Special Report No 29 // 2016#Single Supervisory Mechanism - Good start but further improvements needed #(pursuant to Article 287(4), second subparagraph, TFEU)
Date: 2016-10-18
Institutions: European Court of Auditors
Subjects: European Central Bank, bank, banking policy, banking supervision, euro area, financial cooperation, law of banking, monetary crisis

EN 

2016 

NO 29

Special Report  Single Supervisory 

Mechanism - Good start 
but further improvements 
needed

EUROPEAN
COURT
OF AUDITORS

 
EUROPEAN COURT OF AUDITORS 
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More information on the European Union is available on the internet (http://europa.eu).

Luxembourg: Publications Office of the European Union, 2016

Print 
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ISBN 978-92-872-6231-8 
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ISBN 978-92-872-6184-7 

ISSN 1831-0834 
ISSN 1977-5679 
ISSN 1977-5679 

doi:10.2865/233213 
doi:10.2865/023587 
doi:10.2865/019217 

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EN 

2016 

NO 29

Special Report

Single Supervisory 
Mechanism - Good start 
but further improvements 
needed

(pursuant to Article 287(4), second subparagraph, TFEU)

Audit team

02

The ECA’s special reports set out the results of its performance and compliance audits of specific budgetary ar-
eas or management topics. The ECA selects and designs these audit tasks to be of maximum impact by consid-
ering the risks to performance or compliance, the level of income or spending involved, forthcoming develop-
ments and political and public interest.

This report was produced by Audit Chamber IV — headed by ECA Member Baudilio Tomé Muguruza — which 
has a focus in the areas of regulation of markets and competitive economy. The audit was led by ECA Member 
Neven Mates, supported by George Karakatsanis, head of private office and Marko Mrkalj, attaché of private 
office, Zacharias Kolias, director and Mirko Gottmann, head of task. The audit team consisted of Boyd Anderson 
(seconded expert), Paraskevi Demourtzidou, Helmut Kern and Giorgos Tsikkos, auditors. Language support was 
provided by Thomas Everett.

From left to right: G. Karakatsanis, G. Tsikkos, M. Mrkalj, P. Demourtzidou, Z. Kolias, N. Mates,  
T. Everett, M. Gottmann, H. Kern.

Contents

03

Paragraph 

Abbreviations

I - XV 

Executive Summary

1 - 12 

Introduction

6 - 12 

Establishment of the European banking union

13 - 19  Audit approach and methodology

19 

Difficulty in obtaining audit evidence

20 - 77  Governance

21 - 27 

A complex organisational structure was set up

25 

The ECB’s recruitment for the SSM was effective given the time constraints…

26 - 27  …but is heavily reliant on NCA resources

28 - 39 

The institutional bodies have been set up as required, supported by an  
intricate decision-making process

32 - 35 

Decision-making is a complex process, with many layers of information  
exchange and significant involvement of the Supervisory Board Secretariat

36 - 37 

The Supervisory Board is required to take a huge number of decisions…

38 - 39  …with a knock-on effect on the work of the steering committee

40 - 52 

The principle of separation between monetary policy and supervision is applied,  
but there are risks to the perception of independence

42 - 46  More could be done to assess the risks arising from the sharing of services

47 - 52 

Additional risks to the independence of the monetary policy and supervisory  
functions are inherent to the organisational and financial set-up of the SSM

 
Contents 

04

53 - 57 

Ethical procedures and codes of conduct have been applied for SSM management and staff

53 - 57 

An ‘Ethics framework for the SSM’ has been established, but NCAs remain subject to national legislation 
and have considerable discretion in defining their own rules

58 - 77 

Internal audit: an innovative approach using a comprehensive audit plan, but implementation is 
hampered by problems of resource allocation and planning

62 - 65 

Resource allocation by the D-IA: although staff needs were clearly quantified, the final staffing levels were 
inadequate

66 - 69 

Planning is based on a comprehensive audit universe but does not always take account of best practice

70 - 77  While the risk assessment methodology is generally appropriate, it lacks safeguards to ensure that high 

and medium-risk areas are addressed in full and at the right time

78 - 103  Accountability arrangements

82 - 84 

(i) The roles and responsibilities of the SSM as a whole are clearly defined and publicly disclosed in 
the enabling legislation

85 - 87 

(ii) The Court’s audit mandate is defined in the Treaty on the Functioning of the EU

88 - 97 

98 - 99 

(iii) A formal performance framework has not yet been developed to provide assurance about the 
achievement of the SSM objectives

(iv) Democratic oversight of supervision by Parliament is exercised with substantial confidentiality 
restrictions

100 - 103  (v) Feedback arrangements exist but have not yet included general surveys of financial 

institutions

104 - 149  Joint Supervisory Teams - Organisation and resource allocation

106 - 125  Planning and estimates of total supervisory resource needs, resource allocation and staffing

107 - 110 

Initial estimates of total SSM staffing needs followed a simple approach…

111 - 112  …which did not fully anticipate the growing supervisory workload

113 - 119  The clustering methodology was designed to facilitate the initial allocation of staff to the JSTs, but should 

be updated

120 - 121  ECB resources are allocated in accordance with its clustering methodology

122 - 125  The appointment policy for coordinators was designed to promote  harmonisation, but it has not always 

been adhered to

 
Contents 

05

126 - 137  ECB cooperation with and reliance on NCAs

126 - 128  JSTs are heavily reliant on NCA staff, yet the ECB has little control over NCA resources

129 

JSTs are still largely staffed by nationals of the originating NCA …

130 - 137  …while a number of NCA staff contingents do not meet the ECB’s expectations for JST staffing

138 - 149  JST structure, reporting lines and training

138 - 139  Multinational teams facilitate the sharing of knowledge and best practices…

140 

141 

142 

…but conflicting reporting lines…

…lack of clarity in communication flows and task allocation…

…and differences in the use and classification of NCA horizontal functions could lead to inefficient use of 
resources

143 - 147  The absence of binding performance appraisals of NCA’s JST staff could create incentive and performance 

problems

148 - 149  The SSM has no integrated training curriculum or supervisor certification programme

150 - 183  On-site supervision

150 - 152  On-site supervision arrangements are coherent and comprehensive

153 - 170  Practical shortcomings have emerged in the staffing, planning and execution of on-site 

inspections

153 - 158  Limited ECB involvement in on-site inspections

159 - 164  Planning is detailed and complex

165 - 170 

IT improvements are needed

171 - 175  The ECB plans concrete measures to improve the qualifications and skills of inspectors and HoMs

 
Contents 

06

176 - 183  A clear reporting structure which lacks some attention to detail and could be devalued by lengthy 

procedure

176 - 177  The ECB’s reporting procedure is well-structured

178 - 182  However, rules for the communication of findings are incomplete

183 

The timeframe for issuing reports is long

184 - 197  Conclusions and recommendations

185 - 187  Governance

188 - 189  Accountability

190 - 194  Joint supervisory teams

195 - 197  On-site inspections

Annex I  —  Summary of audit approach

Annex II  —  Limits to information access

Annex III  —  Decision making process

Annex IV  —  ECB Budgetary process

Annex V  —  The audit on banking supervision in selected national jurisdictions

Annex VI  — 

 IMF recommendations on transparency and accountability in the ECB’s 
supervisory responsibilities

Annex VII  — 

 The scope of European Commission’s review under Article 32 of the SSM 
Regulation

Annex VIII —  Survey of National Competent Authorities and of supervised institutions

Annex IX  — 

 Main elements of the arrangements for ECB accountability towards the European 
Parliament

Annex X  —  Structure of the reporting process for on-site inspection

Reply of the ECB

 
 
 
 
 
 
 
 
 
 
 
 
Abbreviations

07

BCBS: Basel Committee on Banking Supervision

BIS: Bank for International Settlements

BUCOM: European Central Bank Budget Committee

COI: Centralised on-site inspection division of the ECB

DGMS: Directorate-General for Micro-Prudential Supervision

EBA: European Banking Authority

ECB: European Central Bank

EMU: Economic and Monetary Union

ESCB: European System of Central Banks

ESFS: European System of Financial Supervision

FAQs: Frequently asked questions

FDIC: Federal Deposit Insurance Corporation

FTE: Full-time equivalent

GAO: Government Accountability Office

HoM: Head of Mission

IAC: Internal Auditors Committee

IMAS: Information Management System

IMF: International Monetary Fund

JST: Joint supervisory team

MEL: Minimum engagement level

NCA: National competent authority

NCB: National Central Bank

Abbreviations 

08

RAS: Risk assessment system

SAI: Supreme audit institution

SB: Supervisory Board

SEP: Supervisory Examination Programme

SQA: Supervisory Quality Assurance

SREP: Supervisory Review and Evaluation Process

SSM: Single Supervisory Mechanism

TFEU: Treaty on the Functioning of the EU

 
Executive summary

09

What is the SSM?

I
The 2008 global financial crisis caused severe disruption to many European economies. The knock-on effect on the 
banking sector, after years of deregulation and increasing risk-taking, was that many lending institutions found 
themselves over-exposed in declining markets and were forced to turn to government for financial support. How-
ever, sovereign bail-outs inevitably contributed to an increase in public debt, leading to lower investment and 
growth and further pressures on bank solvency.

II
To help steer clear of future crises and strengthen confidence in the banking sector, it was necessary to break the 
‘vicious circle’ of excessive risk-taking and government bail-outs. In 2012, seeking a lasting solution in the euro area, 
EU leaders formally announced the common regulation of banks through a European banking union.

III
The main pillars of banking union were to be the centralised supervision of euro-area banks, a mechanism to ensure 
that failing banks were wound up at minimal cost to the taxpayer and the economy, and a harmonised system of 
deposit guarantees. The first step, that of centralised supervision, entailed the creation in 2014 of a Single Supervi-
sory Mechanism (SSM) to take over much of the supervisory work previously done by national authorities. The SSM 
was placed under the authority of the European Central Bank but also closely involves the participating Member 
States.

What is this report about?

IV
The Court has a mandate to examine the operational efficiency of management of the ECB. We therefore focused, 
for this audit, on the way the ECB set up the SSM and has organised its work. In particular, we looked at the new 
mechanism’s governance structure (including the work of internal audit), arrangements for accountability (including 
external audit), the organisation and resourcing of banking supervision teams (both ‘off-site’ and ‘on-site’ at bank 
premises), and the on-site inspection procedure.

V
We became aware, however, of an important obstacle in all areas of our intended audit – namely, the emergence of 
disagreement with the ECB over the exact terms of our mandate and right to access documents. Arguing that they 
lay outside our remit, the ECB was not willing to share a number of documents that we needed to complete our 
work. As a result we were only partly able to assess whether the ECB is managing the SSM efficiently in the areas of 
governance, off-site supervision and on-site inspections.

Executive summary 

What did we find?

10

VI
We did obtain sufficient information to conclude that the SSM was set up on schedule. Owing to the involvement of 
national supervisory authorities, the supervisory structure is rather complex and relies on a high degree of coor-
dination and communication between ECB staff and NCA appointees from the participating Member States. This 
complexity is a challenge in the area of governance, where the efficiency and effectiveness of management deci-
sion-making may be hampered by complex procedures for exchanging information.

VII
The ECB is bound by legislation to observe a clear separation between its monetary policy and supervision func-
tions. The latter is overseen by a Supervisory Board, which proposes decisions to the ECB’s Governing Council. 
However, within the ECB the SSM Supervisory Board does not exercise control over the supervisory budget or 
human resources. This raises concerns about the independence of the two areas of the ECB’s work, as does the fact 
that some ECB departments provide services to both functions without clear rules and reporting lines that would 
minimise possible conflicts of objectives.

VIII
Internal audit is one such shared service. We found that it was under-resourced for its work on the SSM, which is 
given less attention than other audit tasks. Although a satisfactory risk assessment has been made to determine 
necessary audit topics, the resources currently available to internal audit are inadequate to ensure that the most 
risky aspects of the SSM’s operations will be addressed within a reasonable timeframe.

IX
The ECB’s efforts to ensure transparency and accountability for the SSM towards the European Parliament and the 
general public are potentially weakened by the lack of a proper mechanism for assessing and then reporting on 
supervisory effectiveness.

X
The level of supervisory staff was originally set by a very simple approach that relied on estimates of staffing for 
similar functions in National competent authorities before the SSM was established. No detailed analysis of staff-
ing needs for the new and much more demanding SSM framework was conducted, and therefore no direct link has 
been established between the supervisory examination programme and the allocation of resources, as required by 
legislation. There are indications that current staffing levels are insufficient.

 
Executive summary 

11

XI
The SSM’s work of supervising the euro area’s more important banks, both on-site and off-site, is heavily dependent 
on staff appointed by national authorities. Thus, despite its overall responsibility, the ECB has insufficient control 
over the composition and skills of supervision and inspection teams or over the resources it can bring to bear.

XII
The allocation of resources to joint off-site supervisory teams, particularly from national authorities, has not 
matched the initial needs estimates, and the resulting constraints in terms of staff numbers could in many cases 
affect the teams’ ability to adequately supervise the banks for which they are responsible.

XIII
The work of on-site supervision is likewise the ECB’s responsibility, but here the problem is that inspection teams 
typically include very few ECB staff. Moreover, in most cases inspections are headed up by the bank’s home or host 
supervisor.

XIV
Other issues we found to affect the conduct of on-site supervision included missing guidance on prioritisation for 
inspection requests, IT shortcomings and the need to improve the qualifications of National competent authority 
on-site inspectors. In addition, owing to the length of the timeframe for issuing final recommendations, findings 
may be outdated by the time they are formally delivered to the inspected bank.

How could the SSM be improved?

XV
Our recommendations are as follows:

(a)  In the area of governance, the ECB should:

(i)  seek to improve efficiency by further streamlining the decision-making process;

(ii)  examine the risk posed by the system of shared services to the separation of functions, establish separate 
reporting lines for cases where specific supervisory resources are concerned and look into giving the Chair 
and the Vice-Chair of the Supervisory Board stronger involvement in the budgetary process.; and

(iii)  assign internal audit skills and resources in such a way that higher-level risks are covered as and when 

appropriate.

 
Executive summary 

12

(b)  In the area of accountability, the ECB should:

(i)  make available all documents requested for the Court to exercise its audit mandate; and

(ii)  develop and make public a formal performance framework to demonstrate the effectiveness of its supervi-

sory activities.

(c) 

In the area of off-site supervision (joint supervisory teams), the ECB should:

(i) 

take steps to ensure that national authorities participate fully and proportionately in JST work;

(ii)  develop with NCAs methods to assess the suitability of prospective JST appointees and their subsequent 

performance;

(iii)  establish and maintain a comprehensive database of the skills, experience and qualifications of all JST staff;

(iv)  implement a formal, relevant training curriculum for all supervisory staff and consider setting up an off-site 

supervision certification programme;

(v)  develop a risk-based methodology to determine the target size and composition of each JST; and

(vi)  periodically review the clustering model used in supervisory planning and update it as necessary. The clus-

tering itself should be based on the most recent bank-specific information.

(d)  In the area of on-site supervision, the ECB should:

(i)  substantially strengthen the presence of its own staff in on-site inspections, and ensure that a greater pro-

portion of inspections are led by non-native supervisors; and

(ii)  remedy weaknesses in the IT system and improve the overall skills and qualifications of on-site inspectors.

 
Introduction

13

01 
The financial system is pivotal to the functioning of the economy. A robust finan-
cial system plays a key role in the efficient allocation of resources and thereby 
contributes to sustainable economic growth. Disruption of financial stability can 
lead to high costs for the state and the economy as a whole.

1 

European Commission, 
‘Report of the High-Level 
Group on Financial 
Supervision in the EU’, 
Brussels, 2009.

02 
In the run-up to the global financial crisis, European banks were mainly charac-
terised by mispricing of risk (e.g. derivatives, real estate, sovereign risk), while 
their balance sheets rapidly expanded against insufficient capital and liquidity 
buffers. This weak risk management, combined with low interest rates, led to 
excessive risk-taking, a credit boom and unsustainable leverage, while at the 
same time contributing to the creation of large macroeconomic imbalances in 
several EU Member States. Unfortunately, these weaknesses were not identified 
early enough for them to be remedied satisfactorily. Due to the interconnected 
nature of modern financial systems, problems in one country rapidly spilled over 
national borders, causing financial distress in other EU countries.

03 
As liquidity dried up and the economic downturn further impacted credit qual-
ity, many banks were revealed to be extremely vulnerable and in need of sup-
port from the public sector. In the euro area in particular, the arrangements for 
economic and monetary union (EMU) were shown to have deep-rooted structural 
deficiencies.

04 
One important factor was that the regulation and supervision of credit institu-
tions were national responsibilities. The lack of a single European supervisory 
authority meant ‘substantial differences in the powers granted to national super-
visors in different Member States’1.

Introduction 

05 
Another deficiency was that in 2012, the institutional architecture of the EMU 
was seen as insufficient to prevent ‘the harmful interplay between the fragilities 
of sovereigns and the vulnerabilities of the banking sector2’. A crisis in a national 
banking system would affect the government and vice versa. The interdepend-
ence of banks and governments rendered the euro area fragile and further com-
plicated the task of resolving the crisis (see Figure 1).

14

2  Herman Van Rompuy, 

President of the European 
Council, in collaboration with 
José Manuel Barroso, 
President of the European 
Commission, Jean-Claude 
Juncker, President of the 
Eurogroup, and Mario Draghi, 
President of the European 
Central Bank, ‘Towards 
a Genuine Economic and 
Monetary Union’, December 
2012.

1
e
r
u
g
i
F

Bank-state interdependence: a downward spiral?

excessive risk taking with 
insuﬃcient capital and 
liquidity buﬀers 
excessive credit growth
high leverage
excessive bonuses

Weak banking
supervision

Banking crisis

liquidity pressures
solvency concerns
low credit growth (supply)
low conﬁdence in banking system
macroeconomic imbalances

extensive public ﬁnancial 
support for the nationalisation of 
failing banks

Bail-out

Contractionary
ﬁscal policy

less government spending
low growth
low credit growth (demand)
more NPLs
high borrowing costs for banks 
(due to sovereign risk)

higher government deﬁcits and 
public debt
higher borrowing costs for state

Sovereign debt
crisis

Source: ECA.

 
 
15

3 

The creation of the European 
banking union was 
announced at a special 
European summit on 
29 June 2012. Subsequently, 
on 5 December 2012, the 
President of the European 
Council, in close cooperation 
with the Presidents of the 
European Commission, the 
Eurogroup and the European 
Central Bank, published 
a report entitled ‘Towards 
a Genuine Economic and 
Monetary Union’. Three years 
later, on 22 June 2015, the five 
Presidents (now including the 
President of the European 
Parliament) presented 
a follow-up report 
‘Completing Europe’s 
Economic and Monetary 
Union’.

4  Prudential rules refer to the 
legislation introduced to 
improve the financial 
soundness of credit 
institutions.

Introduction 

Establishment of the European banking union

06 
In 2012, European leaders took the decision to deepen the EMU by creating 
a European banking union in order to ‘break the vicious circle between banks and 
states’3 and address the weaknesses affecting the banking sector in euro-area 
countries. The main purpose of banking union is to make European banking 
more transparent, unified and safer within a stable and well-functioning financial 
system (see Table 1).

1 The purpose of banking union
e
l
b
a
T

To make European banks:

…more transparent

by consistently applying common rules and administrative standards for 
supervision, recovery and resolution of banks

…unified

…safer

by treating national and cross-border banking activities equally and by 
removing the link between the financial health of banks and that of the 
countries in which they are located

by intervening early if banks face problems in order to help prevent 
them from failing, and – if necessary – to ensure the efficient resolution 
(winding-down) of failing banks.

Source: ECA, based on information provided by the ECB (ECB’s website on banking supervision).

07 
Establishment of the banking union entailed the creation of:

(a)  a Single Supervisory Mechanism (SSM) to guarantee the consistent applica-

tion of prudential rules4 across the euro-area countries;

(b)  a Single Resolution Mechanism (SRM) to ensure that failing banks are wound 
up efficiently and at a minimal cost to taxpayers and the real economy, via 
the participation of private creditors in bank restructuring and resolution; 
and

(c)  a partially harmonised system of deposit guarantee schemes.

 
 
Introduction 

08 
The setting-up of the SSM in November 2014 has been called the ‘greatest step 
towards deeper economic integration since the creation of Economic and Mon-
etary Union’5. It is a necessary basis for the other pillars of banking union: the Sin-
gle Resolution Mechanism and, possibly, an EU-wide deposit insurance scheme. 
It was also seen by legislators as crucial for breaking the link between national 
governments and banks and reducing the risk of future systemic banking crises. 
Furthermore, the SSM’s regulatory and supervisory framework aims at keeping 
pace with continuous developments in the global financial environment, which 
is marked by complex international agreements and commitments (e.g. the Basel 
Accords)6 and thus removing the option for banks of transferring riskier activities 
to jurisdictions where regulation is more lax.

09 
The SSM comprises the European Central Bank (ECB) and the national authori-
ties with responsibility for banking supervision (‘national competent authorities’ 
or NCAs) in the participating Member States. The SSM Regulation7 makes these 
bodies responsible for the micro-prudential supervision of all credit institutions 
in the participating Member States8. Article 6(1) gives the ECB responsibility for 
the effective and consistent functioning of the SSM. Under Article 5, the SSM also 
carries out macro-prudential tasks (see Box 1).

16

5 

Foreword by Mario Draghi to 
the ECB’s 2014 annual report 
on supervisory activities.

6  Herman Van Rompuy, 

President of the European 
Council, Jose Manuel Barroso, 
President of the European 
Commission, Jean-Claude 
Juncker, President of the 
Eurogroup, and Mario Draghi, 
President of the European 
Central Bank, ‘Towards 
a Genuine Economic and 
Monetary Union’, December 
2012.

7  Council Regulation (EU) No 

1024/2013 of 15 October 2013 
conferring specific tasks on 
the European Central Bank 
concerning policies relating to 
the supervision of credit 
institutions (OJ L 287, 
29.10.2013, p. 63).

8  All euro-area countries 

(Belgium, Germany, Estonia, 
Ireland, Greece, Spain, France, 
Italy, Cyprus, Latvia, Lithuania, 
Luxembourg, Malta, 
Netherlands, Austria, Portugal, 
Slovenia, Slovakia and Finland) 
automatically participate in 
the SSM. Non-euro Member 
States can choose to 
participate through a system 
of ‘close cooperation’ with the 
ECB.

1
x
o
B

Micro and macro-prudential supervision

Micro-prudential supervision is designed to ensure the financial health of individual banks. Macro-prudential 
supervision is designed to detect risks to the stability of the financial system as a whole stemming primarily 
from macroeconomic developments. While the goals of the two levels of supervision are distinct, the instru-
ments used tend to coincide: a macro-prudential instrument may be used for micro-prudential supervisory 
evaluation and intervention and vice versa. What varies is the logic and scope of their use. In particular, the 
same instrument will often be considered micro if applied selectively to individual institutions, and macro if 
applied to groups of banks or to all banks in a country.

 
 
Introduction 

10 
The SSM’s three main objectives9 are:

(a)  to ensure the safety and soundness of the European banking system;

(b)  to increase financial integration and stability; and

(c)  to ensure consistent supervision.

11 
The respective supervisory roles and responsibilities of the ECB and the NCAs are 
allocated on the basis of the significance of the supervised entities. Within the 
SSM, the ECB is responsible for the direct supervision of ‘significant’ institutions10. 
For this purpose, the ECB forms joint supervisory teams (JSTs), which are com-
posed of ECB and NCA staff. Each JST is in charge of micro-prudential supervision 
of a significant bank, but the relevant decisions are adopted by the ECB Govern-
ing Council on the proposal of the SSM Supervisory Board.

12 
The ECB also oversees the prudential supervision of ‘less significant’ banks. Here 
the direct supervisory authority is the corresponding NCA, which is empowered 
to take all necessary supervisory decisions. However, the ECB can assume di-
rect supervision of a less significant institution at any time it deems necessary. 
Figure 2 illustrates the division of tasks within the SSM.

17

9 

ECB’s Guide to Banking 
Supervision.

10  Currently 129 banking groups 

(approximately 1 200 
supervised entities) have over 
21 trillion euro in assets and 
are directly supervised by the 
ECB, while approximately 
3 200 banks are classified as 
less significant. The criteria for 
determining whether banks 
are considered significant and 
thus come under direct ESB 
supervision are set out in 
Article 6(4) of the SSM 
Regulation. They are: the total 
value of the bank’s assets, its 
economic importance for the 
Member State or the EU as 
a whole, the significance of its 
cross-border activities and, 
finally, whether it has 
requested or received funding 
from the European Stability 
Mechanism or the European 
Financial Stability Facility. Each 
and any one of these criteria 
may apply. A bank can also be 
considered significant if it is 
one of the three most 
significant banks established 
in a particular country.

 
Introduction 

18

2 The division of tasks within the SSM
e
r
u
g
i
F

Direct 
supervision

ECB

oversees the system 

Indirect
supervision 

JST

NCAs

Horizontal divisions

support

Signiﬁcant 
institutions

Less signiﬁcant 
institutions

Source: ECA, based on information provided by ECB.

 
 
19

11  Our mandate derives from 

Article 27.2 of the ESCB Statute 
and Article 20(7) of the SSM 
Regulation.

12  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 
(OJ L 141, 14.5.2014, p. 1).

Audit approach and 
methodology

13 
We examined whether the SSM joint supervisory teams and on-site inspection 
teams were set up to work efficiently within an appropriate governance, audit 
and accountability environment11. In particular, we analysed:

(a)  the operating environment created by the governance structure for the work 
of JSTs and on-site inspection teams including the role of the ECB’s internal 
audit function and the planning of its work on the SSM;

(b)  the procedures and rules governing accountability, including external audit 

and their application in practice;

(c)  the planning and establishment of JSTs focusing on structure and resources; 

and

(d)  the establishment, planning, execution and reporting of on-site inspections.

14 
The audit criteria were derived from the following sources:

(a)  legal requirements and objectives in the SSM Regulation and SSM Framework 

Regulation12;

(b)  the 2012 revision of the Core Principles for Effective Banking Supervision is-

sued by the Basel Committee for Banking Supervision (BCBS);

(c) 

Institute of Internal Auditors (IIA) standards and the Minimum Requirements 
for Risk Management issued by the German Federal Financial Supervisory 
Authority (BaFin); and

(d)  the ECB’s internal rules and procedures.

15 
We collected our audit evidence through meetings and interviews with key ECB 
supervisory staff and a review of internal documents and publicly available data. 
We used this evidence to examine the appropriateness of the ECB’s governance 
arrangements and organisational structure after its assumption of supervisory 
responsibilities, and to assess compliance with the legal framework and, in 
particular, the rules in regards to independence. We looked at the efficiency of 
the decision-making process and assessed the ethics framework introduced for 
supervisory staff. We compared the structure and planning of the SSM internal 
audit function with accepted best practices.

Audit approach and methodology 

20

16 
With regard to the procedures and rules governing accountability, including ex-
ternal audit, we examined the processes of selecting data and information for key 
stakeholders and checked compliance with the applicable rules. We also assessed 
and compared the accountability and external audit arrangements for the SSM 
with those applied in certain other jurisdictions. To this end, we used information 
obtained from the SAIs of Australia, Canada and the USA.

17 
With regard to the work of JSTs, we examined the ECB’s preliminary planning and 
allocation of supervisory resources during the start-up phase and its cooperation 
with and reliance on NCAs when resourcing and conducting off-site supervision. 
We also assessed the structure of JSTs, their reporting lines and the arrangements 
made to provide suitable training.

18 
In addition to our audit work at the ECB, we sent a questionnaire to all relevant 
NCAs and significant banks with the aim of obtaining feedback on the efficiency 
of the new supervisory regime. Annex I details the work actually done on each 
audit subject.

Difficulty in obtaining audit evidence

19 
The ECB provided us with very little of the information we required to assess the 
operational efficiency of the management of the ECB’s comprehensive assess-
ments, the operational efficiency of JSTs, the operational efficiency of the plan-
ning and implementation of supervisory activities, the decision-making process 
and the actual work done in the context of on-site inspections. Full details are 
provided in Annex II. Briefly, however, the audit evidence we were not able to 
examine included:

(i)  Governance:

 ο

Supervisory Board decisions and minutes (see paragraphs 36 to 39).

(ii)  Accountability:

 ο Documentation on the ad-hoc exchange of views between the European 
Parliament and the Chair of the Supervisory Board, and the documen-
tation requested by the Commission in connection with its statutory 
requirement to report on the SSM (see paragraph 92 and paragraphs 98 
to 99).

 
Audit approach and methodology 

21

(iii)  JSTs:

 ο

 ο

 ο

Parts of the Supervisory Manual relevant to Supervisory Examination 
Programme (SEP) activities, and the SEP documents for a sample of banks 
taken as part of our audit;

Relevant chapters of the Supervisory Manual, models and methodolo-
gies, as well as samples of Supervisory Review and Evaluation Process 
(SREP) reports and decisions;

Specific data on each significant entity, and the calculations used for the 
clustering methodology and the ECB’s assignment of banks to specific 
clusters (see paragraphs 104 to 149).

