquidity and on stable funding on an individual and consolidated basis and on additional liquidity monitoring metrics. The design of benchmarks will be influenced by the contentadequacy of thisits reportingown andfunds the implementation of benchmarks will depend on when the reports are available.
525. Below are some examples of the possible approaches:
a. Example 1: institution with an initial liquidity buffer of EUR 1 200 mln Cumulative inflows and cumulative outflows estimated under stressed conditions are projected through a time horizon of 5 months. During this time horizon, the institution makes use of the liquidity buffer each time inflows fall below outflows. The result is thatresources, under the stressed conditions definedgovernance, thecontrols institutionand/or wouldbusiness bemodel ableor strategy to survivecover 4.5 months, which is longer than the minimumrisks survival period set by supervisors (in this example, 3 months):
Table 11. Illustrative example of benchmark for liquidity quantification
Time horizon in cumulative cumulative cumulative net net liquidity position (buffer - Liquidity available months outflows inflows outflows cumulative net outflows) at day 0 1,200 511 405 106 1,094 598 465 133 1,067 659 531 128 1,072 1 787 563 224 976 841 642 199 1,001 933 693 240 960 1,037 731 306 894 1,084 788 295 905 1,230 833 397 803 2 1,311 875 435 765 1,433 875 558 642 1,440 876 564 636 1,465 882 583 617 1,471 889 582 618 1,485 891 594 606 3 1,485 911 574 626 1,492 916 576 624 1,493 916 577 623 1,581 918 663 537 1,618 945 673 527 1,666 956 710 490 4 1,719 993 726 474 1,885 1,030 856 344 1,965 1,065 900 300 2,078 1,099 980 220 2,192 1,131 1,061 139 Survival period 2,415 1,163 1,252 -52 5 2,496 1,194 1,302 -102 2,669 1,224 1,445 -245 2,764 1,253 1,511 -311
Figure 6. Illustrative example of setting specific quantitative liquidity requirement b. Example 2: the supervisory minimum survival period is set at 3 months. An alternative measure to setting a minimum survival period, which canit also address the supervisory concern that the gap between inflows and outflows is unacceptablyor high,may is to set a cap on outflows. In the figure below, the mechanism for setting a cap on outflows is shown by the black horizontal bar. An institution is required to reduce its outflows to a level below the cap. The cap can be set for one or more time buckets and for net outflows (following correction for inflows) or gross outflowsexposed. TheAs alternative of adding a bufferresult requirement instead is shown in the third column:
Figure 7. Illustrative example of settingthis specific quantitative liquidity requirements
Buffer add-on vs. cap on outflows 1200
1000
inflows 800 outflows 600 buffer add-on
400 LCR minimum buffer
cap on outflows 200
0 <30 D 31-90 D liquidity buffer
9.5 Articulation of specific quantitative liquidity requirements
526. To articulate the specific quantitative liquidity requirements appropriatelydetermination, competent authorities should use one of the following approaches, unless another approach is considered more appropriate in specific circumstances:
a. Approachtake 1any –supervisory requiremeasures annecessary LCRto higheraddress than the regulatory minimum, of such a size that shortcomings identified are sufficiently mitigatedconcerns;
b. Approachdetermine 2future –supervisory requireresourcing aand minimumplanning survival period of such a length that identified shortcomings are sufficiently mitigated; the survival period can be set either directly, as a requirement, or indirectly, by setting a cap on the amount of outflows over the relevant time buckets considered; competent authorities may require different types of liquid assets (e.g. assets eligible for central banks), to cover risks not (adequately) covered by the LCR;
c. Approach 3 – require a minimum total amount of liquid assets or counterbalancing capacityinstitution, either as a minimum total amount or as a minimum amount in excess of the applicable regulatory minimum, of such a size that identified shortcomings are sufficiently mitigated; competent authorities may set requirements for the composition of liquid assets, including operationalwhether requirementsany (e.g. direct convertibility to cash, or deposit of the liquid assets at the central bank).
527. To articulate the specific quantitativesupervisory stableactivities funding requirements appropriately, competent authorities should usebe oneplanned offor the followinginstitution approaches,as unlesspart anotherof approach is considered more appropriate in specific circumstances:
a. Approach 4 – require a NSFR higher than the regulatorySupervisory minimum,Examination of such a size that shortcomings identified are sufficiently mitigatedProgramme;
bc. Approachdetermine 5 – require a minimum total amount of available stable funding, either as a minimum total amount or as a minimum amount in excess of the applicableneed regulatoryfor minimum,early ofintervention suchmeasures a size that identified shortcomings are sufficiently mitigated.
