A glance to SSM approach on Governance - Banco de · PDF fileA glance to SSM approach on Governance XV ... • The thematic review BCBS 239 will reinforce the follow-up actions on

A glance to SSM approach on Governance

XV Conference of Auditing, Risk

and Governance

27 September, Lisbon

Sofia Toscano Rico

Head of Authorisation Division - DG MS IV

Rubric

www.bankingsupervision.europa.eu ©

Table of contents

2

1

2

3

SSM toolkit for assessing Governance

Next Steps

Introduction

Rubric


Rubric

Governance is one of the key SSM priorities

3

1. Introduction

SSM Priorities

Business model and profitability

Governance

Capital adequacy

Liquidity

Credit risk

Is there a compliance function in

place that is hierarchically and

functionally separate and

operationally independent from

any business activity

responsibilities?

Are there mechanisms in place to

ensure that senior management

can act in a timely manner to

effectively manage, and where

necessary mitigate, material

adverse risk exposures, in

particular those that are close to or

exceed the approved risk appetite

statement or risk limits?

Governance

Rubric

www.bankingsupervision.europa.eu © 4

On going supervision through the supervisory toolkit

A. SREP B. Fit and Proper

assessment

C. Thematic reviews

(RIGA)

D. On-site

Inspections

2. The SSM Toolkit for assessing Governance

Supervisory processes to evaluate bank’s governance

Rubric


Rubric

Supervisory Review and Evaluation Process 5

A. SREP: Governance is one of the key elements within the SREP

2. The SSM Toolkit for assessing Governance

SREP methodology at a glance: four key elements

Feeds into the Supervisory Examination Programme

1. Business model

assessment

2. Governance and

Risk Management

assessment

3. Assessment of

risks to Capital

4. Assessment of

risks to Liquidity

and Funding

Viability and

Sustainability of

Business Model

Adequacy of

Governance and Risk

Management

Categories: e.g.

Credit, Market,

Operational Risk and

IRRBB

Categories: e.g.

Short Term Liquidity

Risk, Funding

Sustainability

SREP Decision

Quantitative capital

measures

Quantitative liquidity

measures

Other supervisory

measures

Overall SREP assessment - Holistic approach Score + Rationale/main conclusions

Rubric

www.bankingsupervision.europa.eu © www.ecb.europa.eu

Overall Internal Governance and Risk Management Assessment

Internal Governance

Organ

isation

al Stru

cture

Intern

al Au

dit

Risk C

on

trol

Co

mp

liance

Risk Management Framework and Risk

CultureR

isk Ap

petite

Risk C

ultu

re

Rem

un

eration

Risk Infrastructure, Data & Reporting

Risk

Infrastru

cture

Data

Aggregatio

n

Rep

ortin

g

6

A. SREP: Key underlying principles

B. No particular governance structures are favored 1

2

3 The assessment

is risk-based, forward-looking, proportionate, mainly judgmental but with clear structure

and guidelines

aims at understanding whether institutions have an appropriate and transparent corporate

structure that is ‘fit for purpose’

focuses on three key areas

Dedicated horizontal analysis ensures a consistent approach leading to same actions in case of

comparable findings

2. The SSM toolkit for assessing Governance

Rubric

www.bankingsupervision.europa.eu © Supervisory Review and Evaluation Process 7

Phase 1

Information gathering

e.g. through the

thematic review on

internal governance

Phase 2

Check compliance with

CRD provisions

Specific analysis of

e.g:

• organisational structure,

• internal audit,

• compliance,

• remuneration,

• risk appetite,

• risk infrastructure,

• reporting…

Phase 3

Comprehensive

analysis

Used to adjust phase 2

check taking into

consideration the

bank’s specificities

Phase 1 Information gathering

Phase 2Formal compliance

checking

Phase 3RC main

assessment

RC

final

score

Risk

control


A. SREP: Governance assessment follows the common

SREP logic

Rubric


Do management bodies have an adequate number of members and an appropriate

composition?

Is there a cohesive and effective cooperation between the management body and the

control functions (risk, compliance and audit)?

Is there a compliance function in place that is hierarchically and functionally separate and

operationally independent from any business activity responsibilities?

