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EBA Draft Guidelines on Communication between Competent Authority and Auditor Summary

Core Content

The European Banking Authority (EBA) has issued draft guidelines on communication between competent authorities supervising credit institutions and statutory auditors. These guidelines aim to establish a structured and effective dialogue to support the supervision of credit institutions and ensure the quality of statutory audits.

Main Objectives

• Facilitate supervision tasks: Enhance the ability of competent authorities to perform their supervisory duties effectively.
• Foster financial stability: Support the safety and soundness of the banking system.
• Promote convergence of practices: Encourage alignment of supervisory practices across EU Member States.
• Enhance harmonisation: Achieve greater consistency in audit and supervisory practices within the EU.

Scope and Addressees

• Scope: The guidelines apply to the statutory audits of annual and consolidated financial statements of credit institutions, as defined under Article 2(1) and (13) of the EU Audit Directive. They also cover the supervisory tasks of competent authorities under Article 4(1)(40) of the Capital Requirements Regulation (CRR).
• Addressees: The primary addressees are the competent authorities supervising credit institutions. These authorities are required to make every effort to comply with the guidelines, as stated in Articles 4(2)(i) and 16(1) of the EBA Regulation.

Key Provisions

The EBA draft guidelines are structured around a general framework and 7 principles. The main elements include:

• Scope of information shared: Information must be relevant and material to both supervision and statutory audit. It includes audit approach and significant matters related to financial reporting and control functions.
• Form of communication: Primarily between the supervisory team leader and the key audit partner. Internal tracking of communication is required, and competent authorities may assess the need for trilateral meetings or involve other relevant parties.
• Participants: Communication should occur as frequently as necessary, during any phase of the supervisory or audit process. At least one bilateral meeting is required annually for in-depth communication.
• Frequency and timing: Communication should be timely and relevant. In-depth communication is encouraged to be more regular, formalised, and documented.
• Collective communication: For issues relevant to the statutory audit of more than one credit institution, auditors should meet collectively at least annually. Competent authorities may also assess the need to invite or inform other relevant authorities and associations.

Proportionality Approach

The guidelines emphasize a proportionality approach, ensuring that the level of communication is appropriate to the complexity and risk of the credit institution. Both the competent authority and the auditor share the responsibility for compliance with these requirements.

Basis for Policy Making

The EBA conducted a stock-take survey of current supervisory practices in 31 Member States, identifying the following key observations:

• All Member States have established practices, but they vary significantly across the EU.
• Communication is mostly ad hoc and lacks formal structure.
• Most Member States apply a proportionate approach, focusing on specific issues rather than comprehensive communication.

Next Steps

The EBA is seeking input from stakeholders on the appropriateness and clarity of the draft guidelines, particularly on the following aspects:

• Date of application: Whether the guidelines should apply from the last quarter of 2016.
• Proportionality criteria: What criteria should be used to apply the proportionality approach.
• Information to be shared: Whether additional issues should be included in the information shared.
• Form of communication: What circumstances warrant the use of a specific communication form.
• Participants: When other participants should be included in the communication.
• Frequency and timing: What situations require a specific frequency or timing of communication.
• Collective communication: What additional issues should be addressed collectively.
• Impact assessment: Whether additional information on the costs and benefits of the guidelines is needed.

Timeline

The EBA has outlined a timeline for the implementation of the guidelines, with the final version expected to be adopted by the last quarter of 2016. The timeline includes key milestones such as the publication of the draft guidelines, stakeholder consultations, and the final adoption.

Conclusion

The EBA draft guidelines on communication between competent authorities and auditors aim to improve the quality and consistency of statutory audits and supervisory practices in the EU. By promoting structured and regular communication, the guidelines support the safety and soundness of the banking system and foster greater harmonisation across Member States.