528. To ensure there is consistency, competent authorities should structure specific quantitative liquidity requirements in such a manner as tospecified deliver broadly consistent prudential outcomes across institutions, bearing in mindArticle that27 the types of requirements specified may differ between institutions because of their individual circumstances. In addition to the quantity, the structure should specify the expected composition and nature of the requirement. In all cases, it should specify the supervisory requirement and any applicable Directive 20132014/3659/EU requirements;
d. Liquiditydetermine bufferswhether and counterbalancing capacity held by the institution tocan meet supervisory requirements should be availableconsidered for use by the institution during times of stress.
529. When setting the specific quantitative liquidity requirements and communicating them to thebe institution,‘failing competent authorities should ensure that they are immediately notified by the institution if it does not meet the requirements, or doeslikely not expect to meet the requirements in the short term. Competent authorities should ensure that this notification is submitted without undue delay by the institution, accompanied by a plan drawn up by the institution for the timely restoration of compliance with the requirements. Competent authorities should assess the feasibility of the institutionfail’s restorationwithin plan and take appropriate supervisory measures if the planmeaning is not considered feasible. Where the plan is considered feasible, competent authorities should: determine any necessary interim supervisory measures based on the circumstances of theArticle institution;32 monitor the implementation of theDirective restoration plan; and closely monitor the institution’s liquidity position, asking the institution to increase its reporting frequency if necessary2014/59/EU.
530445. NotwithstandingThe theoverall above,SREP competentassessment authoritiesshould maybe alsoreflected set qualitative requirements in thea formviability ofscore restrictions/caps/limitsbased on mismatches, concentrations, risk appetite, quantitative restrictions on the issuanceconsiderations of secured loans, etc., in accordance with the criteria specified in Titletable 1020 of the guidelines.
531. Below are some examples of the different approaches for the structure of specific quantitative liquidity requirements:
Example of specific requirements articulation
As of 1 January 2021 and untilclearly otherwisedocumented directed, Bank X is required to:
a. Approach 1 – ensure that its counterbalancing capacity is at all times equal to or higher than e.g. 125% of its liquidity net outflows as measured in thean LCR.annual
b.summary Approach 2 – ensure that its counterbalancing capacity results at all times in a survival period that is greater than or equal to 3 months, measured by the internal liquidity stress test / the maturity ladder / specific metrics developed by the supervisor.
c. Approach 3:
ensure that its counterbalancing capacity is at all times equal to or higher than EUR X billion; or
ensure that its counterbalancing capacity is at all times equal to or higher than EUR X billion in excess of the minimumoverall requirementSREP under the LCRassessment.
d.This Approachannual 4summary –should ensurealso thatinclude its available stable funding is at all times equal to or higher than e.g. 125% of its required stable funding as measured in the NSFR.
e.overall ApproachSREP 5:score
ensureand thatscores itsfor availableelements stable funding is at all times equal to or higher than EUR X billion; or
ensure that its available stable funding is at all times equal to or higher than EUR X billion in excess of the minimumSREP, requirementand underany thesupervisory NSFR.
9.6 Summary of findings andmade scoring
532.over Following the abovecourse assessment, competent authorities should form a view on whether existing liquidity resources provide sound coverage of the risksprevious to which the institution is or might be exposed. This view should be reflected in a summary of findings, accompanied by a viability score based on the considerations specified in Table 12.
533. For the joint decision (where relevant), competent authorities should use the liquidity assessment and score to determine whether the liquidity resources are adequatemonths.
Table 1220. Supervisory considerations for assigning athe scoreoverall toSREP liquidity adequacy score
Supervisory view Considerations
The institution’srisks liquidityidentified position and funding profile pose a low level of risk to the viability of the institution. • The institution’s counterbalancingbusiness capacitymodel and liquiditystrategy buffersdo arenot comfortablyraise aboveconcerns. specific• supervisoryThe quantitativeinternal requirementsgovernance and areinstitution-wide expectedcontrol toarrangements remaindo sonot inraise the futureconcerns. • The compositioninstitution’s andrisks stabilityto ofcapital longer-termand fundingliquidity (>1 year) pose a non-material/a very low risk inof relationa tosignificant theprudential activities and business model of the institutionimpact. • The freecomposition flowand quantity of liquidityown betweenfunds entitiesheld indo the group, where relevant, is not impeded,raise orconcerns. all• entitiesThe haveinstitution’s aliquidity counterbalancingposition capacity and liquidityfunding buffersprofile abovedo supervisorynot requirementsraise concerns. • TheNo institutionmaterial hasconcerns aabout plausiblethe credibility and crediblefeasibility liquidityof contingency plan that has the potentialinstitution’s torecovery be effective if requiredplan.
