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The Committee of European Banking Supervisors (CEBS) yesterday, as part of its Basel II European implementation plan, published a paper on supervisory delegation. This is the situation whereby supervisory tasks are carried out by another supervisory authority (the host supervisor), instead of the responsible authority (the home supervisor), and the findings reported back. The responsibility for supervisory decisions remains with the delegating authority.
The CEBS’s Financial Services Committee recommended (the Francq Report) that supervisors develop a framework for delegation of supervisory tasks in the banking sector. Supervisors were requested to explore the legal and regulatory preconditions, the creation of guidelines, and how to test any arrangements.
Under the Capital Requirements Directive (the EU’s take on Basel II) the responsibility for the supervision of a branch is with the home supervisor, with exceptions to this principle being: (a) the supervision of liquidity which comes under the host supervisor “in cooperation” with the home supervisory authority, (b) “general good” rules and (c) anti-money laundering and anti-terrorist financing.
CEBS has identified two areas in which delegation of tasks currently takes place: (i) on-site examinations, including model validation, and (ii) liquidity concession models - the delegation of a bundle of tasks from the host authority to the home authority in return for granting a liquidity requirements exemption or waiver to the branch.
The paper elaborates on: (i) the definition of delegation of tasks, (ii) current legal framework and cases for delegation, (iii) possible trends for the future, and (iv) general criteria for the processes of delegation. Two reports fleshing out the current practices with respect to the two areas are annexed to the paper. Liquidity concessions (or delegations that include waivers of quantitative liquidity requirements) require national legal or regulatory frameworks to establish the conditions for such waivers and the CEBS recommends that these steps to their national legislators where relevant.
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