(iv)  On-site supervision:

 ο

 ο

 ο

Information about specific requests for inspections, including details 
about the reasons requests were made, how they were prioritised and, if 
they were declined, why;

Information about NCA resources and the planning of inspections for 
2015 and 2016;

Inspection reports and the annexes to Chapter 6 of the Supervisory 
Manual describing the on-site inspection methodology (see paragraphs 
150 to 183).

 
Governance

22

13  Article 25(2), second 

subparagraph, of the SSM 
Regulation.

14  The governance structure of 

the ECB is defined in the TFEU. 
The Executive Board’s 
responsibility for 
management of the ECB’s 
internal organisation, 
including HR and budget 
issues, was unaffected by the 
SSM Regulation.

15  Recital 66 to the SSM 

Regulation.

16  Under Article 6(2) of the SSM 

Regulation, the ECB and NCAs 
are legally bound to cooperate 
in good faith and exchange 
information. Article 6(3) 
stipulates that ‘national 
competent authorities shall be 
responsible for assisting the 
ECB […] with the preparation 
and implementation of any 
acts relating to the tasks 
referred to in Article 4 related 
to all credit institutions’.

20 
For the purposes of this report, governance refers to the internal processes and 
procedures that guide the supervisory function and ensure that supervisory ac-
tions and decisions are coherent, efficient, effective and transparent. Good gov-
ernance entails a clear allocation of roles and responsibilities, proper delegation 
of powers and appropriate operational independence to enable supervisors to 
carry out their tasks in line with their mandate and technical expertise. Another 
aspect of good governance is internal audit, which facilitates the detection and 
prevention of fraud, monitoring of compliance and mitigation of risks. According 
to the BCBS, ‘the operational independence, accountability and governance of 
the supervisor should be prescribed in legislation and publicly disclosed’ (Princi-
ple 2, Essential Criterion 1).

A complex organisational structure was set up

21 
A key rule applicable to the organisational structure of the SSM is that ‘the staff 
involved in carrying out the tasks conferred on the ECB by the SSM Regulation 
shall be organisationally separated from, and subject to, separate reporting lines, 
from the staffinvolved in carrying out other tasks conferred on the ECB’13.

22 
The ECB managed swiftly to establish a new organisational structure to host 
the supervision function14. The new structure comprises the Supervisory Board, 
which, with the assistance of a Secretariat, is responsible for planning and execut-
ing the ECB’s supervisory tasks, and four directorates-general for micro-pruden-
tial supervision (DGMS I to IV), which report on functional matters to the Chair 
and the Vice-Chair of the Board15 (see Figure 3). Within the ECB’s governance 
structure, a dedicated unit was established in DGMS IV and made responsible for 
supervisory quality assurance (SQA) in respect of the ECB’s supervisory function. 
The SQA serves as a ‘second line of defence’, between the operational units and 
the internal audit function. It performs ex-post quality assurance reviews of ECB 
deliverables, processes and tools. Through recommendations to management, 
it aims to foster the quality of the ECB’s banking supervision and promote best 
practices.

23 
The model adopted for resourcing the supervision of significant institutions 
includes staff from both the ECB and the respective NCAs16. DGMS I and DGMS 
II, which exercise the ECB’s direct supervisory responsibilities, host the ECB staff 
appointed as members and coordinators to joint supervisory teams (JSTs). The 
corresponding NCA staff members of the JSTs operate from the premises of their 
respective home institutions. As of March 2016, NCAs had committed 846 FTEs 
to JST work, compared with 455 FTEs by the ECB (215 from DGMS I and 240 from 
DGMS II).

Governance 

23

3 SSM organisational structure
e
r
u
g
i
F

Micro-prudential supervision

Direct supervision

Indirect supervision

Horizontal supervision

DG Micro-Prudential 
Supervision I

DG Micro-Prudential 
Supervision II

DG Micro-Prudential 
Supervision III

DG Micro-Prudential 
Supervision IV

± 30 banking groups

± 90 banking groups

Supervisory oversight  
& NCA relations 

Authorisation

Crisis management

Institutional & sectoral  
oversight

Planning & coordination of Supervi-
sory Examination Programmes

Analysis & methodological support

Internal models

Joint 
supervisory
teams

Joint Supervisory teams (JSTs) are the main tool 
for the day-to-day supervision of significant 
institutions

Methodology & standards 
development

Enforcement & sanctions

Risk analysis

Supervisory quality assurance

Supervisory policies

Centralised on-site inspections

Supervisory Board

Secretariat to the Supervisory Board

Source: ECA, based on information provided by ECB.

 
 
Governance 

24

24 
At the start of the SSM in November 2014, the new organisational set-up was 
ready to become fully operational. However, the complex structure agreed upon 
raised considerable challenges. A high degree of coordination and seamless com-
munication between ECB and NCA employees has become crucial to achieving 
a common and efficient supervisory approach.

The ECB’s recruitment for the SSM was effective given the 
time constraints…

25 
In the run-up to assuming its supervisory responsibilities, the ECB took steps to 
resource the new function – with considerable success given the narrow time-
frame. Recruitment began in 2013, and 113 separate calls for staff attracted 25 
000 applicants. By the end of 2014, approximately 85 % of the 1 073 approved 
FTE posts for 2015 had been filled. Recruitment continued during 2015, and ap-
proximately 96 % of all approved posts were filled by year’s end. We compared, 
on a sample basis, the CVs of staff actually recruited with the skills required for 
the corresponding positions. The staff concerned had the necessary skills and 
qualifications to carry out the tasks designated by the ECB – despite the fact that 
systematic reference checks (i.e. contacting referees named in CVs) were only 
implemented as of December 2015. See Figure 4 for the percentage breakdown 
of ECB staff assigned to the SSM.

FTEs

4 Approved posts for ECB banking supervision at 31 December 2015 – breakdown by 
e
r
u
g
i
F

DG MS III
11 %

DG MS II
25 %

DG MS IV
33 %

Secretariat
4 %

DG MS I
27 %

© European Central Bank, Frankfurt am Main, Germany (annual report on supervisory activities 2015).

 
 
25

17  Article 28 of the SSM 

Regulation.

18  Recital 77 to the SSM 

Regulation.

19  Our audit scope did not 

extend to the examination of 
NCA budgets.

20  This figure includes the 
budgets of NCAs and, as 
appropriate, other authorities 
designated by participating 
Member States.

21  Article 6 of the SSM Regulation 

states the rules for 
cooperation within the SSM 
between the ECB and NCAs. 
However, we received 
documents and information 
on NCAs only via the ECB and 
through our questionnaire. We 
did not perform audit 
procedures on the respective 
NCAs.

22  http://www.bis.org/publ/

bcbs230.htm

Governance 

…but is heavily reliant on NCA resources

26 
The standards governing the resourcing of the SSM are that ‘the ECB shall be 
responsible for devoting the necessary financial and human resources to the 
exercise of the tasks conferred on it’17, and that resources should be obtained ‘in 
a way that ensures the ECB’s independence from undue influences by national 
competent authorities and market participants […]’18.

27 
A key risk generated by the current set-up is that, under the system of jointly-
staffed supervisory teams, a large part of the cost of supervising significant 
banks in the euro area is incurred by NCAs19. Thus the aggregate supervisory 
budget is in fact a combination of 27 separate budgets20, including that of the 
ECB. A significant share of the combined resources is spent on national staff costs 
(NCAs and central banks). The national bodies have the final say regarding the 
financial and other resources they assign to on-site inspections and their staff 
appointees to JSTs21, even though these areas of supervision are ultimately the 
responsibility of the ECB. Furthermore, although the ECB discloses the amount of 
the supervisory fee it levies on banks and communicates this fee to NCAs before 
taking a final decision on its application, the current legal framework does not 
include any provision for consolidated disclosure of the total cost of the SSM.

The institutional bodies have been set up as required, 
supported by an intricate decision-making process

28 
A legal framework for the SSM is in place. As required by the regulations, and in 
line with BCBS Core Principle 122, arrangements were made and publicly disclosed 
for the establishment and rules of procedure of the bodies of the SSM with a role 
in the decision-making process.

 
26

23  Article 26 of the SSM 

Regulation.

24  See BCBS Core Principle 2, 
Essential Criterion 2.

25  Article 24 of the SSM 

Regulation.

26  See Regulation (EU) No 

673/2014 of the European 
Central Bank of 2 June 2014 
concerning the establishment 
of a Mediation Panel and its 
Rules of Procedure (OJ L 179, 
19.6.2014, p. 72).

27  BCBS Core Principle 2, 
Essential Criterion 4.

Governance 

29 
The role of the Supervisory Board is to plan and execute the supervisory tasks 
conferred on the ECB. In this context the Board finalises complete draft decisions 
originating in most cases from the JSTs and proposes them to the ECB Governing 
Council. Decisions are deemed adopted unless the Governing Council objects 
to them within a certain period of time (this is known as the ‘non-objection’ 
procedure). The composition of the Board and the corresponding appointment 
procedure are laid down in the SSM Regulation23. We were unable to audit the 
procedures for the appointment and removal of the NCA representatives on the 
Supervisory Board24. The EU institutions are not consulted or otherwise involved 
in any way in the appointment of members from NCAs.

30 
Also in accordance with the SSM Regulation25, the ECB has established an Admin-
istrative Board of Review (ABoR) to carry out internal administrative reviews of its 
decisions. By July 2015 the ABoR had been required to review six decisions, and 
in all cases it rendered an opinion within the specified deadline of two months. 
In one case the submission of a new decision by the Supervisory Board to the 
Governing Council following the ABoR proceedings took three and a half months 
instead of 20 working days.

31 
The Mediation Panel set up26 to resolve differences of views expressed by the 
NCAs concerned by an objection of the Governing Council to a Supervisory Board 
decision has not yet been used.

Decision-making is a complex process, with many layers of 
information exchange and significant involvement of the 
Supervisory Board Secretariat

32 
Effective internal governance and communication processes should facilitate the 
adoption of decisions at a level appropriate to the significance of the matter and 
in an appropriate timeframe depending on the level of urgency27.

33 
The SSM decision-making process, including the ‘non-objection’ procedure, is 
shown in Figure 5.

 
Governance 

27

5 Overview of decision-making process
e
r
u
g
i
F

Supervisory Board

Governing Council 

Submits
 draft decisions

a) Does not object 

Adoption

Objection
Sends back to Supervisory Board for submission of 
new draft decision

b) Objects

Mediation
Resolves diﬀerences of views expressed 
by NCAs regarding an objection

Mediation Panel 

Administrative
Board of Review

Legal or natural persons 
concerned may request 
review by Administrative 
Board of Review

Review
Submits non-binding opinion to 
Supervisory Board for submission of new 
draft decision

Source: ECA, based on information provided by the ECB.

34 
Annex III illustrates the complex and complicated nature of information ex-
change within the decision-making process, which heavily involves the Super-
visory Board Secretariat. Under the standard procedure (without taking into 
account the preparatory work by JSTs) the process should take approximately five 
weeks28.

35 
The Supervisory Board Secretariat is responsible for coordinating the decision-
making process. For this purpose, it has developed internal practices and pro-
cesses. However, it has issued little guidance for the JSTs and other business areas 
in the form of checklists, templates and flowcharts.

28  This includes five working 

days for members of the 
Supervisory Board to consider 
the documentation before 
approving the draft decision, 
two weeks for the credit 
institution’s right to be heard 
and a maximum of ten 
working days for the 
Governing Council to adopt 
the decision without objection 
as laid down in the SSM 
Regulation. The stages of the 
JSTs’ preparatory work are 
described in Annex III. The 
standard deadline of five 
weeks applies in cases where 
a hearing is required. If the 
decision would have no 
adverse effect, the right to be 
heard is not required and the 
standard procedure takes 
three weeks.

 
 
 
28

‘We are talking here about 
thousands of decisions which 
are presented to the 
Governing Council. These 
include decisions that never 
even reached my desk nor the 
desks at the next level down in 
the hierarchy, because the 
SSM Regulation does not 
foresee delegation. I do not 
think that the Governing 
Council can look into every 
detail. It has to trust the 
Supervisory Board.’ 
https://bankingsupervision.
europa.eu/press/interviews/
date/2016/html/sn160125.
en.html

In a speech the Vice-Chair 
explained that the Supervisory 
Board was considering the 
introduction of a framework to 
delegate ‘routine’ decisions to 
lower levels, allowing the 
Board to focus on more 
sensitive, material and 
discretionary issues. 
https://bankingsupervision.
europa.eu/press/speeches/
date/2016/html/se160113.
en.html

Governance 

The Supervisory Board is required to take a huge number of 
decisions…

29 

36 
As at November 2015, the Supervisory Board had taken a total of 1 450 supervi-
sory decisions (see Table 2). The Chair of the Board has publicly commented that, 
owing to the volume of supervisory decisions forwarded to the Governing Coun-
cil, the latter has to trust the Board’s conclusions 29. In January 2016, a debate was 
launched on streamlining some aspects of the decision-making process30.

2 Supervisory decisions November 2014 - November 2015
e
l
b
a
T

Category of supervisory decision

Number of decisions

30 

Fit and proper decisions

Significance and amending significance

Related to comprehensive assessment

SREP

Own funds (CET1 issuance, reduction)

Acquisitions of qualifying holdings

Licensing

Waivers of prudential requirements

Miscellaneous

Pending supervisory procedures

Instructions to NCAs regarding significant institutions

Other authorisations (sales)

Mergers

Cost order decisions and fees

Decisions regarding financial conglomerates

Internal models

Decisions regarding group structures

General instructions to NCAs

TOTAL

Source: ECA, based on information provided by the ECB.

661

216

145

119

103

80

27

18

17

13

13

9

8

7

6

5

2

1

1 450

 
 
Governance 

29

37 
For the 16 cases we sampled, we were provided with tables of the procedural 
steps and dates for different types of decisions. However, we had no access to the 
underlying documentation, so cannot express an opinion on the efficiency of the 
process.

31  Article 25 SSM Regulation.

32  See, in particular, Article 25 of 

the SSM Regulation.

…with a knock-on effect on the work of the steering 
committee

38 
A 2015 review by the ECB identified shortcomings in the organisation and other 
details of the steering committee’s procedures and meetings. Most importantly, 
the Secretariat found it difficult to prepare for meetings on the same day of both 
the Board and the steering committee, so that documents were often circulated 
late and committee members were insufficiently prepared to discuss the agenda.

39 
The review concluded with a note outlining the pros and cons of a range of op-
tions. After consideration, the steering committee decided not to change the way 
its work was organised except for standardising some elements of the follow-up 
procedure.

The principle of separation between monetary policy 
and supervision is applied, but there are risks to the 
perception of independence

40 
The ECB shall carry out the tasks conferred on it by the SSM Regulation without 
prejudice to and separately from its tasks relating to monetary policy and any 
other tasks31. Recital 65 of this regulation provides that the ECB’s monetary and 
supervisory tasks should be carried out in full separation in order to avoid con-
flicts of interest and to ensure that each function is exercised in accordance with 
the applicable objectives. The staff involved in carrying out the tasks conferred 
by the Regulation must be organisationally separate, and subject to separate re-
porting lines, from the staff involved in carrying out other tasks conferred on the 
ECB. The ECB was required to adopt and make public all necessary internal rules, 
including those on professional secrecy and information exchange between the 
two functional areas, and to ensure that the operation of the Governing Council 
is completely differentiated regarding monetary and supervisory functions32.

 
Governance 

30

41 
The ECB has adopted a decision in this regard, as well as rules on professional 
secrecy and exchange of information between the two functions. It has amended 
its Rules of Procedure to allow for the new decision-making bodies within the 
organisational structure and clarify their interaction in the decision-making pro-
cess. We were informed that, in line with the Regulation, the Governing Council 
operates through separate agendas and meetings for the two areas. This is a re-
quirement in Article 13l.1 of the ECB Rules of Procedure.

33  Decision ECB/2014/39 of 

17 September 2014 on the 
implementation of separation 
between the monetary policy 
and supervision functions of 
the European Central Bank (OJ 
L 300, 18.10.2014, p. 57).

34  Article 3(4) of Decision 

ECB/2014/39.

More could be done to assess the risks arising from the 
sharing of services

42 
The ECB decision on the implementation of separation33 establishes that certain 
ECB departments can be designated ‘shared services’ to provide support to both 
the monetary and supervisory functions. Shared services are established in the 
interest of efficient and effective delivery of services, in order to minimise dupli-
cation of work. Notwithstanding the positive features outlined above, there are 
risks associated with these arrangements (see Table 3).

43 
Risks arising from failure to implement the separation principle in full may also be 
present in other functional areas of the ECB. Such risks include, but are not lim-
ited to, the sharing of confidential information. The shared services are exempted 
from the provisions on exchange of information between policy functions set out 
in Article 6 of the ECB’s decision on the implementation of the principle of sepa-
ration (i.e. exchange of confidential information does not require prior approval 
by the Executive Board)34, although the general principles on access to informa-
tion apply.

44 
General provisions exist for the processing of confidential information (e.g. the 
legal obligations in Article 37.2 of the ESCB and ECB Statute, Article 339 TFEU, the 
Ethics Framework of the ECB and Articles 4 and 5 of Decision ECB/2014/39). BCBS 
Core Principle 2, Criterion 5, emphasises the need for rules on how to deal with 
conflicts of interest and appropriate use of information. However, the ECB has 
made no specific analysis of the risks for each shared service, nor ensured separa-
tion at unit or division level for most business areas.

 
Governance 

3 ECB shared services and the risks to the separation of functions
e
l
b
a
T

Separate divisions within service?

Possible conflicts

31

Specific safeguards 
other than the ECB 
decision and ethical 
rules?

Shared service/business 
area

Administration

Information technology

Communication

No

No

No

Human resources, budget and 
organisation

No

Internal audit

Legal services

Very limited. The internal audit team 
leader, as a member of the D-IA man-
agement team, is responsible for audit 
work in both areas, and the team also 
audits statistics (both supervisory and 
monetary).

A separate supervisory division has 
been established, with separation up 
to Deputy Director-General level. The 
Director-General is responsible for both 
areas. The supervisory reporting line 
goes not to the Chair of the Supervisory 
Board but to the Vice-Chair, who is also 
a member of the ECB Governing Council 
and Executive Board.

Resource allocation, prioritisation of tasks

Resource allocation, prioritisation of tasks, sepa-
rate IT requirements.

In the event of conflicting views on an issue, 
communication support would be provided by the 
unit. This might lead to a consensus unwelcome to 
both parties.

Functional reporting is to the Executive Board 
alone, with no division of responsibilities regard-
ing recruitment, budget, promotion, dismissal 
and disciplinary powers, where supervisory 
staff are in fact answerable to the Chair of the 
Supervisory Board.

As the risk assessment relates to the organisation 
as a whole, key risks in one area may not be ad-
dressed, or not early enough, in another. Resource 
allocation may be inappropriate. This area is 
addressed in the section on internal audit.

Legal assessments may concern either function1. 
In the absence of full separation at DG level, one 
side may dominate the other, especially given that 
supervisory functional reporting is to the Vice-
Chair, not to the Chair, of the Supervisory Board. 
This could obstruct the expression of divergent 
views on issues of mutual interest.

No

No

No

No

No

No

1 

 In respect of legal services and advice on supervisory law, the reporting line is not only to the Vice-Chair of the Supervisory Board, but also to 
the Executive Board member in charge of legal services.

Source: ECA.

 
 
Governance 

32

45 
Apart from Decision ECB/2014/39, we were given no documentation on the 
implementation of the principle of separation, including any ‘Chinese walls’35 
within shared services or evidence of monitoring that the separation principle is 
adhered to.

46 
With the exception of the legal service and the directorate for statistics, there is 
no separation between supervisory and other ECB tasks within shared services 
at division level, and no functional reporting line to the Chair of the Supervisory 
Board. As of 1st January 2016 some of the shared services (DG Information Servic-
es, DG Administration, DG Human Resources and DG Finance) report to the Chief 
Services Officer (CSO), who reports to the Executive Board via the President of 
the ECB. The ECB has not performed a risk analysis on possible conflicts of inter-
est, the sharing of information within these services or the need for safeguards. 
Nor has it implemented compliance monitoring of this matter for each business 
area in order to mitigate the risks potentially stemming from the shared-services 
concept.

35 

‘Chinese walls’ are internal 
information barriers erected 
to prevent conflicts of interest.

36  BCBS Core Principle 2.

37  The SSM Regulation did not 

alter the governance structure 
of the ECB (Article 10.1 of the 
ECB Rules of Procedure). In 
accordance with Article 11.6 of 
the Statute of the ESCB and 
the ECB, the Executive Board is 
responsible for ECB current 
business. However, this does 
not exclude the use of 
‘non-objection’ or like 
procedures to give the 
Supervisory Board a high 
degree of autonomy.

38  Article 15.1 of the ECB Rules of 

Procedure.

Additional risks to the independence of the monetary policy 
and supervisory functions are inherent to the organisational 
and financial set-up of the SSM

47 
The BCBS Core Principles state that ‘the supervisor possesses operational in-
dependence, […] budgetary processes that do not undermine autonomy and 
adequate resources, and is accountable for the discharge of its duties and use of 
its resources’’36.

48 
The Executive Board is responsible for the management of the ECB’s internal 
organisation, including the budgetary and human resources aspects of its su-
pervision function37. Annex IV outlines the budgetary process at the ECB. Before 
the end of each financial year, the ECB Governing Council, acting on a proposal 
from the Executive Board adopts the institution’s budget for the subsequent 
financial year. Expenditure for supervisory tasks is separately identifiable within 
the budget and agreed after consultation with the Chair and Vice-Chair of the 
Supervisory Board38.

 
33

39  Article 9 of the ECB Rules of 

Procedure.

40  While the recitals to 

a regulation do not create 
free-standing legal effects, 
they provide important 
guidance on interpreting the 
articles of the regulation and 
how on the necessary 
organisational arrangements, 
such as the drafting of related 
framework regulations or rules 
of procedure.

Governance 

49 
The ECB’s Budget Committee (BUCOM), which is composed of experts from 
national central banks, assists the decision-making bodies in their work39. In this 
context it advises the Governing Council on resourcing both the monetary and 
the supervision function, with no organisational distinction between the two.

50 
Within the ECB budgetary process, the Chair and Vice-Chair of the Supervisory 
Board are consulted on the institution’s banking supervision expenditure, but 
neither BUCOM nor DG Finance, a division of which (BCO – see Annex IV) shares 
responsibility for advising on, assessing and monitoring the budget, reports to 
the Chair or to the Supervisory Board as a whole. Each year prior to the finalisa-
tion of the decision-making process, the ECB communicates to the Supervisory 
Board members the content of a draft ECB decision on the total amount of the 
supervisory fee to be levied from banks.

51 
Effectively, this means that the Supervisory Board, though responsible for the 
planning and execution of supervisory tasks, does not have control over the nec-
essary human and financial resources. This could affect the Supervisory Board’s 
ultimate ability, and that of its Chair, to exercise due accountability, given the 
piecemeal nature of supervision resourcing (see paragraphs 26 and 27).

52 
Recital 66 to the SSM Regulation40 states that the staff involved in carrying out 
the tasks conferred on the ECB should report to the Chair of the Supervisory 
Board. In practice, the reporting line includes the Vice-Chair, who is also a mem-
ber of the Governing Council and Executive Board and initiates the final stage of 
decision-making with the Governing Council. The same applies to supervisory 
divisions within the legal and statistics shared services, which report only to the 
Vice-Chair of the Supervisory Board (see paragraph 46).

 
34

41  http://eur-lex.europa.eu/

legal-content/EN/TXT/?uri=uri
serv:OJ.C_.2015.204.01.0003.01.
ENG&toc=OJ:C:2015:204:FULL

42  Guideline (EU) 2015/856 of the 
European Central Bank of 
12 March 2015 laying down 
the principles of an Ethics 
Framework for the SSM 
(ECB/2015/12) (OJ L 135, 
2.6.2015, p. 29).

43  The time during which 

persons leaving the ECB must 
continue to refrain from 
engaging in activities that 
could lead to a conflict of 
interests.

44  The UK, for example, applies 
minimum and maximum 
tenure periods for managers 
in the area of supervision.

Governance 

Ethical procedures and codes of conduct have been 
applied for SSM management and staff

An ‘Ethics framework for the SSM’ has been established, 
but NCAs remain subject to national legislation and have 
considerable discretion in defining their own rules

53 
The ethical standards applicable to all ECB staff are set out in the institution’s 
‘ethics framework’41, which is an integral part of the ECB Staff Rules. The frame-
work applies to all ECB employees but, due to the ECB’s lack of competence to 
regulate the conditions of employment of NCA staff, does not cover the supervi-
sory staff assigned to JSTs by NCAs.

54 
In March 2015 the ECB adopted a guideline42 laying down the principles of a sepa-
rate ‘Ethics Framework for the SSM’. The new framework was to be composed 
of the guideline, a set of best practices for implementation (Implementation 
Practices) and the internal rules and practices adopted separately by the ECB and 
each NCA. The NCAs were given until March 2016 to implement the guideline. 
A joint ‘Ethics Framework Task Force’ regularly monitors harmonisation efforts in 
this context.

55 
The guideline is less detailed than the ethics framework applicable for ECB staff, 
in that it merely lays down the basic principles of a common framework that the 
NCAs are to adopt when introducing their own internal rules, procedures and 
mechanisms. As a result, there is substantial latitude for variation between the 
specifics of the NCAs’ internal rules. Differences between national ethics frame-
works across the SSM could undermine the statutory goal of supervision conver-
gence and harmonisation and create a reputational risk for the ECB. For example, 
while the guideline addresses the matter of ‘cooling-off periods’43 for the staff 
and members of the bodies of the ECB and NCAs involved in the performance 
of supervisory tasks, it merely states that such a period should exist, rather than 
specifying a minimum period of time; nor does it consider the tenure periods for 
supervisory managers44, designate an authority to monitor compliance with the 
SSM ethics framework or set the frequency of such monitoring.

 
35

45  For example, Implementation 

Practice No 11 on post-
employment restrictions: ‘The 
ECB and the NCAs to the 
extent possible under national 
law, are recommended to 
adopt proportionate 
cooling-off periods for 
members of bodies as well as 
staff at managerial and expert 
level that intend to work for 
a credit institution in the 
supervision of which they 
were involved or for direct 
competitors of such credit 
institution. For members of 
bodies and senior staff the 
cooling-off period should be 
at least six months if they 
intend to work for a credit 
institution for the supervision 
of which they were 
responsible.’

46  The ESCB comprises the ECB 

and the national central banks 
of all 28 EU Member States, 
whereas the Eurosystem is 
limited to the ECB and the 
central banks of Member 
States in the euro area (whose 
function is to apply the 
monetary policy decided by 
the ECB).

Governance 

56 
The Implementation Practices issued by the ECB in addition to the guideline 
include various ECB recommendations45 for national ethics frameworks. However, 
unlike the guideline, the Implementation Practices are not legally binding on the 
NCAs.

57 
It is intended that the participating NCAs will apply the provisions of the SSM eth-
ics framework (including the provisions of the guideline and the Implementation 
Practices) to their staff. However, the general nature of the guideline, combined 
with the fact that the Implementation Practices are not legally binding, implicitly 
gives each NCA considerable freedom in defining and applying its own ethical 
framework.

Internal audit: an innovative approach using 
a comprehensive audit plan, but implementation is 
hampered by problems of resource allocation and 
planning

58 
Internal audit at the ECB is covered by the Directorate for Internal Audit (D-IA), 
which became a shared service with the introduction of the SSM. The D-IA is in 
charge of auditing all ECB operations and activities; it also assigns resources to 
the Internal Auditors Committee (IAC), a body composed of the senior manage-
ment of the D-IA and their counterparts from NCAs and national central banks 
(NCBs).

59 
The IAC meets in three separate ‘compositions’ to deal with Eurosystem, Euro-
pean System of Central Banks (ESCB)46 and SSM audit matters, such as planning, 
defining common audit standards, sharing relevant knowledge and undertaking 
audits and related activities. The IAC’s audit charter gives it the function of ‘Chief 
Audit Executive’ for the Eurosystem/ESCB/SSM under the collective responsibility 
of its members. At the same time, each IAC member acts as a representative of 
a distinct legal entity and assumes individual responsibility for the management, 
performance and independent reporting of its parts of an audit project.

 
Governance 

36

60 
The IAC is structured as shown in Figure 6. Six audit task forces (ATFs) are in 
charge of planning and performing audit engagements in relation to specific 
topics. The ATFs are composed of ECB and NCA/NCB staff. Every finding by a joint 
audit team in the course of an IAC audit at local level has to be assessed for its im-
pact on the SSM as a whole. This innovative approach was introduced to ensure 
that cross-cutting issues are audited consistently across the SSM. For our audit, 
we focused mainly on the role of the ATF responsible for the SSM and statistics, 
which is known as ATF SSM-ST.

61 
We examined the allocation of resources to the IAC, notably from the D-IA, as 
well as audit planning and risk assessment (including risk coverage).