The institution’srisks liquidityidentified position and/or funding profile pose a medium-low level of risk to the viability of the institution. • TheThere institution’sis counterbalancinga capacitylow andto liquiditymedium bufferslevel areof aboveconcern about the specificinstitution’s supervisorybusiness quantitativemodel requirements,and butstrategy. there• There is a risklow thatto theymedium willlevel notof remainconcern so.about •the Theinstitution’s compositiongovernance andor stability of longerinstitution-termwide fundingcontrol (>1arrangements. year)• poseThere is a low to medium level of risk inof relationa tosignificant theprudential activitiesimpact andcaused businessby modelrisks ofto thecapital institutionand liquidity. • TheThere freeis flowa oflow liquidityto betweenmedium entitieslevel inof theconcern group,about wherethe relevant,composition isand orquantity couldof beown marginallyfunds impededheld. • TheThere institutionis has a plausiblelow andto crediblemedium liquiditylevel contingencyof planconcern that,about althoughthe notinstitution’s withoutliquidity risk,position hasand/or thefunding potentialprofile. • There is a low to bemedium effectivelevel ifof required.
Theconcern about the credibility and feasibility of the institution’s liquidityrecovery positionplan.
The and/orrisks fundingidentified profile pose a medium-high level of risk to the viability of the institution. • TheThere institution’sis counterbalancinga capacitymedium andto liquidityhigh bufferslevel areof deterioratingconcern about the institution’s business model and/or arestrategy. below• specificThere supervisoryis quantitativea requirements,medium andto therehigh arelevel concernsof concern about the institution’s abilitygovernance or institution-wide control arrangements. • There is a medium to restorehigh compliancelevel of risk of a significant prudential impact caused by risks to capital and liquidity.
Score
1
⋯ 2 unchanged lines
Supervisory view Considerations
with• theseThere requirementsis in a timelymedium manner.to •high Thelevel of concern about the composition and stabilityquantity of longer-termown fundingfunds (>1held year)by posethe ainstitution. medium• levelThere ofis riska inmedium relation to thehigh activitieslevel andof businessconcern modelabout of the institution.’s • The free flow of liquidity betweenposition entitiesand/or infunding theprofile. group,• whereThere relevant, is impeded.a •medium Theto institutionhigh haslevel aof liquidityconcern contingencyabout planthe thatcredibility isand unlikelyfeasibility toof bethe effective.
The institution’s liquidityrecovery positionplan
The and/orrisks fundingidentified profile pose a high level of risk to the viability of the institution. • TheThere institution’sis counterbalancinga capacityhigh andlevel liquidityof buffersconcern areabout rapidlythe deterioratinginstitution’s and/orbusiness aremodel belowand thestrategy. specific• supervisoryThere quantitativeis requirements,a andhigh therelevel areof seriousconcern concerns about the institution’s abilitygovernance toor restoreinstitution-wide compliancecontrol witharrangements. these• requirementsThere inis a timelyhigh manner.level •of Therisk compositionof anda stabilitysignificant ofprudential longer-termimpact fundingcaused (>1by year)risks poseto capital and liquidity. • There is a high level of riskconcern inabout relation to the activitiescomposition and businessquantity model of own funds held by the institution. • TheThere freeis flowa ofhigh liquiditylevel betweenof entitiesconcern inabout the group,institution’s whereliquidity relevant,position isand/or severelyfunding impededprofile. • TheThere institutionis hasa nohigh liquiditylevel contingencyof plan,concern orabout onethe thatcredibility isand manifestlyfeasibility inadequateof the institution’s recovery plan.
Score
4
446. When determining that an institution is ‘failing or likely to fail’, as reflected by an overall SREP score of ‘F’, competent authorities should engage with the resolution authorities to consult on findings following the procedure specified in Article 32 of Directive 2014/59/EU.
