ERM Glossary: Supervisory Review and Evaluation Process (SREP)

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Firms subject to the EU’s Capital Requirements Directive are subject to Supervisory Review and Evaluation Process (SREP). Supervisors such as the UK’s Prudential Regulation Authority interpret the SREP as being a process by which the supervisor, taking into account the nature, scale and complexity of a firm’s activities, reviews and evaluates the:

-          arrangements, strategies, processes and mechanisms implemented by a firm to comply with its regulatory requirements laid down in the national supervisor’s rules and in the CRR;

-          risks to which the firm is or might be exposed;

-          risks that the firm poses to the financial system; and

-          further risks revealed by stress testing.

As part of the SREP, supervisors will review the firm’s ICAAP, other vulnerabilities identified by e.g. reverse stress tests, the governance arrangements of the firm, its corporate culture and values, the ability of members of its management body to perform their duties and a range of other issues that the supervisor considers are relevant to the risks such a business faces.

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