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CEBS' Guidelines for the Operational Functioning of Supervisory Colleges (GL 34) Summary

Core Content

These guidelines, issued by the Committee of European Banking Supervisors (CEBS), provide a framework for the operational functioning of supervisory colleges established under the revised Capital Requirements Directive (CRD) (2009/111/EC), effective from 31 December 2010. The goal is to enhance the effectiveness and efficiency of supervision for cross-border banking groups by promoting coordination, cooperation, and information sharing among supervisory authorities.

Main Objectives

• To ensure consistency and efficiency in supervisory activities across EEA and non-EEA countries.
• To facilitate joint decision-making on key supervisory tasks, such as model validation and risk-based capital adequacy.
• To improve preparedness for emergency situations through coordinated planning and communication.
• To avoid regulatory arbitrage and inconsistencies by establishing clear operational standards.

Key Points

1. Definition of Supervisory Colleges

• Supervisory colleges are permanent but flexible structures for cooperation among competent authorities.
• They are established by the consolidating supervisor or the home supervisor for cross-border entities operating through significant branches.
• The colleges are designed to coordinate and cooperate on supervisory tasks, ensuring harmonised practices across Member States.

2. Structure and Membership

• Guideline 1: The consolidating supervisor should map the group's entities to structure the college, reviewing the mapping at least annually.
• Guideline 2: The college may be fully-fledged or non-fully-fledged, depending on the number and significance of entities. A fully-fledged college is required if the group has at least two relevant or significant entities in two or more host countries.
• Guideline 3: Colleges may be divided into core and general settings. The general college focuses on information sharing, while the core college deals with task allocation and risk assessments.
• Guideline 4: All EEA supervisors of subsidiaries involved in model validation or Pillar 2 capital adequacy should be included in the college. The written arrangements for cooperation should be based on the CEBS template.
• Guideline 5: Non-EEA supervisors may be included if their confidentiality standards are equivalent to those in the CRD. They are not bound by joint decision processes on model validation or Pillar 2.
• Guideline 6: All EEA supervisors involved in the college should sign the written agreement without conditions, ensuring cooperation and coordination.

3. Membership and Participation Criteria

• Guideline 7: The relevance and significance of subsidiaries determine their level of participation in the college.
• Relevance factors include:
  • Contribution to group performance and earnings
  • Risk of activities undertaken
  • Group's organisational structure and risk management functions
  • Autonomy of the entity
  • Correlation of risks across entities
• Significance factors include:
  • Market share in assets or liabilities
  • Role in specific markets (e.g., principal market maker)
  • Integration into the financial system infrastructure
  • Liquidity provision to the market

4. Information Exchange and Communication

• Chapter 2 outlines guidelines for information exchange among supervisors and communication with supervised institutions.
• It specifies criteria for coordination of information flows, timeliness of information, and the use of available communication channels.
• The supervised group should be involved in meetings and discussions, and the college should define their participation accordingly.

5. Voluntary Task Sharing and Delegation

• Chapter 3 encourages voluntary sharing and delegation of tasks to optimise supervisory resources and expertise.
• This helps avoid duplication of work and burdens on supervised institutions.

6. Joint Decision on Model Validation

• Chapter 4 provides guidelines for the validation of internal models.
• The process includes pre-application, ongoing review, and coordinated validation.
• All EEA supervisors involved in the model validation process must be included.

7. Joint Decision on Risk-Based Capital Adequacy

• Chapter 5 outlines the cooperation procedure for assessing the adequacy of own funds.
• The process starts with coordinating risk assessments among competent authorities.
• The consolidating supervisor and EEA host supervisors are responsible for joint decisions on capital levels at both group and entity levels.

8. Macro-Prudential Risks

• Chapter 6 provides guidance on incorporating macro-prudential and sectoral developments into supervisory activities.
• This includes assessing risks at the group and entity levels to ensure a comprehensive understanding of systemic risks.

9. Supervisory Planning in Going Concern Situations

• Chapter 7 focuses on coordinated supervisory planning in going concern scenarios.
• It includes on-site and off-site activities and aims to increase consistency and avoid duplication of supervisory work.

10. Supervisory Planning in Emergency Situations

• Chapter 8 outlines guidelines for emergency preparedness and crisis management.
• It encourages cooperation between supervisors and other authorities (e.g., central banks) during crises.
• The college should support the management of emergency situations through planning and coordination.

Implementation and Harmonisation

• The guidelines must be implemented by 31 December 2010, aligned with the revised CRD.
• CEBS will conduct an implementation study one year after the effective date to ensure harmonisation across Member States.
• The CEBS template is the basis for written arrangements of the colleges, with proportional application for non-fully-fledged colleges.

Conclusion

The guidelines aim to strengthen cross-border supervision through structured cooperation, information sharing, and joint decision-making. They provide a comprehensive framework for the operational organisation of supervisory colleges, ensuring consistency, efficiency, and effectiveness in supervisory practices.