9.3 Communication of the outcome of the SREP assessment
447. Competent authorities should communicate, in accordance with the SREP engagement model set out in section 2.4, the outcome of the SREP assessment to the institution in writing. The communication should be addressed to the management body of the institution.
448. The communication of the outcome of the SREP assessment to institutions, and, where relevant, to other competent or resolution authorities, should at least include the following elements:
a. the relevant level of application, the date and the date of the application of the SREP assessment, as well as the reference dates of the information used in its preparation in accordance with Article 10 of the Commission Implementing Regulation (EU) No 710/2014;
b. a description of the outcome of the SREP, including a summary of the assessment, material supervisory findings, and the overall SREP score. Where remedial action is required from the institution for specific SREP elements or sub-elements, competent authorities should consider including an appropriate timeframe for remediation and sharing the score for these elements and sub-elements, where appropriate;
c. the required level and quality of the P2R, in accordance with the process and criteria specified in Title 7, including the institution-specific justification for setting the requirements, separately for the risk of excessive leverage and for other types of risks. The justification should provide a clear indication of the material risk drivers contributing to the P2R. In case of relevant changes to the regulatory framework for determining the P1R applicable to an institution, communication should include the outcome of the assessment performed as per paragraph 294 of Title 7. In justifying P2R, competent authorities should:
i. refer, to the extent possible, to the risk categories and subcategories/elements as described in Title 6 and sections 7.2 and 7.3, taking into account the existing definitions of specific risk types in the applicable legislation, with the aim of ensuring overall comparability across institutions;
ii. identify the main deficiencies to be covered by these requirements until they are addressed line with paragraph 320.
d. in communicating the required level of capital and quality of the Pillar 2 requirements in accordance with the previous point, competent authorities should:
i. communicate the institution’s TSCR as a proportion (ratio) of the TREA, broken down in terms of the composition of the requirement. The TSCR should be expressed using the following formula:
[formula]
ii. communicate the institution’s TSLRR as a proportion (ratio) of the leverage ratio exposure (LRE), broken down in terms of the composition of the requirement. The TSLRR should be expressed using the following formula:
[formula]
iii. communicate the institution’s OCR and its component parts – the Pillar 1 own funds requirements, P2R and the buffer requirements – as a proportion (ratio) of the TREA, broken down in terms of the composition of the requirement;
iv. communicate the institution’s OLRR and its component parts – the leverage ratio own funds requirement, P2R-LR and G-SII leverage ratio buffer requirement – as a proportion (ratio) of the LRE, broken down in terms of the composition of the requirement.
e. The expected level and quality of the P2G and P2G-LR in accordance with the process and criteria specified in section 7.6, where their determination results in a positive value, including:
i. all applicable own funds ratios affected by P2G (CET1, T1 and total own funds) and leverage ratio requirement affected by P2G-LR and that own funds held for the purposes of P2G cannot be used to meet any of the elements of OCR and that P2G-LR cannot be used to meet any of the elements of OLRR;
ii. the relevant time limits for its establishment;
iii. the institution-specific justification for setting the guidance and the main elements of the methodology used;
iv. the potential supervisory reaction to situations where P2G and P2G-LR are not met.
f. a statement on the liquidity held and any specific liquidity requirements set by the competent authority other than those laid down in Article 4(2) Commission Delegated Regulation 2015/61 and 428b(2) of Regulation No 575/2013, including the institution-specific reasons for these requirements;
g. if applicable, a statement on other supervisory measures, whether qualitative or quantitative, including any early intervention measures that the competent authority intends to take.
9.4 Supervisory reaction to a situation where TSCR or OCR is not met
449. TSCR as determined in accordance with these guidelines and communicated in the SREP assessment is a legally binding requirement that institutions have to meet at all times, including in stressed conditions. If TSCR is no longer met, the competent authorities should consider additional intervention powers in accordance with Directives 2013/36/EU and 2014/59/EU, including withdrawal of authorisation in accordance with Article 18(d) of Directive 2013/36/EU, application of early intervention measures in accordance with Article 27 of Directive 2014/59/EU, determination that an institution is failing or likely to fail in accordance with Article 32(4)4a of Directive 2014/59/EU and relevant Guidelines and resolution actions in accordance with that Directive. When exercising those powers, competent authorities should consider whether measures are proportionate to the circumstances and their judgement on how the situation is likely to develop.
