Theory is one thing, but practice is another. In reality it is on-site inspections (OSIs) by joint supervisory teams (JSTs) that show just how much scrutiny the ECB is putting onto banks’ IA functions. We are aware of several OSIs targeted solely on IA departments; in one case we have seen an investigation of the IA function lasting over four months and involving a large inspection team, lending credence to the ECB’s stance on deep investigations. The ECB is also using OSIs with a broader focus on Internal Governance to assess IA functions.
Based on our observations of the market, we see the following areas as among the ECB’s most important current expectations for IA functions.
· Staffing & Training: It seems that the ECB is using a 1% threshold for banks’ total staff to be allocated to IA functions. In Germany, ‘good practice’ benchmarks are often higher. However it seems that many banks have struggled to reach this threshold, potentially leading to difficult decisions about the scope and prioritisation of IA work. The quality of teams is key too – the availability of staff with specialised mathematical, statistical or technology skills is often challenged. JSTs also review training…