6 The role of the D-IA in SSM and Eurosystem internal audit work
e
r
u
g
i
F

Supervisory Board

ECB Executive Board
ECB Governing Council
ECB General Council

Advises

ECB Audit Committee

Audit reports/
work program

Decision making bodies

ESCB Composition

IAC

Eurosystem Composition

SSM Composition

Members collectively forum Chief Audit Executive

Endorses audit program

NCAs/Central bank

Resources

Resources

Coordinates

Administrative
reporting line

President

Functional
reporting line

Executive Board

Audits

ECB operations

D-IA

R
e
s
o
u
r
c
e
s

ATFs

Secretariat IAC

Governance and ﬁnancial reporting

Banknotes

IT Monetary policy

Payment & Settlement Systems

SSM Statistics

[Perform audits at Central Bank (NCA and ECB level)]

Eurosystem topics

SSM topics

Source: ECA.

 
 
37

47  Statistics is a task linked to 
both banking supervision 
(supervisory data) and 
monetary policy (central bank 
data).

Governance 

Resource allocation by the D-IA: although staff needs were 
clearly quantified, the final staffing levels were inadequate

62 
In March 2013, following an external quality assessment which concluded that 
impetus should be given to preparing the D-IA for its audit of the SSM, the D-IA 
determined that a minimum of 16 FTEs would be necessary to provide independ-
ent and objective assurance in this regard. However, in August 2013 the ECB Gov-
erning Council approved only three full-time D-IA staff for 2013, and an addition-
al four for 2014 to cover both SSM and statistics tasks47. Requesting units were 
given no justification for this departure from the initial proposals (see Table 4).

4 Identified staff needs versus actual recruitment
e
l
b
a
T

Needs identified by the D-IA for SSM (FTEs)

Total posts approved

(one post for tasks in the investigations unit, which may also operate in areas unre-
lated to the SSM)

(one IT post – filled for specific projects by staff from elsewhere within the D-IA)

Posts allocated to SSM/statistics tasks other than IT and investigations as 
follows:

(one principal auditor recruited from ECB staff following a recruitment campaign 
published externally)

(staff recruited externally with recent specific commercial banking/banking supervi-
sion skills)

(staff recruited with recent specific banking supervision skills under a short-term 
secondment)

(internal D/IA transfer of one staff member with a focus on IT/statistics)

Source: ECA.

16

7

(1)

(1)

5

1

2

1

1

 
 
Governance 

38

63 
The Chair of the ATF SSM-ST has previous experience in banking supervision 
(1995-2000) and is a member of the D-IA management team, which is responsible 
for audits for the ATF and audits linked to central banking. Two individuals, with 
three and four years’ banking supervision experience respectively, joined the 
team in March 2015. One other team member who joined in September 2014 has 
private-sector experience in risk management and Basel II implementation.

48  Our positive assessment of the 

audit universe was shared by 
all the NCAs which replied to 
our questionnaire. Three out 
of 11 NCAs, however, raised 
concerns regarding the 
precise scope of underlying 
audit objects and their 
coverage within a reasonable 
timeframe.

64 
Despite the low staff numbers in the D-IA, the current mix of skills covers a num-
ber of important areas plus general audit, but more specific skills and practical 
experience (e.g. macro prudential supervision, corporate credit back office) will 
be needed when the team reaches an appropriate size to allow for in-depth au-
dits on methodological and conceptual issues.

65 
As the ATF relies on the collective responsibility of its members, its performance 
is dependent on cooperation with NCAs and their practical input to the task. In 
some areas (e.g. on-site supervision, contributions from local NCA staff), the level 
of dependence may be higher than in others (e.g. governance issues). It is obvi-
ous that the coordination of needs adds to the D-IA’s workload when auditing an 
SSM topic.

Planning is based on a comprehensive audit universe but 
does not always take account of best practice

Audit planning is grounded in a comprehensive plan…

66 
The initial allocation of resources to internal audit was both meagre and delayed. 
As a result, there was at first little planning activity.

67 
A very detailed ‘universe’48 of audit topics was finalised in May 2015. This consists 
of five audit clusters, which are sub-divided into 14 audit objects and 31 areas 
and processes and, lastly, more than 150 further sub-components.

 
39

49  See, for example, section BT 
2.3, paragraph 3, of the 
‘Minimum requirements for 
risk management’ produced 
by the German NCA (BaFin) 
and paragraph 20 of audit 
standard PS 240 issued by the 
German Institute of Public 
Auditors (IDW).

50  BaFin, ‘Minimum requirements 
for risk management’, AT 9, 
paragraph 6; BT 2.1, 
paragraph 3.

Governance 

…but planning does not include a reserve for ad-hoc requests or 
take account of outsourcing/co-sourcing

68 
Overall audit planning is hampered by the fact that, contrary to best practice49, 
there is no contingency for ad-hoc audits or the extension of current audits (ow-
ing to a policy of 100 % resource use).

69 
That the D-IA has no systematic procedure regarding outsourced/co-sourced 
operations is also contrary to best practice50. For instance, there is no contractual 
requirement for the internal audit function of service-providers to report to the 
ECB on the activities outsourced to/co-sourced with them. Nor do all relevant 
contracts include a clause giving the ECB internal audit function itself the right to 
audit outsourced/co-sourced activities.

While the risk assessment methodology is generally 
appropriate, it lacks safeguards to ensure that high and 
medium-risk areas are addressed in full and at the right time

Comprehensive audit object templates have been developed and 
are used within a risk model which, despite some weaknesses, is 
conceptually appropriate

70 
Risk assessment is used to support decision-making about the prioritisation of 
audit topics during the forthcoming period. The assessment is based on the key 
information in ‘audit object templates’, which provide details of the main themes 
of the audit universe, as well as a full description of each activity, the related 
processes and the most relevant key controls. As used in the risk assessment, the 
templates are a very good starting point for planning.

 
Governance 

40

71 
We examined the templates for three audit areas and found them to be appropri-
ate and well applied. However, in addition to the need for a clearer definition of 
third-party risk, there was a more general need for consistency in the application 
of the financial impact and litigation risk criteria and, in one case, to focus on 
risks in relation to the separation of monetary and supervisory policy.

72 
Notwithstanding these weaknesses, the risk model is a very suitable planning 
tool. All of the NCAs that responded to our questionnaire considered the risk as-
sessment process to be ‘appropriate’ and ‘transparent’.

51 

In this regard, the ‘Minimum 
requirements for risk 
management’ issued by the 
German NCA require an 
annual audit in the case of 
‘particular’ risks and 
a three-year audit cycle for all 
other processes and activities 
(BaFin minimum requirements 
for risk management, BT 2.3).

There are no minimum engagement levels to ensure high and 
medium-risk areas and key sub-components are fully covered, and 
SSM audits compete for resources with non-SSM audits…

73 
The IAC does not seek to cover all risks within a given planning period (such as 
a five-year cycle) but relies on mid-term planning objectives only. It maintains 
a key performance indicator on the coverage of high-risk areas, aiming to audit 
at least 30 % of high-risk areas each year and to cover at least 90 % over each 
three-year period. However, there is no such target for medium-risk areas. Within 
an annual audit programme, the risk assessment for high and medium-risk areas 
is adjusted every quarter so that planning can be overhauled regularly as new 
risks arise. Although the mid-term schedule for 2015-2018 covers all high-risk 
areas, it is not clear whether or when all sub-components of these areas will be 
addressed, and the formula used for audit planning does not systematically cover 
elements not previously examined. Areas ranked as medium-risk, such as internal 
models, macro-prudential supervision and less significant institutions, are not 
scheduled for audit at all until 2019, and it is not clear to what extent they will be 
covered.

74 
Where resources are limited, the approach described in paragraph 73 may 
result in high or medium-risk areas being unaudited because minimum engage-
ment levels (a certain risk score leading to a ‘must audit’ rating) have not been 
defined51.

 
Governance 

41

75 
The shared-service nature of internal audit and the shortage of resources have 
led to a situation in which central banking and SSM audit objects ‘compete’ for 
resources (see Table 5). In 2015, only 15 % of the time actually booked was spent 
on SSM tasks. Out of 30 posts in the D-IA, only seven (including investigations 
and IT) are designated for SSM and statistics tasks.

5 Audits planned for the SSM versus other audit tasks in 
e
l
b
a
T

cooperation with NCAs

Audit field

SSM/statistics1

Eurosystem/ ESCB2

Governance, risk,  
accounting and IT

Total non- SSM

High residual-
risk areas as of 
September 2015

Audits 
performed or 
started 2015

Audits proposed 
2016

Audits 
proposed 
2017/18

6

9

3

12

1

11

0

11

2

9

2

11

3

14

6

20

1  No clear separation is made between central banking and supervisory statistics.
2 

 Includes in particular monetary policy and implementation, statistics, payment and settlement 
systems, banknotes, accounting in the Eurosystem’s consolidated balance sheet and financial 
reporting.

Source: ECA, derived from ECB data.

… and in practice the highest-risk areas were not immediately 
prioritised for audit

76 
A calibration exercise to achieve consistency between the audit objects proposed 
by different ATFs can lead to adjusted risk ratings. Moreover, when proposing 
audits to the IAC, the quality management taskforce may select audit objects that 
have not been given the highest risk rating, and in any case the IAC is not bound 
to abide by the taskforce’s proposals.

 
 
Governance 

42

77 
Despite obtaining the highest and second-highest residual-risk scores of all 
ATF-SSM audit objects, the topics ‘Ongoing supervision of systemic important 
banks – SREP’ and ‘Banking crisis management’ were not audited in the first year 
but have been included in the audit plan for 2017/2018. The SSM audit objects se-
lected for 2015 and 2016 were ‘Ongoing supervision – planning and monitoring’ 
(6th) and ‘Supervisory statistics and information management’ (equal second) 
respectively. Auditing the planning aspects of ongoing supervision without an 
in-depth examination of the SREP, which is the key ongoing supervisory process, 
does not equate to comprehensive coverage of the subject matter.

 
Accountability 
arrangements

43

78 
A strong accountability framework is crucial to the quality of banking supervision 
as it relates to principles of good governance such as transparency and effec-
tiveness52. Accountability requires the supervisory authority to provide relevant, 
timely and accurate information to a range of stakeholders in order to create 
and foster a broad understanding of its activities and performance and receives 
necessary feedback.

79 
The benchmark used to assess the SSM’s overall accountability framework was 
the framework identified in the European Court of Auditors’ landscape review 
on EU accountability and public audit (see paragraph 80)53, the arrangements set 
out in Article 20 of the SSM Regulation, the revised (2012) BCBS Core Principles for 
Effective Banking Supervision (see Box 2) and the legal frameworks and practices 
in comparable jurisdictions.

52  Empirical analysis has shown 
a positive and significant 
correlation between the 
transparency of the supervisor 
and the effectiveness of bank 
supervision. See for example, 
Arnone. M. Salim. M.D. and A. 
Gambini, (‘Banking 
Supervision: Quality and 
Governance’, 2007, Working 
paper 07/82, IMF.

53 

‘Gaps, overlaps and 
challenges: a landscape review 
of EU accountability and 
public audit arrangements’, 
ECA, 2014 (http://eca.europa.
eu).

2
x
o
B

BCBS

The Basel Committee on Banking Supervision (BCBS) is the primary global standard-setter for the prudential 
regulation of banks and provides a forum for cooperation on banking supervisory matters. The revised set of 
its 29 Core Principles – containing separate essential and additional criteria – covers:

 ο supervisory powers, responsibilities and functions, focusing on effective risk-based supervision and the 

need for early intervention and timely supervisory actions (Principles 1-13); and

 ο supervisory expectations of banks, emphasising the importance of good governance and risk manage-

ment as well as compliance with supervisory standards (Principles 14-29).

Although not legally binding, the Principles are widely used as an internationally accepted reference for as-
sessing the quality of supervisory systems and practices in different jurisdictions. As a member of the Basel 
Committee, the ECB has confirmed54 its commitment to the statement in the BCBS Core Principles for Effective 
Banking Supervision (2012) that they establish ‘a sound foundation for the regulation, supervision, governance 
and risk management of the banking sector’55.

54  ECB’s Guide to Banking Supervision (November 2014), p. 6-7.

55  BCBS Core Principles for Effective Banking Supervision (2012).

Source: Bank for International Settlements (BIS).

 
Accountability arrangements 

44

56  These requirements are all 

reflected in the Basel Criteria 
except for the requirement on 
feedback loops, which is 
mainly a practice followed by 
other jurisdictions to 
understand the impact of the 
prudential framework and the 
effectiveness of supervision. 
Feedback loops are 
mechanisms to ensure that 
stakeholder feedback (e.g. 
consultations or surveys of 
supervised entities) is taken 
into account in legislative 
procedure. For example, 
surveys can be used as an 
indicator of performance to 
reveal areas of concern and 
potential for improvement.

57  Article 1 of Regulation (EU)  

No 1024/2013.

80 
In our landscape review on EU accountability, we identified the following main 
elements of a strong accountability framework:

(i)  clear articulation of roles and responsibilities;

(ii)  a strong mandate for independent external audit for financial, compliance 

and performance aspects;

(iii)  assurance from management about the achievement of policy objectives;

(iv)  full democratic oversight; and

(v)  feedback loops to allow for corrective action/improvements56.

81 
The extent to which the SSM accountability framework satisfies each of these five 
requirements is considered below.

(i) 

 The roles and responsibilities of the SSM as 
a whole are clearly defined and publicly disclosed 
in the enabling legislation

82 
In terms of clarity of responsibilities along the accountability chain, the regula-
tions conferred the supervisory tasks of the SSM on the ECB. Specific rules are in 
place requiring the ECB to perform its monetary policy and supervisory functions 
independently while remaining accountable for SSM-related activities to the 
European Parliament, the Council and the Eurogroup. The planning and execu-
tion of the supervisory activity is undertaken by the Supervisory Board, while 
the Governing Council remained responsible as final decision maker and for the 
overall governance of the ECB which encompasses both the monetary and the 
supervisory function. Details on the decision-making process can be found in 
Annex III.

83 
In terms of clarity of objectives, the SSM Regulation clearly describes the ECB’s 
objective for its supervisory tasks as ‘contributing to the safety and soundness of 
credit institutions and the stability of the financial system within the Union and 
each Member State’57.

 
Accountability arrangements 

45

58  The wording of Article 27.2 is 

mirrored in Article 20(7) of the 
SSM Regulation.

59  One country did not respond 

to the survey.

60  Statement ‘Ensuring fully 

auditable, accountable and 
effective banking supervision 
arrangements following the 
introduction of the Single 
Supervisory Mechanism’ of 
the Contact Committee of the 
Heads of the Supreme Audit 
Institutions of the EU Member 
States and the European Court 
of Auditors.

84 
We identified some issues related to the responsibilities and coordination of vari-
ous components of the SSM (see the section on Joint Supervisory Teams and the 
section on On-site inspection).

(ii)   The Court’s audit mandate is defined in the Treaty 

on the Functioning of the EU

85 
Many jurisdictions provide for public audit of banking supervisors and their 
activities to include cases where supervision lies with central banks. Granting su-
preme audit institutions (SAIs) audit rights over banking supervisors should help 
to enhance accountability and transparency.

86 
The Court is the designated auditor of the ECB. Its mandate is defined in Arti-
cle 27.2 of the ESCB and ECB Statute58, according to which the provisions of Arti-
cle 287 TFEU apply, making the Court responsible for examining the operational 
efficiency of the management of the ECB, also as regards its supervisory tasks.

87 
In this first audit, some important areas of the SSM’s activities could not be 
covered (see details of the audit scope in paragraph 19 and Annex I). A report 
by the Contact Committee of the EU Supreme Audit Institutions compared the 
audit rights of 27 of the 28 national SAIs across the EU59 over banking supervi-
sors. The resulting Statement60 pointed out that ‘an audit gap has emerged in 
those countries where previous audit mandates of national SAIs over banking 
supervisors are not being replaced by a similar level of audit by the ECA over the 
ECB’s supervisory activities’. Table 6 presents a comparative overview of audit 
mandates over micro-prudential supervision in certain non-EU jurisdictions, and 
Annex V summarises the arrangements made in those jurisdictions for the audit 
of banking supervision.

 
Accountability arrangements 

46

6 Mandates to audit the micro prudential supervisor (rights 
e
l
b
a
T

granted by law) and extent of mandate

Supervisor

Performance audit 
rights for super-
visory activities

Performance 
audit rights for 
non-supervisory 
activities

Compliance audit 
rights for super-
visory activities

YES - FULL audit 
rights

YES - FULL audit 
rights

YES - FULL audit 
rights

YES - FULL audit 
rights

YES- Authority to 
undertake a review 
or examination of any 
aspect of the entity’s 
operations

YES- Authority to 
undertake a review 
or examination of 
any aspect of the 
entity’s operations

YES - FULL audit 
rights

YES - FULL audit 
rights

Authority to 
provide additional 
services (better 
practice guides 
and assurance and 
review reports)

USA

Canada

Australia

Source: ECA.

Compliance 
audit rights for 
non-supervisory 
activities

YES - FULL audit 
rights

YES - FULL audit 
rights

Authority to 
provide additional 
services. (better 
practice guides 
and assurance and 
review reports)

(iii) 

 A formal performance framework has not yet 
been developed to provide assurance about the 
achievement of the SSM objectives

88 
Accountability presupposes that the supervisor’s actions will be assessed in the 
light of certain standards and with respect to defined objectives. A performance 
framework using a wide variety of performance indicators and metrics at differ-
ent levels of supervision provides a consistent and coherent overview of supervi-
sory effectiveness and demonstrates to stakeholders how supervisory practices 
contribute to the realisation of objectives.

89 
In the time so far available to it, the ECB has not yet developed a formal perfor-
mance framework for the SSM. It has produced a tool, the SSM Supervisory Dash-
board Pilot, which allows it to track and assess the most important aspects of its 
supervisory activities and to monitor the effectiveness with which supervisory 
priorities are translated into practice. However, this tool is available only to the 
Supervisory Board and to senior management, and thus does not provide assur-
ance to other stakeholders about the achievement of the SSM objectives.

 
 
Accountability arrangements 

47

90 
Formal performance indicators are a common part of the supervisory function in 
other jurisdictions. An indicative selection is shown in Figure 7.

7 Examples of performance indicators
e
r
u
g
i
F

Indicators related to bankruptcies or the 
level of losses caused by defaults 

Indicators related to (public) confidence 
in the banking sector or the banking 
supervisor

Indicators of movement between 
different supervisory regimes or risk 
scores 

Indicators based on stakeholder surveys 

Examples of metrics 

of bankruptcies

Performance Entity Ratio2)

 • supervisory risk scores prior to bankruptcies, number 
 • losses due to failure (Money Protection Ratio1, 
 • orderly vs disorderly failure
 • business and public surveys 
 • trends in customer deposits
 • long-term trends in supervisory risk scores of banks 
 • questionnaire completed by institutions following 

monitored and reported

on-site review, views of industry observers, surveys 
among peer supervisors

1  Ratio of safe liabilities to total liabilities.
2  Ratio of institutions meeting their commitments to the total number of institutions.

Source: BIS report on the impact and accountability of banking supervision, July 2015; Australian Pruden-
tial Regulation Authority.

91 
Before the SSM was in place, an IMF technical note had suggested a set of meas-
ures relating to transparency and accountability to promote the credibility of 
supervisory policy61. Among other things, the paper suggested that the Super-
visory Board publish minutes of policy meetings and establish an external panel 
of experts to provide independent oversight of the SSM. See Annex VI for more 
details.

61 

IMF, ‘European Union: 
Publication of Financial Sector 
Assessment Program 
Documentation, Technical 
Note on Issues in Transparency 
and Accountability’, Country 
Report No 13/65, March 2013. 
The views in the document do 
not necessarily reflect the 
views of the European Union 
representatives to the IMF or 
of the IMF Executive Board.

 
 
Accountability arrangements 

48

62  See the Basel Committee’s 
report on the impact and 
accountability of banking 
supervision, July 2015.

63  https://www.

bankingsupervision.europa.
eu/home/html/index.en.html

Questions over the provision of documentation to the Commission

92 
Article 32 of the SSM Regulation specifically requires the European Commis-
sion to provide comprehensive three-yearly review reports on the application, 
appropriateness and effectiveness of the SSM’s governance, accountability and fi-
nancial arrangements, the effectiveness of the ECB’s supervisory and sanctioning 
powers and the potential impact of the SSM on the functioning of the internal 
market (see Annex VII). The first review report, due by 31 December 2015, has 
been delayed. The ECB was first approached for information in July 2015. The two 
institutions only concluded a Memorandum of Understanding on the provision of 
non-public information in November 2015, following which the ECB finalised the 
provision of information in response to the Commission’s request on 16 Decem-
ber 2015. Following a more detailed request in February 2016, the ECB submit-
ted additional information on 19 April 2016. The Commission did not receive the 
requested bank-specific information (dataset of banks to assess supervisory fees), 
as the ECB raised concerns regarding secrecy.

Adequate disclosure to the general public

93 
Public transparency is a key feature of accountability. Following the best practice 
for supervisory authorities to be transparent and explain the rationale for their 
rules and activities62, the ECB’s banking supervision website63 publishes com-
prehensive information for the general public, including the legal framework 
and regulatory environment, FAQs, the Guide to Banking Supervision, the SREP 
methodology booklet, weekly and monthly meeting calendars (with a lag of 
about three months) of the Chair and Vice-Chair of the Supervisory Board, and 
other documentation outlining its supervisory stances and practices. The site 
also publishes the comments made on draft regulations, and the ECB’s replies, in 
the course of public consultations.

 
Accountability arrangements 

49

Limited transparency of information for supervised entities

94 
The information disclosed to supervised entities is not sufficient in all respects 
for a proper understanding of SSM methodology. The ECB has taken a selective 
approach (i.e. short sections only) to disclosure of the SSM Supervisory Manual, 
which defines the processes and the methodology behind the SREP for the 
supervision of credit institutions and the procedures for cooperation both within 
the SSM and with other authorities. In other jurisdictions the approach to pub-
lication varies. For example, in the United States supervision manuals are pub-
lished on the official website of the supervisory authorities, but the Prudential 
Regulation Authority at the Bank of England does not publish its internal manual.

95 
As a result of the ECB’s approach to disclosure, the supervised entities are un-
able to fully comprehend the outcome of the SREP. About half of the banks that 
replied to our questionnaire (see Annex VIII) expressed concern about the lack of 
transparency, which they felt might increase, to quote one reply, ‘the risk of su-
pervisory arbitrariness’. In this regard see Figure 8 on the disclosure of the SREP.

8 Banks’ perceptions on the disclosure of the SREP
e
r
u
g
i
F

1 %

7 %

6 %

10 %

44 %

32 %

1 very comprehensive
2
3 well balanced
4
5 poor information
N/A

Note: Survey size: 69 banks replied out of 129 that received the questionnaire.

Source: ECA questionnaire sent to supervised significant institutions.

 
 
Accountability arrangements 

50

96 
On another question, 29 % of the banks gave a score of less than 3 (1 = excellent, 
5 = poor) for the quality of information received in respect of procedures aris-
ing from the Supervisory Manual that were relevant to their daily work with the 
supervisor, since ‘important issues for daily work with supervisors are not suffi-
ciently described’ (see Figure 9).

64  EP, Committee on Economic 

and Monetary Affairs, ‘Report 
on the banking union – 
Annual Report 2015’, 19.2.2016, 
paragraph 37.

97 
In its 2015 annual report on the banking union, the European Parliament ex-
pressed similar concern and called for more transparency with regard to Pillar 2 
SREP decisions and justifications64.

supervisory procedures

9 Ambivalence about the quality of information on 
e
r
u
g
i
F

How would you rate the quality of information you have regarding the proce-
dures arising from the supervisory manual that are relevant to your daily work 
with the supervisor? 

3 %

3 %

7 %

19 %

22 %

1 excellent
2
3
4
5 poor 
N/A

46 %

Note: Survey size: 69 banks replied out of 129 that received the questionnaire.

Source: ECA’s survey to supervised significant institutions.

 
 
Accountability arrangements 

51

(iv)  Democratic oversight of supervision by Parliament 

is exercised with substantial confidentiality 
restrictions

98 
The SSM Regulation made broad arrangements for accountability towards the 
European Parliament and the Council. Further details on SSM accountability were 
established in an Interinstitutional Agreement with the European Parliament65 
and a Memorandum of Understanding with the Council66. In its 2015 annual 
report on the banking union, Parliament welcomed ‘the efficient and open way 
in which the ECB has so far fulfilled its accountability obligations towards Parlia-
ment’67. Accountability towards the European Parliament is discharged through 
a number of channels (see Annex IX), including through the provision of records 
of the proceedings of Supervisory Board meetings.

99 
Any disclosure of information to the European Parliament is subject to profes-
sional secrecy requirements, as referred to in the Interinstitutional Agreement, 
and these would continue to be binding even if the Agreement were terminated. 
In its report the Parliament called upon the ECB to further contribute to improv-
ing its capacity to assess SSM policies and activities68 and recommended that 
consideration be given to strengthening the audit mandate of the Court69.

65 

Interinstitutional Agreement 
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 
(SSM).

66  Memorandum of 

Understanding between the 
Council of the European Union 
and the European Central 
Bank on the cooperation of 
procedures related to the 
Single Supervisory Mechanism 
(SSM).

67  EP, Committee on Economic 

and Monetary Affairs, ‘Report 
on the banking union – 
Annual Report 2015’, 19.2.2016, 
paragraph 39.

68 

Idem.

69 

Idem paragraph 40.

70  BCBS Core Principles for 

Effective Banking Supervision 
(2012), Principle 2, Essential 
Criterion 1.

(v)   Feedback arrangements exist but have not yet 

included general surveys of financial institutions

100 
The ECB’s accountability obligations should not be construed as reducing its right 
to exercise the supervisory tasks conferred on it in full independence, in particu-
lar free from undue political influence and from industry interference (recital 75 
to the SSM Regulation). This is in line with the Basel Core Principles, which state 
that: ‘[…] There is no government or industry interference that compromises the 
operational independence of the supervisor. The supervisor has full discretion to 
take any supervisor actions or decisions on banks and banking groups under its 
supervision’70.

 
Accountability arrangements 

52

101 
This means that the European Parliament and Council may not give directional 
feedback or request corrective measures as they do in relation to other EU 
institutions or bodies that are subject to more direct levels of scrutiny. There is 
a greater onus on the ECB to take into serious consideration any feedback given 
by Parliament, the Council or external auditors. The ECB is also expected to carry 
out effective self-evaluation, including by requesting feedback from its direct 
stakeholders.

71  See, for example, http://

ec.europa.eu/finance/
consultations/2015/
financial-regulatory-
framework-review/
index_en.htm.

102 
The ECB has made clear and appropriate arrangements for financial institutions 
to provide feedback on its supervisory activities: (i) through ongoing dialogue 
with the JSTs and ECB management; (ii) by means of formal comments under the 
right to be heard on decisions; (iii) through public consultations; and (iv) through 
national or European banking associations, which submit observations or meet 
the ECB on a regular basis. Out of the banks that replied to our questionnaire, 
61 % considered that the feedback arrangements established by the ECB meet 
their needs.

103 
Over a year after its establishment, the SSM has not yet conducted a survey of 
supervised entities in order to obtain their views about its performance in achiev-
ing its objectives. There are good models for such a survey. For example, the 
Commission has used the survey approach to gather empirical evidence and con-
crete feedback on, inter alia, the unnecessary regulatory burden of the EU rules 
on financial services71. Supervisors in other jurisdictions (e.g. Canada and Austral-
ia) have also conducted surveys to measure the perceived effectiveness of their 
supervision (see Box 3). Industry surveys should not be construed as interference 
that compromises the operational independence of the supervisor.

3
x
o
B

Some examples of bank comments on feedback arrangements

 ο Four banks were in favour of a review of the consultation arrangements (e.g. longer consultation periods 

and better synchronisation to cope with limited resources).

 ο Six banks recommended that the ECB perform further consultations on technical content, such as the SREP 

methodology and capital definitions.

 ο 15 banks requested more structured and comprehensive feedback arrangements. For example, eleven 
mentioned the use of regular surveys to gauge their appreciation of the efficiency and effectiveness of 
supervisory activities.

Source: ECA’s survey to supervised significant institutions.

 
 
53

72  Article 3(1) of the SSM 

Framework Regulation 
explicitly provides for the 
establishment of joint 
supervisory teams.

73 

In the case of banking groups 
whose head office is not in 
a participating country, the 
ECB will not be the only 
supervisor of the banks in the 
group. A separate JST will 
therefore be established for 
each of the bank’s subsidiaries 
headquartered in an SSM 
country, provided the 
subsidiary is considered 
a significant entity. If a host 
institution domiciled in 
a participating Member State 
has a ‘consolidating’ entity, 
supervision occurs at the 
consolidated level.

Joint Supervisory Teams - 
Organisation and resource 
allocation
104 
The SSM’s direct ongoing supervision of banks is entrusted to joint supervisory 
teams72 composed of banking supervisory staff from both the ECB and the NCAs 
of the participating Member States. There are 129 JSTs – one for each significant 
supervised entity whose head office is in a participating Member State73.

105 
In our audit of the establishment and functioning of the JSTs, we examined:

(a)  The ECB’s preliminary estimation and planning of total supervisory resources 
needed during the SSM start-up phase, as well as the initial allocation of 
supervisory resources when staffing the JSTs.

(b)  The ECB’s cooperation with and reliance on NCAs when staffing the JSTs and 

conducting ongoing supervision.

(c)  The structure, reporting lines and training regime of the JSTs.

