FAQ on the SREP of tomorrow

Last updated on 11 March 2025

Why did we review the SREP?

Our supervisory processes have served us well, but the landscape in which we operate is changing, with structural shifts, outside shocks and new risks creating an environment of high uncertainty. To continue delivering on our mandate to keep Europe’s banks safe, we reviewed our regular health check for banks - the Supervisory Review and Evaluation Process (SREP) - to make sure that it stays fit for purpose and that our supervisory processes are more effective and efficient than ever. We have therefore taken into account feedback, from the Expert Group’s review of the SREP and a report published by the European Court of Auditors, on how to streamline the SREP.

What did we aim to achieve with the SREP review?

The actions taken as a result of the review will result in simpler, more flexible supervisory processes and a shorter SREP timeline. They also aim to foster and maintain a supervisory culture that focuses more intently on key risks, promotes bank-specific qualitative judgement, and encourages strong, timely action when needed. Finally, the changes will help us communicate more clearly with the banks we supervise and make our work more efficient, transparent and predictable.

How are we changing the SREP?

• Flexible risk assessment system (RAS): increasing the flexibility granted to supervisors to prioritise and focus their assessments on key risks. Supervisors will employ a multi-year assessment (MYA) strategy which allows them to review in-depth all relevant risks over a multi-year period, in line with the risk tolerance framework (RTF), rather than reviewing all risks every year. This flexible approach will allow JSTs to allocate resources more efficiently.
• Comprehensive planning: in the new SREP, strengthening the integration of planning of on-site inspections, deep-dive analyses and horizontal thematic reviews to deliver a structured and comprehensive view of banks’ risks. By improving the planning process of supervisory activities, synergies are maximised, and banks gain a clearer understanding of supervisory priorities.
• Using the full set of supervisory tools: by enabling more effective and timely escalation when deficiencies are not promptly remediated. These include binding qualitative requirements and enforcement and sanction measures, where necessary.
• Clear and concise decisions: streamlining supervisory communication. SREP decisions will directly address key risks and supervisory expectations. If assessments show no material changes in the risk profile of a bank, SREP decisions can be updated less frequently than yearly.
• Simplification: simplifying supervisory methodologies and making them more stable.
• IT and analytical tools: the ECB’s digital agenda entails investments in IT systems and data analytics from 2024 to 2028, incorporating advanced technologies such as generative AI to support supervisors in routine tasks.

How are we changing the timeline of the SREP?

The SREP 2025 timeline has been optimised, and the process will conclude by the end of October – earlier than in past years. As well as ensuring that banks will be notified of final SREP decisions in good time, the changes are aligned with the SREP reform initiative’s efficiency goals and will make supervision more effective.

Key milestones include:

• The supervisory dialogue meetings are scheduled to start in late June and finish by mid-July. This new schedule requires banks to make any necessary adjustments and prepare efficiently to allow for meaningful supervisory discussions.
• The hearing period is set to begin in early August. Recognising the summer period, the right to be heard is extended from two to four weeks until the end of the month, providing more time for banks to review draft SREP decisions and to exercise their right to be heard.
• The final SREP decisions will be notified by the end of October (compared with December in the previous cycle). Supervisors are committed to reducing their time-to-decision, supporting and improving the planning of the following supervisory cycle.

If assessments indicate that there are no significant changes in an institution’s risk profile and no changes to the existing measures are deemed necessary, SREP decisions may be updated on a less frequent basis under certain conditions. Previously applicable to a limited number of banks, this approach will now be expanded.

This approach balances effective, timely communication with procedural diligence, ultimately facilitating a faster, more responsive supervisory process.

How are we improving the SREP decision template?

The new SREP decisions will become more streamlined, focusing on the most important risks and supervisory measures so that supervisory concerns are conveyed clearly to banks.

The format of SREP 2025 decisions will be revised to improve clarity and focus. Key concerns identified and applicable requirements will be spelled out in dedicated sections of the new SREP decision. Qualitative requirements and recommendations will be presented in an annex, enabling banks to quickly identify key actions while still having access to a thorough explanation of supervisory expectations. Banks are in any case reminded that they need to follow up in good time on any supervisory actions communicated throughout the year.

This new format aims to enhance transparency and to streamline and facilitate banks’ understanding of their SREP outcomes. It does not mean a change in supervisory focus or reduced supervision. As a result of this revised format, we will discontinue the use of “executive letters” as accompanying documents to SREP decisions. The supervisory dialogue meetings will complement this communication, providing further details that banks are encouraged to share with their Boards.

How are we simplifying the methodology for setting Pillar 2 requirements?

To simplify our processes and ensure the methodology is robust, Pillar 2 requirements will be driven more directly by relevant areas of risk, and higher risks will continue to result in worse SREP scores and a higher Pillar 2 requirement. While information from banks’ internal capital adequacy assessment process (ICAAP) outcomes will no longer directly affect the Pillar 2 requirement, the supervisory assessment of banks’ ICAAPs will continue to feed into the SREP assessments of business models, internal governance and overall risk management.

The new methodology will more effectively address potentially long-standing weaknesses, such as those related to internal controls or governance issues. Pillar 2 capital requirements can be influenced more directly if such weaknesses are not resolved promptly and if other supervisory measures prove to be insufficient. At the end of the process, supervisors will use their expert judgement to assess whether the final Pillar 2 requirement is adequate in light of their comprehensive risk assessment and make adjustments if needed.

When will the new Pillar 2 requirement methodology be implemented?

The methodology will be thoroughly tested internally in 2025 and be applied starting from the 2026 SREP cycle. Pillar 2 requirements based on the new methodology will take effect as of 1 January 2027.

What happens next?

We are taking a staggered approach to implementing the changes to the SREP across the 2025 cycle and the 2026 cycle. For instance, the MYA, the flexible RAS and simpler SREP decisions are being introduced in the 2025 SREP cycle, while the new P2R methodology is to be deployed starting from the 2026 SREP cycle.

This gradual approach ensures that the changes are compatible with the timelines of other related processes and that all relevant stakeholders are involved. We will monitor progress and the Supervisory Board will reflect on developments and incorporate lessons learnt from the implementation of these measures.