CEBS Role, Programme and Challenges

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CEBS Role, Programme and Challenges

• José María Roldán 23 May 2005

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Outline

• Introduction
• Basel II and CEBS
• Four challenges
• What is CEBS?
• Role and tasks
• Lamfalussy framework
• Work Programme
• Supervisory Disclosure
• Supervisory Review Process (Pillar II)
• Reporting requirements
• Supervision of cross-border groups
• Consultation process
• Future work

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Introduction

• Basel II and CEBS
• The new paradigm risk-focused supervision
• A window of opportunity for convergence in
  supervisory practices in the EU the role of CEBS
• Implementation of Basel and the Capital
  Requirements Directive
• Four main challenges in EU implementation
• Consistency
• Convergence in supervisory practices
• Streamlining the supervisory process for
  cross-border groups
• Effective consultations

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CEBS - Role and tasks

• Established in Nov 2003, the first meeting Jan
  2004
• High level representatives from the banking
  supervisory authorities and central banks of the
  European Union, including the European Central
  Bank
• 25 countries and 46 member organisations,
  observers from EEA countries, the European
  Commission and the Banking Supervision Committee
  of ESCB (European System for Central Banks)
• Chairman Vice Chair Secretary General José
  María Roldán Danièle Nouy Andrea Enria Banco
  de España Commission de Bancaire Banca dItalia
  Iceland, Liechtenstein and Norway

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CEBS - Role and tasks

• to advise the European Commission on banking
  policy issues, in particular for the preparation
  of draft measures for the implementation of
  European legislation
• to foster a common day to day implementation and
  application of Community legislation by issuing
  guidelines, recommendations and standards
• to promote supervisory co-operation and provide
  for the exchange of supervisory information

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Lamfalussy framework

Legislation
Implementing details
Convergence
EBC European Banking Committee EIOPC European
Insurance and Occupational Pensions Committee
ESC European Securities Committee FCC
Financial Conglomerates Committee CEIOPS
Committee of European Insurance and Occupational
Pensions Supervisors CESR Committee of European
Securities Regulators
¹ Finance ministries ² Supervisors and Central
Banks³ Supervisors
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Accountability

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Work Programme

• Priority areas of work
• Regulatory advice to the Commission
• Cross-border mergers in banking
• Deposit guarantee schemes
• Own funds E-money
• Convergence of supervisory practice
• Supervisory Review Process (Pillar 2)
• Validation of IRB and AMA systems
• External Credit Assessment Institutions (ECAIs)
• Harmonisation of reporting requirements
• Supervisory disclosure
• Co-operation and information exchange
• Supervision of cross-border groups (home-host)
• Crisis management (joint with the BSC)
• Information exchange

• Other areas of work
• Risks to banking stability
• Outsourcing
• Internal governance
• Impact of IFRS on prudential requirements
• The role of the audit function for prudential
  supervision
• Cross-sectoral issues
• Supervision of financial conglomerates
• Off-shore financial centres
• Delivered products
• Advice national discretions (work continues),
  prudential filters
• Consultation papers consultation practices,
  outsourcing, supervisory review process, common
  reporting, supervisory disclosure, financial
  reporting.

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Expert groups

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The first challenge

• Consistent implementation
• The issue
• Complex framework risk of differences in
  national implementation
• Additional layers of regulation at the national
  level (gold-plating)
• National discretions
• Lack of visibility for the common EU rules and
  practices
• CEBS response
• Allowing for meaningful comparisons of national
  implementation the draft guidelines on
  supervisory disclosure
• Reducing the scope for national discretions, also
  in relation to their expected impact

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Supervisory Disclosure

• Supervisors are required to publish (CRD Art.
  144)
• Rules and guidance
• How options and national discretions are
  exercised
• Supervisory review and evaluation
• Statistical data on national banking sectors
• Easy access and meaningful comparison ? peer
  group pressure
• Internet access via CEBS website www.c-ebs.org
• Links to national websites
• Comparable information
• Common language - English

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Supervisory Disclosure
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Supervisory Disclosure
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National Discretions

