The Supervisory Review and Evaluation Process (SREP) is the activity whereby supervisors assess the risks banks face and check that they are equipped to manage those risks properly. Its purpose is to allow banks’ risk profiles to be assessed consistently and decisions about necessary supervisory measures to be taken.
The SREP focuses on the following areas:
- business model;
- internal governance;
- risks to capital; and
- risks to liquidity.
Based on the assessment of these areas, competent authorities determine (i) the extent to which each supervised banks’ systems, strategies and processes ensure good governance and adequate risk coverage, and (ii) how much capital each supervised bank needs to hold to cover the risks it faces.
The frequency and the intensity of the SREP depend on the risk profile of the institution, its systemic importance and the nature, scope and complexity of its operations. As a rule, each SREP assessment is reviewed on an annual basis.