We prepare your institution for the Supervisory Review and Evaluation Process (SREP): business model, internal governance, capital adequacy (ICAAP), liquidity adequacy (ILAAP), stress testing and supervisory dialogue with the ECB and the Bank of Spain.
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From gap analysis to support in the supervisory dialogue: we prepare your institution to get through the ECB or Bank of Spain assessment.
We assess where your institution stands today against the four pillars of the SREP: business model, internal governance and risk management (IGRM), risks to capital and liquidity risks. We identify the gaps and design the action plan.
We review the institution’s internal governance framework: management bodies, control functions, risk management, compliance, internal audit and the risk appetite framework (RAF). Alignment with the ECB’s supervisory expectations.
ICAAP design and review: identifying material risks, quantifying capital needs, capital planning and internal stress testing.
ILAAP design and review: liquidity and funding risk management, liquidity buffers, liquidity stress testing and the contingency plan.
Since 2020, the ECB has factored money laundering risks into the SREP assessment. A deficient AML/CFT framework can have a negative impact on the internal governance SREP score.
The 2024 SREP methodology strengthens the assessment of technology risk, cybersecurity, outsourcing and digital operational resilience (DORA).
Significant institution (SI) supervised by the ECB or less significant institution (LSI) supervised by the Bank of Spain: the intensity and depth of the SREP vary by category.
"Significant institutions are supervised directly by joint teams (JSTs) of the ECB and the national authority. The SREP is annual, with a full assessment of the four pillars and an individual capital decision (P2R and P2G)."
"LSIs are supervised directly by the Bank of Spain, with the ECB exercising indirect supervision. The SREP is scaled to the size and complexity of the institution, in line with the EBA guidelines."
"Investment firms and management companies are subject to an adapted SREP under the IFD/IFR (Investment Firms Directive/Regulation). The CNMV and the Bank of Spain supervise them depending on the type of entity and the services provided."
"Insurers have their own supervisory review process (SRP) under Solvency II, with principles similar to the banking SREP: governance, risk management, capital (SCR/MCR) and ORSA."
A negative SREP assessment can lead to additional capital requirements, operational restrictions and reputational damage for the institution.
Additional capital requirement (P2R): the supervisor can require the institution to hold capital above the Pillar 1 minimums, which reduces its capacity to pay dividends and to grow.
Capital guidance (P2G): on top of the P2R, the supervisor can set additional capital guidance based on the stress test results. Failing to meet it triggers automatic restrictions.
Qualitative measures: the supervisor can impose governance measures, require changes to the board, limit business activities or require action plans with set deadlines.
A poor internal governance (IGRM) score can have a knock-on effect across the whole SREP assessment. The ECB has stepped up its assessment of diversity, the effectiveness of management bodies and AML risk management.
Stress test results feed directly into the SREP. An adverse result can significantly increase the institution’s capital requirements.
Aggregate SREP results are published every year. An institution with a weak score can suffer reputational damage, pressure from analysts and a downgrade of its credit rating.
We help you with full preparation: gap analysis, internal governance, ICAAP, ILAAP, stress testing and support in the supervisory dialogue with the ECB or the Bank of Spain.
The SREP (Supervisory Review and Evaluation Process) is the process through which the banking supervisor (the ECB for significant institutions, the Bank of Spain for LSIs) carries out a comprehensive assessment of a credit institution’s risk profile. The aim is to determine whether the institution has adequate internal governance, manages its risks properly and holds enough capital and liquidity.
The SREP is carried out every year and is based on the EBA guidelines (EBA/GL/2022/03) and on the methodology developed by the ECB within the Single Supervisory Mechanism (SSM).
The ICAAP (Internal Capital Adequacy Assessment Process) is the internal process through which the institution assesses its own capital adequacy in relation to its risk profile. The CRD requires each institution to maintain an ICAAP proportionate to its size and complexity.
The supervisor reviews the ICAAP as part of the SREP to set the Pillar 2 capital requirements (P2R). A deficient ICAAP can lead to additional capital requirements.
The ILAAP (Internal Liquidity Adequacy Assessment Process) is the equivalent of the ICAAP for liquidity. The institution must assess internally whether its liquidity buffers are enough to withstand adverse scenarios.
The supervisor reviews the ILAAP under the liquidity risk pillar of the SREP and can impose additional liquidity requirements if it considers the ILAAP insufficient.
The SREP assigns each institution an overall score from 1 to 4 (1 being the best and 4 the worst), as well as individual scores for each of the four pillars. The score is based on a harmonized methodology and determines which supervisory measures apply.
Scores of 3 and 4 indicate significant deficiencies and usually come with supervisory measures (capital requirements, operational restrictions, action plans with deadlines).
The P2R (Pillar 2 Requirement) is the additional capital requirement that the supervisor imposes on the institution as a result of the SREP, above the Pillar 1 minimums. It is binding and must be met with CET1 at all times.
The P2G (Pillar 2 Guidance) is additional capital guidance based on the results of the stress tests. It is not binding in the strict sense, but failing to meet it can trigger restrictions on dividend distributions (MDA).
Yes. The ECB’s SREP methodology is progressively building climate-related and environmental risks (ESG) into all four pillars. Institutions must integrate ESG risks into their internal governance, strategy, risk management and ICAAP/ILAAP processes.
The 2024 update of the SREP methodology strengthens the integration of ESG factors into the internal governance (IGRM) assessment and the assessment of risks to capital.
Preparing for the SREP requires a comprehensive approach that covers all four pillars: reviewing the business model, strengthening internal governance, improving the ICAAP and the ILAAP, and preparing for the supervisory dialogue.
