The European Central Bank (ECB) published its supervisory priorities for 2019 at the end of October 2018. The supervisory priorities set out focus areas for ECB Banking Supervision in the year ahead.
These priorities are important for both directly and indirectly supervised banks as they identify where supervisors will focus resources in the coming year and drive the schedule of on-site inspections and thematic reviews.
These priority areas are largely continuing from 2018, with the exception of business models as the thematic review on this topic has concluded and the ECB has published its findings in September 2018. Explicit references to IRRBB have also been dropped. Otherwise, the main theme is continuity. One noticeable addition is the reference to the 2019 liquidity stress test.
The Single Supervisory Mechanism (SSM) has set the following high-level priority areas:
1. Credit Risk
- Follow up on NPL guidance - Despite the reduction of the stock of NPLs, the current level of NPLs remains elevated compared to international standards. The aim is follow up on NPL guidance and identify bank specific supervisory expectations.
- Credit underwriting criteria and exposure quality - ECB will assess the quality of banks’ underwriting criteria with a focus on new lending.
2. Risk Management
- Targeted review of internal models - TRIM will continue in 2019. ECB will finalise the guide to internal models
- ICAAP and ILAAP - ECB will continue to seek improved ICAAPs and ILAAPs and continue further integration into SREP
- IT and Cyber risk - ECB Banking Supervision will continue to assess the IT and cyber risks facing banks and will launch on-site inspections on IT risk-related topics. In addition, they will continue to report any significant cyber incidents under the SSM cyber incident reporting process
- Liquidity stress test - They will assess the banks resilience against liquidity shocks.
3. Multiple Risk Dimensions
- Brexit Preparations
- ECB will monitor the implementation banks’ preparation plans for Brexit.
- Trading risk and asset valuation - Banks readiness for the changes occasioned by the Fundamental Review of the Trading Book will be assessed.
Grant Thornton continues to invest in its Regulatory Advisory offering with a well resourced Prudential Risk team to complement its existing Quantitative Risk practice which is the market leader in Ireland. Grant Thornton is ideally placed to support banks with these regulatory challenges.