Banca d'Italia updates SREP for investment firms
Banca d'Italia has updated its Supervisory Review and Evaluation Process (SREP) for investment firms, detailing its approach to scope, assessment, and supervisory measures. The updated guidance applies to Class 2 and Class 3 investment firms.
Tailored scrutiny for investment firms
Banca d'Italia's updated Supervisory Review and Evaluation Process (SREP) for investment firms (IFs) details its approach to scope and assessment, effective from 31 December 2025.
Implemented since April 2023 in line with EBA GL 2022/09, the SREP framework covers both Class 2 and Class 3 IFs, individually and on a consolidated basis for Class 2 firms within Italian parent holding companies.
A core principle is proportionality, ensuring supervisory scrutiny aligns with an IF's activities, size, and overall risk exposure, as determined by its latest SREP score.
This categorizes IFs into three priority classes (High, Medium, Low), dictating the intensity, frequency, and scope of supervision.
The assessment process considers business model analysis, internal governance, firm-wide controls, and risks to capital and liquidity, all adapted to the new prudential capital requirements introduced by the IFR/IFD package.
The overall SREP score is a weighted average of these elements, with governance having the highest weight.
Capital and liquidity under scrutiny
A key component of the SREP is the review of Investment Firms' (IFs) Internal Capital Adequacy Assessment Process (ICAAP) and Internal Liquidity Adequacy Assessment Process (ILAAP).
Class 2 IFs and their consolidated groups must maintain robust arrangements for risk assessment and management, including under stress, and for evaluating internal capital and liquid assets.
Class 3 IFs are exempt from these ICARAP obligations.
As of March 2024, Class 2 IFs were required to detail capital and income forecasts, estimate internal capital needs under various conditions, and quantify own funds for an orderly winding down, with a focus on operational risks.
The overall SREP assessment also determines the application of supervisory measures, including early intervention for BRRD-subject IFs, based on the firm's SREP score, as per the Consolidated Law on Banking.
Supervision's evolving toolkit
This updated SREP guidance provides welcome clarity on Banca d'Italia's supervisory expectations for investment firms, particularly regarding ICAAP and ILAAP requirements.
The emphasis on proportionality is crucial for tailoring oversight to diverse business models, preventing undue burden on smaller entities.
Yet, the detailed and evolving nature of these frameworks highlights the persistent complexity of regulatory compliance for the financial sector.