Planning and estimates of total supervisory resource 
needs, resource allocation and staffing

106 
The JSTs represent an innovation in the world of banking supervision. They are 
multinational teams of banking supervisors from all EU countries and supervisory 
cultures, who communicate in multiple languages with supervised entities (Eng-
lish being the working language within the SSM). They apply a single mechanism 
to supervise banks from 19 euro-area Member States with legal frameworks that 
are not yet fully harmonised.

Initial estimates of total SSM staffing needs followed 
a simple approach…

107 
A basic approach was taken to establishing initial estimates of the SSM’s staffing 
needs for JSTs. The initial estimates for ECB and NCA JST staff followed two sepa-
rate – but related – processes, conducted in parallel.

Joint Supervisory Teams -  
Organisation and resource allocation

54

108 
The initial estimate of ECB resources and their allocation to JSTs involved assign-
ing each bank to one of six clusters, according to a number of factors (see para-
graphs 113 to 120 for a detailed discussion of the clustering methodology). Each 
JST would then have a minimum number of ECB staff per cluster, with a number 
of additional staff as a buffer to be allocated where most appropriate. The ECB 
adopted this very simple approach in order to allow the JSTs to begin operat-
ing quickly. On the date it assumed direct responsibility for supervision, the ECB 
employed 330 FTE staff in DG MS I and II, out of a total of 403 budgeted.

109 
The initial estimate of NCA resources was derived from a series of surveys or 
‘stocktaking exercises’ launched by the ECB, through which all NCAs provided 
details on the number of staff that would be provided for each JST for significant 
entities coming under direct ECB supervision following the establishment of the 
SSM. Prior to the ECB’s assumption of direct supervision there were three such 
exercises: in October 2013, June 2014 and September 2014. Based on the results 
of the October 2013 exercise, a ‘commitment’ of 1 005 FTEs from the NCAs to 
the JSTs was agreed. After the second staffing survey in June 2014, this number 
was reduced to a new NCA ‘commitment’ of 834 FTEs. According to the ECB, the 
revised FTE number reflected more accurately the NCA staffing allocated to the 
JSTs, because the original number included, for example, staff assigned to on-site 
inspections and model validation, which should have be allocated to horizontal 
support functions rather than JSTs. The September 2014 survey showed a further 
drop to 803.5 FTEs. Nevertheless, the ECB took the results of the June 2014 survey 
(834 FTEs) as the benchmark for the NCAs’ overall staff commitment to JSTs on 
the date the ECB assumed its supervisory responsibilities.

110 
The ECB’s initial staffing estimates thus combined an element of continuity – reli-
ance on the volume of NCA resources devoted to the supervision of significant 
banks shortly before the ECB assumed its supervisory duties – with the recog-
nition that additional resources would be necessary in the form of ECB staff. 
Furthermore, as part of the initial staffing process, a ratio of 25 % ECB staff and 
75 % NCA staff was targeted (although the rationale for this ratio has never been 
explained). Given the ECB’s initial JST staff budget of 403 FTEs, this would have 
implied an NCA contribution of 1 209 FTEs. In practice, the staffing of JSTs by 
NCAs is based on commitments made by the NCAs, which are regularly moni-
tored through surveys and discussed bilaterally and multilaterally.

55

74  E. g. the Capital Requirements 

Directive (CRD IV) of 
26 June 2013 and the Bank 
Recovery and Resolution 
Directive (BRRD) of 
15 May 2014.

75  Mission Statement of the SSM: 

https://www.
bankingsupervision.europa.
eu/about/mission-statement/
mission-statement-of-the-
ssm/html/index.en.html.

76 

Institutions within the Host 
Cluster are significant entities 
for which the ECB is not the 
consolidating supervisor.

Joint Supervisory Teams -  
Organisation and resource allocation

…which did not fully anticipate the growing supervisory 
workload

111 
In its initial staffing estimates, it is unclear whether the ECB fully anticipated 
the extent to which, following the establishment of the SSM, the overall su-
pervisory workload would increase. A staffing note from DGMS I and II dated 
16 March 2015, just four months after the start of ECB direct supervision, and 
requesting 29 new FTEs for DGMS I and 88 new FTEs for DGMS II (all permanent 
staff) indicates that the future workload had at the very least been underesti-
mated. A number of reasons for the request were given in the note, namely ‘[…] 
the higher than expected workload required for some supervisory tasks […]’. We 
were not shown any studies, reports or other documentation from before the 
ECB took up its supervisory duties in November 2014 that quantified the resourc-
es that would be necessary to cope with the new, considerably more complex su-
pervisory system. Nor did the ECB perform any ex-ante, bottom-up assessments 
of its anticipated resource needs.

112 
However, a combination of easily foreseeable factors could be expected to sub-
stantially increase the supervisory workload: (i) the need to harmonise largely 
disparate banking rules and supervisory procedures across the euro area; (ii) 
increased supervisory responsibilities arising from the implementation of new 
directives74; and (iii) the supervisory approach of the SSM, which was intended to 
be ‘intrusive’75.

The clustering methodology was designed to facilitate the 
initial allocation of staff to the JSTs, but should be updated

113 
The principles of proportionality and risk-based supervision underlie the estab-
lishment of the JSTs. In order to estimate the necessary supervisory resources for 
each JST in accordance with these principles, the ECB devised a system of clas-
sifying significant entities into risk ‘clusters’. The clustering methodology took ac-
count of factors such as a bank’s external risk rating, complexity, size, geographic 
diversification, interconnectedness and supervisory complexity. It resulted in 
a classification system from 1 to 5, where the most supervisory resources would 
be allocated to Cluster 1 banks, and the least to those in Cluster 5. Finally, a ‘Host 
Cluster’ exists for entities with a presence in a participating Member State, but 
whose head office is located outside the SSM area76.

56

77  Section 2.1.1, paragraph 10, of 
the Guidelines on common 
procedures and 
methodologies for the SREP 
(EBA/GL/2014/13).

78  BCBS 255: ‘Global systemically 
important banks: updated 
assessment methodology and 
the higher loss absorbency 
requirement’, BIS, July 2013. 
Note: this assessment 
methodology for global 
systemically important banks 
only applies to eight of the 129 
banks supervised by the SSM. 
However, a similar 
methodology for domestic 
systemically important banks 
(BCBS233) recommends 
a similar approach, using the 
same categories, with the 
exception that cross-
jurisdictional activity may not 
be directly relevant. In 
addition, BCBS233 allows for 
more national discretion.

79  Section 2.1.1, paragraph 11, of 
the Guidelines on common 
procedures and 
methodologies for the SREP 
(EBA/GL/2014/13).

Joint Supervisory Teams -  
Organisation and resource allocation

114 
The clustering methodology is somewhat different from that recommended by 
the EBA, which comprises four categories77, while most of the significant institu-
tions in the six ECB clusters would fall into EBA category 1.

115 
The BCBS recommends a methodology78 using five equally-weighted categories 
reflecting the size of banks, their interconnectedness, the lack of readily available 
substitutes or financial institution infrastructure for the services they provide, 
their global (cross-jurisdictional) activity and their complexity. The ECB takes 
account of similar qualitative factors, with the addition of a bank-specific risk 
factor. This addition also goes beyond the EBA’s recommendation, which is that 
the categorisation ‘should reflect the assessment of systemic risk posed by insti-
tutions to the financial system […] and not as a means to reflect the quality of an 
institution.’79

116 
Nevertheless, an internal review conducted by the ECB in December 2015 on the 
composition, staffing and skills of the JSTs found that the model has a number of 
shortcomings when used as a basis for staffing. In particular, several criteria that 
can have a significant effect on workload are ignored by the supervisory com-
plexity factor: these include the number of fit and proper assessments, authorisa-
tions, securitisations, etc. In addition, the heavier workload associated with banks 
in a crisis situation was not directly factored into the model.

117 
Moreover, the methodology may well underestimate the supervisory attention 
necessary for institutions which, while small and less complex when viewed in 
the overall context of the SSM, are highly systemic in their local economies. As 
the recent financial crises have shown, problems with domestic systemic banks 
can quickly escalate within and beyond the borders of any Member State, includ-
ing those of a relatively small size. It might therefore be prudent to put banks 
that are systemically important in their own national economies in a higher 
cluster than their ranking in the overall SSM classification would suggest. The 
ECB’s current methodology does provide for this possibility, and it has been used 
in few cases.

57

80  The EBA guidelines call for the 

annual review of the 
categorisation of banks for 
SEP purposes; see section 2.1.1, 
paragraph 12, of the 
Guidelines on common 
procedures and 
methodologies for the SREP 
(EBA/GL/2014/13).

81  The ECB has established four 
minimum engagement levels 
(MELs) which define the 
minimum level of ‘intensity’ 
for the supervision of 
a particular institution. At each 
level there is a minimum set of 
core SEP tasks and activities 
and a minimum frequency for 
carrying them out. From least 
to most intrusive, the four 
MELs are Basic, Standard, 
Enhanced and Intense. The 
ECB has developed a matrix 
for assigning banks to a MEL, 
based on the bank’s risk score 
and the cluster to which the 
bank has been assigned. The 
more complex and 
systemically important a bank, 
and the more risky the ECB 
perceives it to be, the greater 
the minimum level of 
supervisory intensity.

Joint Supervisory Teams -  
Organisation and resource allocation

118 
At the time of the audit, the ECB had no procedures in place to periodically 
review its clustering of banks 80. Moreover, the December 2015 internal review 
(see paragraph 116) found that the data used to calculate the cluster score have 
not been updated since 2013. Given that clustering plays an important role in 
determining the minimum frequency of supervisory activities for each significant 
entity, it should be regularly reviewed and updated.

119 
The number of staff of each JST was mainly determined by the cluster of the cor-
responding bank, in which risk is a very small component. However, the minimum 
engagement level81 for a supervised bank reflects both the cluster in which the 
bank is placed and its risk assessment score (RAS). Thus, the SEP of an institution 
perceived as higher risk will contain a larger number of minimum supervisory 
tasks, although the responsible JST will not necessarily have sufficient staff to 
adequately carry out all those tasks (as staff allocations by cluster only margin-
ally reflect risk). This problem particularly affects JSTs in Clusters 3 to 5 and Host, 
many of which suffer from staffing constraints.

ECB resources are allocated in accordance with its clustering 
methodology

120 
JSTs for Cluster 1 and Cluster 2 banks are hosted by DGMS I, JSTs for Clusters 4 
and 5 are hosted by DGMS II, while Cluster 3 JSTs may be hosted by either of the 
two DGs. With approximately 215 FTEs available in DGMS I to supervise some 
30 institutions, and approximately 240 in DGMS II for around 90 banks, the ECB 
has allocated considerably more supervisory resources per bank to Clusters 1 
and 2 than to Clusters 3, 4 and 5, in accordance with its methodology. Figure 10 
shows the average number of ECB staff per JST for each cluster.

121 
The ECB’s guidelines for the allocation of staff to JSTs specify a minimum number 
of ECB staff per JST in each cluster. The highest is naturally for Cluster 1 (7 FTEs 
plus a Coordinator) and the lowest for Cluster 5 (0.5 FTEs plus a Coordinator). 
According to the latest figures provided by the ECB, the actual staff allocation 
largely conforms to these guidelines.

Joint Supervisory Teams -  
Organisation and resource allocation

58

0 Average number of ECB staff (FTEs) per JST across clusters
1
e
r
u
g
i
F

14

12

11.9

10

8

6

4

2

0

7.1

6.5

3.4

4

2.2

5

1.9

Host

1

2

3

Source: ECA, based on data provided by the ECB.

The appointment policy for coordinators was designed 
to promote harmonisation, but it has not always been 
adhered to

122 
The Coordinator of each JST is appointed by the ECB. Initially, Coordinator ap-
pointments were approved by the SSM Supervisory Board82 as a whole, but the 
procedure has been altered so that only the Chair of the Board now approves ap-
pointments unless a hierarchy change is involved (i.e. if the designated Coordina-
tor is also being promoted to head of division the Executive Board must approve 
the appointment). This reduces the Supervisory Board’s influence over Coordina-
tor appointments.

82  Coordinators are appointed by 
the respective DGMS I or II 
Director-General. The 
Supervisory Board is informed 
and may discuss and 
challenge any appointment.

83  The 18 cases concern JSTs for 
Belgian, German, Spanish and 
Italian banks, mainly in 
Clusters 4 and 5, with four JSTs 
in Cluster 3 and one in the 
Host Cluster.

123 
According to the ECB’s Guide to banking supervision, the Coordinator should in 
general not be a national of the bank’s home country. However, 18 coordinators 
out of 123 are currently from the country in which the corresponding bank has its 
head office83.

 
Joint Supervisory Teams -  
Organisation and resource allocation

59

124 
While the ECB has stated that it does not consider the stipulation in the Guide to 
be legally binding, it nevertheless intends to address the instances mentioned 
above using a staggered approach in three waves84: the first in June 2016, the 
second in December 2016 and the third around June 2017.

125 
To further ensure diversity of oversight and facilitate sharing of supervisory 
knowledge, the ECB intends to rotate the coordinators and all ECB staff of JSTs 
every three to five years. However, this procedure will probably not be formalised 
until the end of 2017.

84  On 28 December 2015, the 
management of DGMS II 
proposed that coordinators 
with the same nationality as 
the country of domicile of the 
supervised bank be 
reallocated to other JSTs. This 
proposal was approved by the 
Supervisory Board on 
30 December 2015.

85  Article 20 of the SSM 

Framework Regulation, Article 
6(2) of the SSM Regulation.

86  Article 4(1) and (2) of the SSM 
Framework Regulation.

ECB cooperation with and reliance on NCAs

JSTs are heavily reliant on NCA staff, yet the ECB has little 
control over NCA resources

126 
To staff the JSTs, the ECB is heavily reliant on the participating NCAs. However, 
there is no formal procedure for the ECB to request additional resources from an 
NCA. The process for assigning NCA staff to the JSTs is dependent on bilateral ad 
hoc agreements and on the good will of the NCAs. While the NCAs have a duty 
to cooperate in good faith85, the number of NCA staff to be made available to the 
ECB is not specified in a legally binding manner. Moreover, NCAs are free to move 
or otherwise deploy their supervisory staff as they see fit.

127 
According to the SSM Framework Regulation, the ECB is in charge of the estab-
lishment and composition of JSTs, while NCAs are responsible only for appointing 
members of their staff. NCA staff members can be appointed to serve on more 
than one JST concurrently86.

60

87  Recital 79 of SSM Regulation.

Joint Supervisory Teams -  
Organisation and resource allocation

128 
The only discretion available to the ECB regarding the NCA staff in JSTs is the 
power to reject an NCA appointment. All of the 12 NCAs that responded to our 
questionnaire stated that the ECB had so far never rejected any of their candi-
dates. In fact, the ECB currently has no procedures or guidelines for accepting or 
rejecting NCA appointments, including no procedures for evaluating the qualifi-
cations, experience, knowledge or suitability of NCA nominees. In addition, due 
to data protection requirements cited by NCAs, the ECB claims that its ability to 
request the personal data (e.g. pertaining to qualifications and experience) of 
NCA staff nominated for a JST is limited.

JSTs are still largely staffed by nationals of the originating 
NCA …

129 
One of the objectives of the JSTs is to establish a common supervisory culture 
through diversity of supervisors with regard to origin87. However, the composi-
tion of the JSTs shows that, in most cases, they are largely staffed by nationals 
from the supervised bank’s home country. The majority of Cluster 1 JSTs are at 
least 70 % staffed by employees from the same country as the supervised entity 
the supervised entity, and the picture is similar for Cluster 2. Many JSTs for Clus-
ters 3 to 5 have an even higher proportion of staff members from the supervised 
bank’s jurisdiction.

…while a number of NCA staff contingents do not meet the 
ECB’s expectations for JST staffing

130 
The number of ECB staff assigned to a JST will depend on the cluster and specifi-
cities of the supervised bank, while the total size and exact composition of the 
JST will also vary considerably according to the particular characteristics of the 
supervised bank. The average size of a JST (ECB and NCA staff combined) ranges 
from 43.6 FTEs in Cluster 1 to 4.8 in Cluster 5. The NCA resources allocated to 
Cluster 1 JSTs, as shown in Figure 11 below, are in line with the initial 25 %/75 % 
ratio. For Clusters 2 and 3 the picture is mixed, since a number of JSTs in these 
clusters are relatively understaffed in terms of NCA personnel.

Joint Supervisory Teams -  
Organisation and resource allocation

61

1 Average number and composition of staff in JSTs, by cluster
1
e
r
u
g
i
F

50

45

40

35

30

25

20

15

10

5

0

11.5

9.4

22.7

1

7.7

2.9

13.7

2

ECB
Other NCA
Home NCA

0.9

3.5

7.8

3

0.4

2.3
4.0
4

0.1

1.8
2.9
5

Source: ECA, based on data provided by the ECB.

131 
In Clusters 4, 5 and Host, the share of NCA staff is lower. This suggests that the 
NCAs’ resource allocation to these clusters is insufficient. Certain JSTs in Clusters 
4, 5 and Host have fewer than two full-time NCA posts, with a similar number of 
ECB staff. Although, in general, Cluster 4 and 5 banks are systemically less rel-
evant from the overall SSM perspective, many are still important and highly sys-
temic institutions in the national context. As it is difficult to argue that a figure of 
less than 1.5 full-time NCA staff is sufficient to ensure effective supervision, this 
indicates that many NCAs may be suffering from a serious shortage of bank su-
pervisory staff or the resources provided by NCAs to JSTs are insufficient. Indeed, 
the ECB’s internal review found that ‘Resources are currently very constrained 
especially for the smallest JSTs, both at the ECB and at the NCAs, to achieve the 
quality of supervision required […]’88.

88  Report on the composition, 
staffing and skills of the JSTs, 
ECB Report No 02/2015, 
10 December 2015, p. 9.

 
62

89  Two countries have a system 

of two supervisory authorities.

90  One NCA’s staff commitment 
exceeds the FTE number 
requested by the ECB.

91  Report on the composition, 
staffing and skills of the JSTs, 
ECB Report No 02/2015, 
10 December 2015, p. 16.

Joint Supervisory Teams -  
Organisation and resource allocation

132 
Following the assumption of its supervisory duties, in January 2015 the ECB 
carried out a fourth NCA staffing survey. This revealed that the NCAs’ contribu-
tion was still 801 FTEs, 33 short of the 834 requested by the ECB and ‘committed 
to’ by the NCAs one year earlier. In September 2015, following discussion at the 
Supervisory Board meeting of 8 June 2015, the Chair of the Board sent formal let-
ters addressing the NCA JST staffing issue to 21 supervisory authorities in all 19 
participating Member States89:

(a)  The ECB considered that nine supervisory authorities had contributed suf-

ficient staff, and these nine were not asked for additional staff.

(b)  The ECB requested additional JST resources from 12 authorities whose staff 
contribution to the JSTs was considered insufficient. Six NCAs promised to 
meet the ECB’s specific requests. Another five undertook to partially com-
ply. One initially declined to comply however, after six months the ECB did 
receive documentation in which the authority agreed to partially comply.

133 
As a result, the staff contingents of seven NCAs do not meet the ECB’s latest 
expectations for JST staffing90. This shortfall underscores a fundamental weak-
ness of the ECB’s JST supervision mechanism, which is heavily dependent on the 
cooperation and goodwill of NCAs.

134 
Moreover, certain NCAs appear to disagree with the ECB about the precise mean-
ing of their ‘commitment’ to provide staff for JSTs. The results of the January 2015 
staffing survey were discussed by the Supervisory Board in April 2015. During the 
discussion, ‘some Board members mentioned that they were unable to provide 
commitments in relation to staffing levels and indeed had never done so, rather 
they had responded to surveys accurately reporting staff levels involved in JST 
work, which was not a commitment’91.

Joint Supervisory Teams -  
Organisation and resource allocation

63

135 
As of May 2015, the NCAs had made a ‘commitment’ of 830.5 FTEs. The original 
25 % / 75 % target ratio implied an initial NCA contribution of 1 209 FTEs. Accord-
ing to figures provided by the ECB, in March 2016 DGMS I and II had 455 FTE staff 
in all JSTs. The increase of 52 FTEs in the ECB’s staff contribution since November 
2014 did not compensate for the gap between the implied initial NCA target and 
the actual NCA ‘commitment’.

136 
The letters sent out by the Supervisory Board Chair to NCAs in September 2015, 
the ECB highlighted the relative shortage of supervisory staff, compared to its 
peers in the USA, in the following terms: ‘Compared to the banking supervisors in 
this country (Federal Reserve and the Office of the Comptroller of the Currency), 
the SSM has on average per bank only about 60 % of the capacity devoted to 
ongoing supervision.’

137 
The issue of NCA staff shortages may be further compounded by the fact that the 
ECB allows coordinators in Clusters 3 to 5 and the Host Cluster to lead more than 
one JST at the same time. In practice, most coordinators in Clusters 4, 5 and Host 
are in charge of two to four JSTs, with one person being in charge of five JSTs.

JST structure, reporting lines and training

Multinational teams facilitate the sharing of knowledge and 
best practices…

138 
The multinational composition of JSTs is intended, among other things, to pro-
mote sharing of knowledge and best practices from all SSM jurisdictions, and to 
contribute to the creation of a harmonised supervisory culture and level playing 
field.

64

92  The split between JST/NCA 
tasks for NCA JST staff is 
established through bilateral 
agreements between the ECB 
and the NCAs which set ‘caps’ 
on the percentage of time 
spent on JST tasks, with 
figures ranging from 75 % to 
100 %. One NCA applies a cap 
of 75 %, 14 NCAs have an 80 % 
cap, three 90 %, one 95 %, and 
two have no cap (100 %). (The 
total exceeds 19 because two 
countries have more than one 
supervisory authority, and 
these may apply different 
caps.).

Joint Supervisory Teams -  
Organisation and resource allocation

139 
JSTs are responsible for managing the work of all members of their respective 
JSTs, including NCA staff based in other countries. They are assisted by ‘NCA sub-
coordinators’, who coordinate the ongoing supervision at national level. The sub-
coordinators are also responsible for ensuring that supervision is carried out in 
a professional and prudent manner, in accordance with the SSM’s principles and 
under the guidance of the Coordinator. JSTs frequently meet at the ECB, on NCA 
premises or on-site at the supervised bank, in addition to regular communication 
by telephone/email. JST members also participate in team-building exercises and 
training courses.

…but conflicting reporting lines…

140 
Given their structure, the efficient functioning of the JSTs is subject to a number 
of challenges, particularly with regard to the allocation of tasks and communica-
tion flows within the team, for which the Coordinator is responsible. Formally, all 
staff comprising a JST (from both the ECB and the NCAs) report to the Coordina-
tor (while keeping the NCAs informed). However, the NCA members of a JST are 
subject to a dual functional reporting line: for JST work, which easily accounts for 
most of their professional duties92, they report to the Coordinator, while for any 
other work they report to their NCA line managers. Moreover, on all matters of 
hierarchy and human resources, they report only to the NCA management.

…lack of clarity in communication flows and task 
allocation…

141 
A good working relationship between the JST coordinators and NCA sub-co-
ordinators, with a high level of cooperation and interaction, is essential for the 
efficient functioning of the JSTs. The ECB’s internal review (see paragraph 116) 
found that, while the quality of collaboration between ECB and NCA members of 
a JST is generally good, there are differences across JSTs:

(a)  Some coordinators indicated problems with task allocation at NCA level. In 
addition, in the largest JSTs, the tasks are essentially allocated by the sub-
coordinators, and the Coordinator sometimes had little knowledge about the 
efficiency of the allocation.

65

93  This figure was established 
from a survey conducted by 
the ECB’s Organisational 
Development Committee 
(October 2014).

94  Horizontal functions can vary 
by name and substance 
among NCAs, but would 
generally include specialist 
areas or units such as Banking 
Authorisations, Crisis 
Management, Enforcement 
and Sanctions, Supervisory 
Policies, Internal Risk Models, 
Planning and Coordination, 
etc.

Joint Supervisory Teams -  
Organisation and resource allocation

(b)  Information-sharing and communication were identified as a problem in 

some JSTs. Some NCA sub-coordinators complained that insufficient informa-
tion was provided to NCA members about requests from the Coordinator, 
and that there was no feedback after the requests had been met.

(c)  JST common mailboxes, which are used as a ‘single point of entry’ for shar-
ing information with the supervised institutions, are inaccessible to all JST 
members from NCAs. Some JSTs allow the supervised bank to communicate 
simultaneously with the ECB and the NCA.

…and differences in the use and classification of NCA 
horizontal functions could lead to inefficient use of resources

142 
At NCA level, approximately 1 300 FTE93 staff work in horizontal supervisory 
functions94. Little specific guidance is provided regarding direct interaction 
between the JSTs and NCA horizontal functions. The ECB’s internal review (see 
paragraph 116) found that, in some cases, the NCA members of a JST contacted 
their local horizontal teams, while the ECB members contacted the ECB’s horizon-
tal divisions for the same purpose. This led to duplication of work and delays in 
decision-making.

The absence of binding performance appraisals of NCA’s JST 
staff could create incentive and performance problems

143 
At the establishment of the SSM, there were no formal procedures for the ECB to 
officially report to NCA management on the performance of the NCA staff in JSTs. 
Although some feedback was given, it remained unofficial, with no obligation on 
the part of the NCA to either accept or make use of it.

Joint Supervisory Teams -  
Organisation and resource allocation

66

144 
The ECB has now set up a pilot process for providing official feedback from JST 
coordinators to JST sub-coordinators from NCAs, but not to other NCA staff. The 
process took effect on 18 November 2015 95. ‘Based on the experience gained 
[…], a more comprehensive implementation of the SSM performance feedback 
mechanism will be considered.’96 This represents a positive development and, 
potentially, a significant improvement compared with the earlier situation.

95  Decision ECB/2015/36 

(published at https://www.
ecb.europa.eu/ecb/legal/pdf/
en_ecb_2015_36_f_sign.pdf).

96  Recital 3 to Decision 
ECB/2015/36 of 
18 November 2015.

145 
However, it remains entirely at the discretion of the NCA whether or not to use 
any feedback provided by a JST Coordinator, and whether to include it in the 
NCA’s own staff reports. Not only do NCAs retain full responsibility for their 
employees’ performance appraisals, some may even be prevented by national 
legislation from using the ECB’s performance feedback.

146 
Of the NCAs that replied to our questionnaire, 80 % reported receiving perfor-
mance feedback from the ECB regarding the work of the NCA members of JSTs. 
However, only 33 % reported that they take the feedback into account for their 
own performance review.

147 
Conflicting reporting lines and the absence of binding ECB performance feed-
back could potentially have a negative impact. The risk is that NCA staff members 
will choose to prioritise NCA work over their JST responsibilities.

Joint Supervisory Teams -  
Organisation and resource allocation

67

The SSM has no integrated training curriculum or supervisor 
certification programme

97  See recital 79 to the SSM 

Regulation.

148 
The ECB provides extensive training in general business skills and ‘soft skills’, such 
as drafting, as well as management courses and training related to processes and 
IT tools. The technical knowledge of banking supervision staff is tested during 
the recruitment process, and the ECB gives its staff access to on-line courses on 
banking supervision organised by the Financial Stability Institute. They can also 
attend training organised by NCAs or other banking supervision authorities, in 
addition to specific training provided mainly by DG MS IV. However, there is no 
structured mandatory training curriculum as such, particularly in technical sub-
ject areas specifically relevant to the banking supervision tasks of SSM employ-
ees. A steering group has been established to design and maintain a system-wide 
supervisory training curriculum for all relevant SSM staff. The group is developing 
and supplementing the existing elements of such a curriculum to ensure that an 
effective training programme will be in place for the entire SSM. Priority train-
ings for 2016 will be delivered in the fall of this year and a more comprehensive 
programme will be rolled out in 2017.

149 
While understandable at the very early stages of set-up, the lack of an integrated 
training curriculum or knowledge certification programme may hinder effective 
supervision, as SSM employees may not possess the necessary up-to-date techni-
cal knowledge to effectively supervise the EU banking sector. This is particularly 
true in the light of the many new prudential guidelines and supervisory require-
ments introduced over recent years. Moreover, new staff joining the ECB have 
come from a wide variety of national regulatory and legal systems in which 
a great many differences remain despite attempts to harmonise practices across 
the SSM. In such an environment, an in-depth and integrated supervisory train-
ing programme with a clear certification process would seem to be a necessary 
condition to create a truly integrated supervisory mechanism, as envisaged by 
the SSM Regulation97.

On-site supervision

68

On-site supervision arrangements are coherent and 
comprehensive

150 
Our audit of on-site supervision activity was based on the BCBS Core Principles, 
which require supervisors to employ an appropriate mix of on-site and off-site 
supervision98. Supervisors should have a coherent process for planning and 
executing on-site and off-site activities, using policies and processes to ensure 
that such activities are conducted on a thorough and consistent basis with clear 
responsibilities, objectives and outputs, and that there is effective coordination 
and information-sharing between the on-site and off-site functions99.

