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28 October 2005

Strong criticism on CEBS consultation on validation and assessment of the risk management and risk measurement systems

The Committee of European Banking Supervisors faces harsh criticism on their consultation paper on validation and assessment of the risk management and risk measurement systems (CP 10). The banking industry is concerned about the high level of detail and prescription incorporated in the paper.

“This stands in contradiction to the “top-down” and principles-based approach which we believe should be underlying CEBS’ work, and which CEBS broadly delivers in its revised CP03 on the application of the Supervisory Review Process under Pillar II” the European Banking Federation (FBE) states. “We would also underline that the provisions proposed in CP10 are overly conservative and often go beyond the scope of the CRD.”

Also the British Bankers Association (BBA) together with LIBA and ISDA finds the level of detail and prescription in the paper excessive. “We do not believe detailed guidance is helpful at this stage of firms’ implementation plans.”
“CP10 allows regulators at a national level to impose additional stricter requirements. Given the proposals contained within the EU Commission’s Green Paper on Financial Services Policy we do not consider this approach appropriate” the Association states. “We urge CEBS to focus agreement on a common understanding of the minimum requirements for implementation.'

“To establish a level playing field, it is necessary only to set targets that should be met in the approval process, not to take detailed steps that might not be appropriate. Supervisors should allow banks to develop best practice and should therefore only define minimum standards” the European Association of Public Banks (EAPB) states.
“We believe that the standards set in the paper are excessively intrusive and too largely interfere with the responsibilities of both the supervisory and management functions.”

The German ZKA criticizes that “in their present form, the guidelines contain a high degree of detail - in some cases without offering additional clarification. They risk becoming a further level of regulation whose scope is unclear, limiting or replacing understandings already arrived at during the consultation process (Basel II, CRD, national implementation expert groups).
“As CP 10 is not legally binding, we strongly disagree with the implied status of the paper as yet another set of minimum requirements. In our view, CP 10 can, on the contrary, only provide guidelines and examples to support the consistent application of the framework in the EU.”

The European Association of Co-operative Banks (EACB) requests CEBS to carefully consider the link between the present consultation paper CP 10 and CP 03 as there are relevant contradictions between both of them.
“CEBS seems to adopt too great a level of detail, without necessarily creating increased clarity. EACB doubts that such level of detail is required for the creation of an integrated financial market. Accordingly, CEBS should aim to develop a set of minimum standards in areas that are sensitive in terms of competition and are necessary for a level playing-field.”


© Graham Bishop

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