450. Competent authorities should also monitor whether the institutions meet the OCR. Where necessary, competent authorities should take measures to ensure that institutions comply with requirements set out in Articles 141 to 142 of Directive 2013/36/EU.
9.5 Supervisory reaction to a situation where P2G is not met
451. Competent authorities should monitor whether the amount of own funds expected in accordance with P2G is established and maintained by the institution over time. When the institution’s own funds drop, or are likely to drop, below the level determined by P2G, the competent authority should expect the institution to notify it and prepare a revised capital plan. In its notification, the institution should explain what adverse consequences are likely to force it to do so and what actions are envisaged for the eventual restoration of compliance with P2G as part of an enhanced supervisory dialogue.
452. There are generally three situations to be considered by a competent authority in which an institution could fail to meet its P2G:
a. Where the level of own funds falls below the level of P2G (while remaining above OCR) in institution-specific or external circumstances in which risks that P2G was aimed at covering have materialised, the competent authority may allow the institution to temporarily operate below the level of P2G, provided that the revised capital plan is considered credible in accordance with the criteria set out in section 7.7. The competent authority may also consider adjusting the level of P2G where appropriate;
b. Where the level of own funds falls below the level of P2G (while remaining above the OCR) in institution-specific or external circumstances as a result of the materialisation of risks that P2G was not aimed at covering, competent authorities should expect the institution to increase the level of own funds to the level of P2G within an appropriate timeline;
c. Where the institution disregards P2G, does not incorporate it into its risk management framework or does not establish own funds to meet P2G within the relevant time limits set out by the competent authority, this may lead to competent authorities applying additional supervisory measures as set out in table 16.
Where the permission to operate below the level of P2G as referred to in point (a) has not been granted and the institution’s own funds are repeatedly below the level of P2G, the competent authority should impose P2R in accordance with Title 7.
453. Notwithstanding particular supervisory responses in accordance with the previous paragraph, competent authorities may also consider the application of the capital and additional supervisory measures set out in Title 7, where these are deemed more appropriate to address the reasons for the own funds falling below the level determined by P2G.
9.6 Interaction between supervisory, early intervention measures and resolution authorities’ assessment
454. In addition to the supervisory measures, competent authorities may apply early intervention measures as specified in Article 27 of Directive 2014/59/EU, which are intended to supplement the set of supervisory measures specified in Articles 104 and 105 of Directive 2013/36/EU.
455. Competent authorities should apply early intervention measures without prejudice to any other supervisory measures and, when applying early intervention measures, should choose the most appropriate measure(s) to ensure a response that is proportionate to the particular circumstances.
456. When setting supervisory or early intervention measures, competent authorities should, in addition to considering the escalation framework set out in Title 2, also take into account the results of the resolvability assessment conducted by the resolution authority, including the related work programme, with a view to ensuring consistency in supervisory actions.
9.7 Interaction between supervisory and macroprudential measures
457. Where an institution is subject to macroprudential measures and the SREP assessment determines that these macroprudential measures do not adequately address the institution-specific risk profile or deficiencies present in the institution (i.e. the institution is exposed to or poses a higher level of risk than the level targeted by the macroprudential measure, or the deficiencies identified are more material than those targeted by the measure), competent authorities should consider supplementing the macroprudential measures with additional institution-specific measures.
9.8 Interaction between supervisory and AML/CFT measures
458. When applying supervisory measures to address prudential deficiencies related to ML/TF risk, competent authorities should engage with AML/CFT supervisors so that the underlying deficiencies/vulnerabilities are adequately addressed by the appropriate measures within the respective remit of AML/CFT supervisors and competent authorities from their respective perspectives.
459. Where competent authorities in the course of exercising their supervisory activities have reasonable indications of deficiencies in the institution’s systems and controls framework or the internal governance framework that are related to AML/CFT or reasonable grounds to suspect that the institution has increased exposure to ML/TF risks, they should:
a. notify the AML/CFT supervisor of these deficiencies and risks as soon as they are identified and liaise with them in line with the AML/CFT Cooperation Guidelines;
b. assess the impact that such deficiencies and risks may have on the prudential situation of the institution;
c. liaise with AML/CFT supervisors 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.
460. Where the competent authorities are notified or become aware of supervisory measures or sanctions planned or imposed by the AML/CFT supervisors, they should consider whether and how the potential prudential implications of the weaknesses and failures identified by the AML/CFT supervisors need to be mitigated.