The European Central Bank (ECB) has published a report on the supervision of less significant institutions (LSIs) in the single supervisory mechanism (SSM). In the report, the ECB sets out an overview of:

  • the organisation of banking supervision in the SSM;
  • the description of the LSI sector and recent developments;
  • the challenges facing LSIs and implications for supervision;
  • the main supervisory activities conducted on LSIs by national competent authorities (NCAs); and
  • promoting the convergence of LSI supervision across the SSM.

The ECB concludes that substantial progress has been made on the harmonisation of standards and practices. However, the following important challenges remain:

  • different accounting systems hamper higher comparability of input data. Differences in the implementation of the Supervisory Review and Evaluation Process throughout Member States, notably in terms of the capital requirement definition, make it difficult for the ECB to aggregate and compare supervisory measures such as Pillar 2 capital add-ons; and
  • a majority of LSIs (around 75%) report financial figures according to national Generally Accepted Accounting Principles (nGAAP) which are not in line with International Financial Reporting Standards (IFRS). To respond to this challenge, the ECB is in the process of developing a methodology and a tool to align selected nGAAP-based data points with IFRS-equivalent data points. Work on the methodology of the converter itself as well as if and how the converted data can be used are still ongoing.

The ECB also notes that an IFRS 9 project is under development to help the NCAs to support their respective LSIs on the implementation of IFRS 9 financial instruments for annual periods beginning on 1 January 2018. For this purpose, an IFRS 9 LSI Methodological Guidance has been developed. The guidance includes supervisory expectations and scoring criteria and helps NCAs to gauge and document banks to preparedness to implement IFRS 9 in a consistent way.

View ECB reports on supervision of less significant institutions in SSM, 8 November 2017