Significant Institution Onboarding in the EU27

Becoming a 'Significant Institution' under direct ECB supervision is widely recognised as a major milestone - but the depth and breadth of the transformation often exceed even well-prepared banks. In addition to the Comprehensive Assessment, banks must establish permanent new capabilities. Planning, prioritisation and speed are crucial.

April 2025

2024 marks the tenth year of the Single Supervisory Mechanism (SSM), Europe's system for banking supervision under the European Central Bank (ECB). Over the past decade, hundreds of banks have been successfully onboarded as Significant Institutions (SIs), but the journey is far from complete. New banks continue to cross the thresholds for significance, whether through organic growth, mergers, or changes in ownership. For these banks, becoming an SI is not just a matter of supervisory compliance; it is a profound shift in day-to-day operations, culture, and strategy. The experience of the past ten years highlights that while the ECB has refined its supervisory approach, the transition remains a significant and often underestimated undertaking for newly classified institutions.

The move from national to ECB supervision typically occurs when EU-native banks or EU subsidiaries of international banks exceed the EUR 30bn asset threshold. However, meeting any of the significance criteria will trigger Significant Institution (SI) status, and the ECB retains full discretion over the creation of SIs. The criteria are:

• Size: Total assets over €30bn
• Economic importance: To a specific Member State or the EU as a whole
• Cross-border: Total assets over €5bn and cross-border assets or liabilities over 20%
• Local importance: One of the three leading banks in a specific Member State
• Public assistance: Requested or received ESM or EFSF funding
• ECB discretion: The ECB can choose to classify a bank as an SI at any time

For new SIs, generally the first major hurdle is to complete the Comprehensive Assessment (CA) although it’s worth noting that direct ECB supervision may begin before the CA starts. The CA comprises:

• Asset Quality Review (AQR): The AQR is a very thorough and resource-intensive exercise that has recently seen some methodology changes.  It is seen as a ‘health check’ of banks’ balance sheets, and the execution phase consists of 10 work blocks focused on selected portfolios.
• Stress Test: The CA stress test is a one off, although stress tests are an ongoing feature of SI status. It may overlap with the AQR, adding to the pressure on resources, or can coincide with the regularly scheduled bi-annual stress test of all SIs by the ECB. From start to finish, the cycle of preparation, execution, submissions, and follow up typically takes a year.

As onerous as it is, the CA is only the initial element of ECB supervision. SIs also need to establish permanent new compliance capabilities allowing them to meet the requirements of ECB supervisory activities, which include:

• The annual SREP, which assesses banks’ risk profile from four key perspectives: Governance & risk management, Capital risks, Liquidity risks, and Business model assessment.
• Other regular activities such as the annual ICAAP and ILAAP reporting cycle, the biennial EBA/ECB stress test, and the annual submission of the Recovery Plan.
• Ad-hoc activities such as on-site inspections (OSIs), internal model investigations (IMIs), thematic reviews, targeted reviews, and deep dives.

Direct ECB supervision poses unique challenges for every SI. International banks’ compliance capabilities are often concentrated at head office, and EU subsidiaries can lack relevant expertise or fully delegated authority. In contrast, EU native banks may benefit from local knowledge, but they can suffer from tight budgets and limited experience of sophisticated supervision.

Regardless of their circumstances, new SIs often find the following to be among the greatest changes required of their new status:

• Adapting to deeper and broader regulatory requirements, which frequently lead to overlapping activities and projects.
• Fostering cultural change, such as working year-round with Joint Supervisory Teams in either English, French or German.
• Meeting the ECB’s communications expectations – such as preferred contact methods, required reporting formats, and expected response times.
• Upgrading data governance standards, frameworks, and processes to meet enhanced reporting requirements and the principles of BCBS 239.
• Ensuring co-ordination and consistency across multiple functions – including risk, finance, compliance, tech, data, and strategy – and different management levels.

Overall, the transition to SI status typically involves a two-year cycle of activities, requiring thousands of workdays by highly skilled staff. A detailed plan, informed by the recent experience of other institutions, is crucial to prioritising vital areas, Banks should focus early efforts on building the foundations needed for long-term supervision, including:

• Establishing centralised project oversight and a dedicated ECB Supervisory Affairs Office to coordinate activities, ensure consistent messaging, and act as a central point of contact for Joint Supervisory Teams (JSTs).
• Developing a comprehensive data roadmap to align frameworks and processes with BCBS 239 principles, ensuring that risk, finance, and regulatory reporting are consistent, reliable, and audit-ready.
• Preparing thoroughly for the AQR by conducting dry-runs, identifying data gaps, and building internal capabilities for portfolio selection, sampling, and collateral data reviews.
• Conducting detailed gap analyses and dry runs for the initial stress test, to familiarise internal teams with ECB methodologies, enhance data aggregation capabilities, and rehearse governance and validation processes.
• Building or upgrading regulatory reporting systems, particularly for FINREP, COREP, and AnaCredit, to meet the ECB’s high expectations for data quality, timeliness, and reconciliation across reporting streams.

In parallel, banks should also focus on building a sustainable governance model, strengthening second line functions, and embedding a proactive supervisory culture across the organisation. Early investment in these capabilities not only eases the transition but positions the bank for stronger and more resilient performance under long-term ECB oversight.

The move from Less Significant to Significant status is a major hurdle for any bank. It’s not so much a one-off process as the start of a new era. As the SSM enters its second decade, the experiences of hundreds of institutions offer valuable lessons for newly designated SIs: thorough preparation, cultural adaptability, and a proactive supervisory strategy are essential for success under ECB supervision.