Report on convergence of supervisory practices for 2022

EBA notes EU wide consistent implementation of 2022 priorities in supervisory work programmes and further improvements in the functioning of supervisory colleges but calls for more attention in some areas

04 May 2023

The European Banking Authority (EBA) today published its annual Report on convergence of supervisory practices for 2022. The common supervisory impetus across the EU met its goal for most of the supervisory priorities set in the EBA European Supervisory Examination Programme for 2022 (ESEP), although competent authorities are still in the process of building up their capacity to review the risks associated with the digital transformation and environmental, social and corporate governance (ESG). Competent authorities also showed ability to react to macro events that affected the financial situation of institutions under their supervision, though timely information exchange and cooperation should be enhanced. Lastly, supervisors consciously applied proportionality in their supervisory practices.

The EBA’s 2022 ESEP introduced 5 key topics for supervisory attention throughout the EU, namely the impact of the COVID-19 pandemic on asset quality, ICT, digital transformation, as well as ESG and Money Laundering/Terrorist Financing (ML/TF) risks.               

In 2022, a step forward was made in the supervision of sound lending standards and practices. Supervisory attention in relation to asset quality and non-performing exposures shifted from the monitoring of the implications of the COVID-19 pandemic to the monitoring of the consequences of the Russian invasion of Ukraine and the changed macroeconomic environment.

ICT security and outsourcing risks are followed closely by competent authorities and supervisory colleges, and weaknesses identified need close supervisory attention as they are still considered as high. Competent authorities, overall, were not yet engaged in a comprehensive review of the digital transformation strategies and their implementation by institutions.

Environmental and climate risks are increasingly part of the supervisory activities, but the depth of supervisory assessments depends on how institutions have integrated ESG risk in their business strategies, risk appetite and loan origination practices and their risk, governance and reporting framework.

ML/TF risks are consistently high and thus covered by most competent authorities and supervisory colleges, however full incorporation in the Supervisory Review and Evaluation Process (SREP) is expected during 2023 with the implementation of the revised SREP Guidelines.

In addition, the EBA concluded that supervisors consciously applied proportionality in their supervisory practices, either in the identification of the set of institutions to review or in the level of the assessment performed.

The interactions and the organisation of the supervisory colleges were overall of a high quality, although improvements in few procedural aspects of joint decisions will still be sought. Also, the EBA found that cooperation and timely information exchange in supervisory colleges should improve when crisis events materialise, also to detect potential emerging risks.

Note to the editors and next steps

According to Article 1(5)(g) and 29 of its founding Regulation, the EBA shall contribute to enhancing supervisory convergence across the European Union and it shall play an active role in building a common supervisory culture and ensuring the consistent application of the Single Rulebook.

Particularly in the context of the SREP, the EBA shall annually report to the European Parliament and the Council on the degree of convergence of the application of the SREP and supervisory measures as mandated by Article 107 of the Capital Requirements Directive (CRD).

The EBA proactively drives the convergence in supervisory practices through the selection of topics deserving European traction based on its expertise in EU-wide risk analysis, policy development and practical experience of competent authorities, and its role in supervisory colleges by establishing yearly the ESEP. The EBA then assesses whether and how the selected topics are covered in competent authorities’ supervisory priorities and activities, including the SREP and in the context of supervisory colleges.

In its 2023 ESEP for prudential supervisors, the EBA set out its supervisory priorities for 2023, including those needing continued attention, and will report on their implementation in its 2023 convergence report. In addition, it is the EBA`s common practice to integrate the results of the monitoring activities in its policy work and training activities.