With the financial services sector marking ten years since the global financial crisis, there has been an acute sense of awareness from the banking authorities around the importance that institutional strength plays in maintaining financial stability. Combined with the current geopolitical climate, an increasing reliance on technology and market competition from FinTechs, there has been a greater supervisory focus on governance, operational resilience and data. All of these macro trends are visible in the priorities of the three major authorities of the Banking Union.
The European Central Bank (ECB), the European Banking Authority (EBA) and the Single Resolution Board (SRB) set the tone for the supervisory landscape that European banks face. All three institutions have now released their 2019 work programmes, allowing banks to reflect on the priorities that will impact everything from daily supervision to on-site investigations in the coming year.
For the purpose of this report, we will use the ECB SSM Supervisory categories to look deeper into what each priority means for the banks in the context of existing guidelines and upcoming expectations. Although these priorities are not an exhaustive list, they are a strong indicator of future areas for on-site and off-site investigations, deep dives, and a valuable tool for banks to ensure compliance.
The ECB 2019 supervisory priorities are based on the risk assessment for 2019 which identified the risk drivers currently affecting the European banking system. Generally, these key risks are similar to the previous year’s risk drivers, so it came as no surprise that the ECB priorities for managing these risks are also derived from previous year’s priorities. The priorities are banded into three broad categories; credit risk, risk management and multiple risk dimensions.
While the priorities of these three authorities differ by nature, some of them overlap, showing strong supervisory themes for 2019. Banks can use these priorities to determine a bank specific heat map that differentiates between quick wins and long term projects, further preparing them for supervisory scrutiny around these topics.
We recommend that banks analyse the priorities, consider which ones may be of importance for their particular organisation and business model, take note of the supervisory examination plan (SEP) that the ECB will discuss with banks in early 2019, determine bank specific priorities and develop action plans.