Title I – Proportionality

The proportionality principle encoded in Article 74(2) of Directive 2013/36/EU aims to ensure that internal governance arrangements are consistent with the individual risk profile and business model of the institution, so that the objectives of the regulatory requirements and provisions are effectively achieved.

Institutions should take into account their size and internal organisation, and the nature, scale and complexity of their activities, when developing and implementing internal governance arrangements. Significant institutions should have more sophisticated governance arrangements, while small and less complex institutions may implement simpler governance arrangements. Institutions should, however, note that the size or systemic importance of an institution may not, by itself, be indicative of the extent to which an institution is exposed to risks.

For the purpose of the application of the principle of proportionality, and to ensure an appropriate implementation of the regulatory requirements and these guidelines, all the following aspects should be taken into account by institutions and competent authorities:

• a. the size in terms of the balance-sheet total of the institution and its subsidiaries within the scope of prudential consolidation;
• b. the geographical presence of the institution and the size of its operations in each jurisdiction;
• c. the legal form of the institution, including whether the institution is part of a group and, if so, the proportionality assessment for the group;
• d. whether it is a listed institution;
• e. whether the institution is authorised to use internal models for the measurement of capital requirements (e.g. the internal ratings-based approach);
• f. the type of authorised activities and services performed by the institution (e.g. see also Annex I to Directive 2013/36/EU and Annex I to Directive 2014/65/EU);
• g. the underlying business model and strategy; the nature and complexity of the business activities, and the institution ’s organisational structure;
• h. the risk strategy, risk appetite and actual risk profile of the institution, taking into account also the result of the SREP capital and SREP liquidity assessments;
• i. the ownership and funding structure of the institution;
• j. the type of clients (e.g. retail, corporate, institutional, small businesses, public entities) and the complexity of the products or contracts;
• k. the use of third-party service providers;
• l. the use of different distribution channels;
• m. the existing information and communication technology (ICT) systems, including continuity systems;
• n. whether the institution falls under the definition in points (145) and (146) of Article 4(1) of Regulation (EU) No 575/2013 of a small and non-complex institution or a large institution; and
• o. whether third-country branches as defined in Article 47(3), point (1) of Directive 2013/36/EU are class 1 or class 2 in accordance with Article 48a of Directive 2013/36/EU.