The European banking sector is increasingly turning its attention to simplification, driven by the need to reduce unnecessary regulatory complexity, improve supervisory efficiency and strengthen the competitiveness of EU banks, while preserving financial stability. As emphasised by Frank Elderson, Member of the Executive Board of the European Central Bank (ECB) and Vice-Chair of the Supervisory Board, in his remarks on 19 June 2026, “Simplification maintains resilience, deregulation weakens it.” This distinction underpins the ECB’s approach to streamlining the regulatory and supervisory framework: the objective is to establish clearer, more coherent and more efficient requirements for banks and supervisors, without compromising prudential standards.
Within this broader agenda, the ECB and national competent authorities are exploring further simplification measures for small and non-complex institutions (SNCIs). Frank Elderson’s supervisory blog, “Enhancing proportionality for small and non-complex banks”, published on 5 October 20261 , provides a clear and accessible overview of the principal measures under consideration to overall reduce the burden on smaller banks and promote more proportionate, risk-based supervision. It is a timely and worthwhile read for anyone following developments in European banking regulation and supervision.
First and foremost, the intention is to build on the existing prudential framework rather than creating a separate regime for smaller institutions. The ECB’s Supervisory Board views the existing SNCI framework as the appropriate basis for advancing proportionality, with the key objective of retaining a risk-based approach under which prudential requirements remain aligned with the nature, scale and complexity of each bank’s risks. Foremost among the proposed simplification measures is the broadening of the scope of small and non-complex institutions. The ECB proposes changes to the SNCI eligibility criteria to allow more banks to benefit from proportionality. These include enabling national authorities to increase the total assets threshold from the current €5 billion to as much as €10 billion, depending on the characteristics of their domestic banking sector. The criteria for determining non-complexity could also be revised, including greater recognition of a liquidation strategy in a bank’s resolution plan as a clearer indicator of the absence of complexity. It is the ECB’s view that together these changes could increase the proportion of less significant institutions classified as SNCIs from approximately 75% to 85%, bringing around 150 additional banks within the category.
The ECB appears to be also advocating proportionality for small and non-complex institutions (SNCIs) to be explicitly built into banking legislation. In practice this could mean legislation and regulations which should clearly explain which requirements apply to SNCIs and whether simplified treatment is available as well as a more consolidated framework which should make it easier for SNCIs to identify the requirements applicable to them, rather than having to navigate multiple regulations that may not clearly distinguish between smaller and larger banks. This does not mean that SNCIs would be exempt from new requirements. Rather, the intention is to ensure that proportionality is systematically considered when rules are drafted or revised.
The simplification agenda does not stop there: a further notable proposal being advocated is a “SREP-less” period. The ECB is considering greater flexibility in the frequency of the Supervisory Review and Evaluation Process (SREP) and related reviews of internal capital and liquidity adequacy assessment processes. Where justified by an institution’s risk profile, some banks could go two to three years without a full SREP assessment. Supervisors would retain discretion to intervene more frequently where risks warrant closer scrutiny. Simplifying supervisory stress testing is also an area under consideration. Bottom-up supervisory stress tests, where banks calculate and submit their own projections, would be required only selectively for SNCIs. Greater reliance would instead be placed on top-down stress testing, where projections are calculated centrally by supervisors.
Reporting is another major focus of the simplification agenda, and this does not come as a surprise. The ECB’s December 2025 report, Simplification of the European prudential regulatory, supervisory and reporting framework, had already identified several measures aimed at reducing the reporting and supervisory burden on the smaller institutions. One initiative is the introduction of the SNCI category into the ECB FINREP Regulation is expected to begin with a public consultation in 2027.
Governance requirements are also acknowledged as presenting practical challenges for smaller institutions, particularly where arrangements designed for larger and more complex organisations may be difficult or disproportionately burdensome to implement within a smaller operational structure. The ECB also intends to use existing flexibility in governance requirements more consistently. Potential measures, some of which may be already applied for certain banks, include combining certain committees, such as nomination and remuneration committees, and allowing functions such as risk management and compliance to be combined where appropriate. Flexibility in remuneration requirements, including possible exemptions from certain obligations concerning deferred variable remuneration or payment in financial instruments, would also merit careful consideration.
The ECB is now preparing to put into effect those simplification measures within its own remit. For measures requiring action beyond its direct mandate, it intends to cooperate closely with its institutional partners, including through ongoing EBA initiatives, to support and further develop the broader simplification framework for SNCIs.2
Frank Elderson’s blog echoes the words of the Commission in its Communication on the Competitiveness of the Banking Sector and the Single Market in Banking3 . The Commission notes that Europe needs both large banks capable of competing internationally in markets where scale is essential but also smaller more locally oriented banks. The EU regulatory framework recognises the specificities of smaller and non-complex banks, but complexity in the framework may still impact smaller banks in a disproportionate way. In the context of completing the Banking Union, the Commission intimates that it will continue its dialogue with the Single Supervisory Mechanism and Single Resolution Board on the efficient application of proportionality, including in relation to the particular circumstances that justify the qualification of credit institutions as being less significant, despite meeting the default significance criteria in the SSM Regulation. the calibration of capital and liquidity requirements. There is recognition that making the regulatory framework simpler can bring tangible benefits for banks and supervisory authorities without undermining resilience. It is also admitted that the framework has been made more complex by successive revisions of the micro-prudential, resolution and macro-prudential rules, often conducted independently with insufficient attention to how they interact. Banks will therefore welcome the recognition that measures are now required to remove excessive granularity, overlaps and inconsistencies within and between the various sets of rules.
Ultimately, the message is clear: simplification must not become deregulation. A more proportionate and coherent framework can strengthen competitiveness, but not at the expense of the resilience on which a sound and competitive banking sector depends.
1https://www.bankingsupervision.europa.eu/press/blog/2026/html/ssm.blog20261005~ef81bed34e.en.html
2European Banking Authority (2025) Report on the efficiency of the regulatory and supervisory framework, Paris, 1 October.
3COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITEE AND THE COMMITTEE OF THE REGIONS Competitiveness of the Banking Sector and the Single Market in Banking {SWD(2026) 615 final}
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