Proportionality and supervisory engagement
Competent authorities should adjust the scope, frequency, granularity and intensity of supervisory engagement with an institution in accordance with its category and taking into account the principle of proportionality. When planning SREP activities, competent authorities should refer to the minimum SREP engagement model outlined in table 1. The model maps the intensity of the supervisory engagement to the institution’s category. The model should not be interpreted as an obstacle to allocate resources on identified supervisory priorities. Competent authorities may therefore, regardless of the categorisation of the institution, set the focus and granularity of their assessment to reflect the risk profile of the institution, the materiality of the different risks, trends and emerging risks identified through the monitoring of key indicators as outlined in Title 3, stress testing as outlined in Title 11 or the outcome of previous SREP assessments.
Under this model, competent authorities should form a view on all the SREP elements (business model analysis, governance/internal controls, risks to capital, and risks to liquidity and funding) in accordance with the minimum frequency set out in table 1, while remaining able to make a yearly meaningful and comprehensive assessment of an institution’s viability (summary of the overall SREP assessment).
This view should be based on information gathered through the full range of supervisory activities listed in paragraph 13. In particular, information from previous years may also serve as a baseline for the assessment and summary of the overall SREP assessment, provided that the competent authority has determined - while also taking into account the quarterly monitoring of the indicators - that the institution’s risk profile has not materially changed.
Competent authorities should engage with the institutions’ management body and senior management(23) based on the minimum frequency indicated in table 1. Regardless of the category of the institution, competent authorities should intensify their engagement to follow up on findings from previous SREP assessments, or to monitor institutions with higher/rapidly changing risk profiles or with a poor overall SREP score reflecting severe supervisory concerns.
Where institutions are part of cross-border groups, competent authorities should discuss how they plan to perform their SREP assessment within the framework of colleges of supervisors to identify concerns at an early stage and adjust and coordinate the approach among the authorities as specified in Title 10.
Table 1. Application of SREP to different categories of institutions
Category | Minimum level of engagement/dialogue with Monitoring of key Evaluation of all SREP Summary of the overall institution’s management indicators elements (at least)* SREP assessment body and senior management |
1 | Quarterly Annual Annual Continuous/ongoing |
2 | Quarterly Every 2 years Annual Continuous/ongoing |
3 | Risk-based at least every 3 Quarterly Every 3 years Annual years |
4 | Every 3 years, extensible Risk-based at least every 3 Quarterly Annual to 5 years** years |
*With the focus and granularity of the review tailored to reflect the risk profile of the institution, materiality of the different risks, and trends and emerging risks identified through supervisory activities. This can be based on previous assessments if nothing has materially changed in accordance with the available information (e.g. monitoring of indicators and reporting), regardless of the categorisation of the institution.
**The minimum frequency for assessing all SREP elements can be extended from 3 to 5 years for category 4 institutions provided that: (i) they have a stable low-risk profile, stable financial metrics and healthy margins; and (ii) the quarterly monitoring of KRIs does not give rise to concerns.
Where competent authorities determine that institutions have similar risk profiles or may be exposed to similar emerging risks, they may conduct thematic SREP assessments on multiple institutions as a single assessment (e.g. a BMA may be conducted on all small mortgage lenders, given that it is likely to identify the same business viability issues for all these institutions). Competent authorities may also use tailored methodologies for the application of the SREP for institutions with similar risk profiles, such as similar business models or geographical location of exposures in accordance with Article 97(4a) of Directive 2013/36/EU.
For institutions covered by the supervisory examination programme required by Article 99 of Directive 2013/36/EU, competent authorities should ensure that the level of engagement and application of the SREP is determined by that programme.
When planning supervisory activities, competent authorities should coordinate activities internally to ensure a coherent assessment and with other parties directly or indirectly involved in the assessment, in particular when input is required from them.