SREP reform: towards more efficient and effective supervision

14 May 2025

The ECB is committed to reducing unnecessary complexity while maintaining the resilience of European banks. Following an external review of supervisory processes in 2023, ECB Banking Supervision launched a number of projects to make supervision more efficient, effective and risk-based. The Supervision Newsletter is covering projects that will help to streamline supervision without compromising its quality – see below for two examples. 

Authors: Ronan Sheridan, Stephen Woulfe and Eva Catarineu Rabell

New and timelier SREP decisions: more effective communication

The ECB regularly assesses the health of banks under its direct supervision and the results of the assessments are communicated to those banks. This is called the Supervisory Review and Evaluation Process (SREP). The SREP has served us well so far in European banking supervision, but the landscape in which we operate is changing, with structural shifts, outside shocks and new risks creating an environment of high uncertainty. This is why the ECB, in line with the results of the aforementioned external review, has started a comprehensive reform of its processes to enhance their effectiveness and efficiency. In future, the decisions resulting from the SREP will be clearer and more strategic, aiming to focus on key risks and facilitate the dialogue between banks and supervisors. This summer, banks will already receive their draft SREP decision in a new, streamlined format and structure and with new content. The new decisions will focus on strategic risk drivers and the key supervisory concerns driving the quantitative and qualitative measures, rather than providing a comprehensive list of findings.

What is changing?

Key supervisory concerns and related requirements will be detailed in dedicated sections of the new SREP decisions. Each bank’s decision will focus on severe findings from the SREP assessment and on measures from other supervisory processes which require escalation in line with ECB Banking Supervision’s escalation framework. In this vein, the SREP decision letters will mainly show findings and weaknesses with material impact on scores and/or requirements (including the Pillar 2 requirements) and will not repeat those already addressed through other supervisory acts. This will further enhance the clarity of the decisions for the banks. The sections in the letters that are devoted to subsidiaries and parent financial holding companies will be shortened and will mainly focus on risk drivers, requirements and the entity’s risk contribution to the group. Qualitative requirements and recommendations will be presented in annexes, in line with the current practice for follow-up letters for on-site inspections. This will enable banks to quickly identify the key actions they have been asked to carry out, while ensuring supervisory expectations continue to be thoroughly explained. There will also be a link to outstanding measures at the end of each bank’s SREP decision.

With these new succinct and compact decision letters, the “executive letters” which previously accompanied SREP decisions will no longer be necessary. The supervisory dialogue meetings will continue, complementing the communication on draft SREP outcomes, but they will now start in June and finish by mid-July. They allow valuable interaction that banks are encouraged to discuss with their boards.

This new, streamlined format aims to enhance transparency and help banks more easily understand the SREP outcomes. It does not entail a change in supervisory focus or a reduction in supervisory attention. Banks will need to continue following up on all measures, irrespective of whether these were communicated in their new SREP decision, in an operational act or through another channel.

A new approach to findings: more efficient follow-up

The backbone of supervisory work consists of identifying shortcomings (or “findings”) in a timely manner and requesting that banks take action (“measures”) to address them. Banks document, step by step, how they have resolved the findings with the relevant measures, before providing confirmation to the supervisor. The supervisor must then verify each element in detail before approving the closure of the finding and measure, irrespective of how material the issue was. This has helped improve banks’ resilience over the years, but the process has become resource-intensive for both banks and supervisors. This is why Joint Supervisory Teams (JSTs) will be implementing a streamlined approach to the follow-up on findings and measures from July 2025, as part of ECB Banking Supervision’s drive for increased effectiveness and efficiency. This new “tiered approach” will allow supervisors to focus on the most severe issues (F3 and F4 findings). The remediation process for less severe findings (F1 and F2 findings) puts the onus on the supervised banks and relies on them to directly and autonomously close the findings once all necessary actions have been implemented.

What is changing?

As of July, JSTs will focus their follow-up activity (e.g. the review of submitted evidence, and subsequent meetings and interaction with banks) on the most severe open findings. When the banks receive follow-up letters, F1 and F2 findings will be accompanied by a new type of measure which is considered a “reminder to comply”, with standardised wording and a default deadline of 12 months, unless otherwise agreed with the JST. Banks will not need to deliver evidence to the JST that low-severity findings have been addressed. Instead, they will be responsible for ascertaining this themselves with an appropriate internal governance process. JSTs will not actively scrutinise how banks have addressed findings of lower severity, but supervisors may perform sample checks from time to time. Banks will thus have to keep evidence demonstrating how issues were properly addressed available for five years.

For higher-severity findings (F3 and F4 or an aggregation of F2 findings), the related follow-up activity and interaction between the bank and the JST will remain as it is now, including the submission of action plans and evidence within agreed timeframes. The JST will consider the progress made by the bank in the context of its ongoing supervision and the SREP. It is then up to the JST to determine when the findings can be considered closed.

Around the end of the year, JSTs will communicate to banks how open findings and measures created under the old approach will be migrated to the new system. The new approach to findings and measures aims to shift the focus towards the risks and issues which merit the most attention, i.e. the most material shortcomings. This will provide more flexibility to banks and lead to a reduction in the resources required for addressing and checking the low-severity findings issued by JSTs.