151 
The on-site supervision process is divided into clearly-defined phases (see 
Figure 12).

98  BCBS Core Principles for 

Effective Banking Supervision 
(2012), Principle 9, Essential 
Criterion 1. The principles 
define on-site work as ‘a tool 
to provide independent 
verification that adequate 
policies, procedures and 
controls exist at banks, 
determine that information 
reported by banks is reliable, 
obtain additional information 
on the bank and its related 
companies needed for the 
assessment of the condition of 
the bank, monitor the bank’s 
follow-up on supervisory 
concerns, etc.’.

99  BCBS Core Principles for 

Effective Banking Supervision 
(2012), Principle 9, Essential 
Criterion 2.

2 The phases of on-site supervision
1
e
r
u
g
i
F

A.

PLANNING

Parties involded
Centralised on-site function, JSTs, NCA on-site functions, ECB horizontal functions

B.

B.1 Preparation

B.2 Investigation

B.3 Reporting

B.4 Follow-up

Centralised on-site 
function

Head of mission
(HoM)

Inspection team

Joint Supervisory Team
(JST)

Parties involved

HoM

HoM

Inspection team

Inspection team

JST

HoM

JST

Centralised on-site 
function

JST

C.

Horizontal quality assurance (ex-post review)

Parties involved
ECB supervisory quality assurance and benchmark function

Source: ECA, based on information provided by the ECB.

 
On-site supervision 

69

152 
During the preparation phase all participants are expected to establish a com-
mon understanding of the scope of the planned inspection. The JST Coordinator 
and the head of mission (HoM) in charge of the on-site inspection team draw up 
a pre-inspection note that defines the objectives, the scope and the detail of 
the inspection. During the investigation phase, all necessary inspection pro-
cedures are performed under the lead of the HoM, mostly on the premises of 
the credit institution. The HoM prepares a preliminary draft report on which the 
bank is invited to comment during the pre-closing meeting; then a draft report is 
produced on which the HoM’s home NCA and the centralised on-site inspection 
division at the ECB (the COI) performs consistency reviews. The HoM then final-
ises the report and a closing meeting is held with the credit institution under the 
lead of the JST Coordinator. In the follow-up phase, the JST Coordinator prepares 
recommendations on the basis of findings in the inspection report. These recom-
mendations are sent to the bank in a follow-up letter.

Practical shortcomings have emerged in the staffing, 
planning and execution of on-site inspections

Limited ECB involvement in on-site inspections

153 
The COI had 46 members of staff at the end of November 2015, of whom 35 had 
led or participated in inspections. The COI estimates that staff spend two thirds 
of their working hours on field work and one third on planning, coordination and 
consistency checks.

154 
In 2015, up to October, a total of 235 on-site inspections were carried out. 
Twenty-nine of these were led by the COI (12 % of the total), while the majority 
of inspections were led by an NCA. The ECB furnished 8 % of staff for all on-site 
inspections in 2015, with 92 % coming from NCAs.

 
On-site supervision 

70

100 In order to carry out its tasks 
effectively, the ECB should be 
able to require all necessary 
information, and to conduct 
investigations and on-site 
inspections, where 
appropriate in cooperation 
with national 
competent authorities. The 
ECB and the national 
competent authorities should 
have access to the same 
information without credit 
institutions being subject to 
double reporting 
requirements.

101  In order to carry out the tasks 

conferred on it by this 
Regulation, and subject to 
other conditions set out in 
relevant Union law, the ECB 
may in accordance with Article 
13 and subject to prior 
notification to the national 
competent authority 
concerned conduct all 
necessary on-site inspections 
at the business premises of the 
legal persons referred to in 
Article 10(1) and any other 
undertaking included in 
supervision on a consolidated 
basis where the ECB is the 
consolidating supervisor in 
accordance with point (g) of 
Article 4(1). Where the proper 
conduct and efficiency of the 
inspection so require, the ECB 
may carry out the on-site 
inspection without prior 
announcement to those legal 
persons.

155 
The SSM regulation has put the ECB in charge and made it responsible for direct 
supervision of all systemically important banks in the euro zone. On-site supervi-
sion is a crucial component of this authority. The pivotal role of the ECB in on-site 
inspections is clearly indicated in recital 47100 and Article 12(1)101 of the SSM Regu-
lation. While this does not imply that every inspection has to be led or performed 
exclusively by ECB staff, the current level of ECB’s involvement is surprisingly 
low and not in keeping with the spirit of the Regulation. Moreover, the Supervi-
sory Manual states that ‘on-site inspection teams are, as a rule, led by NCA staff’, 
which is not consistent with the text of the Regulation. See Table 7 below for full 
details of this issue.

Supervisory Manual

Paragraph 45
The on-site inspection 
teams are, as a rule, led by 
NCA staff.

7 Provisions for heads of mission
e
l
b
a
T

SSM Regulation

Framework Regulation

Article 143(1)
1. Pursuant to Article 12 of the SSM 
Regulation, in order to carry out 
the tasks assigned to it by the SSM 
Regulation, the ECB shall appoint 
on-site inspection teams as laid 
down in Article 144 to conduct all 
necessary on-site inspections on 
the premises of a legal person as 
referred to in Article 10(1) of the SSM 
Regulation.

Article 144
1. The ECB shall be in charge of the 
establishment and the composition 
of on-site inspection teams with the 
involvement of NCAs, in accord-
ance with Article 12 of the SSM 
Regulation.
2. The ECB shall designate the head 
of the on-site inspection team from 
among ECB and NCA staff members.

Article 12
In order to carry out the tasks 
conferred on it by this Regulation, 
and subject to other conditions set 
out in relevant Union law, the ECB 
may, in accordance with Article 13 
and subject to prior notification to 
the national competent authority 
concerned, conduct all necessary 
on-site inspections at the business 
premises of the legal persons 
referred to in Article 10(1) and 
any other undertaking included in 
supervision on a consolidated basis 
where the ECB is the consolidating 
supervisor in accordance with point 
(g) of Article 4(1).

Recital 47
In order to carry out its tasks ef-
fectively, the ECB should be able to 
require all necessary information, 
and to conduct investigations and 
on-site inspections, where appropri-
ate in cooperation with national 
competent authorities.

Source: ECA.

 
 
On-site supervision 

71

156 
The members of an inspection team, including the HoM, are appointed by the 
ECB. Both the Framework Regulation and the supervisory manual exclude outside 
individuals, such as members of audit firms, from being appointed as HoM, stat-
ing that they can only serve as members of the inspection team. The Framework 
Regulation is therefore more restrictive than the SSM Regulation. A recent study 
for the European Parliament has argued that a more flexible approach towards 
the involvement of external auditors in supervision would improve quality under 
certain conditions102. Appointing external experts with appropriate safeguards, 
while ensuring that potential conflicts of interests are avoided, could in fact al-
leviate the situation at a time when the ECB itself has limited staff resources.

102  Banking Supervision and 

External Auditors in the 
European Union, p. 6, http://
www.europarl.europa.eu/
RegData/etudes/
STUD/2015/542673/
IPOL_STU(2015)542673_
EN.pdf.

103  Chapter 6, paragraph 75, of 
the Supervisory Manual.

157 
Through our questionnaire we asked NCAs whether it was possible for externals 
to serve as HoM for on-site inspections of less significant credit institutions. Two 
NCAs answered positively. One of them has used externals as HoMs for many 
years.

158 
An analysis provided by the ECB in the context of an internal Supervisory Quality 
Assurance report on the supervisory examination programme (SEP) showed that 
there was a negative trend in the allocation of NCA staff for cross-border inspec-
tions in 2015. One reason was the policy on the reimbursement of travel expenses 
and salaries incurred by the NCAs. In September 2015 the Supervisory Board de-
cided to cover and reimburse all travel expenses, but not salary costs. We asked 
the NCAs in our questionnaire whether salary costs should be reimbursed. Five of 
the seven NCAs that replied were of the view that salaries should be reimbursed, 
while the other two felt that the current arrangement should not be changed. 
Other reasons for the trend in the allocation of NCA staff, according to the same 
SQA report, were scarcity of NCA resources and the long duration of cross-border 
inspections.

Planning is detailed and complex

159 
The supervision process starts with the establishment, for each significant credit 
institution, of a SEP defining supervisory actions and priorities for the follow-
ing year. To this end, the SEP lists all on-site inspection requests and categorises 
them by priority as ‘essential’, ‘important’ or ‘desirable’103. No guidance is given 
for this categorisation.

 
On-site supervision 

72

160 
Table 8 shows the number of inspections requested by the JSTs and the num-
ber carried out, by priority, in 2015. The aggregated figures show that the JSTs 
submitted 576 requests for on-site inspections in 2015, of which 250 (43 %) were 
approved. The ECB explained that, although some inspections were considered 
not to be justified, others could not be carried out because of a lack of ECB and/
or NCA staff. Three of the eleven NCAs replying on the question of appropriate 
staffing stated that they faced a shortage of staff. The SQA division concluded in 
its report that NCA resources were notably scarce during the second half of 2015.

8 On-site inspections requested, approved and carried out 
e
l
b
a
T

for 2015 (as of 31.10.2015)

Priority level

Number of inspection 
requests

Number of inspections 
approved

Number of inspections 
carried out

Essential

Important

Desirable

Total

Not disclosed

Not disclosed

Not disclosed

576

148

86

16

250

Source: Adapted from the ECB, figures are unaudited.

143

80

12

235

161 
The procedure for rescheduling an on-site inspection is not addressed or ex-
plained in the Supervisory Manual. However, it is set out in a monthly update on 
on-site inspections, which requires approval by the Supervisory Board and the 
Governing Council under the ‘non-objection’ procedure.

162 
As of November 2015, the NCAs had supplied 249 HoMs (134 FTEs) and 906 
inspectors (421 FTEs) for on-site inspections. The difference between the head-
count and FTE figures was mainly due to the time which inspectors were able to 
devote to missions, but also, according to the COI, to unreliable figures provided 
by the NCAs. Owing to resource shortages, the COI had to reprioritise other in-
spections in 2015 to meet ad-hoc inspection requests.

 
 
On-site supervision 

73

163 
The Supervisory Manual does not require a minimum frequency of inspections, 
although this is considered to be part of best supervisory practice104. The Supervi-
sory Board asked for a clear strategy behind OSI requests and their prioritisation 
in January 2016. A decision for a proposed strategy for OSI planning, including 
‘targeted engagement levels’ was taken in May 2016. Targeted engagement 
levels are an indicative number of on-site inspections ideally carried out during 
a planning cycle. It is still the case that there is no provision for credit institutions 
themselves to request an on-site inspection, which is the practice in other super-
visory systems105.

104 See section 5000.0.3 of the US 
Federal Reserve’s supervisory 
manual.

105 See section 5000.0.2 of the US 
Federal Reserve’s supervisory 
manual.

164 
For 2016, JST coordinators must now submit brief written justification for each 
on-site inspection request. This enables COI to obtain a better understanding of 
requirements, which should streamline the planning process. In this regard the 
SQA report concluded that, while selecting inspections on the basis of available 
resources may be a reasonable approach in the short term given resource con-
straints, in the long run the JST proposals should be approved according to the 
situation and the risk profile of the credit institution.

IT improvements are needed

165 
The execution, reporting and follow-up of on-site inspections should be sup-
ported by an appropriate IT system. The ECB uses the information management 
system (IMAS) application. As IMAS is the main IT tool used by both JSTs and on-
site inspection teams, it should provide a technical basis for the harmonisation of 
processes and consistency in the supervision of credit institutions.

166 
It makes overall sense for the ECB to use an integrated IT platform to cover both 
on-site and off-site supervision. However, with regard to on-site supervision IMAS 
has the following main shortcomings:

(a)  no function for the staffing and monitoring of missions;

(b)  not aligned with chapter 6 of the SSM supervisory manual, especially with 

regard to uniform documentation standards and audit trail;

(c)  poor uploading and downloading of documents and data;

(d)  problems with remote access;

(e)  inadequate reporting functions; and

(f) 

inadequate control procedures.

 
On-site supervision 

74

167 
The current version of IMAS is inappropriate for on-site inspections. According 
to the ECB, this was a temporary solution until a fully-fledged IT system could be 
introduced. Five of the NCAs which responded to our questionnaire currently use 
IMAS, and four do not. The degree of use differs from one NCA to the next.

168 
We were unable to find information in the Supervisory Manual about the storage 
or archiving of inspection documents (e.g. inspection reports) in the event that 
IMAS is not used. The COI provided us with a standard e-mail requiring certain 
documents to be stored in IMAS. This e-mail is sent to HoMs when the final re-
port is released. However, the COI does not check whether all the required docu-
ments have been stored. Moreover, the e-mail does not contain any requirement 
relating to the storage of evidence which was not used for findings.

169 
The documentation provided did not include evidence indicating that the Super-
visory Board was informed about IMAS’s lack of certain key features which would 
allow the Board to take a well-informed decisions.

170 
All HoMs have access to all on-site inspection reports in IMAS throughout the 
term of their appointment. This creates an operational risk of the misuse or 
unintended loss of reporting data. The ECB provided us with a policy document 
on its SSM staff members’ access rights to supervisory information in IMAS, but 
the document does not cover the access rights of HoMs or on-site inspectors ap-
pointed from the NCAs. In addition, as the Supervisory Manual does not require 
all working documents to be stored in IMAS, NCAs are free to make their own 
arrangements in this regard.

 
On-site supervision 

75

The ECB plans concrete measures to improve the 
qualifications and skills of inspectors and HoMs

171 
The SSM Framework Regulation makes the ECB responsible for the establishment 
and composition of on-site inspection teams. In practice, however, given its lim-
ited resources the ECB has to rely on the available NCA staff.

106 Internal models are used to 

calculate capital requirements 
under the Capital 
Requirement Regulation (CRR). 
These internal models have to 
be approved and monitored 
by the supervisors. Further 
information can be found in 
the ECB’s guide to banking 
supervision, November 2014.

172 
We were given only aggregated statistics on the experience of HoMs and project 
managers responsible for the audit of banks’ internal capital requirement mod-
els. As of February 2015, 56 % of all HoMs and project managers had less than 
three years’ experience of leading on-site inspections or internal model audits106.

173 
Given the differences between NCAs, the COI regularly takes stock, via semi-
annual surveys, of the skills of NCA on-site inspectors. We were provided with an 
aggregated summary for February 2015, but not with the underlying details of 
the survey. According to the summary, at that time only three NCAs could furnish 
all the necessary skills for on-site inspections. One NCA lacked nearly all the nec-
essary skills, and the remainder lacked at least some skills.

174 
Through our questionnaire we asked banks to rate the quality of on-site inspec-
tions since the SSM was established. 54 % of the respondents answered that 
quality was good or very good, 37 % that quality was no more than sufficient and 
10 % that it was bad.

175 
In 2015, the ECB organised six training seminars for HoMs. However, half of all 
HoMs did not attend even one of these seminars. The ECB has plans to set up an 
inspection academy, which will develop tailor-made courses as part of the ECB’s 
institutional training programme.

 
76

107  The ‘independence principle’ 

makes the HoM solely 
responsible for execution, 
reporting and signing off the 
inspection report.

108 Chapter 6, paragraph 123, of 
the Supervisory Manual.

On-site supervision 

A clear reporting structure which lacks some attention 
to detail and could be devalued by lengthy procedure

The ECB’s reporting procedure is well-structured

176 
The sequence to be followed for on-site inspection reporting is clearly defined. 
See full details in Annex X. In our questionnaire, we asked banks whether or not 
they had been given reasonable opportunity to comment on the draft inspec-
tion report and discuss it with the on-site team. A large majority of respondents 
(92 %) answered positively.

177 
Under the ‘independence principle’107, while the COI can request changes to the 
substance of an inspection report, the HoM is free to refuse. Although any such 
refusal must be recorded as part of the COI’s consistency findings, the version of 
the report forwarded to the bank is the HoM’s final draft.

However, rules for the communication of findings are 
incomplete

178 
Inspection findings are categorised by their impact on the financial situation of 
the credit institution (‘low’, ‘moderate’, ‘high’, and ‘very high’)108. However, this 
classification is only used internally and is documented by the inspectors in the 
working papers, but it is not recorded in the inspection report. The Supervisory 
Manual provides no guidance in this regard. It is difficult to ensure that the cat-
egorisation of findings is consistent between different HoMs – an issue which has 
to be addressed subsequently by means of consistency checks. Two of the NCAs 
that replied to our questionnaire considered that the ECB’s guidance on its inter-
nal categorisation was not adequate, while nine found it to be satisfactory.

 
On-site supervision 

77

179 
The Supervisory Manual fails to specify to whom on-site reports should be sent. 
The ECB has not examined in detail who would be the appropriate addressees in 
each jurisdiction. It is at the discretion of the JST Coordinator to whom to send 
the report. There is a risk that members of the credit institution’s board (including 
non-executive members), supervisory board or audit committee will not receive 
the report.

109 Chapter 6, paragraph 137, of 
the Supervisory Manual.

180 
In our questionnaire, we asked banks to whom on-site inspection reports were 
addressed. A majority of respondents (56 %) answered that reports were ad-
dressed only to the management board, 11 % that they were sent only to the 
supervisory board, and 9 % only to the CEO. Another 9 % of respondents said 
that reports were addressed to both the management board and the supervisory 
board. The remaining replies (15 %) named different combinations of addressees 
or, in rare cases, other addressees entirely.

181 
Depending on the severity and materiality of the corresponding findings, recom-
mendations may take one of two forms. ‘Operational acts’ are non-binding and 
not subject to the decision-making process involving the Supervisory Board and 
the Governing Council. On the other hand, ‘supervisory decisions’ are drafted by 
the JST Coordinator and approved by the Supervisory Board and the Governing 
Council under the ‘non-objection’ procedure. Although the ECB provided us with 
some relevant sections of the Supervisory Manual, these contained no guidance 
on the concepts of severity or materiality.

182 
The final report and recommendations are discussed at the closing meeting with 
the credit institution. The Supervisory Manual makes attendance compulsory for 
the HoM and the JST Coordinator but does not state who is expected to attend 
from the credit institution109.

 
On-site supervision 

78

The timeframe for issuing reports is long

183 
As shown in Figure 13, there is an eight-week time limit for sending the final 
report to the JST Coordinator. The final follow-up letter with recommendations to 
the bank must be sent within a further eleven weeks, implying an overall dead-
line of 19 weeks. Owing to the length of the process, there is a risk that inspec-
tion findings will be out-of-date when they reach the stakeholders.

3
1
e
r
u
g
i
F

Timeline for the follow-up process

COI process

JST process

Ongoing on-site
Inspection

Pre-
closing
meeting

Consistency
review

Final report
sent to JST

Drafting
recommendations

Review by DG
management

Draft 
recommendations
sent to Bank

Closing meeting

Final follow-up letter
including ﬁnal
recommendations

8 weeks

11 weeks

Source: ECA, based on information provided by the ECB.

 
 
79

110  See paragraph 19.

111  Article 25 SSM Regulation.

Conclusions and 
recommendations

184 
The ECB succeeded in setting up a complex supervisory structure in a relatively 
short time. The new supervisory mechanism remains inherently reliant on NCA 
resources. Furthermore, the resources allocated to internal audit need to be 
increased and the timeframe for the internal audit function’s coverage of risk 
needs to be shortened. The level of information provided by the ECB was only 
partly sufficient for us to assess the efficiency of operations linked to the SSM’s 
governance structure, the work of its joint supervisory teams and its on-site 
inspections110. The audit gap which has emerged since the establishment of the 
SSM, and has been highlighted by the Contact Committee of national SAIs, was 
therefore confirmed by our audit.

Governance

185 
The decision-making process is complex and involves many layers of information 
exchange (paragraphs 32 to 35). The Supervisory Board is charged with finalising 
a huge number of complete draft decisions, which is potentially detrimental to 
the efficiency and effectiveness of Board meetings and significantly ties up the 
resources of the Secretariat (paragraphs 36 to 39).

186 
The ECB shall carry out the tasks conferred on it by the SSM Regulation without 
prejudice to and separately from its tasks relating to monetary policy and any 
other tasks111. Recital 65 of this regulation states that the ECB’s monetary and 
supervisory tasks should be carried out in full separation. The ECB has taken the 
view that this allows the use of certain shared services. It is also obvious that 
the separation should not preclude exchange of necessary information. How-
ever, no risk analysis has been made concerning the use of shared services that 
provide support for both functions, and no compliance monitoring is in place 
(paragraphs 40 to 46). Furthermore, there is a risk to the perceived independ-
ence of the supervisory function, in that the Chair and Vice-Chair of the Supervi-
sory Board are only consulted and do not exercise control over the supervisory 
budget or human resources (paragraphs 47 to 52).

187 
The ECB’s internal audit function currently lacks adequate resources to address 
the risks identified for SSM topics, and the audit planning does not ensure that all 
key elements of high and medium-risk areas will be covered within a reasonable 
timeframe (paragraphs 62 to 77).

Conclusions and recommendations 

80

Recommendation 1

The ECB should further streamline the decision-making process and delegate 
certain decisions to lower levels in order to enable the Supervisory Board to focus 
on more demanding issues. Given the Secretariat’s significant involvement, as 
coordinator, in the decision-making process, it should develop further guidance 
in the form of checklists, templates and flowcharts for each decision type.

Target implementation date: mid-2017.

Recommendation 2

To overcome concerns about the use of shared services, the ECB should assess 
the risks entailed and implement the necessary safeguards, including managing 
possible conflicting requests and dedicated compliance monitoring. A formal 
procedure should be established with the Chair and the Vice-Chair of the Super-
visory Board to ensure that:

i) 

the needs of the supervisory policy function are reflected appropriately and 
in full;

ii)  separate reporting lines are in place where specific supervisory resources are 

concerned;

iii)  they are more strongly involved in the process of the establishment of the 
budget and the related decision-making process fostering the budgetary 
autonomy of the supervisory function in the ECB within the boundaries of the 
legal framework.

Target implementation date: mid-2017.

Recommendation 3

The ECB should assign sufficient internal audit skills and resources to ensure that 
high and medium risk areas are covered as and when appropriate.

Target implementation date: mid-2017.

 
Conclusions and recommendations 

81

Accountability

112  See paragraph 19.

188 
The Court’s audit mandate over the ECB is emphasised in Article 20(7) of the SSM 
Regulation, which also refers to Article 27.2 of the ESCB and ECB Statute. Due to 
the limitations imposed by the ECB on our access to documents, important areas 
were left unaudited112. National SAIs too have identified an audit gap, in that 
their previous audit mandates over national banking supervisors have not been 
replaced by a similar mandate for the Court over the ECB’s supervisory activities 
(paragraphs 85 to 87).

189 
The ECB has established rules governing its accountability towards the Euro-
pean Parliament and the public, and the roles and responsibilities of the SSM are 
clearly defined and publicly disclosed. These arrangements are adversely affect-
ed by the fact that the ECB does not publish performance indicators and metrics 
to demonstrate supervisory effectiveness (paragraphs 82 to 84 and paragraphs 
88 to 91).

Recommendation 4

The ECB should fully cooperate with the Court in order to enable it to exercise its 
mandate and thereby enhance accountability.

Target implementation date: immediate.

Recommendation 5

To enhance its external accountability, the ECB should formalise its current ar-
rangements for measuring and publicly disclosing information on supervisory 
performance. Surveys of financial institutions could be useful to indicate areas of 
concern and possible improvements.

Target implementation date: end 2018.

 
Conclusions and recommendations 

82

Joint supervisory teams

190 
The SSM Framework Regulation puts the ECB in charge of the establishment and 
composition of joint supervisory teams for the off-site supervision of significant 
entities, yet the JSTs have remained in part by design heavily dependent on staff 
appointed by the NCAs. The ECB therefore has only limited control – in terms of 
both quantity and quality – over the largest staffing component of JSTs, relying 
instead on the cooperation and goodwill of the NCAs. Staff resources are con-
strained for all JSTs, putting at risk the ECB’s mission to carry out ‘intrusive and 
effective banking supervision’ (paragraphs 126 to 137).

191 
The level of supervisory staff was originally set by a very simple approach that 
relied on estimates of staffing for similar functions in NCAs before the SSM was 
established. These estimates have proved to be inaccurate. No detailed analysis 
of staffing needs for the new and much more demanding SSM framework was 
conducted. This means no direct link was established between the supervisory 
examination programme and the allocation of resources, as required under the 
Capital Requirements Directive (paragraphs 107 to 112). There are indications, 
confirmed by a recent communication from the Supervisory Board, that current 
staffing levels are insufficient.

192 
There is no structured mandatory training curriculum for ECB employees in the 
practicalities of off-site supervision, particularly in technical subject areas specifi-
cally relevant to banking supervision tasks. Moreover, the ECB lacks a centralised, 
standardised and comprehensive database of the skills and competences of the 
members of JSTs (both ECB and NCA employees) (paragraphs 148 to 149).

193 
The cluster in which each bank is placed is used on an ongoing basis as one of 
two inputs (the other being the risk assessment score) that determine the bank’s 
minimum engagement level for supervisory intensity. The ECB’s clustering meth-
odology has not been reviewed or updated since the start of the SSM. Moreo-
ver, the bank-level data used in the clustering exercise has not been updated 
since 2013. Therefore, for its ongoing supervisory planning the ECB is still using 
a model that dates back to the start of the SSM (paragraphs 113 to 121).

 
Conclusions and recommendations 

83

194 
The documentation provided on supervisory planning did not allow us to con-
clude whether the ECB performs these supervisory activities efficiently.

Recommendation 6

The ECB should amend the SSM Framework Regulation in order to formalise com-
mitments by participating NCAs and ensure that all participate fully and propor-
tionately in the work of the JSTs.

Target implementation date: end 2017.

Recommendation 7

The ECB should develop, in collaboration with the NCAs, role/team profiles and 
methods for assessing both the suitability of the staff that the NCAs intend to as-
sign to the JSTs and their subsequent performance.

Target implementation date: end 2018.

Recommendation 8

The ECB should establish and maintain a centralised, standardised and compre-
hensive database of the skills, experience and qualifications of JST employees, 
both ECB and NCA staff.

Target implementation date: end 2018.

 
Conclusions and recommendations 

84

Recommendation 9

The ECB should implement a formal training curriculum for both new and exist-
ing supervisory staff in JSTs, focusing on content-oriented training relevant to 
banking supervision, ensuring that mandatory participation is commensurate 
with business needs and with the experience and profile of the staff member, 
and should consider implementing an off-site supervision certification pro-
gramme for JST staff.

Target implementation date: end 2018.

Recommendation 10

The ECB should develop and implement a risk-based methodology to determine 
the target number of staff and the composition of skills for JSTs, which should 
ensure that the resources of each JST (ECB and NCA staff) are commensurate with 
the size, complexity and risk profile of the supervised institution, and adequate 
to carry out the SEP for that institution.

Target implementation date: end 2018.

Recommendation 11

As the clustering model continues to be used in this important supervisory plan-
ning process, it should be reviewed periodically and updated as necessary. The 
bank-specific information used in the clustering exercise should also be updated 
regularly.

Target implementation date: mid-2017.

 
Conclusions and recommendations 

85

On-site inspections

195 
The documentation provided by the ECB was not sufficient for a full examination 
of operational efficiency. From what we were able to assess, the process appears 
to be coherent and comprehensive (paragraphs 150 to 152).

196 
Article 12 of the SSM Regulation conferred the task of conducting on-site inspec-
tions on the ECB. However, the current operating practice is not consistent with 
this objective. The ECB provides no more than 8 % of the total staff performing 
on-site inspections, and has led only 12 % of inspection visits. Almost all other 
inspections are headed by the staff from home or host supervisor (paragraphs 
153 to 158).

197 
In the planning of and allocation of resources to individual inspections, clear 
guidance on prioritisation was not given until May 2016 (paragraph 159). The 
Supervisory Manual does not require a minimum frequency of inspections (para-
graph 163), but measures addressing this point were also adopted in May 2016. 
The IT system has significant shortcomings (paragraphs 165 to 170), and the qual-
ifications and skills of NCA on-site inspectors need to be addressed (paragraphs 
171 to 175). In addition, inspection reports should be issued more promptly once 
the closing meeting has been held (paragraph 183).

Recommendation 12

The ECB should supplement or redeploy its staff to allow it to substantially 
strengthen its presence in on-site inspections of significant banks based on 
a clear prioritisation of risks. The proportion of on-site inspections led by a non-
home or non-host supervisor NCA should be increased.

Target implementation date: end 2018.

 
Conclusions and recommendations 

86

Recommendation 13

The ECB should closely follow up on the weaknesses in the IT system for on-site 
inspections and to pursue its efforts to increase the qualifications and skills of 
on-site inspectors from NCAs.

Target implementation date: mid-2017.

This Report was adopted by Chamber IV, headed by Mr Baudilo Tomé 
MUGURUZA, Member of the Court of Auditors, in Luxembourg at its meeting of 
18 October 2016.

For the Court of Auditors

Klaus-Heiner Lehne
President

 
 
 
 
Annexes

87

I
x
e
n
n
A

Summary of audit approach

Audit subject

Audit criteria

Audit analysis

Do the SSM governance arrangements 
provide an appropriate environment for 
the work of JSTs and on-site inspection 
teams?

Are the internal audit set-up and plan-
ning and reporting arrangements such 
that the risks identified in relation to 
banking supervision tasks are satisfacto-
rily addressed?

Do the procedures and practical ap-
plication of the rules for accountability, 
including external audit, provide an 
appropriate environment for banking 
supervision?

