CEBS publishes its work on delegation

CEBS today publishes a paper presenting the outcome of an in-depth analysis of delegation of supervisory tasks based on practical experience. The Financial Services Committee in its Francq report recommended that supervisors develop a framework for delegation of supervisory tasks in the banking sector. Supervisors have been requested to explore the preconditions for the use of delegation mechanisms, especially through the use of guidelines, and where appropriate to test these arrangements.

CEBS has identified two areas in which delegation of tasks currently takes place: (i) on-site examinations, including model validation, and (ii) liquidity concession models. A liquidity concession model may be described as an intensive form of cooperation involving the delegation of a bundle of tasks from the host authority to the home authority, and by granting conditionally an exemption or waiver of liquidity requirements to the branch.

The paper elaborates on: (i) the definition of delegation of tasks, (ii) current legal framework and cases for delegation, (iii) possible trends for the future, and (iv) general criteria for the processes of delegation. Two reports fleshing out the current practices with respect to the two areas are annexed to the paper.

Regarding delegation of on-site examinations including model validation no legal or practical impediments were identified. For liquidity concessions (or delegations that include waivers of quantitative liquidity requirements) national legal or regulatory frameworks have established the conditions for such waivers. CEBS recommends that the CEBS members propose these steps to their national legislators where relevant.

The outcome of this work is to be regarded as work in progress. It is intended to provide information about the current situation and further possible progress regarding the delegation of tasks in banking supervision, and as input to the work being performed on delegation by the 3 Level 3 Committees jointly which will commence its work in the second half of 2008. In addition, the paper is also intended to facilitate the use of delegation in banking supervision by e.g. containing guidance on the process of delegation and clarifying legal obstacles.