Licensing & Supervision
Under Article 144(c) of the European Directive 2006/48/EC, competent authorities are required to disclose the general criteria and methodologies they use in the review and evaluation of credit institutions, in accordance with Article 124 of the above mentioned Directive. Article 124 is adopted by the Central Bank of Cyprus in Unit A, paragraph 68 of its Directive to banks for the Calculation of Capital Requirements and Large Exposures.
The Supervisory Review and Evaluation Process (SREP) is one element of the wider Supervisory Review Process, the other element being the Internal Capital Adequacy Assessment Process (ICAAP).
The Internal Capital Adequacy Assessment Process (ICAAP) is conducted by the credit institution itself. According to Article 123 of the Directive 2006/48/EC (Unit A, paragraph 67 of the above mentioned Directive of the Central Bank of Cyprus), credit institutions shall have in place sound, effective and complete strategies and processes to assess and maintain on an ongoing basis the amounts, types and distribution of internal capital that they consider adequate to cover the nature and level of the risks to which they are or might be exposed. These strategies and processes shall be subject to regular internal review to ensure that they remain comprehensive and proportionate to the nature, scale and complexity of the activities of the credit institution concerned.
The Supervisory Review and Evaluation Process (SREP), by virtue of Article 124 of the European Directive 2006/48/EC, is conducted by the competent authorities. The Central Bank of Cyprus, in accordance with Unit A, paragraph 68 of its Directive which adopts Article 124 of the Directive 2006/48/EC, reviews and evaluates the followings:
- the credit institutions’ exposure to various risks
- the adequacy and reliability of the credit institutions’ ICAAP
- the adequacy of credit institutions’ own funds in relation to their risk profile
- the monitoring of the credit institution’s compliance with Directive 2006/48/EC, as adopted by the Central Bank of Cyprus.
According to Article 136 of the Directive 2006/48/EC, competent authorities shall require from credit institutions which do not meet the requirements of the Directive, to take the necessary actions or steps at an early stage to address the situation. The above Article is adopted in Unit A, paragraph 69 of the Directive of the Central Bank of Cyprus.
The frequency and the intensity of the review and evaluation process take into account the principle of proportionality, i.e. having regard to the size, systemic importance, nature, scale and complexity of the activities of the credit institution concerned.
For supervisory disclosure purposes, the Committee of European Banking Supervisors (CEBS) identified four conceptual building blocks of supervisory activity that constitute the core of the SREP. The four categories are common for all competent authorities and are the following:
- Scope of Application of SREP (including the principle of proportionality)
- Individual Risk Assessment
- Review and Evaluation of ICAAP
- Overall Assessment and Supervisory Measures.