Were the planning and establishment 
of JSTs appropriate in terms of structure 
and resources?

I. 
II. 
III. 
IV. 
V. 

I. 

BCBS Core Principle 2
SSM Regulation, recitals 65, 66 and 77
SSM Regulation, Articles 4, 6, 19, 22, 24, 25 and 26
ECB supervisory manual
ECB rules of procedure

 A standard 2030, International Professional Practice 
Framework (IPPF) IPPF Practice Advisory on stand-
ard 2030

 ο
 ο

Qualitative analysis of documents
Interviews with staff

 ο
 ο

Qualitative analysis of documents
Interviews with staff

I. 
II. 

BCBS Core Principle 2
SSM Regulation, Article 20

 ο

 ο
 ο
 ο
 ο

Benchmarking and interviews with other 
SAIs (Australia, Canada, USA)
Analysis of Contact Committee survey
Qualitative analysis of documents
Interviews with ECB staff
Interviews with stakeholders (Parliament, 
Council)

I. 
II. 
III. 
IV. 

V. 
VI. 
VII. 

BCBS Core Principles
SSM Regulation, Article 6
SSM Regulation, recital 79
 SSM Framework Regulation, Articles 3 
and 4
Directive 2013/36/EU, Articles 63 and 971
ECB supervisory manual
 EBA guidelines on common procedures and method-
ologies for the SREP.

To the extent possible:
 ο

 ο

 ο
 ο

 ο
 ο
 ο

 ο

 ο

Analysis of the sections of the supervisory 
manual and other documents dealing with 
the organisational set-up
Assessment of overall resource planning in 
DGMS I and II
Assessment of JST resource planning
Review of resourcing decisions and the 
underlying assumptions and models
Interviews with staff
Qualitative analysis of staff files
Qualitative analysis of training programme 
documents
(all procedures to the extent possible)

Hardly any of the procedures envisaged 
could be performed (SEP/SREP documents, 
bank files and methodological sections of 
supervisory manual were not available)

 ο

 ο

Qualitative analysis of documents to which 
we were given access
Interviews with staff

Are supervisory activities appropriately 
planned to address criteria set by the 
standards, and does the supervisor carry 
out these activities efficiently?

BCBS Core Principles
I. 
II. 
SSM Framework Regulation, Article 3
III.  Directive 2013/36/EU, Articles 97 and 99
IV. 

 EBA guidelines on common procedures and method-
ologies for the SREP.

Are on-site inspections appropriately 
planned, performed and reported?

I. 
II. 
III. 
IV. 
V. 
VI. 

BCBS Core Principle 9
ISA 580
SSM Regulation, Article 12
SSM Framework Regulation, Article 3
Directive 2013/36/EU, Article 99
ECB supervisory manual, Chapter 6

1 

 Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the 
prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 
2006/49/EC (OJ L 176, 27.6.2013, p. 338).

 
Annexes 

88

I
I
x
e
n
n
A

Limits on access to information

Areas not satisfactorily auditennd due to the ECB’s non-provi-
sion of documents requested

Evidence not provided

 ο
 ο

 ο
 ο

Comprehensive assessment
Stress testing
Asset Quality Review

Decision-making process
Compliance with timelines set
Level and timing of decisions considering the severity of the 
issue

 ο Whether and how the various parties in the decision-making 
process add value and whether there is overlap or redundancy 
based on concrete cases

 ο We could not cross-check comments made by commercial banks 
in the context of our survey on the decision-making process with 
actual decisions

Operational efficiency of on-site inspections

 ο Major parts of the planning methodology
Actual efficiency of on-site inspections
 ο
Consistent and efficient application of the methodology across 
 ο
the SSM (e. g. undue delays, lack of focus, inefficient perfor-
mance of audits)
Coherent reporting of on-site inspections
Efficient consistency checks

 ο
 ο
 ο We could not cross-check comments made by commercial banks 
in the context of our survey on the on-site inspection process 
with actual on-site reports or working papers
Concreteness and time horizon of IMAS improvement
Quality assurance of on-site inspections

 ο
 ο

 ο

 ο
 ο
 ο

 ο

 ο
 ο

 ο

 ο
 ο

Inter alia, guidelines on collateral valuation, process for selecting risk-prone 
assets, FAQs, minutes and correspondence of meetings with EBA, ERSB, 
ECB, assessment of impact of tax credits and related guidelines, and some 
project-related documents1

Supervisory Board decisions
Bank files
Underlying documentation of procedural steps followed in the decision-
making process
Supervisory Board minutes

List of planned inspections not carried out
Annexes to Supervisory Manual Chapter 6 concerning the methodology for 
on-site supervision (Chapter 6 (60 pages) was provided but not the annexes 
(reportedly 1 000 pages))
Planning of specific on-site inspections (list of on-site inspections with 
resource request)
List of thematic reviews and list of ad hoc requests
Underlying details of the NCA survey to assess the skills of the available 
on-site inspectors
Plan for the go-live of IMAS releases
Supervisory Board decisions e.g. on the planning of on-site inspections

 ο
 ο
 ο Working papers (including planning documentation) of inspectors
 ο
 ο
 ο

Bank-specific consistency check reports
Bank files/ sampling of concrete cases
Involvement of on-site auditors and relevant reports on the Greece AQR 2015 
exercise

 ο

 ο
 ο
 ο

 ο
 ο
 ο
 ο
 ο
 ο
 ο
 ο

Operational efficiency of planning of off-site supervision
Underlying data and calculations used in initial clustering 
exercise and related resource allocation
Efficiency of supervisory activities planning
Appropriateness of supervisory activities planning
Efficient / appropriate use of thematic reviews in supervisory 
activities planning
Operational efficiency of conduct of off-site supervision
Efficiency of execution of supervisory activities
Appropriateness of execution of supervisory activities
Coherent and appropriate SREP analysis and reporting
Appropriate / efficient use of ID cards
Appropriateness of RAS model
Efficient use of RAS model in supervisory process
Efficient and targeted follow-up of supervisory decisions by the 
JSTs

 ο We could not cross-check comments made by commercial banks 
in the context of our survey regarding off-site supervision

 ο

Supervisory Manual (with the exception of approximately 25 pages on JSTs 
plus 17 pages on crisis management out of an overall of 346)

 ο Methodological annexes to the Supervisory Manual
 ο
 ο
 ο
 ο
 ο
 ο

Detailed methodologies and models for SREP process
Detailed methodologies of the RAS model
Thematic reports
Supervisory Board decisions
SEP proposals, approved SEPs
Actual ID cards (only a sanitised version was provided), as well as the FINREP 
data set used
SREP reports
RAS scores and model output, supporting documentation, details, overrides
Recovery plans submitted to ECB, analysis and follow-up by JSTs
Supervisory decisions, follow-up and implementation by the JSTs
Clustering methodology – no provision of model, inputs (bank details, data), 
calculations, details on output ( including overrides)
Bank files/ sampling of concrete cases

 ο
 ο
 ο
 ο
 ο

 ο

 
 
Annexes 

89

I
I
x
e
n
n
A

Areas not satisfactorily auditennd due to the ECB’s non-provi-
sion of documents requested

 ο
 ο

 ο
 ο

Supervisory Board meetings
Efficiency of meetings
Adherence with principle of independence for NCA representa-
tives to the Supervisory Board

Accountability
Comprehensive and efficient reporting to the EP
Efficient and comprehensive exchange of information as 
required by Article 32 of the SSM Regulation – we had to rely on 
third-party information in this regard

Source: ECA.

Evidence not provided

 ο Minutes of the Board

 ο Written documentation on the ad-hoc exchange of views between the 

 ο

 ο

European Parliament and the Chair of the Supervisory Board
A record of proceedings of the Supervisory Board, as provided to the Parlia-
ment’s competent committee with an annotated list of decisions
The actual documentation requested by the European Commission for 
its Article 32 report and the correspondence, with dates, relating to the 
information request

1 

In April 2016 the ECB provided us with a DGMS IV quality assurance report dated April 2015. Though the report covered a number of areas, 
we were not able to perform our audit procedures using the available source documents. The report focused on procedural rather than 
methodological issues. We were also provided with a number of procedural documents such as engagement letters to auditors, and proposed 
resourcing requirements for the loan book review. We were given insufficient access to auditors’ working documents and were not able to 
draw our own conclusions on other aspects based on the information available.

 
 
Annexes 

90

I Examples of how this affected our audit are set out below.
I
x
e
n
n
A

Governance

I.  

Issue 

In reply to the questionnaire we sent to commercial banks, three institutions stated that they had not been granted the 
right to be heard. However, we were not given access to bank files or decisions.

Consequence

Issue

Consequence

Issue

We could not verify this assertion.

We requested samples of cases for different types of decisions (emergency situations, ordinary cases, SREP decisions, and 
authorisations), including the entire underlying documentation flow with the dates for every step, from the initiation 
stage until the final decision is reached. However we were only provided with tables indicating the dates of procedural 
steps, with no access to underlying documentation.

We were unable to determine whether delays in decision-making were due to imperfections in the procedure or to the 
complexity of the subject matter. We were unable to address specific shortcomings in the decision-making process, 
identify any unnecessary layers or verify that the documents provided allowed for a well-informed decision. Any analysis 
of the efficiency of decision-making must therefore remain rather abstract.

We requested the minutes of the SB in order to assess whether the Chair ensures efficient but effective discussions at the 
SB, with regular attendance and full discussions by all members in the interest of the EU as a whole. However we were 
denied any access to minutes of the Supervisory Board.

Consequence

We could not express an opinion on the efficiency of the SB meetings.

II. 

Joint supervisory teams

Issue

Consequence

Issue

In reply to our questionnaire, one commercial bank informed us that the ECB had asked for a disproportionate quantity 
of documentation (‘hundreds of files’) for its ‘fit and proper’ assessments, although most cases concerned the renewal of 
directors.

‘Fit and proper’ decisions accounted for almost half of the decisions taken by the ECB. A report by the quality assurance 
division emphasised that such decisions could have an impact on resources. We were unable to assess whether the 
procedures for fit and proper decisions were proportionate (i.e. all procedures and information requests were necessary) 
or had a negative impact on resource allocation. We were therefore unable to express an informed view on the need for 
additional staff or the more efficient organisation of tasks.

We had intended to examine risk modelling as a component of the SREP and whether data provided by supervised banks 
were used effectively in an appropriate risk model. We were not given any details about the impact of the data submitted 
by supervised banks on the RAS score. In reply to our questionnaire, many commercial banks stated that the reporting 
requirements placed on them were disproportionate.

Consequence

We were unable to verify whether and how reported data is used to determine the SREP score, and whether reporting 
requirements could be designed more efficiently to emphasise major risks.

III. 

On-site inspections

Issue

Consequence

We were not sent the methodological annex to the supervisory manual or the underlying on-site inspection files. In some 
cases, commercial banks made negative assertions about the performance of on-site inspections.

We were unable to assess any stage of the inspection cycle – selection of a bank, drafting of the pre-inspection note, 
conduct of and reporting on the inspection visit, ex-post consistency checks – or whether the underlying methodology 
addressed the key risks and resources were used appropriately and efficiently. However, an unsuitable on-site inspection 
approach would have huge implications for the assessment of resource allocation and efficiency of the work actually 
performed. An incomplete or misguided methodology would affect the efficiency of all inspections of significant banks, 
whether performed by the ECB or by the NCAs.

 
 
Annexes 

91

I Decision-making process as applied to individual supervisory decisions and other 
I
I
binding and non-binding legal acts up to the non-objection procedure in the  
x
e
governing council
n
n
A

Reference to 
chart

(1-2)

(3-4)

(5)

Description

The JST sub-coordinator liaises with the management of the relevant NCA to ensure that they have the opportunity to review and 
comment on draft decisions before onward distribution. The time limit for comments depends on the circumstances and takes account 
of the final legal and operational deadline.

In parallel with (1-2), the JST may request legal advice or advice from relevant SSM business areas.

The JSTs are invited to discuss, with the Secretariat of the SB, the 1st draft proposal, 1st draft decision and timelines. The SB Secretariat 
reviews the documentation.
If the Secretariat is not consulted at this early stage, the review takes place before the documentation is sent to the Supervisory Board.

(6-7-8)

If time allows, the SB Secretariat sends the documentation to the Directorate General Legal Services (DG/L) for editing.

(9)

(10)

(11)

(12)

(13)

(14-15)

(16-17)

(18)

(19-23)

(24)

(25)

(26)

(27)

The JST Coordinator sends the documentation package to the senior management of DG I or II, as the case may be, for review and 
approval of draft decision submitted.

Senior management, after reviewing and approving the draft decision submitted by the JSTC, sends the SB proposal, the draft 
decision and other background documentation by email to the Chair and Vice-Chair for approval and to allow further circulation 
to SB members. The SB Secretariat is put in copy so that it can follow up as soon as the Chair and the Vice-Chair have approved the 
documentation.

The SB Secretariat sends the documentation to the other SB members. The SB members must as a rule receive the documentation at 
least 5 working days before the relevant meeting. If the documentation is submitted for approval by written procedure, the standard 
deadline is also five working days.

Meeting / written procedure. In a written procedure, usually no formal voting takes place. Members of the SB are deemed to have 
approved a draft decision unless they object within the deadline.

SB approval.

Where necessary, the SB Secretariat sends the documentation for translation, at the latest when it is submitted to the SB. The docu-
mentation is usually sent for translation once the English text is stable. Unless the supervisory decision has an adverse effect on the 
credit institution and the right to be heard is granted, the SB Secretariat at this point would finalise the documentation and coordinate 
with the GC Secretariat.

If a decision would mean adverse effects for the addressee, the SB Secretariat sends the complete draft decision to the credit institu-
tion for the right to be heard. The standard deadline is two weeks. In urgent cases, the deadline may be shortened or the hearing may 
be done ex-post under the conditions laid down in Article 31 of the Framework Regulation. The hearing period starts the day the credit 
institution receives the draft decision.

The SB Secretariat sends the comments received from the credit institution to the JST for assessment. The JST may consult DG/L if 
necessary.

JST assesses the comments received from the credit institution (right to be heard) and the documentation flow follows the intermedi-
ate steps in points 10 to 12. The Secretariat reviews the assessment of the comments and the revised decision.

The (revised) decision together with the assessment of the comments is submitted to the SB for approval.

The SB Secretariat sends the final documentation package to the Vice-Chair for approval (this is required before launching the non-
objection procedure), with the GC Secretariat in copy.

The GC Secretariat sends the documentation to the Governing Council for adoption under the non-objection procedure. A maximum of 
10 WD are provided for the non-objection procedure. The GC Secretariat informs the SB Secretariat about the adoption.

The SB Secretariat notifies the final decision to the credit institution.

 
 
Annexes 

92

I
I
I
x
e
n
n
A

NCA

For comments on the draft

(1)

(9)

(2)

JST

SSM business area

(3)

(4)

Request for assistance/
legal advice

Supervisory Board

Meeting

Written procedure

To consider B points
or policy issues

If matter is urgent
or technical

(Steering Committee)

(13)

(14)

(15)

DG/L

For translation 
if necessary

SB Secretariat

Finalisation of draft decision

(18)

(16)

(17)
Credit institution

Meeting

Written replies

2 weeks to comment

3WD to comment
if urgent

Right to be heard for decisions with an 
adverse eﬀect (two exceptions)

DG senior management

Review and approval of 
JST draft

(10)

(10)

SB Chair and Vice-Chair

SB Secretariat

For approval of all 
documentation and to allow 
circulation to SB Members

To ensure follow-up
and circulation

(11)

(5)

(8)

SB Secretariat

For review and 
discussion with JST

(6)

(7)

DG/L

For editing changes

SB Members

Meeting

Written procedure

(12)

5 WD before 
meeting/approval

5 WD before vote

JST

Assesses credit institution’s
comments on ﬁnal draft 
(DG/L may be consulted)

DG Senior management

(19)

(20)

SB Chair and Vice-Chair

(21)

SB Secretariat
For review

(22)

SB Members

(23)

(25)

SB Secretariat

(24)

Final documentation package

(25)

(25)

SB Vice-Chair

For review of ﬁnal package 

Supervisory Board
For approval of (revised)
decision and assessment
of comments

GC Secretariat

Informed by email

SB Secretariat

(27)

Notiﬁcation of adoption

(26)

(26)

Governing Council
Written procedure and non-objection 
procedure

Ordinary
Less than 10 WD

Emergencies
Less than 48 Hours

NCA
Draft decisions must be sent 
at the same time to the 
relevant NCA(s)

Credit institution

Notiﬁcation of ﬁnal decision 

 
 
Annexes 

93

V ECB budgetary process
I
x
e
n
n
A

Governing Council (GC)

Upon EB proposal, adopts
the ECB’s budget.

Composition of GC

6 EB members
19 euro area Governors of NCBs

Consultation with the Chair 
and Vice-Chair of the 
Supervisory Board (SB)

Assists EB on evaluation of 
SSM-related part of the budget.

Executive Board (EB)

Responsible for allocating and 
managing HR and ﬁnancial 
resources. Proposes budget to 
the GC.

Chief Services Oﬃcer (CSO)

CSO reports to the Executive
Board via the President. 
Responsible for DG-F/BCO

DG-F/BCO (Budget, 
Controlling and Organisation 
Division)

Assesses HR, budgetary and 
organisational implications of 
business areas. Advises EB 
accordingly. Develops, prepares 
and monitors the budget in line 
with strategic guidance provided 
by the EB/GC.

BUCOM (Budget Committee)

Experts from the ECB and euro-area 
NCBs. Assists GC in its decision on 
the budget (evaluation of budget 
proposal).

CeBa (Central Banking) vs SSM 
(Single Supervisory Mechanism)

Running the bank
vs Changing the Bank

Budget Centre Managers 
(shared responsibility with 
DG F/BCO)

Responsible for operational 
planning and implementation in 
their budget centre. Responsible 
for monitoring and controlling the 
relevant portion of the ECB’s 
budget.

Source: DG-F/BCO.

 
 
Annexes 

V The audit of banking supervision in selected national jurisdictions
x
e
n
n
A

AUSTRALIA

CANADA

94

USA

SAI

Australian National Audit Office 
(ANAO)

Auditor General of Canada

Government Accountability Office (GAO)

Banking regulator/
supervisor

I. 

II. 

III. 

 Australian Prudential 
Regulation Authority 
(APRA)
 Australian Securities and 
Investments Commission 
(ASIC)
 Australian Competition 
and Consumer Commission 
(CCC)

IV.  Reserve Bank1

I. 

II. 

III. 
IV. 

 Office of the Superintendent of 
Financial Institutions (OSFI)
 Canada Deposit Insurance Corpo-
ration (CDIC)
 Bank of Canada2
 Financial Consumer Agency 
Canada

I. 

II. 

III. 
IV. 
V. 

 Board of Governors of the Federal Reserve 
System (FED)
 Office of Comptroller General of the Currency 
(OCC)
 Federal Deposit Insurance Corporation (FDIC)
 National Credit Union Administration (NCUA)
Financial Stability Oversight Council3

Legislation 
granting audit 
rights

Audit mandate 
towards financial 
supervisors (right 
granted by law)

Auditor General Act 1997, Sec-
tions 11 and 17

Auditor General Act R.S.C., 1985, 
c. A-17

31 US CODE § 714 (Audit of Financial Institutions Ex-
amination Council, Federal Reserve Board, FDIC,OCC), 
31 USC § 717 (evaluating programs and activities of 
the US Government), 31 USC § 712 (investigating the 
use of public money), 12 USC § 1833c (Comptroller 
General audit and access to records)

I. 

II. 

 Financial audit of reliability 
of accounts; performance 
audits of both supervisory 
and non-supervisory ac-
tivities; additional services 
include better practice 
guidance and review 
reports
 Financial audit of reliability 
of accounts; performance 
audits of both supervi-
sory and non-supervisory 
activities

I. 

II. 

III. 
IV. 

 Performance and compliance 
audits of both non-supervisory 
and supervisory activities
 Financial audit of reliability 
of accounts; performance and 
compliance audits of both 
non-supervisory and supervisory 
activities
 No mandate
 Performance and compliance 
audits of both non-supervisory 
and supervisory activities

I. 

II. 

III. 

IV. 

V. 

 Performance and compliance audits of both 
non-supervisory and supervisory activities
 Performance and compliance audits of both 
non-supervisory and supervisory activities; 
financial audit of reliability of accounts
 Performance and compliance audits of both 
non-supervisory and supervisory activities; 
financial audit of reliability of accounts
 Performance and compliance audits of both 
non-supervisory and supervisory activities; 
financial audit of reliability of accounts
 Performance and compliance audits of both 
non-supervisory and supervisory activities; 
financial audit of reliability of accounts.

1 
2 
3 

Responsible for monetary policy and financial stability only.
Role as lender of last resort and monitoring financial stability through macro-prudential supervision together with the OSFI.
The Dodd Frank Wall Street Reform and Consumer Protection Act created the FSOC and included a provision for the GAO to audit its activities.

 
 
95

Annexes 

V
x
e
n
n
A

AUSTRALIA

CANADA

USA

Extent of mandate 
to undertake audit 
of supervisory 
activities

Audit objectives 
when exercising 
mandate

Authority to undertake a review 
or examination of any aspect of 
the operations of the entity

Conception and functioning 
of systems and procedures, 
investor protection activities and 
supervisory decision-making at 
macro-prudential level

Barriers to 
mandate 
(restrictions 
on access to 
information)

Reports

No

 ο

 ο

Auditor-General Report 
No 42, 2000-2001
Auditor-General Report 
No 2, 2005-2006

Full mandate to undertake compliance 
and performance audits.

Full mandate to undertake compliance and perfor-
mance audits4

I. 

II. 

No

 ο

 ο

 Conception and functioning 
of systems and procedures, 
supervisory decision-making 
at macro-prudential level and 
assessments and decisions on 
individual institutions (micro-
prudential supervision)
 Conception and functioning 
of systems and procedures, 
assessments and decisions on 
individual institutions (micro-
prudential supervision)

Regulating and supervising large 
banks, FALL 2010
Follow-up on recommendations 
on previous audit report

Conception and functioning of systems and 
procedures, supervisory decision-making at macro-
prudential level, assessments and decisions on in-
dividual institutions (micro- prudential supervision) 
which generally involve a sample of institutions.

I. 

II. 

 ο

 ο

 ο

 ο

 ο

 ο

 ο

 No; the GAO has statutory right of access to 
banking agency records for Federal Reserve-
mandated areas of responsibility.
 No; the GAO has unrestricted access to audit 
OCC, FDIC, NCUA and FSOC.

GAO-15-67(2014) Bank Capital Reforms: initial 
effects of Basel III on Capital, Credit, and 
international competitiveness.
GAO’s 2015 audit of regulators’ use of risk-
based examination approach to oversee the 
adequacy of information security at depository 
institutions
GAO audit of the effectiveness of FDIC organisa-
tional structure and internal controls
GAO 2014 review of the Federal Reserve’s new 
rule on enhanced prudential standards for 
bank holding companies and foreign banking 
organisations
GAO’s 2015 review of regulatory lessons learned 
during the past banking crises and the actions 
regulators are taking to address emerging risks 
to safety and soundness of the banking system
GAO -10-861 report on Troubled Asset Relief 
Program
GAO 2015 review of the implementation of 
the regulatory capital rules and revisions to 
the supplementary leverage ratio by banking 
regulators.

4 

http://www.gao.gov/products/T-GGD-90-8 

 
 
Annexes 

V
x
e
n
n
A

Audit areas 
examined

96

AUSTRALIA

CANADA

USA

 ο

 ο

 ο
 ο
 ο
 ο
 ο

Adoption and implemen-
tation of internation-
ally accepted banking 
supervision standards and 
developments.
Evaluation of prudential 
supervision (efficiency/ 
effectiveness) including:
Capital adequacy
On-site visits
Cross border banking
Supervisory framework
Financial governance ar-
rangements

 ο

 ο

 ο

 ο

 ο

Relevance and appropriateness 
of regulatory framework and 
supervisory approach:
Focus on prudential regulation 
developed to address institu-
tional risk-taking
How bank data and information 
is requested from banks
Appropriateness of processes 
to regulate and supervise the 
largest banks
How the regulatory and super-
visory framework is reviewed, 
applied and updated in light of 
emerging risks

 ο Whether supervisory approach is 
reviewed and applied as intended
How information is shared 
amongst federal agencies

 ο

 ο

 ο

US Basel regulations and their effect on US 
banks.
Other countries implementing Basel III- Effect 
on US banking organisations’ international 
competitiveness.
How regulators oversee institutions’ efforts to 
mitigate cyber threats. Sources of and efforts 
by agencies to share cyber threat information.
 ο Mechanisms used by Board to oversee agency
 ο

 ο

Human capital strategies and evaluation of 
training initiatives
FDIC’s processes for monitoring and assessing 
risks to banking industry, including its oversee-
ing and evaluation.
Assess quality of examination procedures, 
approaches and results
Comparative studies of supervision across 
regulators and level of coordination

 ο

 ο

 ο

 ο Monitoring regulators efforts to identify and 

respond to emerging risks. Assessments to:
Identify weaknesses in regulatory efforts
Provide suggestions to enhance effectiveness
Safety and soundness of financial system:
Stress testing
Risk management oversight
Reasoning behind bank failures
Consolidated supervision
Risk-focused examination strategies
Reform implementation and rule-making

 ο
 ο
 ο
 ο
 ο
 ο
 ο
 ο
 ο

 
 
Annexes 

V
x
e
n
n
A

Audit findings and 
recommendations

97

AUSTRALIA

CANADA

USA

 ο

 ο

 ο

 ο

 ο

Improvement required on 
the administration of the 
supervisory levy
Risk rating process needs 
review
Supervision of interna-
tional operations needs 
enhancement
Frequency of on-site 
inspections not enough
Prudential restriction on 
banks exposures needs 
review

 ο

 ο

 ο
 ο

 ο

 ο

No review process on effec-
tiveness of federal regulatory 
framework
The regulatory framework is kept 
updated
Adequate supervision of banks
Increased regulatory require-
ments create HR issues
Coordination of information 
request could be improved
Appropriate and relevant infor-
mation received from foreign 
supervisors

 ο

 ο

 ο
 ο

 ο

 ο

 ο

Basel III implementation will have modest 
impact on lending activities.
Banks currently meet the new minimum capital 
ratios
Increased compliance costs
Unclear competitive effect on international 
banks.
Inadequate processes for collecting relevant 
reliable and timely information. Supervisor 
lacks authority to directly address IT risks posed 
on banks.
Develop policies and procedures that define 
how it will systematically and comprehensively 
evaluate its risk assessment activities.
The Federal Reserve shall complete a final 
2-year SCAP analysis, and apply lessons 
learned from SCAP to improve transparency 
of bank supervision, examiner guidance, risk 
identification and assessment, and regulatory 
coordination

 
 
Annexes 

98

responsibilities

I IMF recommendations on transparency and accountability in the ECB’s supervisory 
V
x
e
n
n
A

1. 

 The Supervisory Board of the SSM should develop and publish a set of guidelines that it will follow in 
formulating policy recommendations.

Measures recommended to 
promote the credibility of 
supervisory policies when 
the ECB assumes supervisory 
responsibilities

2. 

3. 

The Supervisory Board should publish minutes of its policy meetings.

 The ECB should onsider establishing an external panel of experts to provide independent oversight of the S 
SM. The panel should publish regular reports and provide direct feedback to the Supervisory Board.

Source: IMF, Financial Sector Assessment Program European Union, Country Report 13/65, March 2013.

 
 
Annexes 

99

I

Regulation

I The scope of European Commission’s review under the Article 32 of the SSM 
V
x
e
n
n
A

The European Commission shall publish a report on the application of the SSM Regulation evaluating, inter alia, 
the following:

(a)  the functioning of the SSM within the ESFS and the impact of the supervisory activities of the ECB on the 

interests of the Union as a whole and on the coherence and integrity of the internal market in financial ser-
vices […];

(b)  the division of tasks between the ECB and the national competent authorities within the SSM […];

(c)  the effectiveness of the ECB’s supervisory and sanctioning powers and the appropriateness of conferring on 

the ECB additional sanctioning powers […];

(d)  the appropriateness of the arrangements set out respectively for macroprudential tasks and tools under 

Article 5 and for the granting and withdrawal of authorisations under Article 14;

(e)  the effectiveness of independence and accountability arrangements;

(f )  the interaction between the ECB and the EBA;

(g)  the appropriateness of governance arrangements, including the composition of, and voting arrangements 

in, the Supervisory Board and its relation with the Governing Council […];

(h)  the interaction between the ECB and the competent authorities of non-participating Member States and the 

effects of the SSM on these Member States;

(i)  the effectiveness of the recourse mechanism against decisions of the ECB;

(j)  the cost effectiveness of the SSM;

(k)  the possible impact of the application of Article 7(6), 7(7) and 7(8) on the functioning and integrity of the 

SSM;

(l)  the effectiveness of the separation between supervisory and monetary policy functions within the ECB and 

of the separation of financial resources devoted to supervisory tasks from the budget of the ECB […];

(m) the fiscal effects that supervisory decisions taken by the SSM have on participating Member States […];

(n)  the possibilities of developing further the SSM, taking into account any modifications of the relevant provi-

sions, including at the level of primary law, and taking into account whether the rationale of the institutional 
provisions in this Regulation is no longer present […].

