2.4 Proportionality and supervisory engagement

Competent authorities should apply the principle of proportionality in the scope, frequency and intensity of supervisory engagement and dialogue with an investment firm, and supervisory expectations of the standards the investment firm should meet, in accordance with the category of the investment firm as outlined in Table 2 below.

For the frequency of the supervisory engagement aspect of proportionality, when planning SREP activities, competent authorities should adhere to a minimum level of engagement model, as follows in the next subchapters and in Table 2.

Where competent authorities determine that investment firms have similar risk profiles, they may conduct thematic SREP assessments on multiple investment firms as a single assessment (notably BMA may be conducted on all small investment firms that receive and transmit orders on a few classes of assets, given that it is likely to identify the same business viability issues for all these investment firms). Competent authorities may also use tailored methodologies for the application of the SREP for investment firms with similar risk profiles.

For investment firms with an overall SREP score 4 and, where necessary, for investment firms with an overall SREP score 3, based on the findings from previous assessments of SREP elements, competent authorities should determine an additional level of engagement, whereby more extensive supervisory resources and a higher frequency of assessment should be required (at least on a temporary basis), regardless of the category of the investment firm. Having regard to minimum frequency of the assessment of all SREP elements specified in the next subchapters and in Table 2, the more frequent assessments may cover specific SREP elements where particular attention is needed due to higher risk, or the full SREP assessment.

Regardless of the time since the last SREP, competent authorities should perform a new assessment if at least one of the following situations occurred:

• a. in the monitoring of key indicators, a significant change is observed as compared to the reference date of the last assessment of all SREP elements;
• b. there is negative public information about the investment firm indicating potential significant risk (in the context of reputational risk, conduct risk, IT security);
• c. competent authorities have other reasons to believe that the business model or risk profile of the investment firm has significantly changed since the reference date of the last assessment of all SREP elements.

When planning SREP activities, competent authorities should pay special attention to coordinating activities with other parties directly or indirectly involved in the assessment, in particular when input is required from the investment firm and/or other competent authorities involved in the supervision of cross-border groups as specified in Title 11.

For the scope of proportionality, when conducting the SREP by applying these guidelines, competent authorities should recognise that different elements, methodological aspects and assessment components as provided in Titles 4, 5, 6 and 8 do not have the same relevance for all investment firms. Competent authorities should, where relevant, apply different degrees of granularity to the assessment depending on the category to which the investment firm is assigned and to the extent appropriate for the size and business model of the investment firm, and the nature, scale and complexity of its activities.

At the end of every assessment of all SREP elements, competent authorities may inform the investment firm of the outcome of the overall SREP assessment and they should provide:

• a. a statement on the quantity and composition of the own funds the investment firm is required to hold in excess of the requirements specified in Part Two, Three and Four of Regulation (EU) 2019/2033 in accordance with Article 39(2)(a) of Directive (EU) 2019/2034;
• b. a statement on the quantity and composition of the own funds the investment firm is guided to hold in accordance with Article 41 of Directive (EU) 2019/2034;
• c. a statement on the liquidity held and any specific liquidity requirements set by the competent authorities in accordance with Article 42 of Directive (EU) 2019/2034;
• d. a statement on other supervisory measures that the competent authority intends to take.

2.4.1 Category 1 investment firms

In order to ensure appropriate frequency of supervisory activities related to SREP for category 1 investment firms, competent authorities should:

• a. monitor key indicators on a quarterly basis;
• b. update the assessments of all individual SREP elements at least once every 2 years;
• c. have ongoing engagement and dialogue with the investment firm’s management body and senior management.

2.4.2 Category 2 investment firms

In order to ensure appropriate frequency of supervisory activities related to SREP for category 2 investment firms, competent authorities should:

• a. monitor key indicators on a quarterly basis;
• b. update the assessments of all individual SREP elements at least every 3 years;
• c. have engagement with the investment firm’s management body and senior management at least with the same frequency as the assessment of all SREP elements.

2.4.3 Category 3 investment firms

In order to ensure appropriate frequency of supervisory activities related to SREP for category 3 investment firms, competent authorities should:

• a. monitor key indicators on a quarterly basis;
• b. perform the assessment of all SREP elements in light of material new information emerging on the risk posed, with the scope and depth of the review tailored to the specific risk profile of the investment firm;
• c. have engagement with the investment firm’s management body and senior management at least with the same frequency as the assessment of all SREP elements.

Where considered appropriate, competent authorities may define regular minimum frequencies for the assessment of all SREP elements for all or a subset of category 3 investment firms.

2.4.4 Small and non-interconnected investment firms

For small and non-interconnected investment firms meeting the criteria of Article 12(1) of Regulation (EU) 2019/2033, competent authorities should:

• a. monitor key indicators at least on an annual basis;
• b. perform the assessment of all SREP elements in light of material new information emerging on the risk posed, with the scope and depth of the review tailored to the specific risk profile of the investment firm;
• c. have engagement and dialogue with the investment firm’s management body and senior management when considered necessary and in particular in the context of the assessment of SREP elements where performed. Table 2. Application of SREP to different categories of investment firms Monitoring

(EU) 2019/2033