Discussion paper on proportionality assessment methodology

• The methodology sets a high-level framework to assess the need for applying proportional treatment to certain institutions.
• The methodology intends to assist policy experts in the development of impact assessments, which provide evidence on the need for the application of proportional treatment to institutions.
• This discussion paper gives an opportunity to the industry to comment on the proposed classifications of institutions as well as on the metrics used for proportionality assessment.

The European Banking Authority (EBA) publishes today a Discussion Paper aiming at gathering some preliminary input on how to standardise the proportionality assessment methodology for credit institutions and investment firms. The discussion paper invites all market participants affected by the proportional treatment in the application of EBA regulatory products to provide their input. The consultation runs until 22 October 2021 7 February 2022.

The proportionality assessment methodology entails two separate steps: (a) the definition of four different classifications and (b) the definition of the metrics applicable to the different categorisations in view of assessing whether there is need for proportional treatment of the different categories of institutions.

The first step proposes three different categorisations for credit institutions and a categorisation for investment firms. Although all categorisations comprise a different mixture of size and risk profile discriminatory criteria, the discrimination according to size is more predominant in two categorisations of credit institutions (classification I and classification III), while the business model categorisation (classification II) addresses the risk profile of credit institutions based on the stock of exposures, international activity and systemic importance. Finally, the categorisation of investment firms (classification IV) constitutes a well-balanced mixture of size and risk profile discriminatory factors.

Consultation process

Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 22 October 2021 7 February 2022. All contributions received will be published following the end of the consultation, unless requested otherwise.

Background and next steps

The EBA already uses part of the proposed classifications in its work involved with the Basel III monitoring exercise, namely, classifications I and classification II. However, the EBA identified the need to expand the classifications to align them with those provided by the Capital Requirements Regulation (CRR2) - classification III - and the Investment Firms Regulation (IFR) - classification IV.  In addition, the EBA intends to standardise the classifications and metrics for proportionality assessment, so as to enhance a common understanding on how proportional treatment in EBA Regulation is being assessed.

After addressing the comments of market participants, the EBA intends to finalise this document and make it a point of reference for proportionality assessment.