ECB’s forward-looking regulatory requirements and expectations

SUMMARY

Avantage Reply assisted one of the largest banks in Luxembourg, in continuing to address the European Central Bank’s (ECB) supervisory expectations in an effective and proactive manner. Avantage Reply’s added value relied on a benchmarking analysis against peer firms in Eurozone, enabling the bank to better understand the forward-looking regulatory requirements that the Bank should comply with.

CUSTOMERS GOALS

The primary goal of the client was to improve on a range of issues of the Supervisory Review and Evaluation Process (SREP), which have gradually decreased client’s ratings over the years, while refining its supervisory dialogue with the ECB.

Client also requested a peer benchmarking evaluation as well as a forward-looking view of what the bank should expect from the ECB and local regulator in the upcoming years.

THE CHALLENGE

The high number of reports, generated by the compliance and risk department, combined with the difficulty to access those who slow down the analysis of the bank. Additionally, the lack of centralization of the document made it difficult to consult the relevant material in timely manner.

Very limited availability of the banks’ employees when organizing meetings on a short notice added difficulty to the project.

In most occasions, the information needed was quite hard to extrapolate, since the banks’ employees were not recognizing the existence of an issue to be addressed in the fist place.

APPROACH AND SOLUTION

To achieve the objectives defined by the client, the following steps were performed:

1. Multiple interviews with the three different streams: Governance, ICAAP/ILAAP, and Data & Reporting:

• Identified the current issues of each department in relation to the findings of the SREP letter
• Described the above in a structured and consolidated way, to deeply examine what elements were missing or not performed well in relation to the expectation of the regulator;

2. Benchmarking exercise taking into account peer banks to:

• Perform a detailed analysis to identify the current position of the client compared to its peers
• Identify which issues where tackled and the ones that are not, so that to give an idea of whether the bank would need instant changes

3. A detailed analysis of the relevant regulations affecting the bank have been fully analyzed and proposed in the final report:

• CRD 5 / CRR 2 updates
• PSD2
• IFRS 17
• Securities Financing Transaction Regulation
• FATF 2020 inspection