ECB Annual Report on supervisory activities

the year, JSTs actively monitored the implementation of these recommendations
as part of their ongoing supervision.
The thematic review had a positive impact in helping to enhance the effectiveness of
banks’ management bodies and risk management functions. Nearly all banks are
now developing board self-assessments, succession planning processes and
frameworks to prevent conflicts of interest within their boards. Some banks are also
adjusting the composition of their boards. In addition, the quality of relevant
documentation received by boards has improved, and banks have started to define
and implement a risk appetite dashboard.
As some of the recommendations are still being implemented, follow-up activities will
continue in 2017. The JSTs will pay specific attention to the capacity of boards to
independently challenge senior management and to the inclusion of the risk
perspective in the decision-making process. The JSTs will also closely monitor (i) the
comprehensiveness of risk appetite frameworks (particularly regarding the inclusion
of non-financial risks), (ii) the effectiveness of limits, (iii) the interplay between risk
appetite and strategy, as well as (iv) the deployment of the risk appetite framework.
In addition, 25 banks have been subjected to two in-depth analyses since end-2016.
These analyses cover risk appetite limits and the board’s oversight of the internal
control functions. These investigations will be concluded in the first half of 2017.
In June 2016 the <strong>ECB</strong> published the SSM supervisory statement on governance and
risk appetite, which aims to guide institutions towards the implementation of
international best practices. In addition, on 23 June 2016, <strong>ECB</strong> Banking Supervision
organised a conference on governance with top executive and non-executive
directors in order to enhance the dialogue between banks’ boards and supervisors 16 .
In 2017, the <strong>ECB</strong> will continue to foster dialogue with banks’ boards and play an
active role at EU and international level in the definition of international standards.
Leveraged finance
In 2016 the <strong>ECB</strong> published a draft
guidance on leveraged transactions
for public consultation
From end-November 2016 to end-January 2017, the <strong>ECB</strong> held a public consultation
on its draft guidance on leveraged transactions. The guidance aims at developing
clear and consistent definitions, enabling consistent monitoring, and defining
adequate measures with regard to leveraged transactions. The draft guidance
followed on from a thematic review, which was launched as part of the SSM
Supervisory Priorities for 2015.
The review included an in-depth survey of euro area banks’ activity and risk
management frameworks with regard to leveraged finance. During the first half of
2016, 17 JSTs sent follow-up letters to their institutions requesting them to implement
specific actions – pertaining, in particular, to risk management practices – and
develop action plans to remediate the findings from the review.
16
Enhanced dialogue between boards and supervisors: towards a sound governance framework.
<strong>ECB</strong> <strong>Annual</strong> <strong>Report</strong> on supervisory activities 2016 − Supervisory contribution to financial
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