We met Guillaume Tabourin, responsible Expertise regulatory risks for the Directionof risks of BPCE group, which gives us his vision on the balance sheet of the Unique monitoring mechanism (ESM), one year after its implementation.
Regulation & Supervision is in charge, Directorate of risk group BPCE, perform a regulatory monitoring (BIS, EBA, etc.) and coordinate relations with supervisors (ACPR, ECB)
One year after the entry into force of the single supervisory mechanism (ESM), whatis the balance sheet which can be charted?
It is important to note, first, that the establishment of the MSU completed in recordtime and many work have already completed to constitute the first pillar of the Banking Union that represents the support of banking supervision by the ECB. Indeed, the year 2015 was prolific with the implementation of the recommendations or “remedial actions” issues of RDI but also the deployment of the “Single Rule book” with aparticular effort through the review of options and national discretions on 122 provisions contained in the CRR – CRD IV texts. Thus, the ECB opened a consultation closed on December 16, to harmonize prudential salaries retained in this optional setting, through a draft regulation and a draft guide concerning the detailed rules for theapplication of national options. These works were fed high expectations on the partof the French banks, on delicate topics like the perimeters associated with the various regulatory reporting systems, the treatment of insurance participations or the procedures for taking account of deferred taxes. Here, it is a major step in support bythe ECB of his skills as a supervisor. We now await the final version of the texts relating to the options and national discretions scheduled for Q1 2016.
This year was also the occasion a plug of knowledge of new supervisors and the mode of operation of the “Joint Supervisory Teams through meetings, missions to place, solicitations and regular exchanges. The new supervision aims harmonization within the Euro area while preserving the recognition of the specificities of the nationalmarket but also those of institutions. Also new methods of control, the year 2015 was characterised by structuring themes brought by the ECB whether, for example, on the definition by the banks of their “Risk Appetite”, through the review of the principles of governance and risk management within banks of the Euro area or on cyber crime that is becoming a predominant for banks today mobilized by the “digital” challenge
What you think will be the major projects of the year 2016?
Implementation of the SREP (“Supervisory Review and Evaluation Process”) covering the modalities by which the supervisor imposes additional requirements of pillar 2 capital, will be undoubtedly one of fiscal years 2016 headlights. Thus, it is necessary to continue the work already committed to respond to the update of the Guidelinesof the EBA and the rise in competence of the ECB on the specificities of each institution. This portal will be a significant impact such a point of view on the process of formalization, documentation, modeling and stress testing but also financial, now referred to as banks to publish the requirements laid down by the supervisor under pillar2. The ECB also launched a site review originally designated internal models “Model Quality Review” in reference to the exercise directed on the AQR. The work began inthe month of October 2015, and should be spread over four years. Today, it is a phase of information gathering, but banks have not, to date, full visibility on the continuation of the actions, which can create a zone of uncertainty. Indeed, it is complex to define a medium term strategy on the use of internal models for the calculation of the capital requirements on the evolution of existing models, their validation or permission to deploy new. Review models should not suspend the ongoing internal work and particularly in adherence with all guidelines, RTS, ITS that the EBA has produced or must produce. Indeed, the publication of March 2015 of ABB on the future of the approach IRBA, his recent publication of draft guidelines on the definition of default, debates still underway on the “benchmarks” related to the models and the risk-adjusted as well as announcement of a review by the Basel Committee of the standard approach for “floor” for the calculation of risk-weighted exposure contribute at a certain pressure on the use of internal models. While it is true that some actors were able to issue of defiance on the use of the latter for the calculation of capital requirements, the fact remains that patterns remain for banks one of the best tools for central steering of risk, shared to a group  level.
How unfold daily relations with the Joint Supervisory Teams (JST)?
Concerning the Group BPCE, the team is a JST “headed” composed of members of the ECB and of the national authority: Capra. Even if this operation seems easier to manage that for other group who see the intervention of several European authorities, organizational challenges are many.
First, it is necessary to deal with issues of distribution of competences. For example,issues of compliance as the protection of the customer are often on the border of the competences of the ECB and of the national authority.
Then, it is necessary to learn to communicate in a European language. If the daily use of English may be an issue for a group still essentially rooted in France, it is also essential to understand the expectations of a supervisor who must control now 129 banks beyond the linguistic aspects.
Beyond communication and pedagogy, it is necessary to adapt to the new demandsof the supervisor. From this point of view, RDI had strongly mobilized in 2014 many internal teams, partly incorporated to meet the fiscal year, with significant time constraints. Since the entry into force of the MSU, control methods complement, in particular, exercises more punctual type “surveys”, not necessarily simpler to manage. These transverse investigations unfold on also tightened periods – one to two months.Of leverage finance and more recently on the Non Performing Loans including studies. Supervisor posing himself as being “intrusive”, banks must cope with an increasein applications. This operationally translates common inquiries on topics sometimesof unequal importance. Institutions must therefore arrange to deliver the right levelof response while having enough recoil to prioritize requests and meet the “deadlines” imposed.
In this regard, beyond the organizational challenges that arise, it is important to remember that banks, including French, have praised the establishment of the MSU who fulfilled a double objective: support the European banking system destabilized by the debt crisis, but also promote the bases of a banking system allowing better competition within the Euro area. In this context, it is also for the banks to be proactive and to make proposals in order to establish a constructive dialogue and to best organize responses to the demands of the new supervisor.
What are the next challenges that await the sector and how they translate operationally according to you?
Beyond implementation of the MSU and its impacts, the regulation is more than ever at the centre of the debate. In 2008, the G20 had set a very ambitious road map. Today, the multiplicity of texts from different horizons (London, Frankfurt, Brussels, Basel, etc.) and the convergence of risks – finance – accounting prisms channel the efforts of the banking industry. Banks must be more reactive and deal with the subjects in a more transverse way by combining all of the string, IT analyst, in order to respond effectively and appropriately to regulatory expectations. This requires an adaptation of the Organization and project structures to respond to many requests in a very short time, but also by the establishment of a dialogue between peers. Banks French and European must talk and take the initiative to exchange information on the levels and means of response to regulatory, either through organizations Place or bilaterally.
On the bottom, other issues already raised discussions and exchanges. This is the implementation of procedures of resolution and the TLAC, or even the supervision of financial conglomerates whose frame is about to be completed. They will certainly mobilize the efforts of the industry over the coming months.