On 4 July 2018 the ECB published its SSM LSI SREP Methodology to illustrate the main features of the methodology followed in the Supervisory Review and Evaluation Process (SREP) for less significant institutions (LSIs), which was developed jointly with the national competent authorities (NCAs) within the framework of the Single Supervisory Mechanism (SSM). The booklet is now also available on the Bank of Italy’s website.
The Bank of Italy has contributed significantly to the development of the methodology, which draws from that already in use for ‘significant’ banks while observing the principle of proportionality. A degree of flexibility is allowed to enable the NCAs conducting the SREP in their capacity as supervisory authorities for LSIs to consider the specific characteristics of a given jurisdiction. The objective is to foster growing harmonization of analysis methods and supervisory practices within the SSM while taking into due account the different regulatory environments.
The harmonized SREP methodology will be rolled out gradually for LSIs by 2020. The Bank of Italy has decided to only use it for the more complex and riskier LSIs this year (i.e. those defined as ‘high-priority’). Further announcements will be made in the future as to the way in which the methodology will be extended to all LSIs.
In any case, for all matters not covered in the booklet, e.g. how the supervisory authorities determine capital measures or corrective action, the rules laid out in the Bank of Italy’s ‘Guide to supervisory activities’ will continue to be applicable, including for ‘high-priority’ banks (see Circular No. 269 of 7 May 2008 on the Bank of Italy’s website).
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