• The advice to the Commission cutting down on
  numbers
• The dialogue with the industry identifying high
  impact discretions and options
• The work on supervisory convergence
• Discipline via supervisory disclosure
• Open question
• Effectiveness of market pressure and soft tools

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The second challenge

• Convergence in practices
• The issue
• Potentially different approaches to the
  supervisory review process (Pillar 2)
• Very technical aspects of the new framework
  possibility of different criteria being used in
  supervisory assessment of internal measures of
  risk
• Compliance burden for cross-border groups,
  especially in relation to supervisory reporting
• CEBS response
• Guidelines for the supervisory review process
• Common quantitative and qualitative criteria for
  the validation of internal approaches for credit
  and operational risk
• Common reporting requirements

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Supervisory Review Process

• Objectives of Pillar 2 are to
• Ensure institutions have adequate capital to
  support all risks in their business
• Encourage institutions to manage risk
• Foster an active dialogue between institutions
  and supervisors
• Covers the relationship between
• Supervisors SREP (the Supervisory Review and
  Evaluation Process) and
• Institution ICAAP (the Internal Capital Adequacy
  Assessment Process).

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Supervisory Review Process

• First consultation paper
• ICAAP the responsibility of the institution
• Dialogue between the institution and the
  supervisory authority in the ICAAP/SREP process
• Proportionality
• Second consultation paper
• Interaction between ICAAP and SREP
• Internal governance
• Guidance for small institutions
• Further work on specific issues (concentration
  risk, stress testing, interest rate risk in the
  banking book)

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Supervisory Review Process
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Validation

• Validation
• Development of quantitative and qualitative
  requirements for discrimination and calibration
  of rating systems, estimates of PDs, LGDs, EADs
  and AMA parameters.
• Minimum standards for the review of the
  methodologies applied by credit institutions and
  investment firms.

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Reporting requirements

• Common reporting of the solvency ratio and
  financial data
• Common templates and technology platform, to
  achieve
• Level playing field
• Less administrative burden for cross-border
  groups (while limiting the burden for small,
  local banks)
• Easier exchanges of information between
  supervisors
• Open questions
• Degree of detail in CEBS guidelines how to
  strike the right balance?
• Overall reporting burden

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The third challenge

• Streamlining the supervisory process
• The issue
• Misalignment between legal and operational
  structure of cross-border groups
• Possible impact on compliance costs, if
  supervisory controls are duplicated or even
  conflicting
• Role of the consolidating supervisor in the
  proposed CRD
• CEBS response
• Enhanced co-operation and exchange of information
  between home and host authorities
• Clear ex ante agreements on the division of
  labour and interaction between the authorities
  involved in the supervision of a group (notion of
  significance)
• Guidance on the approval process for validation
  of IRB and AMA
• Road testing

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Streamlining the supervisory process

• Open questions
• Delegation of tasks/responsibilities
• Conflicting views (e.g., significance,
  distribution of capital)
• Crisis management

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The fourth challenge effective consultation

• Consultation with the industry, market
  participants and end-users
• Objectives transparency, benefit from expertise
  of market participants and end-users, dialogue
  and interaction
• Tools public consultation on CEBS products,
  Consultative panel
• Consultative Panel composed of 19 members with
  main task of acting as a sounding board in
  strategic issues

The industry,market participantsand end-users
CEBS
Standards, guidelines and recommendations
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Consultative Panel

• Expresses views on CEBS work programme
• Comments on the way in which CEBS is exercising
  its role and, in particular, on the adequacy of
  consultation with market actors, consumers and
  end-users
• Assists CEBS in setting priorities
• Alerts CEBS to regulatory inconsistencies in
  the Single Market and suggests areas for Level-3
  work
• Informs CEBS on major financial market
  developments.

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Future Work

• Next steps on consistent implementation and
  convergence of practices
• Compendium or guidebook of standards, guidelines,
  advice and other work of CEBS
• For supervisors and market participants
• Flexible, internet based structure, easy to
  update
• Consistent terminology, definitions
• Common European approach and supervisory
  culture

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Question time

• Any questions?
• Thank you!

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Contact details José María Roldán
josemaria.roldan_at_c-ebs.org