 
 
Annexes 

I
I

I Survey of National Competent Authorities and supervised institutions
V
x
e
n
n
A

Survey of National Competent Authorities

1. 

Governance: Decision-making process

QUESTION 1: Has the sub-coordinator of the relevant JST always liaised with your organisation to ensure 
that you review and express opinions on draft supervisory decisions addressed to credit institutions in your 
jurisdiction? 
QUESTION 1a: if not, please explain (see Box 1).

QUESTION 2: Do you consider that the ECB’s decision-making process takes account of your organisation’s 
expertise and views, and that your organisation’s opinion is reflected in the SB draft proposal?  
QUESTION 2a: if not, please explain (see Box 1).

QUESTION 3: Did you have cases in which diverging views on supervisory decisions could not be resolved with 
the JST?

QUESTION 3a: If so, were you given the opportunity to resolve these differences through bilateral contact 
between the ECB intermediate structures and your organisation’s management?

QUESTION 4: Did you have cases where these differences could not be addressed and consensus could not be 
achieved?

QUESTION 4a: If so, were you invited to provide input within an agreed timeframe in order for discussions to 
take place at SB?

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

100

11

1

0

12

11

1

0

12

6

6

0

12

5

0

7

12

6

5

1

12

5

0

7

12

91.7 %

8.3 %

0.0 %

100.0 %

91.7 %

8.3 %

0.0 %

100.0 %

50.0 %

50.0 %

0.0 %

100.0 %

41.7 %

0.0 %

58.3 %

100.0 %

50.0 %

41.7 %

8.3 %

100.0 %

41.7 %

0.0 %

58.3 %

100.0 %

Box 1 – Governance: Decision-making process 

The vast majority of NCAs are very satisfied with the SSM decision-making process, although a few propose 
more involvement by NCA staff in decision-making. For example, one NCA referred to a case when the process 
did not take into account the NCA experts’ opinions in the final proposals submitted to the Supervisory Board, 
and another commented that changes to proposals were made by the ECB staff without sufficient interaction 
and involvement of the JST staff from the NCA. 

 
 
Annexes 

I
I
I

V
x
e
n
n
A

2. 

Internal Auditors Committee: Questions on the IAC’s work in the context of banking supervision

QUESTION 1: Do you consider the ‘audit universe’ (i. e. the overall overview of clusters, audit 
objects, audit areas and main elements) of the SSM to be complete, comprehensive and 
comprehensible?  
QUESTION 1a: if not, please state which areas should be included (see Box 2).

QUESTION 2: Is it clear to you what will be the precise scope of the audits underlying the audit 
objects selected for audit in the next cycle? Do you think in this context that the audit objects 
are comprehensively covered within a reasonable timeframe?  
QUESTION 2a: if not, what could be improved to make the content of the audit objects more 
clear and ensure comprehensive coverage within a given timeframe? (see Box 2).

QUESTION 3: Is the overall resource allocation and selection process of the IAC transparent?  
QUESTION 3a: if not, what could be improved? (see Box 2).

QUESTION 4: Do you consider the risk assessment process for the audit objects in the IAC to be 
transparent and appropriate?  
QUESTION 4a: If not, what could be improved? (see Box 2).

QUESTION 5: In your organisation, have you separated the organisation of the internal audit 
function for monetary policy topics from audits dealing with supervisory functions?

QUESTION 5a: if so, does this separation include management?

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

101

8

3

1

12

11

0

1

12

9

1

2

12

11

0

1

12

4

3

5

12

4

0

8

12

66.7 %

25.0 %

8.3 %

100.0 %

91.7 %

0.0 %

8.3 %

100.0 %

75.0 %

8.3 %

16.7 %

100.0 %

91.7 %

0.0 %

8.3 %

100.0 %

33.3 %

25.0 %

41.7 %

100.0 %

33.3 %

0.0 %

66.7 %

100.0 %

 
 
Annexes 

102

QUESTION 5b: If so, up to which management level (team leader, head of unit, head of divi-
sion, director, board member)?

I
I
I

V
x
e
n
n
A

QUESTION 5c: If not, have you made arrangements for shared services in this respect?

QUESTION 6: In your organisation, how many people per 100 FTE of staff in the banking 
supervisory function do you have in the internal audit function? The average number is 1.59 per 
100 FTE. The figures varied significantly; therefore a precise assertion cannot be made based on 
the data obtained.

TEAM LEADER

HEAD OF UNIT

HEAD OF DIVISION

DIRECTOR

BOARD MEMBER

N/A

TOTAL 

Y

N

N/A

TOTAL

2

2

0

0

0

8

12

1

1

10

12

16.7 %

16.7 %

0.0 %

0.0 %

0.0 %

66.7 %

100.0 %

8.3 %

8.3 %

83.3 %

100.0 %

Box 2 – Internal Auditors Committee

Almost all NCAs are satisfied with the IAC’s work in the context of banking supervision, although a few 
highlighted risks in the internal audit process. For example, one NCA referred to the risk that ‘due to staffing 
constraints in smaller NCAs the defined scope and audit tasks might not be fulfilled in the foreseen timeframe 
and/or coverage’, and another had the perception that ‘ongoing SSM audits were wide-ranging in their goal 
and did not take full account of the specificities of the individual NCAs, necessitating more audit resources 
than previously reckoned with’. 

Regarding what could be improved, the following issues were raised by individual NCAs: 

 ο the scope, timeframe and timing of each audit should be discussed and shared in a more timely and effec-

tive way to enable better planning and preparation of the audit at the local level;

 ο a clear and precise audit scope should be defined before the start of fieldwork – particularly in circum-
stances where a number of audit teams from different NCAs simultaneously undertake a joint audit 
engagement and need to reach common objectives. Otherwise the risk remains, for audit engagement 
projects at the level of the SSM, that the output of different audit teams will vary too widely; 

 ο the ATFs should give the IAC more information on resource allocation in order to enhance the selection of 

audits. 

 
 
Annexes 

3. 

Joint supervisory teams

QUESTION 1: Does the current staffing of your organisation meet the NCA requirements for JST staffing?

I
I
I

V
x
e
n
n
A

Y

N

N/A

TOTAL

QUESTION 2: In your opinion, are the JSTs (including both ECB staff and NCA staff) for each bank in your coun-
try sufficiently staffed to effectively supervise the significant institutions? 
QUESTION 2a: if not, is the shortfall due to a shortage of NCA staff? ECB staff? Or both NCA and ECB staff?

Y

N

QUESTION 3: How many supervisory staff do you have in total? (Answers not disclosed)

QUESTION 4: How many of your organisations staffs are currently allocated to the JSTs (total FTE)? The average 
number is 59.47 staff allocated to the JSTs.

QUESTION 5: Have you faced difficulties in hiring qualified and experienced staff for offsite banking 
supervision?

QUESTION 6: How many supervisory staff have you planned to hire over the next 3 years to adequately staff 
the expected need for JST personnel? (Answers not disclosed)

QUESTION 7: Has the ECB ever rejected a candidate nominated to a JST by your organisation?

QUESTION 8: Does your organisation currently have any of its supervisory staff allocated to a JST(s) for any 
bank(s) that are not headquartered in your Member State?

N/A

TOTAL

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

103

8

2

2

12

6

4

2

12

5

6

1

12

0

12

0

12

9

3

0

12

66.7 %

16.7 %

16.7 %

100.0 %

50.0 %

33.3 %

16.7 %

100.0 %

41.7 %

50.0 %

8.3 %

100.0 %

0.0 %

100.0 %

0.,0 %

100.0 %

75.0 %

25.0 %

0.0 %

100.0 %

 
 
Annexes 

104

I
I
I

V
x
e
n
n
A

QUESTION 8a: if so how many? 
QUESTION 8b: if so to how many different JSTs?  
Details not disclosed. Generally speaking the FTE equivalents were rather low or none, however the number of 
JSTs concerned ranged from 2 to 14.

QUESTION 9: Does your organisation request or receive any form of performance feedback from the JST Coor-
dinator or other ECB employee regarding the work performance of your staff working in JSTs?

QUESTION 9a: If so, is this feedback taken into account when your organisation’s management conducts the 
performance review of your staff working in JSTs?

QUESTION 10: Do you publish and use Q & As of EBA partially, fully or not at all in your communication with the 
banks?

QUESTION 10a: If you publish these questions only partially, is there a clear decision process in your NCA which 
of the Q & As to apply in practice and which are not applied, if any?

QUESTION 11: Is the information flow from ECB on questions of principle (e. g. how to apply a Q &A answer of 
EBA or not in practice) smooth in terms of getting a clear answer in good time?

QUESTION 11a: How many days does it take on average to obtain an answer on such questions (you may also 
indicate a range)? Answers ranged from few business days till ‘several months’.

QUESTION 11b: What could be done to improve the situation if you deem it unsatisfactory? (see Box 3).

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

FULLY

PARTIALLY

NOT AT ALL

N/A

TOTAL

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

8

2

2

12

2

4

6

12

7

4

1

0

12

1

2

9

12

2

5

5

12

66.7 %

16.7 %

16.7 %

100.0 %

16.7 %

33.3 %

50.0 %

100.0 %

58.3 %

33.3 %

8.3 %

0.0 %

100.0 %

8.3 %

16.7 %

75.0 %

100.0 %

16.7 %

41.7 %

41.7 %

100.0 %

 
 
Annexes 

105

I
I

I Box 3 – Joint supervisory teams
V
x
e
n
n
A

Regarding what could be improved, NCAs recommended: 

 ο an increase in horizontal staff working on bank internal model (Internal Ratings Based (IRB), Advanced 
Measurement Approach (AMA) analysis and related tasks (e.g. approval of significant model updates);

 ο employment of more additional staff, reduction in the number of overlapping tasks, reduction in addi-

tional NCA tasks;

 ο the provision of a list of key contacts for queries on particular topics so as to determine more easily to 

whom to direct their queries; 

 ο a more structured process for implementing all relevant ECB/EBA standards, using an IT tool to consolidate 
all relevant standards for the JSTs (policy stances, etc.), since there still exists a noticeable difference in the 
work of different JSTs;

 ο the establishment of a larger pool of experts in the horizontal DGMS IV focusing solely on regulatory inter-
pretation questions, with better links and reactive transmission of information to and from legal experts in 
DG Legal and the JSTs in DGMS I and II, since exchanging and getting clear stances from the ECB on regulatory 
principles has proven time-consuming and ineffective;

 ο a review of the performance appraisal of NCA JST staff.

 
 
Annexes 

4. 

On-site inspections

QUESTION 1: Did your organisation perform on-site inspections before the SSM was established?

I
I
I

V
x
e
n
n
A

QUESTION 1a: If so, were they comparable (audit methodology, procedures, in-depth) to the on-site inspec-
tions performed under SSM?) 
QUESTION 1b: if not, please indicate the main differences. For those who replied the duration and depth of 
investigation differed (longer and more intrusive).

QUESTION 2: Is the on-site inspection unit separate from the off-site unit in your organisation (i. e. different 
people working off-site and on-site)?

QUESTION 3: How many of your organisation’s on-site inspections (FTE) are allocated to the inspection of 
significant credit institutions? (Answers not disclosed)

QUESTION 4: How many of your organisation’s on-site inspections (FTE) are allocated to the inspection of less 
significant credit institutions? (Answers not disclosed)

QUESTION 5: For the on-site inspection of less significant banks, do you use external service providers, e.g. 
private audit firms?

QUESTION 6: Is it possible for an external service provider to be head of mission in such audits?

106

12

0

0

12

9

2

1

12

9

3

0

12

1

10

1

12

2

5

5

12

100.0 %

0.0 %

0.0 %

100.0 %

75.0 %

16.7 %

8.3 %

100.0 %

75.0 %

25.0 %

0.0 %

100.0 %

8.3 %

83.3 %

8.3 %

100.0 %

16.7 %

41.7 %

41.7 %

100.0 %

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

 
 
Annexes 

QUESTION 7: Do you have sufficient resources for on-site inspections following the introduction of the SSM? 
QUESTION 7a: if not, what extra resources would you require? (in terms of FTEs and skills) (Answers not 
disclosed)

I
I
I

V
x
e
n
n
A

QUESTION 8: Has your organisation set minimum requirements for qualification as an on-site inspector or 
head of mission?  
QUESTION 8a: if so, please state what they are.

QUESTION 9: According to the supervisory manual (Chapter 6.4.15), the findings of the on-site inspections 
must be categorized. Does the ECB provide your organisation with adequate guidelines for categorization?

QUESTION 10: Since the establishment of the SSM, has your organisation performed any ad-hoc inspections 
for less significant banks?

QUESTION 11: There is no reimbursement for salary costs incurred by the NCAs for inspections of significant 
credit institutions in the current framework. Do you think this practice should be changed?  
QUESTION 11a: if yes, how should it be changed?  
Most answers referred to the reimbursement of cross-border mission costs (including salaries).

QUESTION 12: Before the establishment of the SSM, did your organisation use external auditors to perform 
on-site inspections?

QUESTION 12a: If so, were some of these inspections headed by externals?

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

107

8

3

1

12

9

1

2

12

9

2

1

12

8

4

0

12

5

2

5

12

3

9

0

12

2

2

8

12

66.7 %

25.0 %

8.3 %

100.0 %

75.0 %

8.3 %

16.7 %

100.0 %

75.0 %

16.7 %

8.3 %

100.0 %

66.7 %

33.3 %

0.0 %

100.0 %

41.7 %

16.7 %

41.7 %

100.0 %

25.0 %

75.0 %

0.0 %

100.0 %

16.7 %

16.7 %

66.7 %

100.0 %

 
 
Annexes 

108

I
I
I

V
x
e
n
n
A

QUESTION 13: From an overall perspective, what could be improved in the field of on-site inspections? (see 
Box 4)

QUESTION 14: Do you effectively use IMAS for on-site supervision? 
QUESTION 14a: if so, how much of your IT-related work, as a % of the total, is actually done in IMAS?
Answers largely varied from a non-use until a very frequent use of IMAS; given the textual elements the 
answers did not allow for a clear conclusion.

Y

N

N/A

TOTAL

5

4

3

12

41.7 %

33.3 %

25.0 %

100.0 %

Box 4 – On-site inspections

Regarding what could be improved, the following issues were raised by individual NCAs:

 ο improvements in the technical aspects of organising on-site missions to SIs;

 ο the methodologies for SI and LSI on-site inspections should be equal in order to avoid an additional bur-

den on on-site inspectors and ensure inspections are conducted consistently at all banks;

 ο further development of on-site methodology to improve consistency of the approach in all jurisdictions, 
since missions are still being performed on the basis of each country's previous experience and national 
practices in the area of on-site inspections are extremely different;

 ο more focused feedback from the ECB on both the mission itself and the inspection report;

 ο more training and technical support from the COI; 

 ο improvements in the planning process, since calls for participation are announced with too little notice 

and thus on-site participation cannot be coordinated with other commitments. Participation in cross-bor-
der missions is difficult due to their volatility in terms of scope, the required skill-set for inspectors, and the 
resources committed to such a project. 

 
 
Annexes 

109

I
I

I Survey of supervised institutions
V
x
e
n
n
A

In the context of the SSM audit, the ECA contacted all significant European banks supervised directly by the SSM 
in order to obtain their views as to how well the SSM has performed in discharging key elements of its mandate 
as a single supervisor. The information provided was not audited by the ECA; it is presented here with the aim of 
producing a balanced report that considers stakeholders’ views on the areas selected for audit.

1. 

Accountability arrangements (yes or no)

QUESTION 1: Do you consider that the current feedback arrangements established by the ECB (e.g. public 
consultation for ECB regulations, SSM framework, reporting of supervisory financial information, supervisory 
fees, exercise of options and discretions) in order to request banks’ views on SSM supervision meet your needs?

Y

N

N/A

TOTAL

QUESTION 2: If not what could be improved? (see Box 1).

QUESTION 3: Do you consider that areas of supervisory action of a general nature exist for which consulta-
tions should be carried out but are not (e.g. regular surveys of financial institutions on their impressions of the 
efficiency and effectiveness of supervisory activities, as in Canada or Australia)?

Y

N

N/A

TOTAL

QUESTION 4: If so, please name the relevant areas (see Box 1).

42

27

0

69

33

35

1

69

60.9 %

39.1 %

0.0 %

100.0 %

47.8 %

50.7 %

1.4 %

100.0 %

Box 1 – Accountability arrangements

Regarding what could be improved, individual banks recommended that the ECB:

 ο review the consultation arrangements (e.g. the duration of consultation periods); 

 ο better synchronise consultations to allow for limited resources, and extend their scope e.g. to technical 

issues (SREP methodology, capital definitions, granularity);

 ο establish more structured and comprehensive feedback arrangements with financial institutions through 

e.g surveys on their assessment of the efficiency and effectiveness of supervisory activities. 

 
 
Annexes 

2. 

Transparency (Please rate from 1 to 5 or not applicable)

QUESTION 5: Is the information you receive on the SREP process and SREP results sufficient (on a scale of 1 to 5; 
1 = very comprehensive, 3 = well balanced, 5 = poor information)?

I
I
I

V
x
e
n
n
A

QUESTION 6: On a scale of 1 to 5 (1 = excellent, 5 = poor), how would you rate the quality of information you 
have regarding the procedures arising from the supervisory manual that are relevant to your daily work with 
the supervisor?

QUESTION 7: As regards decisions adopted by the ECB concerning your credit institution, how satisfied are you 
with the access you have been given to relevant information to understand the reasoning/result of the decision 
(1 = very satisfied, 5 = not satisfied at all, not applicable)?

QUESTION 8: In the notification sent to your credit institution regarding the ECB’s intention to adopt a supervi-
sory decision, was the information clear as to the legal and substantive grounds for adopting the decision (1 = 
very clear, 5= not clear at all, not applicable)? 

QUESTION 9: What are the key issues, if any, that the ECB should address to improve transparency? (see Box 2).

110

4

7

22

30

5

1

69

2

13

32

15

5

2

69

4

16

26

22

1

0

69

13

15

28

10

2

1

69

5.8 %

10.1 %

31.9 %

43.5 %

7.2 %

1.4 %

100.0 %

2.9 %

18.8 %

46.4 %

21.7 %

7.2 %

2.9 %

100.0 %

5.8 %

23.2 %

37.7 %

31.9 %

1.4 %

0.0 %

100.0 %

18.8 %

21.7 %

40.6 %

14.5 %

2.9 %

1.4 %

100.0 %

1

2

3

4

5

N/A

TOTAL

1

2

3

4

5

N/A

TOTAL

1

2

3

4

5

N/A

TOTAL

1

2

3

4

5

N/A

TOTAL

 
 
Annexes 

111

I
I
I

V
x
e
n
n
A

Box 2 – Transparency 

Regarding what could be improved, individual banks recommended that the ECB:

 ο provide more information on the SSM Supervisory Manual, including information regarding the SREP pro-

cess, methodology and an explanation of the final outcome;

 ο provide better reasoning for supervisory decisions. 

3. 

Governance (yes or no, not applicable)

QUESTION 10: As regards decisions concerning your credit institution, were you given notice of the ECB’s inten-
tion to adopt a supervisory decision sufficiently in advance (for the purpose of organising a hearing)?

Y

N

N/A

TOTAL

QUESTION 11: Do you believe that the outcome of the hearing (i.e. the assessment of the main comments 
raised during the meeting) was given due consideration in the ECB’s final supervisory decision or in a document 
accompanying the final decision?

Y

N

QUESTION 12: Were there cases of supervisory decisions concerning your credit institution where you believe 
the ECB wrongly did not grant you the right to be heard?1 

QUESTION 13: What could be done to further improve governance aspects addressed by the questions above? 
(see Box 3).

N/A

TOTAL

Y

N

N/A

TOTAL

54

6

9

69

23

25

21

69

3

51

15

69

78.3 %

8.7 %

13 %

100.0 %

33.3 %

36.2 %

30.4 %

100.0 %

4.3 %

73.9 %

21.7 %

100.0 %

Box 3 – Governance

Regarding what could be improved, individual banks recommended that the ECB:

 ο extend its supervisory dialogue with banks; 

 ο improve its receptivity of matters raised by banks.

1 

 Two of the banks that replied positively referred to the 2014 stress tests completed prior to 4 November 2014. One bank gave no specific 
information.

 
 
Annexes 

I
I
I

V
x
e
n
n
A

4. 

The principle of proportionality

QUESTION 14: Do you believe that the arrangements, processes and mechanisms regarding internal govern-
ance requirements and recovery plans (if any) are proportionate to the nature of the risks inherent in your 
business model, the complexity of these risks, the size, systemic importance, scale and complexity of your 
institution’s activities? 

QUESTION 15: If not, please indicate where you see disproportionate arrangements. (see Box 4).

QUESTION 16: Do you believe that the variety of different data sets (i.e. full FINREP, simplified supervisory 
financial reporting, oversimplified supervisory financial reporting and supervisory financial reporting data 
points for reporting of supervisory financial information) adequately reflects the proportionality principle?

QUESTION 17: Do you consider the scope and the frequency of reporting on own funds requirements and 
financial information pursuant to Article 99 of the CRR to be proportionate to the nature of your institution?

QUESTION 18: Do you consider the scope and the frequency of reporting on liquidity and in relation to the 
stable funding requirement to be proportionate to the nature of your institution?

QUESTION 19: Do you consider the scope and the frequency of reporting on COREP to be proportionate to the 
nature of your institution?

QUESTION 20: Do you believe that other supervisory reporting requirements as those mentioned in the previ-
ous questions place a disproportionate administrative burden on banks? 

QUESTION 21: If so, which specific requirements do you consider to be burdensome? Please be specific about 
which areas are particularly burdensome and what could be improved (see Box 4).

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

112

35

32

2

69

26

39

4

69

56

8

5

69

43

22

4

69

54

10

5

69

52

17

0

69

50.7 %

46.4 %

2.9 %

100.0 %

37.7 %

56.5 %

5.8 %

100.0 %

81.2 %

11.6 %

7.2 %

100.0 %

62.3 %

31.9 %

5.8 %

100.0 %

78.3 %

14.5 %

7.2 %

100.0 %

75.4 %

24.6 %

0.0 %

100.0 %

 
 
Annexes 

113

QUESTION 22: Do you consider the implementation deadlines for supervisory reporting requirements to be 
reasonable?

I
I
I

V
x
e
n
n
A

QUESTION 23: Do you consider the supervisory fee levied by the ECB upon your institution to be proportionate 
to the importance and risk profile of your institution? 

QUESTION 24: If not, what could be improved in relation to supervisory fees and the methodology for calculat-
ing them (e.g. the factors total assets and risk profiles)? (see Box 4).

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

29

40

0

69

30

32

7

69

42.0 %

58.0 %

0.0 %

100.0 %

43.5 %

46.4 %

10.1 %

100.0 %

Box 4 – Proportionality 

Regarding what could be improved, individual banks recommended that the ECB:

 ο correct any duplication of data-reporting requests and enhance coordination with other institutions (e.g. 

the EBA). The lack of coordination may mean that the same information is required in different formats and 
templates; 

 ο re-examine whether data-reporting requests apply the proportionality principle (e.g. Short-term exercise 

(STE), granularity of reporting);

 ο reassess the relevance, frequency and deadlines of data-reporting requirements;

 ο reassess the calculation of the SSM supervisory fee – e.g. is the supervisory fee still paid to NCAs. 

 
 
Annexes 

114

5. 

On-site inspections

QUESTION 25: On a scale of 1 (= very good) to 5 (= very bad), how would you rate the quality of the on-site in-
spections carried out under the SSM in terms of how comprehensively the subject matter audited was covered?

I
I
I

V
x
e
n
n
A

QUESTION 26: On a scale of 1 (= very good) to 5 (= very bad), how would you rate the quality of the on-site 
inspections carried out under the SSM in terms of addressing key risks in relation to formalities?

QUESTION 27: After the SSM was established, to whom were the on-site inspection reports addressed? To the 
Supervisory Board, to the Audit Committee, to the Management Board of the credit institution or to a different 
addressee?  
QUESTION 28: What improvements/major changes have been made compared to on-site inspections prior to 
launch of the SSM, and where do you still see room for improvement?(see Box 5).
QUESTION 29: The findings of the inspection report and the recommendations are not categorised into sever-
ity levels. Are you able, from the explanations provided, to determine which findings need to be prioritised and 
how severe they are? (see Box 5)

QUESTION 30: Were the findings on the on-site report clearly explained and was it clear to you how to address 
them?

QUESTION 31: Were you given the opportunity to comment on a draft on-site report within a reasonable 
timeframe and discuss it with the on-site inspection team?

1

2

3

4

5

N/A

TOTAL

1

2

3

4

5

N/A

TOTAL

7

29

14

4

0

15

69

5

15

24

6

0

19

69

SUPERVISORY BOARD

AUDIT COMMITTEE

MANAGEMENT BOARD

OTHER ADDRESSEE

MANAGEMENT BOARD AND 
SUPERVISORY BOARD

TO ALL LISTED 

N/A

TOTAL 

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

41

7

21

69

46

4

19

69

10.1 %

42.0 %

20.3 %

5.8 %

0.0 %

21.7 %

100.0 %

7.2 %

21.7 %

34.8 %

8.7 %

0.0 %

27.5 %

100.0 %

5

1

33

1

2

2

25

69

59.4 %

10.1 %

30.4 %

100.0 %

66.7 %

5.8 %

22.7 %

100.0 %

 
 
Annexes 

115

I
I
I

V
x
e
n
n
A

Box 5 – On-site inspections 

Regarding what could be improved, individual banks recommended that the ECB: 

 ο categorise the findings of on-site inspections by severity levels to enable prioritisation; 

 ο improve on-site inspection arrangements by e.g. faster delivery of final reports and recommendations, and 

provide more time for banks to prepare for pre- closing meetings.

 
 
Annexes 

116

6. 

Joint supervisory teams

QUESTION 32: Is there a clearly established channel of communication between your institution and the SSM 
Joint Supervisory Team responsible for supervising your institution?

I
I
I

V
x
e
n
n
A

Y

N

N/A

TOTAL

65

4

0

69

94.2 %

5.8 %

0.0 %

100.0 %

QUESTION 33: If so, which member of the JST is your first point of contact? (Please provide a job title rather 
than an individual’s name, e.g. JST Coordinator, NCA employee, etc.)

JST COORDINATOR 

NCA

JST COORDINATOR AND 
THE NCA 

JST COORDINATOR OR THE 
NCA

DEPENDS ON THE ISSUE

N/A

TOTAL 

QUESTION 34: Is your institution consistently able to communicate with JST members in the language of your 
institution’s choice?
QUESTION 35: If not, please describe any problems, and what could be improved? (see Box 6).

Y

N

QUESTION 36: Does the Joint Supervisory Team conduct on-site meetings with your institution’s 
management?

QUESTION 37: If such meetings occur, what is the frequency and duration of the meetings in general (please 
state the number of meetings per year).

QUESTION 38: Is this frequency of the meetings 1= excessive 2= appropriate 3= insufficient?

N/A

TOTAL

Y

N

N/A

TOTAL

>12

10-12

8-9

6-7

4-5

2-3

1

DEPENDS

N/A 

TOTAL 

1

2

3

N/A

TOTAL

57

11

1

69

67

2

0

69

13

56

0

0

69

38

5

11

3

6

6

69

82.6 %

15.9 %

1.4 %

100.0 %

97.1 %

2.9 %

0.0 %

100.0 %

9

11

3

6

20

7

2

3

8

69

18.8 %

81.2 %

0.0 %

0.0 %

100.0 %

 
 
Annexes 

117

QUESTION 39: Is the duration of the meetings 1= excessive 2= appropriate 3= insufficient?

I
I
I

V
x
e
n
n
A

QUESTION 40: Is the JST Coordinator always present at such meetings?

QUESTION 41: On a scale of 1 (= very good) to 5 (= very bad), how would you rate the quality of the JST’s off-
site supervision under the SSM? If you did not have enough contact to assess this question please select  
‘Not applicable’

1

2

3

N/A

TOTAL

Y

N

N/A

TOTAL

1

2

3

4

5

N/A

TOTAL

QUESTION 42: Has the quality of off-site supervision 1= improved, 2= remained the same, or 3= deteriorated 
compared to the supervisory regime that preceded the SSM?  
QUESTION 43: If you answered that it has deteriorated or improved, please explain in what respect  
(see Box 6).

1

2

3

QUESTION 44: Has the efficiency of off-site supervision 1= improved, 2= remained the same, or 3= deterio-
rated compared to the supervisory regime that preceded the SSM?  
QUESTION 45: If you answered that it has deteriorated or improved please explain why (see Box 6).

QUESTION 46: Are the members of the JST sufficiently knowledgeable about the specific risks and characteris-
tics of your institution (for those members you have met)?

QUESTION 47: Were you able to understand which qualitative and quantitative factors affected your SREP 
score from the explanations given by the SREP team (e. g. clarification in bilateral discussions)?

