On 10 February 2022, the European Central Bank (ECB), acting in its Banking Union supervisory role at the head of the Single Supervisory Mechanism (SSM) published the results of the Supervisory Review and Evaluation Procedure (SREP)1 that was concluded for the year 2021 (SREP 2021).

SREP is an important supervisory tool used by the ECB-SSM but also by national competent authorities (NCAs) in setting the tone for the supervisory dialogue along with priorities as part of the ECB-SSM's overall compliance assessment and BUSI-specific findings. SREP acts as a supervisory scorecard in respect of Banking Union supervised institutions (BUSIs). This scorecard takes the form a formal decision (a legally binding administrative act) that sets out regulatory capital requirements, including beyond regulatory own funds, that are to be maintained by the individual BUSI.

In case a BUSIs capital base is found to be inadequate, they will have to build up regulatory capital. Moreover, BUSIs may be required to improve their liquidity situation beyond the minimum regulatory requirements, or they may be required to remedy identified deficiencies. Together these measures are intended to ensure that BUSIs remain sufficiently resilient even under adverse business conditions, thus contributing to the maintenance of financial stability in the Banking Union overall.

Following up on the SREP process, supervisors will monitor BUSIs' compliance with the requirements and measures detailed in the SREP decisions addressed to individual BUSIs during off-site analysis and, if required, through on-site inspections over the SSM's 2022 supervisory cycle.

This Client Alert assesses the ECB-SSM's findings in relation to the 2021 SREP, the relevant remedial actions and opportunities for BUSIs and an overview of how this might fit into a range of supervisory touchpoints already underway or scheduled in the SSM's 2022-2024 supervisory priorities, notably given the ECB-SSM's reinvigorated focus of looking beyond the pandemic and increasing BUSI's future resilience including against future and very much novel risks.2

BUSIs and their affiliates may equally wish to read this analysis in the context of actions taken by non-Banking Union supervisors, whether they use SREP as a supervisory tool or not, and the wider set of measures discussed in greater detail from PwC Legal's Frankfurt-based EU Regulatory Compliance Operations, Risk and Engagement (EU RegCORE) centre.

A return to normal SREP procedures?

During 2020, the ECB-SSM adopted a pragmatic pandemic-adjusted approach to carrying out the SSM-run SREP process. In 2021 the SSM reverted to a full SREP cycle. Supervisors focused their 2021 analysis in line with the ECB-SSM 2021 supervisory priorities as it began to plan for beyond the pandemic. Hence, the 2021 SREP cycle covered:

  • a full capital assessment;
  • the assignment of SREP scores to BUSI's overall risk profiles and their main elements; and
  • the issuance of formal decisions, rather than just recommendations (as had been the case for 2020 findings to be remedied during 2021 i.e., allowing for some leeway).

A full exit of temporary and very much 'pandemic preparedness' relief measures was announced as being anticipated as of the end of 2023. It is however important to note that the SREP 2021 findings were issued well ahead of the emerging geostrategic tensions and adverse impacts on the European banking sector that emerged as February 2022 drew to a close.

Details in the 2021 findings - tracking through to supervisory engagement for 2022

Notwithstanding the SSM-run SREP's design, certain BUSIs may still be exposed to surprises in the content of their individual decisions i.e., the grade on the scorecard and commentary addressed to them as well as the overall tone set in the 2021 findings published 10 February 2022. Therefore, it remains important that BUSIs seek legal support throughout the process to ensure that certain issues are addressed in a timely fashion, both internally and externally.

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1 The SREP process itself has been evolving rapidly over the past couple of years - starting as a national-centric process, with the national competent authorities (NCAs) influenced by Basel III/IV, to becoming one that is shaped by supervisory approaches in the Banking Union. The SSM-run SREP continues to build off EU-wide methodology set by the European Banking Authority (EBA). However, it also contains some SSM specifics and its own methodology, which it refines and updates periodically. Some of the differences include the style of its approach, evaluation of its findings and this is crucial in allowing the ECB-SSM to set remedial actions BUSIs are expected to address. These remedial actions include both quantitative measures, such as capital add-ons including the Pillar 2 Requirements (P2R), as supplemented by Pillar 2 Guidance (P2G), as well as details on remedial action and relevant qualitative measures. Unlike the P2R, the P2G is not legally binding but the ECB-SSM expects BUSIs to follow and apply the P2G in full.

In summary, the SSM-run SREP looks at BUSIs operations and whether they have:

  • an effective business model (the supervisors review in particular if BUSIs have a viable and sustainable business strategy)
  • robust internal governance (the subject of the review here is the capabilities of the management bodies; effectiveness of risk management)
  • sufficient regulatory capital (sufficiency of buffer to absorb losses)
  • adequate liquidity (funding the BUSI in a sustainable way, ability to cover short-terms cash needs).

The outcome of this assessment is then translated into scores as follows:




There is a low risk that the BUSI may face material consequences (losses)


There is a low to medium risk that the BUSI may face material consequences (losses)


There is a medium to high risk that the BUSI may face material consequences (losses)


There is a high risk that the BUSI may face material consequences (losses)



2 This Client Alert should be read in conjunction with a more visual analysis available here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.