The supervisor assesses the institution along four complementary dimensions. The overall score depends on the result in each of them.
Viability and sustainability of the business model: main business lines, sources of income, competitive environment, vulnerabilities and the ability to generate recurring profits.
Effectiveness of the management bodies, control functions (compliance, risk, internal audit), risk appetite framework, data aggregation, technology risk, AML and diversity.
Assessment of risks to capital (credit, market, IRRBB, operational) and of liquidity risks. Review of the ICAAP and the ILAAP and setting of the Pillar 2 requirements (P2R and P2G).
If you need help preparing for the SREP, see our securities market services or request a free consultation.
The SREP is not a one-off exam. It is an ongoing supervisory process that combines off-site analysis, on-site inspections, stress testing and dialogue with the institution.
BusinessThe supervisor analyzes the current viability and future sustainability of the institution’s business model.
IGRMAssessment of the governance framework: management bodies, control functions, RAF, data aggregation, AML, technology risk and operational resilience.
CapitalAssessment of credit, market, IRRBB and operational risk. Review of the ICAAP and setting of the Pillar 2 requirements.
LiquidityThe supervisor assesses the institution’s ability to meet its short- and long-term liquidity needs, including under stress scenarios. It reviews the ILAAP and can impose additional liquidity requirements.
By institutionFull annual SREP. Dedicated JST. Individual P2R and P2G decision. Biennial stress test.
Proportionate SREP. Frequency and intensity depend on the category. Adapted EBA guidelines.
SREP under IFD/IFR. CNMV or Bank of Spain depending on the type. Proportionality by size and activity.
Viability, sustainability, income diversification, strategic plan and ability to generate profits.
Qualitative measures: required strategic changes, limits on activities, restructuring plan.
Management bodies, control functions, RAF, AML, technology risk, data aggregation and ESG.
Governance requirements: changes to the board, stronger control functions, action plans with deadlines.
Credit, market, IRRBB and operational risk. ICAAP, stress testing and capital planning.
Additional capital requirement (P2R). Capital guidance (P2G). Restrictions on dividends (MDA).
LCR, NSFR, ILAAP, liquidity buffers, contingency plan and liquidity stress testing.
Additional liquidity requirements. Required funding plans. Operational restrictions.
These deficiencies can have a negative impact on your institution’s SREP score.
If your institution is facing the SREP, these are the terms you need to master.
Annual process through which the supervisor assesses the credit institution’s risk profile and decides on the supervisory measures needed, including capital and liquidity requirements.
Internal process for assessing capital adequacy. The institution identifies its material risks, quantifies its capital needs and plans its solvency over the medium term.
Internal process for assessing liquidity adequacy. The institution assesses its liquidity needs, buffers, funding sources and ability to withstand adverse scenarios.
Binding additional capital requirement imposed by the supervisor as a result of the SREP, above the Pillar 1 minimums. It must be met with CET1 (at least 56.25%).
Additional capital guidance based on the stress test results. It is not binding in the strict sense, but failing to meet it can trigger automatic restrictions on distributions (MDA).
European banking supervision framework in which the ECB directly supervises significant institutions (SIs) and indirectly supervises less significant institutions (LSIs) through the national authorities.
Joint supervisory team made up of staff from the ECB and the national competent authority, assigned to each significant institution. It is responsible for the SREP and the ongoing supervisory dialogue.
SREP pillar that assesses the effectiveness of the institution’s internal governance: management bodies, control functions, risk appetite framework, risk culture and technology risk management.
Interest rate risk in the banking book. Assessed within the risks-to-capital pillar of the SREP. The EBA guidelines and CRD VI strengthen its regulatory treatment.
SREP ASSESSMENT CONSOLE
The SREP score (1 to 4) is assigned to each pillar and overall. The level of requirements and the intensity of supervision vary with the institution’s category.
Proportionality is a key principle: larger and more complex institutions receive more intensive supervision.
Tell us about your situation and we will explain how to prepare your institution for the SREP.
The SREP (Supervisory Review and Evaluation Process) is the core process of prudential banking supervision in the European Union. Its legal basis is Article 97 of CRD IV/V (Capital Requirements Directive), which requires competent authorities to review and evaluate the risk profiles of credit institutions on an ongoing basis and to determine whether their own funds and procedures are adequate.
Since November 2014, the ECB has directly supervised the significant institutions (SIs) of the euro area through joint supervisory teams (JSTs). The ECB has developed a harmonized SREP methodology, aligned with the EBA guidelines (EBA/GL/2022/03), which is updated regularly to reflect new regulations and changes in supervisory practice. The 2024 SREP methodology introduces significant improvements in the assessment of internal governance (IGRM) and in the capital risk framework.
The SREP assesses four dimensions: the business model (viability and sustainability), internal governance and risk management (IGRM), risks to capital (credit, market, IRRBB, operational and ICAAP adequacy) and liquidity and funding risks (ILAAP, LCR, NSFR). The supervisor assigns a score from 1 to 4 to each pillar and an overall score, and can impose additional capital requirements (P2R), capital guidance (P2G) and qualitative measures.
In Spain, the Bank of Spain is the national competent authority within the SSM. It directly supervises less significant institutions (LSIs) and takes part in the JSTs of significant institutions. The SREP is carried out in line with the EBA guidelines and the ECB methodology, applying the principle of proportionality according to the size and complexity of each institution.
Key legislation, linked to the official text:
Legislation and links reviewed in .