BaFin’s supervisory statement introduces new simplified requirements for small institutions. It also highlights leeway that already exists, but that banks do not always use. BaFin provides specific examples of how small institutions can streamline risk management processes without reducing their effectiveness.

Stress tests requirements, for example, have been simplified. Small institutions can forego reverse stress tests and are only required to perform one liquidity stress test per year as opposed to three. Reporting requirements have also been simplified. For example, if there have been no relevant changes in certain parts of the overall risk report in the last quarter, small institutions are now only required to update their overall risk reports once a year rather than on a quarterly basis. The additional simplified requirements announced in the supervisory statement came into force on the date of publication.

BaFin has also underscored the leeway that already exists. One example of this is the area of outsourcing management, where small institutions have greater latitude to use their group’s or network’s internal outsourcing management rather than their own in-house system. They also have room for manoeuvre with regard to service provider management.

Definition of small institutions based on Capital Requirements Regulation

BaFin expects that around 950 institutions, i.e. three quarters of German credit institutions, will benefit from the simplified requirements and clarifications. This is because the definition of small institutions that BaFin uses in its Minimum Requirements for Risk Management (MaRisk) will – with only a few exceptions – be based on the definition provided in the European Capital Requirements Regulation (CRR). Banks and savings banks that are small and non-complex institutions (SNCIs) within the meaning of Article 4(1)(145) of the CRR will therefore be considered small institutions within the meaning of the MaRisk.

BaFin is thus bringing about greater consistency between the regulatory terminology and thresholds used at national and European level. This will make it easier for the institutions to comply with the various regulations.

“BaFin customarily applies a proportional approach in its supervisory practice,” says Raimund Röseler, Chief Executive Director of Banking Supervision, adding: “a degree of leeway already existed, but it seems many small institutions were unaware of this. Our supervisory statement has also introduced new simplified requirements for small institutions. We are thus making a significant contribution towards reducing bureaucracy.”

You can find out more about the supervisory statement and how it came about in an interview with Raimund Röseler, Chief Executive Director of Banking Supervision, on BaFin’s website.