LSI supervision and oversight
Less-significant institutions (LSIs) are small and medium-sized banks that are directly supervised by their national competent authorities (NCAs), under the oversight of the ECB.
Below you will find answers to some of the most frequently asked questions on LSI supervision and oversight, which should help familiarise you with the topic.
A summary on organisation of LSI oversight and supervision, the activities carried out by ECB and NCAs as well as the structure and risk situation of the LSI sector in Europe can be retrieved from the report on LSI supervision and oversight.LSI supervision report 2022
What determines a bank’s significance?
All supervised entities are by default classified as less significant.
They become significant – and therefore fall under the ECB’s direct supervision – only if they fulfil at least one of the criteria set out in the Single Supervisory Mechanism (SSM) Regulation. Follow the links below to find out more about these criteria.
Who supervises LSIs?
LSIs are directly supervised by their respective NCAs and indirectly supervised by the ECB, whereas significant institutions (SIs) are directly supervised by the ECB.
To see whether a bank is classified as an SI or an LSI – and therefore who supervises it – you can consult the ECB’s list of supervised entities. The ECB reviews the significance of every bank at least once a year.
How is proportionality reflected in supervision?
The principle of proportionality ensures that the supervisor’s expectations and requirements correspond to the size, systemic importance and risk profile of the banks under supervision, and that supervisory resources are efficiently allocated.
The SSM accounts for proportionality in supervision and oversight in several ways. Its classification system is a key means of ensuring effective proportionality, and this in turn translates into proportionate approaches in supervisory reporting and supervisory expectations (for example related to governance arrangements and authorisation procedures), as well as in the intensity and scope of day-to-day supervisory activities and assessments. The ECB’s classification system differentiates between high-impact and high-risk LSIs, but the latter type is only used internally for supervisory intensity purposes. The small and non-complex institution (SNCI) criteria set out in the Capital Requirements Regulation (CRR) are also key to ensuring proportionality.
What is an SNCI?
CRR II introduced the concept of a small and non-complex institution.
To qualify as one, an institution has to meet the nine criteria listed in the relevant article of the CRR (Art. 4(1)(145)).
It is up to banks to determine whether they are SNCIs, and in principle they should do this on an ongoing basis. LSIs are expected to let their NCAs know when there is a change in their status, i.e. when they start to qualify as an SNCI, or when they no longer meet all the criteria set out in the CRR. This does not preclude NCAs from determining whether banks under their supervision should be considered SNCIs, in accordance with the relevant CRR criteria, and from communicating the outcome of those determinations to the banks in question.
Does my bank have to pay supervisory fees?
All banks supervised by the ECB, whether directly or indirectly, have to pay annual supervisory fees, which are calculated based on a bank’s importance and risk profile.All about Supervisory fees