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QA audit in banking apps: what you need to know about the procedure in EU

QA audit in European banking applications: standards and data security

Banking applications are one of the most complicated applications, so their development and testing involve challenging processes. One of them is the QA audit that the Banking in EU follows according to EU-defined Standards

QA audits are essential components for getting things in testing done correctly. These functions contribute reassurance to the quality of developed software and help in finding ways to improve.

In recognition of the benefits of a more coordinated cross-border approach to banking supervision, in 2012 European leaders legislated to establish the European banking union under the umbrella of the European Central Bank (ECB).

What are the standards applied to banking applications in the EU?

Since November 2014, the ECB (European Central Bank) has been trusted to supervise QA audit functions across the euro area. It was a game-changer for European banking supervision. Banks can now analyze risks swiftly and holistically with a single supervisor in place, which helps draw on peer comparisons across the banking sector. 

The ECB does not work alone – competent national authorities (NCAs) support each member state. 

This collaboration framework is called Single Supervisory Mechanism (SSM): ECB controls the day-to-day supervision of significant banks, whereas NCAs conduct audits for less powerful banks under ECB supervision.

The ECB’s direct supervision does not include staff only from ECB but rather from joint supervisory teams from ECB and NCAs sides. This act results in a collaborative effort directed by both European and particular countries’ national bank officials. 

The Supervisory Quality Assurance (SQA) Division and internal auditors of ECB have each made significant contributions to adjust the standard methods while helping them to safeguard the consistency and quality of the supervisory activities at the ECB. 

The division has created the SQA network to work with counterparts. They have developed its methodology, paving the way for partner banks to ensure good quality under European banking supervision. As a result, almost all critical supervisory processes have been quality-assured, and ECB has learned valuable lessons about improving its processes and deliverables.

This practice has facilitated improvements in both the planning and the practical implementation of their supervision. 

The ECB has introduced the single training curriculum for European banking based on the first quality assurance reviews. This new training curriculum is entrusted by the SQA division of all partner banks in the EU. This curriculum offers over 100 different courses grouped according to four distinct professional profiles. These courses have been very successful in ensuring software quality with both ECB and NCA staff.

Data security aspects a bank can’t omit while applying for QA audit in the EU

 The EBA Guidelines need EU Banks to examine, execute, and monitor various security measures. 

Security testing is one of the significant stages in the entire application testing cycle, as this stage ensures that the application complies with defined EU banking standards. 

Banking apps are sensitive and a prime target for hackers & fraudulent activities due to the nature of the data they transmit. 

 A company should not omit the security guidelines defined by the Open Web Application Security Project (OWASP) and the European commission bank (ECB).

Security scanning reports should be available to the relevant stakeholders after their completion. The development team should provide the fixes of identified vulnerabilities before applying a QA audit in the EU. 

 Penetration testing can also be part of this step to determine the propagation of errors.

Various platforms, networks, and OS must be checked through rigorous security testing techniques.

Procedures for banking software to get compliant with the EU banking audit

The EU banking audit function follows a risk-based approach to assessing critical supervisory tasks and activities since the inception of ECB Banking Supervision. This process has included the actions in a range of essential areas, including information management, how the banks monitor the implementation of supervisory measures, and its SREP (Supervisory Review and Evaluation Process).

A bank must check its SREP before applying its audit. In addition, the Banks benefit from the ECB’s Internal Audit Committee (IAC) scrutiny for processes involving intense cooperation between the ECB and national authorities.

The guidance issued by Internal Audit helps ECB Banking Supervision identify areas for improvement. 

Once the internal audit findings are available, the SQA department works to support the frontline supervisory audit staff in preparing action plans to ensure appropriate follow-up and risk mitigation. It then coordinates and oversees the timely and consistent implementation of the action plans, reporting annually to the supervisory audit board on the progress made. 

Frequent communication between the SQA teams and the Internal audit committee is an essential part of the process. 

So, experts from the SQA department should be well prepared before the QA audit. These two teams work constantly and fluidly together towards the shared objectives.

What are the tendencies in the field?

Over the past few years, the interests of financial institutions have increased in outsourcing business activities. Their major intention is to decrease the costs and improve working flexibility and efficiency. Bank institutions are adapting their business models to embrace such technologies in the context of digitalization and then increase the importance of new financial technology to other fintech providers. 

One of the fields is testing which many banks are doing through outsourcing. Testing banking applications requires an end-to-end testing methodology involving multiple Software Testing techniques. These various testing practices ensure the working of functional flow as per core business requirements, its security aspects, data integrity features, concurrency, and the user experience. The testing field is very dominant amongst other functional operations needed for Banking software. Different testing expertise for banking applications is in high demand, and many outsourcing companies are looking for experts in this area.

How can the process of QA audit in banking be optimized?

The European Banking Authority (EBA) has published some guidelines which all banking institutions must follow related to outsourcing and using cloud technologies. 

The internal audit function’s activities, as per EBA defined guidelines, should follow a risk-based approach that involves the independent review of outsourced activities. Therefore, the audit plan and program include the outsourcing arrangements of critical functions. The internal audit function ascertains outsourcing that the payment institution’s framework is accurately and efficiently implemented and in line with the relevant laws and regulations. 

These include the analysis of the risk strategy and management decisions; the credibility, quality, and effectiveness of essential functions; the efficiency of outsourcing approaches; the appropriate involvement of governance bodies; and the appropriate monitoring and management of outsourcing arrangements.

What part plays the European Banking Authority (EBA) in software QA?

The European Banking Authority (EBA) has been regularly performing testing exercises across the European Union, and influential among them are stress testing, security testing, and compatibility testing. 

According to the EBA, the aim is to assess the flexibility of EU banks against a standard set of adverse economic developments to identify the potential risks and to inform supervisory decisions, and increase market discipline. The European Central Bank (ECB) and other European competent authorities support these QA audit exercises and use them to make supervisory decisions. 

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