Are there mechanisms in place to ensure that senior management can act in a timely

manner to effectively manage, and where necessary mitigate, material adverse risk

exposures, in particular those that are close to or exceed the approved risk appetite

statement or risk limits?

Examples of Key Questions

Supervisory Review and Evaluation Process


A. SREP: Balance between standard criteria and

supervisory judgment

Rubric


Rubric

9

A. The Supervisor shall take the necessary supervisory

measures to address concerns related to Governance*:

Change in Governance Structures

Strengthen the Governance of Risk Infrastructures and

Data Aggregation

Increase Transparency of Governance Arrangements

Ensure the independence of the

Internal Control Functions

Improve Strategy process and Board involvement

(1) Restrict remuneration

(2) Improve Remuneration Schemes

Improve Governance arrangements

Selected examples of requested supervisory measures on governance topics

(SREP 2015)

* Article 16 of the SSM Regulation (e.g. “to require the reinforcement of the arrangements, processes,

mechanisms and strategies”)

Formalize and implement adequate

RAF

Strengthen Internal Control Functions


Rubric


Rubric

10

B. Fit and Proper assessment: ECB acting as a gatekeeper

Board and its members should be at all times suitable to carry out its responsibilities

Fit and proper supervision aims at preventing individuals who would pose a risk to

the sound and prudent management from being at boards

Fit and proper assessment feeds into ongoing supervision especially with regard to

boards composition and functioning

• Institutions have the primary responsibility for their board members suitability

• Proportionality applies during all assessment processes without lowering

suitability standards

• Case-by-case assessment and supervisory judgement (specific entity and role)

• Guarantee of due process and fairness: particularly important, as there is a

reputation risk for both the appointees and the ECB

Key Principles


Rubric


Rubric

11

B. Fit and Proper Assessment: Who and what is assessed

Individual members of the board are assessed within the following criteria:

1. Experience

2. Reputation

3. Time commitment

4. Conflicts of interests and independence of mind

The board as a whole is also assessed to ensure that the right skills, knowledge and

experience are in place

2. The supervisory toolkit for assessing Governance

Underlying areas of improvement on composition of the management body in its

supervisory function

Board’s composition Insufficient independence as a whole

Insufficient collective knowledge as a whole

Time commitment

Continuity of activity and succession planning

Rubric


Rubric

12

C. Other thematic reviews: BCBS 239 Thematic review as SSM priority 2016

Key lesson from the financial crisis:

lack of risk information to make sound

business decisions

SSM Objectives:

Data architecture and risk/business

processes should ensure adequate

aggregation and reporting for banks

Key Principles

• The thematic review BCBS 239 will reinforce the follow-up actions on SSM’s 2015 RIGA

thematic review

• The assessment distinguishes between 11 large institutions (‘Group 1’ banks which

already performed the BCBS self-assessment survey in 2013 and 2014) and other 14

banks (‘Group 2’ banks - selected on the basis of the RIGA TR outcomes)

• The horizontal approach will allow to benchmark practices across peers and support

potential actions


Rubric


Rubric

13

D. On-site Inspections:

aim at obtaining an objective, comprehensive and in-depth assessment of particular

aspects of the institutions

are action-oriented, leading to the JST recommending remedial actions and/or corrective

measures to be taken by institutions


In the last 2 years on-site inspections on Governance were

planned: circa nr. 50 in 2015 and circa nr. 40 in 2016

Rubric


3. Next steps

How we continue to work

• On-going Thematic Review on Risk Governance

and Data quality

• Follow-up from RIGA Thematic Review will

focus, for instance, on the oversight of the

Internal Control Functions

• Analysis on Behaviour & Culture

• Fit and Proper Guide will increase transparency

and clarify expectations and requirements

• Remuneration is a key topic

• Stress Test exercise: “qualitative” Governance-

related aspects are considered in assessing the

resilience of institutions to adverse market

developments

• Other SSM initiatives (e.g. Profitability, NPL,

ICAAP, ILAAP) will continue paying attention to

governance matters

SSM Goal

Governance will continue being at the

core of the supervision with the aim to

ensure sound and prudent

management, sound risk culture and

increase awareness

Rubric


Thank you

for your

attention!

Documents

A glance to SSM approach on Governance - Banco de · PDF fileA glance to SSM approach on Governance XV ... • The thematic review BCBS 239 will reinforce the follow-up actions on