What are “high-priority less significant institutions”?
24 March 2016 (updated 12 December 2018)
The SSM Framework Regulation states that “the ECB shall define general criteria, in particular taking into account the risk situation and potential impact on the domestic financial system of the less significant supervised entity concerned, to determine for which less significant supervised entities which information shall be notified.” In this regard, the need to have a high-priority list was identified from the beginning of the SSM in November 2014.
A less significant institution (LSI) can be deemed “high priority” for various reasons. LSIs that are close to being classified as significant institutions due to their size are, de facto, considered “high priority”. Also, a minimum of three high-priority LSIs per country applies. Additionally, the intrinsic riskiness and the impact on the national economy are also taken into account in determining the high-priority LSIs. For the intrinsic riskiness dimension, the national competent authorities perform a risk assessment of the LSIs in the context of their ongoing supervisory activity and using the common SSM methodology. This assessment takes into account several elements, such as: the business model of the institution, its internal governance and risk management, its risks to capital, and its risks to liquidity and funding. The impact assessment of an LSI aims to evaluate its impact on the domestic financial system and on the SSM. For this purpose, it is not only the institution’s size (total assets) that is considered, but also its interconnectedness with the rest of the financial system.