Proportionality provisions exist throughout financial services regulation specifically to account for the genuine difference in capacity between large and small institutions. In my regulatory strategy work with mid-tier firms, I've seen this provision used two very different ways, with very different outcomes under supervisory review.
Used properly, proportionality is a documented, evidenced position: a firm has assessed a requirement, determined that a simplified approach is genuinely adequate given its specific risk profile and scale, and can explain that reasoning clearly if asked. Used improperly, it's an informal assumption — 'we're too small for this to fully apply to us' — never actually documented or tested against the specific requirement's intent.
Supervisors, in my experience, distinguish between these two uses quickly, and firms relying on the informal version discover the difference at exactly the wrong moment — during a review, when the absence of documented reasoning reads as an unaddressed gap rather than a considered proportionality judgment.
Building the documented version requires genuine analytical work that firms sometimes resent doing, on the theory that proportionality should mean less work, not a different kind of work. In practice, a properly evidenced proportionality position is often more work upfront than blanket compliance, precisely because it requires firm-specific reasoning rather than a generic checklist.
The mid-tier firms I've seen navigate regulatory review most successfully are the ones that treat proportionality as a genuine legal position requiring evidence, not an assumption requiring nothing — because the assumption version tends to collapse under exactly the scrutiny it was meant to avoid.