Single Supervisory Mechanism Framework regulation
Regulation (EU) No 468/2014 — EU mechanism for banking supervision (SSM framework regulation)
It sets out the legal framework on the practical arrangements for implementing the Single Supervisory Mechanism* (SSM), in order to support the supervisory responsibilities which are given to the ECB and the national bank supervisors.
It governs relations between the European Central Bank (ECB) in its supervisory capacity and national bank supervisors.
It sets the methodology for the assessment of SSM-supervised entities and their classification as either significant or less significant.
The SSM is one of the 2 pillars of the EU banking union*, alongside the Single Resolution Mechanism* (SRM).
The regulation complements Regulation (EU) No 1024/2013, known as the SSM regulation, which established the SSM. The SSM comprises the ECB and the national competent authorities (NCAs) of the participating EU countries.
Scope: the regulation covers both the practical arrangements for cooperation between the ECB and NCAs and the detailed rules on organisational matters, administrative procedures and sanctions, including:
Organisation of SSM e.g. providing the procedures underpinning the responsibilities given to the ECB and the NCAs.
Operation of the SSM by the ECB and the NCAs, including due process for adopting ECB supervisory decisions and reporting of breaches.
Procedures for cooperation between ECB, NCAs and national designated authorities* on macro-prudential tasks and tools.
A key part of the SSM framework regulation is the methodology for the assessment and review of a supervised entity and its classification as significant or less significant, as well as the arrangements resulting from this assessment.
* Single Supervisory Mechanism: a EU system of banking supervision composed of the ECB and the national competent authorities (NCAs). It gives the ECB direct supervisory powers over banks based in EU countries participating in the SSM.
* EU banking union: established in the wake of the 2008 financial crisis in order to strengthen supervision of EU banks.
* Single Resolution Mechanism: an EU system to deal efficiently with failing banks.
* National designated authorities: the relevant authorities appointed in each of the EU countries that work with the ECB on implementing the SSM regulation – frequently, they are the national central banks but they may also be the national financial supervisory authorities.
Regulation (EU) No 468/2014 of the European Central Bank of 16 April 2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the European Central Bank and national competent authorities and with national designated authorities (SSM Framework Regulation) (ECB/2014/17) (OJ L 141, 14.5.2014, pp. 1–50)It entered into force on 15 May 2014.
Financial conglomerates – supervision
Directive 2002/87/EC — supervision of financial conglomerates
It seeks to enhance the effective supervision of financial conglomerates — large financial groups (banking groups, insurance groups, investment firm groups) which are active in different financial sectors, often across borders.
Its overall aim is to contribute to greater financial stability and consumer protection.
The directive sets out specific requirements:
on solvency, specifically to prevent the same capital being used more than once as a buffer against risk in different entities in the same conglomerate (‘multiple gearing of capital’) and to prevent ‘downstreaming’ by parent companies, whereby they issue debt and then use the proceeds as equity for their regulated subsidiaries (‘excessive leveraging’);
on the suitability and professionalism of the conglomerate’s management;
to ensure appropriate risk management and internal control systems within the conglomerate;
stipulating that a single supervisory authority should be appointed to coordinate the overall supervision of a conglomerate which may involve many different authorities dealing with different parts of the conglomerate’s activities;
for information sharing and cooperation among the supervisors (including those in non-EU countries) of the regulated entities in a financial conglomerate.
Directive 2011/89/EU introduced amendments giving national financial supervisors new powers to better oversee the conglomerates’ parent entities, such as holding companies. In this way, supervisors may obtain better information at an earlier stage, should a financial conglomerate run into trouble, and be better equipped to intervene.
Directive 2002/87/EC of the European Parliament and of the Council of 16 December 2002 on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate and amending Council Directives 73/239/EEC, 79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC and 93/22/EEC, and Directives 98/78/EC and 2000/12/EC of the European Parliament and of the Council (OJ L 35, 11.2.2003, pp. 1-27)It applies from 11 February 2003. EU countries had to incorporate it into national law by 10 August 2004.
Subsequent amendments to Directive 2002/87/EC have been incorporated into the basic text. This consolidated version is of documentary value only.
Supervising banks’ health: ECB accountability and transparency
The European Central Bank (ECB) is accountable to the European Parliament when exercising its power of European banking supervision.
Interinstitutional Agreement 2013/694/EU between the European Parliament and the European Central Bank on the practical modalities of the exercise of democratic accountability and oversight over the exercise of the tasks conferred on the ECB within the framework of the Single Supervisory Mechanism.
The ECB, as the supervisor of Eurozone banks, has an obligation to be transparent and accountable to the European Parliament (EP). The new task has been assigned to it in response to the 2008 crisis in order to ensure European banking supervision is less dependent on national considerations (for further details, refer to EU legislation establishing a ‘single supervisory mechanism’).
This is key for the legitimacy of its supervisory role. It is the first time substantial powers to supervise banks have been transferred from national to European level. Decisions can be very sensitive since they assess banks’ financial health. For instance, the ECB can require a bank to hold more capital.
By contrast, the ECB remains fully independent when exercising its initial role of being responsible for monetary policy in the Eurozone. Here, the main objective is to ensure price stability.
The practicalities governing the democratic oversight of the ECB’s new supervisory task by the EP are set out in an interinstitutional agreement reached between both institutions in 2013. The key elements are:
Hearings and discussions
The ECB has to appear regularly at public hearings before the EP. Both institutions can hold oral discussions behind closed doors. In this case, the participants are subject to confidentiality requirements. The ECB has to submit a report on the execution of its new supervisory task to the EP every year.
Access to information
The ECB provides the EP with a comprehensive and meaningful record of discussions at meetings of the ECB’s supervisory board.
The EP can launch investigations into possible mistakes by the ECB when exercising its supervisory task. In that situation, the ECB has to cooperate fully with the EP.
The EP is involved in the appointments of the Chair and the Vice-Chair of the ECB’s supervisory board.
Interinstitutional Agreement 2013/694/EU
Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013).