Organisation of LSI supervision and oversight
While the ECB jointly supervises significant institutions (SIs) with their national competent authorities (NCAs), it only oversees the relevant authorities’ supervision of less significant institutions (LSIs). We support NCAs in their day-to-day supervision and promote consistency in their supervisory approaches while also taking proportionality into account. The ECB does, however, have a number of direct responsibilities in the supervision of LSIs, such as in the area of authorisations.
What are LSIs?
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. The significance criteria relate to, among other things, a bank’s size, its importance to the economy of its home country or the EU as a whole, and the significance of its cross-border activities. Most LSIs are smaller banks whose assets do not exceed €30 billion.
In line with the SSM Framework Regulation, if an LSI has been classified as a significant institution, the ECB will specify the date on which it is to assume direct supervision. The ECB shall notify the supervised entity at least one month before it will assume direct supervision (one week in the case of the public financial assistance criterion). The ECB shall assume direct supervision at the latest 12 months after the date of notification of the significance decision.
In the opposite scenario – that is, if an SI has been reclassified as an LSI – the ECB shall inform the entity of its decision to end direct supervision at least one month prior to the date specified. The decisions are taken annually during the significance review, but they can also be ad hoc.
In case an LSI is becoming an SI, an Asset Quality Review and a supervisory stress test will be performed as part of a financial health check for the banks that transition to ECB direct supervision. These two prudential exercises will be regarded as two independent supervisory exercises.
The role of the ECB and NCAs
LSIs are supervised by their NCAs, under the oversight of the ECB, whereas SIs are directly supervised by the ECB. To see whether a bank is classified as an SI or 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.
The ECB is responsible for the effective and consistent functioning of the whole European banking supervision system, which comprises the ECB and NCAs of the participating countries. In its oversight function, the ECB works closely with NCAs to further harmonise the implementation of the rules governing banking supervision, while also ensuring that supervisory standards are applied consistently across the system. This helps ensure a level playing field for all banks. In exceptional cases, the ECB can take over direct supervision of LSIs to ensure the consistent application of high supervisory standards.
The ECB is exclusively responsible for granting banking authorisations to banks in the countries participating in the SSM.
We carry out this responsibility in close cooperation with NCAs, and irrespective of whether the banks are to be classified as significant or less significant. The ECB and the relevant NCA also work together to assess and decide on the proposed acquisitions of qualifying holdings in banks, and both have the right to initiate the withdrawal of a banking licence.
The ECB is also responsible for approving or exempting parent, or mixed, financial holding companies in the context of SIs, while the relevant NCA performs this task when it applies to LSIs.
Lastly, the ECB collaborates with the relevant NCA on the provision of passport notifications for SIs and LSIs. Whether the ECB or the NCA takes the final passporting decision depends on whether the entity in question is an SI or an LSI.
More information on the authorisation procedures can be found on the dedicated Authorisations webpage.