Guidelines on Technical aspects of the management of interest rate risk arising from non-trading activities under the supervisory review process

Status: Final and translated into the EU official languages

These Guidelines set out high-level guidance, addressed to both credit institutions and investment firms, related to interest rate risk arising from non-trading activities (IRRBB). The paper sets out supervisory expectations regarding the measurement, management and governance arrangements of IRRBB and its reflection in the ICAAP. The guidelines also define the supervisory outlier test requirements for the assessment of institutions’ resilience to interest rate changes.

EBA publishes final guidance to strengthen the Pillar 2 framework

EBA publishes final guidance to strengthen the Pillar 2 framework

19 July 2018

The European Banking Authority (EBA), in accordance with its Pillar 2 Roadmap, published today its final revised Guidelines aimed at further enhancing institutions' risk management and supervisory convergence in the supervisory review and examination process (SREP). The three reviewed Guidelines focus on stress testing, particularly its use in setting Pillar 2 capital guidance (P2G), as well as interest rate risk in the banking book (IRRBB).
 
In particular, the publication includes:
  • Final Report on the Guidelines on the revised common procedures and methodologies for the supervisory review and evaluation process (SREP) and supervisory stress testing; 
  • Revised final Guidelines on the management of interest rate risk arising from non-trading activities (IRRBB Guidelines);
  • Revised final Guidelines on institutions' stress testing.
The comprehensive EU SREP framework, which was introduced by the EBA in 2014, is now well established and in use by supervisors across the EU. Following the global regulatory developments, as well as the EBA's supervisory convergence assessments, specific changes were needed to reinforce the framework as set out in the EBA's Pillar 2 Roadmap
 
The changes to the SREP Guidelines do not alter the overall SREP framework and mainly aim to enhance the requirements for supervisory stress testing and explain how stress testing outcomes will be used in setting P2G. The changes and additions to the SREP Guidelines, which are outlined in the Final Report, include i) a section on Pillar 2 Capital Guidance (P2G), ii) supervisory stress testing requirements, iii) a clarification on the scoring framework, and iv) consistency checks with relevant EBA standards and guidelines, in particular in the areas of internal governance and institution-wide controls assessment. It should be noted that a consolidated version of the revised SREP Guidelines is published alongside the Final Report for convenience purposes. 
 
The revised IRRBB Guidelines reflect developments in the Basel Committee on Banking Supervision (BCBS) and clarify internal governance and supervisory outlier tests requirements during the first phase of the European implementation of the Basel standards. The revisions are, therefore, intended to act as a bridge to the future requirements, which will be incorporated in the CRD V/ CRR2 framework
 
The revised Guidelines on institutions' stress testing update the EBA's 2010 guidelines to reflect industry practices and the incorporation of recovery planning. The revised guidelines provide detailed guidance on the way institutions should design and conduct a stress testing programme, and also feature a common taxonomy on stress testing. 
 

Legal basis and next steps

 
The EBA Guidelines on common procedures and methodology for Supervisory review and Evaluation Process (SREP) have been developed in accordance with Article 107(3) of Directive 2013/36/EU and specify the common procedures and methodologies for the functioning of the supervisory review and evaluation process (SREP) referred to in Articles 97 and 107(1)(a) of Directive 2013/36/EU. In addition, these guidelines aim at providing common methodologies to be used by competent authorities when conducting supervisory stress tests in the context of their SREP as referred to in Article 100(2) of Directive 2013/36/EU. 
The revised Guidelines replace the existing Guidelines and will be applicable from 01 January 2019.
 
The EBA Guidelines on the management of interest rate risk arising from non-trading activities have been developed in accordance with Article 16 of Regulation (EU) No 1093/2010 and Article 98(5) of Directive 2013/36/EU. These guidelines specify the systems to be implemented by institutions for the identification, evaluation and management  and governance arrangements of IRRBB;  sudden and unexpected changes in the interest rate in accordance with Article 98(5) of Directive 2013/36/EU for the purposes of SREP; and general expectations for the identification and management of credit spread risk in the non-trading book (CSRBB).
The revised Guidelines replace the existing Guidelines and will be applicable from 30 June 2019 with transitional arrangements for specific provisions until 31 December 2019.
 
The EBA Guidelines on institutions' stress testing have been developed in accordance with Article 16 of Regulation (EU) No 1093/2010 and update the existing EBA Guidelines on stress testing form 2010. These guidelines aim at providing common organisational requirements, methodologies and processes for the performance of stress testing by institutions as part of their risk management processes. The revised Guidelines replace the existing Guidelines and will be applicable from 01 January 2019.

Press contacts:

Franca Rosa Congiu

E-mail: press@eba.europa.eu - Tel: +44 (0) 207 382 1772

EBA updates guidelines on interest rate risk arising from non-trading activities

EBA updates guidelines on interest rate risk arising from non-trading activities

22 May 2015

The European Banking Authority (EBA) published today an updated version of the CEBS guidelines on technical aspects of the management of interest rate risk arising from non-trading activities under the supervisory review process, published on 3 October 2006. The guidance provided in these updated guidelines applies to the interest rate risk arising from non-trading activities (IRRBB), one of the Pillar 2 risks specified in the Capital Requirements Directive (CRDIV). 
 
The Guidelines focus on expectations towards institutions regarding the appropriate identification and mitigation of IRRBB risks. It should be noted that all interest rate risk arising from trading activities is outside the scope of these updated IRRBB guidelines. The document introduces changes to the high-level ‘Principles' laid down in the CEBS Guidelines in order to clarify expectations towards institutions, extend the scope to internal governance, and specify the calculation of the supervisory ‘standard shock' that should be performed in accordance with Article 98(5) of CRDIV. They also provide more detailed guidance on certain aspects of managing IRRBB.
 
The Guidelines are structured into two major sections. The first section is an updated version of the original CEBS text and provides enhanced high-level guidance on the management of IRRBB. The second section provides additional details for the management of IRRBB, namely some key technical aspects that should be considered, and specifies the high level guidance. It also clarifies how institutions should take these aspects into account when assessing IRRBB in their Internal Capital Adequacy Assessment Process (ICAAP). This detailed guidance focuses thematically on five areas of interest risk assessment and control: scenarios and stress testing, measurement assumptions, methods for measuring interest rate risk, governance and identification of interest rate risk, and calculation and allocation of capital to interest rate risk.

Legal basis and next steps

These Guidelines are addressed to Competent Authorities and will apply from 1 January 2016. The CEBS guidelines on technical aspects of the management of interest rate risk arising from non-trading activities under the supervisory review process, dated 3 October 2006, are repealed with effect from 1 January 2016.
 
Following the publication of the English version, the EBA will make available, in due course, the translations of the Guidelines in all EU languages. Within two months from the publication of the translated Guidelines, Competent Authorities shall confirm to the EBA their compliance status, which will be disclosed on the EBA website.
 

Press contacts:

Franca Rosa Congiu

E-mail: press@eba.europa.eu - Tel: +44 (0) 207 382 1772