N/A

TOTAL

1

2

3

N/A

TOTAL

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

6

62

1

0

69

52

17

0

69

4

30

23

8

0

4

69

23

34

8

4

69

10

36

17

6

69

57

12

0

69

36

32

1

69

8.7 %

89.9 %

1.4 %

0.0 %

100.0 %

75.4 %

24.6 %

0.0 %

100.0 %

5.8 %

43.5 %

33.3 %

11.6 %

0.0 %

5.8 %

100.0 %

33.3 %

49.3 %

11.6 %

5.8 %

100.0 %

14.5 %

52.2 %

24.6 %

8.7 %

100.0 %

82.6 %

17.4 %

0.0 %

100.0 %

52.2 %

46.4 %

1.4 %

100.0 %

 
 
Annexes 

118

QUESTION 48: If you address questions to the JST, do you receive replies within a reasonable timeframe?

I
I
I

V
x
e
n
n
A

QUESTION 49: Have cases been noted where questions addressed to the JST went unanswered or were 
answered in a not understandable manner?

Y

N

N/A

TOTAL

Y

N

N/A

TOTAL

55

14

0

69

18

50

1

69

79.7 %

20.3 %

0.0 %

100.0 %

26.1 %

72.5 %

1.4 %

100.0 %

 
 
Annexes 

119

QUESTION 50: Are replies received from the JST clear and reasonably justified?

I
I
I

V
x
e
n
n
A

Y

N

N/A

TOTAL

59

8

2

69

85.5 %

11.6 %

2.9 %

100.0 %

Box 6 – JSTs

Regarding what could be improved, individual banks recommended that the ECB:

 ο facilitate communication with the JSTs in their chosen (native) language e.g. on technical matters. For 

example, sometimes documents in the national language of the bank were required in English although 
some members of the JST were of the same nationality. The JST Coordinator and JST members need to suf-
ficiently understand the language chosen by the institution in order to be able to read and understand the 
information; 

 ο improve coordination between JST members from the ECB and NCAs. For example, the JST mailbox is only 

accessible by ECB members, not by NCA members.

 
 
 
 
Annexes 

120

Parliament

X Main elements of the arrangements for ECB accountability towards the European 
I
x
e
n
n
A

Article 20(1) The ECB is accountable to Parliament and the Council for the implementation of the Regulation

Article 20(3) The Chair of the Supervisory Board of the ECB must present the report on the execution of the tasks conferred 
upon it by the Regulation in public to Parliament

Article 20(5) At Parliament’s request, the Chair of the Supervisory Board must participate in a hearing on the execution of 
its supervisory tasks

Article 20(6) The ECB must reply orally or in writing to questions put to it by Parliament […]

Article 20(8) Upon request the Chair of the Supervisory Board must hold confidential oral discussions behind closed doors 
with the Chair and Vice-Chairs of the Parliament’s competent committee concerning its supervisory tasks where such 
discussions are required for the exercise of the Parliament’s powers under the TFEU

Article 20(9) The ECB must cooperate sincerely with any investigations by the Parliament, subject to the TFEU

1. 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

 The ECB shall submit every year a report to Parliament on the execution of the tasks conferred on it by Regulation (EU) 
No 1024/2013. The Chair of the Supervisory Board shall present the annual report to Parliament at a public hearing.

 The Chair of the Supervisory Board shall participate in ordinary public hearings on the execution of the supervisory 
tasks at the request of Parliament’s competent committee. Parliament’s competent committee and the ECB shall agree 
on a calendar for two such hearings to be held in the course of the following year.

 In addition, the Chair of the Supervisory Board may be invited to additional ad-hoc exchanges of views on supervisory 
issues with Parliament’s competent committee.

 Where necessary for the exercise of Parliament’s powers under the TFEU and EU law, the Chair of its competent com-
mittee may request special confidential meetings with the Chair of the Supervisory Board in writing, giving reasons.

 On a reasoned request by the Chair of the Supervisory Board or the Chair of Parliament’s competent committee, and 
with mutual agreement, the ordinary hearing, the ad-hoc exchanges of views and the confidential meetings may be 
attended by the ECB’s representatives on the Supervisory Board or senior members of supervisory staff.

 The ordinary hearings, ad-hoc exchanges of views and confidential meetings may cover all aspects of the activity and 
functioning of the SSM covered by the SSM Regulation.

 Only the Chair of the Supervisory Board and the Chair and the Vice-Chairs of Parliament’s competent committee may 
attend the confidential meetings.

 The ECB shall provide Parliament’s competent committee at least with a comprehensive and meaningful record of the 
proceedings of the Supervisory Board that enables an understanding of the discussions, including an annotated list of 
decisions.

Regulation (EU) No 
1024/2013 conferring 
tasks on the ECB 
concerning policies 
relating to the prudential 
supervision of credit 
institutions

Inter-institutional 
Agreement between the 
European Parliament and 
the ECB

Source: ECA.

 
 
Annexes 

X Structure of the reporting process for on-site inspection
x
e
n
n
A

2.

3. 

1. 

4. 

Preparation of pre-draft
report / list of ﬁndings 

Meeting with the credit
institution 

Preparation of draft report 

Consistency check 

Parties involved 

121

5. 
Send ﬁnal report and
conﬁdential letter to JST
and NCAs

Inspection team

Inspection team

Inspection team

ECB COI

HoM

Credit institution

JST

6.

Preparation of 
recommendations 

7.

Send the report and 
the draft recommendations to 
the credit institution 

8.

Closing meeting 

9.

Send FINAL recommendations 
to the credit institution 
and NCA

Parties involved 

JST

JST

JST

JST

HoM

Inspected entity

Source: ECA adapted from the ECB. 

 
 
Reply of the ECB

122

Executive summary

The ECB appreciates the work undertaken by ECA, which will help to further improve the work of the SSM. However, 
the ECB would have appreciated in ECA’s report a more explicit acknowledgement of the major achievements in 
setting up the SSM.

The SSM is an essential element of the banking union and its establishment was a fundamental pillar required to 
end the most disorderly phase of the euro area crisis. Together with the national competent authorities (NCAs), the 
ECB set up the SSM within an exceptionally short and challenging time frame of less than 13 months. These tre-
mendous efforts, as of 4 November 2014, made it possible to take over the direct supervision of now 129 significant 
groups of supervised entities with approximately 1 200 supervised entities and furthermore to make the necessary 
arrangements for overseeing the supervision of the less significant institutions. Since then, the ECB has continued 
to make considerable progress in harmonising supervisory practices at the European level and now adopts more 
than 1 500 supervisory decisions every year.

The relevance and magnitude of this endeavour as well as the related achievements have been widely acknowl-
edged by the public, and the ECB is of the view that the report could have benefited from reflecting this more 
explicitly.

VII
The ECB would like to clarify that it is not its discretionary decision that the Supervisory Board does not exercise 
control over the supervisory budget or human resources. It is worth noting that the Supervisory Board is not a deci-
sion-making body of the ECB but a further body added to the institutional structure of the ECB by the SSM Regula-
tion, which is secondary law. The competences of the Governing Council and of the Executive Board with regard to 
human and financial resources as laid down in primary law have to be preserved. In addition, the ECB would like to 
point out that there is a link between human and financial resources and the Supervisory Board in Article 15.1 of the 
ECB’s Rules of Procedure, which stipulates that ‘the expenditure for the supervisory tasks shall be separately identifiable 
within the budget [of the ECB] and shall be consulted with the Chair and the Vice-Chair of the Supervisory Board’.

The fact that the Supervisory Board does not exercise control over the supervisory budget or human resources is in 
the ECB’s view compatible with the principle of separation and does not jeopardise the independence of the ECB’s 
monetary policy and its supervisory function. The principle of separation requires a functional separation of the 
two functions but does not require the Supervisory Board to have full control over the supervisory budget and the 
ECB’s or the NCAs’ human resources. As recognised in footnote 14 of the ECA’s report, the SSM Regulation did not 
affect the Executive Board’s responsibility for the management of the ECB and its internal organisation, including 
budget and HR issues.

Equally, the establishment of so-called shared services, i.e. business areas that provide support to both functions, 
does not lead to conflicts of interests and is therefore compatible with the principle of separation. The establish-
ment of such shared services ensures that efforts are not duplicated, in the interests of efficient and effective deliv-
ery of services. This approach is reflected in Recital 14 of the ECB Decision on separation (ECB/2014/39), according 
to which ‘effective separation between the monetary policy and supervisory functions should not prevent the reaping, 
wherever possible and desirable, of all the benefits to be expected as a result of combining these two policy functions in 
the same institution…’.

Reply of the ECB

123

Audit approach and methodology

19
The ECB is of the opinion that all audit evidence covered by the Court’s mandate to audit the ‘’operational efficiency 
of the management of the ECB’’, which is enshrined in Article 27.2 of the ESCB Statute and Article 20(7) of the SSM 
Regulation, has been provided. In this respect, the ECB disagrees with the Court’s statement that the ECB provided 
very little of the information requested. The ECB, in accordance with its obligations under the ESCB Statute and 
the SSM Regulation, fully cooperated with the Court to facilitate the audit and invested considerable amount of 
resources and time in order to provide the audit team with a substantial number of documents and explanations. 
Some documents (such as minutes of the Supervisory Board; individual supervisory decisions) could not be pro-
vided, however, because they did not concern the operational efficiency of the management of the ECB, as required 
by the ESCB Statute and reflected in the SSM Regulation.

Governance

30
In one case the follow-up to the ABoR proceedings was delayed because of the complexity of the case and the need 
to respect the right to be heard of the supervised entity concerned.

39
The Steering Committee duly considered the pros and cons and decided to keep the current working modalities as 
the best possible option.

40
The ECB would like to note that a full separation is required only with reference to carrying out supervisory and 
monetary policy tasks, in order to avoid conflicts of interests. It does not extend to those business areas, such as the 
shared services, which are not involved in the definition of the respective policies.

42
The ECB would like to note that the identification of ECB ‘shared services’ is possible only in cases in which their 
support does not lead to conflict of interest between the ECB’s supervisory and monetary policy objectives, as indi-
cated in Recital 11 of Decision ECB/2014/39. Shared services are business areas supporting the ECB policy functions 
with technical expertise which does not have an impact on the development of ECB policies.

Reply of the ECB

124

45
The concept of ‘Chinese walls’ has not been embodied in the letter and spirit of the SSM Regulation. Instead, a dif-
ferent approach has been adopted, i.e. allowing communications and exchange of information, to the extent that 
this does not trigger conflicts of interests, in order to take advantage of the positive synergies created by taking 
monetary policy and supervisory functions ‘under the same roof’. For that purpose, Article 25(3) of the SSM Regula-
tion requires the ECB ‘to adopt and make public internal rules, including rules regarding professional secrecy and infor-
mation exchanges between the two functional areas’. This provision explicitly recognises the possibility to exchange 
information between the two policy functions.

51
See the ECB’s reply to the first part of paragraph VII.

60
The ECB would like to add that, for workload-related reasons, and as agreed in principle in December 2015, the IAC 
decided in July 2016 to split the ATF SSM/Statistics into an ATF SSM and an ATF Statistics. This change will become 
effective at the end of 2016.

63
ATF members nominated by the NCBs/NCAs have extensive experience in banking supervision, including several 
years at managerial level.

Common ECB reply to paragraphs 73 to 74
The ECB is of the opinion that the coverage of high and medium-risk areas and key elements is ensured.

The ECB is of the opinion that the planning approach conforms to professional practices. While no mandatory risk 
cycle exists, the risk assessment model factors in the audit work previously conducted on the related processes. The 
selection of audits is based on a risk assessment which is adjusted on a quarterly basis and the decision on audit 
topics also takes into account the time of the last audit and the coverage of risk areas within the respective process.

75
D-IA resources cover the entire range of ECB operations and activities. The ECB is of the opinion that the ratio 
expressed has to be set in the overall context. A dedicated team was established for SSM-specific audit objects and 
was incrementally built up in D-IA but was not fully available throughout 2015. As a result, the overall rate in 2015 is 
not fully representative of the current situation.

Reply of the ECB

125

76
The ECB would like to add that the calibration corrects e.g. inconsistencies in the application of the risk rating 
model, which serves as a prioritisation tool. Professional standards require that internal audit’s priorities are consist-
ent with the organisation’s objectives and recognise that audit plans ‘are based on, among other factors, an assess-
ment of risk and exposure’.1 The ECB is of the opinion that the approach conforms with professional standards.

77
The prioritisation exercise took into account that certain processes were still in the ‘development phase’. The ECB 
is of the opinion that the selected audits added more value at the current stage in comparison to reviews of the 
processes SREP or banking crisis, which were scheduled for the medium term.

Accountability arrangements

Common reply to paragraphs 78 et seq.
The ECB is of the opinion that it is subject to a strong accountability framework (as described in Annex IX of the 
report) and fully complies with the respective provisions of the ESCB Statute, the SSM Regulation and the Interin-
stitutional Agreements with the European Parliament and the Council. The existing framework foresees detailed 
accountability rules that were specifically designed for the ECB and are therefore more relevant than the Court’s 
‘landscape review on EU accountability’.

89
While the ECB agrees that the development of a formal performance framework might be a useful tool to meas-
ure the effectiveness of banking supervision, the development of such a framework will require more time. This is 
driven by the practical need to base it on relevant indicators, the identification of which requires drawing on experi-
ence. In addition, such indicators should be measured over several years.

91
The ECB observes that the IMF technical note quoted was prepared by IMF staff and does not constitute an official 
IMF stance. The ECB therefore objects to such working papers being considered a relevant point of reference.

The ECB would also like to clarify that the proceedings of the Supervisory Board are confidential in accordance with 
Article 23(1) of the ECB’s Rules of Procedure. This reflects the strict professional secrecy requirements to which the 
ECB is subject under Article 37 of the ESCB Statute and Article 27 of the SSM Regulation. To ensure full accountabil-
ity, the ECB, in accordance with the Interinstitutional Agreement with the European Parliament, provides the Parlia-
ment’s competent committee with a comprehensive and meaningful record of the proceedings of the Supervisory 
Board that enables an understanding of the discussions, including an annotated list of decisions.

1  cf. International Standards for the Professional Practice of Internal Auditing; Performance Standard 2010 – Planning; Effective January 1, 2013 and 

related Practice Advisory 2010-1

Reply of the ECB

126

92
The ECB would like to emphasise that it fully supports the ongoing review of the SSM Regulation by the European 
Commission and has, following the signature of a confidentiality and non-disclosure agreement, provided the Euro-
pean Commission with the requested documentation.

Furthermore, the ECB would like to clarify that the review of the SSM Regulation is not part of the accountability 
framework as defined by the SSM Regulation.

94
The ECB would like to add that, as recognised in paragraph 93, it has published on its banking supervision website 
‘comprehensive information’ on how it performs its supervisory tasks. In addition to a general guide on banking 
supervision, it has published a considerable number of documents outlining its supervisory policy stances and 
practices (e.g. Guide on options and discretions available in Union law). The ECB constantly strives to increase the 
transparency of its supervisory approaches and will publish in the coming months further policy stances once the 
required public consultations are completed. As regards SREP, the ECB published in February 2016 the ‘SSM SREP 
Methodology Booklet’, which addresses the legal basis and the methodology of the SREP process. These documents 
outlining the ECB’s policy stances and practices are of more relevance for credit institutions than the internal Super-
visory Manual.

In addition, the ECB uses other communication tools (workshops with banks, speeches, supervisory dialogue with 
the JSTs, press releases, conferences, calls with CEOs) to inform the supervised entities about the ECB’s supervisory 
approaches.

In conclusion, the ECB is of the opinion that the information disclosed to supervised entities is sufficient for a proper 
understanding of SSM supervision.

Common reply to paragraphs 95 and 96
The ECB is of the opinion that the information disclosed by the ECB is sufficient. As regards banks’ perceptions 
regarding disclosure in the context of the SREP, the ECB takes positive note of the fact that half of the 69 banks that 
replied to the questionnaire found that the information provided by the ECB on the SREP process and the SREP 
results was very comprehensive or at least well balanced.

As regards the quality of information on supervisory procedures, the ECB notes that 68% of the respondents found 
that the quality of the information was sufficient.

103
As regards the need to conduct surveys, the ECB notes that it has, since the establishment of the SSM, been in close 
contact with the banking federations, including the European Banking Federation (EBF), which, as part of its work 
on ‘banks’ SSM supervisory experience 2015’ (an exercise which it intends to carry out on an annual basis), con-
ducted (in coordination with the national banking associations) a survey covering 94 out of the (at the time) 122 
significant institutions. The recommendations made in the EBF report were followed by answers from the Chair as 
well as meetings at the technical level with representatives of banks.

Having focused so far on making the SSM fully operational, the ECB will start considering the possibility of conduct-
ing its own surveys provided that there is clear value added (in particular, no overlap with surveys conducted by 
other stakeholders).

Reply of the ECB

127

Joint Supervisory Teams - Organisation and resource allocation

110
The ECB would like to clarify that the ratio of 25 % ECB staff and 75 % NCA staff was a widely shared benchmark 
when the SSM was established and not a formalised target.

115
The ECB would like to note that, while certain parallels between the significance assessment for Globally Systemic 
Important Banks (G-SIBs) and the ECB’s clustering methodology might be drawn, there is no valid link to the EBA 
methodology. The ECB methodology does not categorise banks according to the EBA approach, nor does it provide 
for a G-SIB or significance assessment, for example. The objective of the ECB clustering is to introduce subcategories 
for SIs with the objective of implementing proportionality, thereby creating a starting point for headcount alloca-
tion within the category of SIs.

119
Please refer to the ECB’s reply to paragraph 115.

…but conflicting reporting lines…
Please refer to the ECB’s reply to paragraph 147.

141 (c)
The ECB notes that this technical limitation was resolved on 6 September 2016.

147
The ECB is of the opinion that the wording ‘conflicting reporting lines’ is inadequate. In the ECB’s view, parallel but 
not conflicting reporting lines have been established. Owing to the organisational set-up of the SSM, the NCA man-
agement is solely responsible for all tasks outside the SSM and all matters of hierarchy and human resources.

149
The ECB is of the opinion that it is too early to deal with an off-site supervision certification programme. The Steer-
ing Group for Supervisory Training is currently in the process of designing and establishing a joint system-wide 
training curriculum for all relevant SSM staff; a certification programme would be premature. Restricting the train-
ing programme to off-site supervision would neglect the fact that staff will rotate over time and therefore should 
have a more generally applicable curriculum.

Reply of the ECB

On-site supervision

128

159
This categorisation will change once the SSM Manual has been revised in the context of the introduction of the 
‘targeted engagement levels’ concept as explained in paragraph 163.

178
The ECB would like to clarify that formal guidance on the consistent categorisation of findings will be formally 
included in the 2016 update of Chapter 6 of the SSM Manual.

182
The ECB would like to clarify that information on who is expected to attend the closing meeting on the part of the 
credit institution will be provided in the OSI guide to be released in the course of 2016.

Conclusions and recommendations

184
The ECB disagrees with the statement that the audit has confirmed an audit gap which has emerged since the 
establishment of the SSM. In the ECB’s view, the Court received all the information and documentation necessary to 
assess the operational efficiency of the management of the ECB in accordance with Article 27.2 of the ESCB Statute 
and Article 20(7) of the SSM Regulation.

Please refer also to our comment on paragraph 80 describing the different layers of controls and accountability 
arrangements now in place.

186
Please refer to the ECB’s reply to paragraphs 40 and 45.

187
Please refer to the ECB’s reply to paragraphs 73 and 74.

Reply of the ECB

129

Recommendation 1
The ECB accepts the first part of the recommendation and the target implementation date, subject to approval by 
the Governing Council.

The ECB would like to note that it will endeavour to further streamline the decision-making process. As a matter of 
fact, it has already introduced a number of measures in this direction, in particular the adoption of most supervisory 
decisions by written procedure and the standardisation of the documentation submitted to the decision-making 
bodies. Moreover, the ECB is working on a delegation framework for supervisory decisions, which would allow the 
adoption of routine supervisory decisions to be delegated to a lower level.

The ECB accepts the second part of the recommendation. The Secretariat to the Supervisory Board has already 
developed checklists, templates and flowcharts and will make them available to the staff in the business areas 
involved in banking supervision in September 2016. The Secretariat will develop this set of tools further and offer 
training on how to use them.

Recommendation 2
The ECB accepts part (i) of the recommendation.

The ECB does not accept part (ii) of the recommendation.

Recital 66 only mentions a separate reporting line for staff carrying out supervisory tasks conferred on the ECB by 
this regulation which does not include staff in shared services. Strict implementation of this principle for shared 
services would substantially increase costs and decrease the efficiency of the operational management of the ECB.

The ECB does not accept part (iii) of the recommendation.

The ECB believes that, within the limits of the legal framework, the Chair and the Vice-Chair already have a strong 
involvement in the process of establishing the budget. As established in the Rules of Procedure, the Chair and the 
Vice-Chair are consulted. The SSM Regulation stipulates that the Vice-Chair is a member of the ECB’s Executive 
Board and of the Governing Council, which is the ultimate decision-maker. This ensures that the supervisory func-
tion’s views are duly conveyed, as well as safeguarding a high degree of influence and transparency.

Recommendation 3
The ECB accepts the recommendation subject to a decision to allocate additional resources to the internal audit 
function.

188
The ECB would like to clarify that it has not ‘’imposed’’ a limitation on access to documents. Access to documents by 
the ECA should be in line with its mandate as stipulated by Article 27.2 of the ESCB Statute and Article 20(7) of the 
SSM Regulation. Therefore, there is no lack of cooperation, but a different interpretation of the remit of the audit.

Reply of the ECB

130

Recommendation 4
The ECB takes note of the recommendation and will continue to fully cooperate with the Court in order to enable it 
to exercise its mandate, as defined in the ESCB Statute and the SSM Regulation.

Recommendation 5
The ECB accepts the recommendation subject to the following:

The ECB agrees with the need for transparency on its supervisory activities. In this regard, the SSM priorities are 
published as the focal point and the objective of supervisory activities. In the ‘ECB Annual Report on supervisory 
activities’, which is published on the ECB’s website, the ECB reports on the measures taken to meet this objective. 
In addition, comprehensive statistics are published via the Annual Report. These include, but are not limited to, the 
number of authorisation procedures, reported breaches of EU law, enforcement and sanctioning measures and the 
number of on-site inspections performed broken down by risk category and cluster.

The ECB is in close contact with the banking federations, as part of its work on ‘banks’ SSM supervisory experience 
2015’ conducted a survey covering 94 of the (at the time) 122 significant institutions. This was done in cooperation 
with the national banking associations. The exercise is intended to be repeated on an annual basis. The recommen-
dations raised in the EBF report were followed by answers from the Chair as well as meetings at the technical level 
with representatives of banks.

Having focused on making the SSM fully operational, the ECB can start considering the possibility of conducting its 
own surveys provided there is clear value added. In particular, there should be no overlap with existing surveys run 
by banking federations, including the survey mentioned above.

The ECB will continue to develop a meaningful and comprehensive set of indicators and to enrich, on that basis, the 
information made publicly available in the Annual Report and by other means.

Common reply to paragraphs 191-195
Please refer to the ECB’s comments on paragraphs 104 to 149.

The ECB would like to note that, as paragraph 9 of the report states, the SSM comprises the ECB and the NCAs. All 
staffing exercises for JSTs, and also for on-site inspections, must be conducted within the institutional framework 
established by EU primary law. This implies respecting the different institutional arrangements of the ECB and the 
NCAs and in the most collaborative and dialogue-based fashion.

Since the end of the fieldwork of this audit, good progress has been made in producing a single SSM training cur-
riculum with the creation of the SGST, supported by an Expert Group composed of both ECB and NCA members. 
This will start to produce tangible results in the autumn of 2016.

Reply of the ECB

131

Recommendation 6
The ECB accepts the recommendation subject to the following:

The ECB considers that an amendment to the SSM Framework Regulation may not be necessary. Article 6(3) of the 
SSM Regulation clearly specifies that NCAs are obliged to assist the ECB in the performance of its tasks. Moreover, 
NCAs are subject to a duty of cooperation in good faith in accordance with Article 6(2) of the SSM Regulation. Arti-
cles 3 et seq. of the SSM Framework Regulation clearly specify the duty of NCAs to make NCA staff available for JSTs; 
Article 4(5) of the SSM Framework Regulation provides that the ECB and the NCAs shall consult each other and agree 
on the use of NCA resources with regard to JSTs.

The ECB has closely monitored JST staffing (in qualitative and quantitative terms) and will continue to do so, and 
will also explore, in consultation with the NCAs, how to ensure that JSTs are sufficiently staffed at all times, without 
ruling out the possibility of proposing to the Supervisory Board/Governing Council an amendment of the Frame-
work Regulation, if deemed necessary.

Recommendation 7
The ECB accepts the recommendation and will address it in conjunction with recommendation 10, with the aim of 
implementing it by the end of 2018 subject to the following:

The ECB would like to clarify that the legal framework for setting up JSTs is in place. Article 4 of the Framework Reg-
ulation already establishes a system for appointing the JST members based on dialogue between the ECB and the 
NCAs, as well as the possibility for the ECB to require the NCAs to modify the appointment. In this context, measures 
should be developed such that Article 4 can be fully exercised, rather than weakened. The ECB thus agrees with the 
substance of the recommendation, but feels that the collaboration element should be highlighted. The establish-
ment and functioning of the JSTs has been, since the beginning of the SSM, a joint effort of the ECB/SSM and the 
NCAs/NCBs. The ECB relies on the NCAs/NCBs’ capacity to provide staffing resources with the adequate level of 
expertise and experience, and complementary skills for the required JST profile.

Moreover, it must be stressed that neither the NCAs nor the ECB are currently in a position where they have excess 
staff and are able to choose the person with the ideal skillset for a given JST. Therefore, the ECB also considers it 
effective to implement an active management of individual cases where a need for further development or staffing 
adjustment is identified. Introduction on a pilot basis of the SSM feedback process together with further develop-
ment of the SSM training curriculum supports this approach. A strengthening of these tools is also in line with the 
content of this report and ECA’s other recommendations.

Finally, there are recommendations from the Supervisory Quality Assurance Division on refining the methodology 
to set the size and composition of the JST, linking it to the risk profile of the banks and to the SEP to address such 
risk profile and to ensure that an annual process will be implemented with regard to staffing the JSTs in dialogue 
with the NCAs.

Recommendation 8
The ECB accepts this recommendation, subject to overcoming legal (confidentiality) and technical hurdles. There-
fore, it will first carry out a feasibility study.

Reply of the ECB

132

The ECB is of the view that having a full picture of the supervisory resources in terms of quantity and quality seems 
an indispensable measure to deploy such resources efficiently and effectively. Nevertheless, attempts to produce 
such a database have so far encountered significant obstacles from a legal perspective, stemming from the need 
to respect the legislation of Member States that protects the confidentiality of personal data. On the basis of this 
recommendation, the ECB will continue to explore the possibility of establishing such a database i.e. it will conduct 
legal and technical feasibility studies

Recommendation 9
The ECB accepts the recommendation.

Recommendation 10
The ECB accepts the recommendation.

The ECB notes that the system should not be overly detailed and bureaucratic in dictating how many staff members 
are needed in each JST. Rather, staff should be managed efficiently, including an element of managerial discretion.

Recommendation 11
The ECB accepts the recommendation.

With regard to the periodic review of the clustering model, the ECB notes that the regular biannual review is cur-
rently under way.

Recommendation 12
The ECB accepts the recommendation.

ECB COI on site staff numbers have been steadily increasing to provide more ECB Heads of Mission. The active and 
unconditional support of NCA colleagues is essential in this respect. Furthermore, JST Coordinators – sometimes as 
proposed by COI – decide which inspections are to be led by the ECB and which are not.

That being said, and based on historical requests as well as increasing local stress in some countries, the current 
staffing situation does not indeed allow the ECB to participate in all the inspections that should be ECB-led: regular 
OSI, thematic reviews, emergencies,…although some optimisation efforts are still underway – like the Mixed-Team 
promotion and tools,… - additional COI staff would be necessary to meet all the demand.

Recommendation 13
The ECB accepts the recommendation.

The ECB would like to note that as regards the part of the recommendation relating to the IT system, the forthcom-
ing IMAS 2.0 releases will partly address this issue. With regard to the qualifications and skills of NCA inspectors, the 
implementation of the SSM training curriculum should address the finding.

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Event

Adoption of the Audit Planning Memorandum/Start of audit

Official sending of draft report to Commission (or other auditee)

Adoption of the final report after the adversarial procedure

European Central Bank’s official replies received in all languages

Date

29.6.2015

28.6.2016

18.10.2016

19.10.2016

 
In 2012, EU leaders decided that euro-area banks were to be 
brought under supervision of the Single Supervisory 
Mechanism (SSM), in which the pivotal role would be played 
by the ECB, but national competent authorities would also 
have to perform many functions. This report examines how 
the ECB set up the SSM how it has organized its work, and 
which challenges it faces.
We found that a complex supervisory structure was put in 
place relatively quickly but the complexity of the new 
system is a challenge especially since the new mechanism 
remains too heavily dependent on the resources of the 
national supervisors. Thus, despite its overall responsibility, 
the ECB has insufficient control over some important 
aspects of banking supervision.
The information provided by the ECB was however not 
enough for the ECA to fully assess whether the ECB is 
managing efficiently the SSM in the areas of governance, 
off-site supervision and on-site inspections.

EUROPEAN
COURT
OF AUDITORS