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Supervision Newsletter February 2019

European Central Bank (ECB)

Since 2016 the ECB has published regular updates of its Supervision Newsletter in order to address those issues that are significant for the purpose of the EU supervisory framework. In this context, in February 2019 the ECB published an update of its Supervision Newsletter including six articles on the following issues: supervision, Brexit, sensitivity analysis of liquidity risk, ICAAP and ILAAP, cyber risk and algorithmic trading.

This Technical Note summaries the update of the Supervision Newsletter of February 2019, and the overview of Supervisory Banking Statistics with a referenced data of 3Q18 which was facilitated by the ECB.

Executive Summary

The ECB Supervision Newsletter includes information on the designation of the new ECB Chair of the Supervisory Board, supervisory expectations on Brexit, sensitivity analysis of liquidity risk, guides to ICAAP and ILAAP, SSM perspective on IT and cyber risk, and algorithmic trading trends and regulation.

Scope of application

This Newsletter is aimed at any group people who might be interested and to the public in general. It aims to inform them about any relevant aspects they might have questions to, with respect to the financial sector.

Main content

  • Andrea Enria takes helm of ECB Banking Supervision. In January 2019, Andrea Enria became ECB Chair of the Supervisory Board after his role as Chair of the EBA. Under his leadership at the EBA, this authority developed for example, a specific definition of bank capital, a common definition of NPLs and FBLs, etc.
  • Supervisory expectations on the Brexit. As part of ECB supervisory expectations, the Joint Supervisory Teams (JSTs) of outgoing banks have assessed the plans for 46 UK branches corresponding to 42 banks from 11 SSM countries, confirming that most banks have been already aligned or are well advanced in aligning. Furthermore, the ECB also provides expectations on booking models, access to financial market infrastructures (FMIs) and business models.
  • Sensitivity analysis of liquidity risk. The ECB has launched a sensitivity analysis of liquidity risk, which constitutes the supervisory stress test for 2019 that compares banks’ expected short-term cash flows under stress against available unencumbered collateral enabling supervisors to calculate their “survival period”.
  • Guides to ICAAP and ILAAP. The ECB has issued tow Final Guides to these both processes in order to ensure that banks identify, effectively manage and cover their capital and liquidity risks at all times. In this regard, these Final Guides feed into all SREP assessments and supervisors’ decisions about capital and liquidity requirements.
  • Perspective of IT and cyber risk. The ECB has focused on IT and cyber risk due to the potential impact of cyber-attacks on banks. In this regard, the ECB has established a cyber incident reporting process and has carried out on-site inspections, among other measures.
  • Algorithmic (ALGO) trading. As a result of the number of major ALGO trading failures, MiFID II and its delegated acts introduced comprehensive requirements to mitigate the risks for credit institutions and investment firms engaging, among others, governance, staffing, or business continuity arrangements.

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