1. CEBS – Role, Programme and Challenges
José María Roldán | 23 May 2005

2. Outline Introduction What is CEBS? Work Programme Consultation process
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
CEBS | May 2005

3. 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
CEBS | May 2005

4. 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 d’Italia * Iceland, Liechtenstein and Norway
CEBS | May 2005

5. 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
CEBS | May 2005

6. Enforcement Commission
Lamfalussy framework
EBC¹
Commission
Parliament
EIOPC¹
ESC¹
FCC¹
Enforcement Commission
Council
CEIOPS³
CESR³ L1 L2 L3 L4
CEBS²
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 Banks ³ Supervisors
CEBS | May 2005

7. Accountability CEBS² CEIOPS3 CESR3 ECOFIN Council European Commission
EBC¹
CEBS²
CEIOPS3
CESR3
¹Finance ministries
²Supervisors and Central Banks ³Supervisors
ECOFIN
Council
EBC European Banking Committee
EFC Economic and Financial Committee
FSC Financial Services Committee
FST Financial Stability Table
CEIOPS Committee of European Insurance and Occupational Pensions Supervisors
CESR Committee of European Securities Regulators
European
Commission
Parliament
FSC¹
European Central Bank (ECB)
EFC-FST¹
Economic and Monetary
Affairs Committee (ECON)
Banking Supervision Committee (BSC)
Level-3 coordination
Advice/ accountability
Cooperation
CEBS | May 2005

8. Work Programme Priority areas of work Other 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.
CEBS | May 2005

9. Expert groups
CEBS | May 2005

10. The first challenge Consistent implementation The issue CEBS response:
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
CEBS | May 2005

11. 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
Links to national websites
Comparable information
Common language - English
CEBS | May 2005

12. Supervisory Disclosure
CEBS | May 2005

13. Supervisory Disclosure
CEBS | May 2005

14. National Discretions Open question:
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
CEBS | May 2005

15. The second challenge Convergence in practices The issue CEBS response:
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
CEBS | May 2005

16. 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:
Supervisor’s SREP (the Supervisory Review and Evaluation Process); and
Institution’ ICAAP (the Internal Capital Adequacy Assessment Process).
CEBS | May 2005

17. 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)
CEBS | May 2005

18. Supervisory Review Process
CEBS | May 2005

19. 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.
CEBS | May 2005

20. 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
CEBS | May 2005

21. 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
CEBS | May 2005

22. Streamlining the supervisory process
Open questions:
Delegation of tasks/responsibilities
Conflicting views (e.g., significance, distribution of capital)
Crisis management
CEBS | May 2005

23. 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 participants and end-users
CEBS
Standards, guidelines and
recommendations
CEBS | May 2005

24. 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.
CEBS | May 2005

25. Next steps on consistent implementation and convergence of practices:
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”
CEBS | May 2005

26. Question time
Any questions?
Thank you!
CEBS | May 2005

27. Contact details:
José María Roldán :