ECB Updates SREP Methodology Booklet for Less Significant Institutions
ECB updated the booklet on the Supervisory Review and Evaluation Process (SREP) methodology for less significant institutions. This common SREP methodology for less significant institutions is based on the EBA SREP Guidelines and builds on the methodology for significant institutions and existing national SREP methodologies. The national competent authorities are implementing the harmonized SREP methodology for less significant institutions and aiming for full implementation by 2020.
The SREP booklet highlights that, in 2019, 15 national competent authorities implemented this SREP methodology for non-high-priority less significant institutions, in addition to the high-priority less significant institutions that were covered last year as a minimum. Some authorities had already done so in 2018. These authorities are expected to continue the roll-out of the methodology to non-high-priority less significant institutions to ensure that, by the end of 2020, all less significant institutions will have been assessed on the basis of the SREP methodology for less significant institutions. For 2020, the SREP methodology has been enhanced in the areas of interest rate risk in the banking book and IT risk assessment, in line with the EBA guidelines and the supervisory priorities of the Single Supervisory Mechanism. Additionally, the national competent authorities are expected to implement the Pillar 2 Guidance by 2021, in line with the revised EBA guidelines on SREP.
As per the methodology, national competent authorities continue to retain full responsibility, as direct supervisors of less significant institutions, for carrying out the assessments and deciding on capital, liquidity, and qualitative measures. The methodology reflects the principle of proportionality, as it sets out the minimum extent to which supervisors must engage with a less significant institution, according to the priority assigned to the less significant institution and the nature of its business (minimum supervisory engagement model). As a result, the SREP differs between less significant institutions, for example, in terms of how intense the assessment is, what information the less significant institutions needs to submit to the supervisors, and what the supervisors expect from the less significant institutions. The methodology also offers some flexibility to the national competent authorities. Flexibility in the SREP plays an important role when it comes to assessing the Internal Capital Adequacy Assessment Process (ICAAP), the Internal Liquidity Adequacy Assessment Process (ILAAP), and the stress tests for less significant institutions. The SREP for less significant institutions is an ongoing process and the methodology will continue to evolve in the future.
Related Links
Keywords: Europe, EU, Banking, Less Significant Institutions, SREP Supervisory Approach, Proportionality, SSM, Stress Testing, ECB
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.

Amnon Levy
Financial researcher; authority in credit portfolio management and AI/ML, risk-based pricing, climate and credit, CECL/IFRS 9; credit and ALM
Previous Article
EBA and ESMA Clarify Accounting Implications of COVID-19 MeasuresRelated Articles
EU Amends CRD4 and CRD5 as Part of Capital Markets Recovery Package
EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.
EU Committee Recommends Systemic Risk Buffer of 4.5% in Norway
The Standing Committee of the European Free Trade Association (EFTA) recommended that a systemic risk buffer level of 4.5% for domestic exposures can be considered appropriate for addressing the identified systemic risks to the stability of the financial system in Norway.
PRA Clarifies Approach to Onshoring of Credit Risk Rules for UK Banks
In a recent statement, PRA clarified its approach to the application of certain EU regulatory technical standards and EBA guidelines on standardized and internal ratings-based approaches to credit risk, following the end of the Brexit transition.
FSB Sets Out Work Priorities for 2021
In a recently published letter addressed to the G20 finance ministers and central bank governors, the FSB Chair Randal K. Quarles has set out the key FSB priorities for 2021.
EU Publishes Corrigendum to Revised Capital Requirements Regulation
EU published, in the Official Journal of the European Union, a corrigendum to the revised Capital Requirements Regulation (CRR2 or Regulation 2019/876).
ESAs Issue Statement on Application of Sustainability Disclosures Rule
ESAs published a joint supervisory statement on the effective and consistent application and on national supervision of the regulation on sustainability-related disclosures in the financial services sector (SFDR).
EC Consults on Crisis Management and Deposit Insurance Frameworks
EC published a public consultation on the review of crisis management and deposit insurance frameworks in EU.
HKMA Enhances Loan Guarantee Scheme to Alleviate Pressure on SMEs
HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.
EBA Proposes Standards for Supervisory Cooperation Under IFD
EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.
BoE Addresses Banks in Scope of First Resolvability Assessment
BoE issued a letter to the CEOs of eight major UK banks that are in scope of the first Resolvability Assessment Framework (RAF) reporting and disclosure cycle.