COMMISSION STAFF WORKING DOCUMENT Accompanying the document Report from the Commission to the European Parliament and the Council on the Single Supervisory Mechanism established pursuant to Regulation (EU) No 1024/2013
Date: 2017-10-11
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: European Central Bank, application of EU law, banking policy, banking supervision, credit institution, market supervision, powers of the institutions (EU)

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 11.10.2017  SWD(2017) 336 final   COMMISSION STAFF WORKING DOCUMENT Accompanying the document Report from the Commission to the European Parliament and the Council  on the Single Supervisory Mechanism established pursuant to Regulation (EU) No 1024/2013 {COM(2017) 591 final}  
 
 
Contents 

Introduction – mandate, scope and methodology of the review ....................................................... 5 

A. Governance of the SSM ................................................................................................................... 7 

A.1. Accountability, due process and independence arrangements [Article 32(e) SSMR] ............. 7 

A.2. Decision-making [Article 32(g)] .............................................................................................. 17 

A.3. Separation between monetary and supervisory functions within ECB [Article 32(l) SSMR] . 22 

A.4. Division of tasks between ECB and NCAs [Article 32(a) and(b)] ............................................ 24 

B. Supervisory tools [Article 32(a), (b) SSMR] ................................................................................... 27 

B.1. Categorisation of supervised entities ..................................................................................... 27 

B.2. Joint Supervisory Teams (JSTs) ............................................................................................... 29 

B.3. Horizontal functions ............................................................................................................... 30 

B.4. On-site inspections ................................................................................................................. 32 

B.5. Supervisory colleges ............................................................................................................... 33 

B.6. Options and discretions ......................................................................................................... 34 

C. Evaluation of performance of the main supervisory tasks ........................................................... 36 

C.1. Common procedures [Article 32(d) SSMR] ............................................................................ 36 

C.2. On-going supervision of significant institutions (SIs) [Article 32 (c) SSMR] ........................... 38 

C.3. Oversight of NCA supervision of LSIs [Article 32(b) SSMR] .................................................... 46 

C.4. Performance of macro-prudential functions [Article 32(d) SSMR] ........................................ 48 

D. Relationship with other relevant bodies ....................................................................................... 50 

D.1. Interaction with the ESAs and the ESRB [Article 32(a)(d) and (f) SSMR] ............................... 50 

D.2. Cooperation with the SRB ...................................................................................................... 53 

D.3. Participation in the BCBS and the FSB ................................................................................... 54 

E. Cost-effectiveness of the Single Supervisory Mechanism [Article 32(j) SSMR] ............................ 54 

E.1. Effectiveness of supervision ................................................................................................... 54 

E.2. Analysis of supervisory fees ................................................................................................... 55 

E.3. Performance management system in SSM ............................................................................ 57 

2 

 
 
 
 
 
 
 
GLOSSARY 

ABoR 
AT1 
BCBS 
BCP 
BoS 
BRRD 

CCB 
CET1 
CJEU 
CRD 

CRR 

Administrative Board of Review 
Additional Tier 1 
Basel Committee of Banking Supervisors 
Basel Core Principles for Effective Banking Supervision 
EBA Board of Supervisors 
Bank  Recovery  and  Resolution  Directive,  Directive  2014/59/EU,  OJ 
L173, 12.6.2014, p. 190 
Capital Conservation Buffer 
Common Equity Tier 1 
Court of Justice of the European Union 
Capital  Requirements  Directive,  Directive  2013/36/EU,  OJ  L  176, 
27.6.2013, p. 338 
Capital Requirements Regulation, Regulation (EU) No 575/2013, OJ L 
176, 27.6.2013, p. 1 
Directorate-General Micro-Prudential Supervision III 
Directorate-General Micro-Prudential Supervision IV 
Directorate-General Macro-prudential Policy and Financial Stability 
European Banking Authority 
European Court of Auditors 
European Central Bank 
Economic and Financial Affairs Council 
European Parliament's Committee on economic and Monetary Affairs 
European Insurance and Occupational Pensions Authority 
European Parliament 
European Supervisory Authorities 

DG MS III 
DG MS IV 
DG-MF 
EBA 
ECA 
ECB 
ECOFIN 
ECON 
EIOPA 
EP 
ESAs 
ESCB Statue  Statute of the European System of Central Banks and of the ECB, OJ C 

ESFS 
ESMA 
ESRB 
FOLF 
FSAP 
FSB 
FTE 
G-SII 
IMAS 
IMF 
IMI 
INM 
JST 
LSI 
MAP 
MDA 
NCA 
O-SII 

326, 36.10.2012, p.1 
European System of Financial Supervision 
European Securities and Markets Authority 
European Systemic Risk Board 
Fail or Likely to Fail 
Financial Sector Assessment Programme 
Financial Stability Board 
Full-time equivalents 
Global Systemically Important Institution 
Information Management System 
International Monetary Fund 
Internal Model Investigation 
Internal Models Division 
Joint Supervisory Team 
Less Significant Institution 
Model Approval Process 
Maximum Distributable Amount 
National Competent Authority 
Other Systemically Important Institution 

3 

 
 
 
 
RAS 
SAI 
SI 
SRB 
SREP 
SRMR 
SSM 
SSMFR 

SSMR 

T2 
TFEU 

TRIM 

Risk Assessment System 
Supreme Audit Institution 
Significant Institution 
Single Resolution Board 
Supervisory Review and Evaluation Process 
SRM Regulation, Regulation 806/2014, OJ L/225, 30.7.2014, p.1 
Single Supervisory Mechanism 
SSM  Framework  Regulation,  Regulation  ECB/2014/17,  OJ  L  141, 
14.5.2014, p. 1 
SSM  Regulation,  Council  Regulation  (EU)  No  1024/2013,  OJ  L  287, 
29.10.2013, p. 63 
Tier 2 
Treaty  on  the  Functioning  of  the  European  Union,  OJ  C  202, 
07.06.2016 
Targeted Review of Internal Models 

4 

 
 
 
 
Introduction – mandate, scope and methodology of the review 

Pursuant to Article 32 of Regulation (EU) No 1024/2013 (further referred to as SSMR)1 the 
Commission is mandated to regularly prepare for the European Parliament and the Council a 
report  on  the  application  of  that  Regulation.  Such  mandate  requires  the  Commission  to 
undertake a broad review of the overall application of the SSM Regulation, with an emphasis 
on identifying the potential impact on the smooth functioning of the internal market. Several 
aspects of the application of the SSM Regulation are listed non-exhaustively in the mandate. 

The  first  Commission  report  based  on  Article  32  of  the  SSMR  briefly  analyses  the  central 
aspects of the SSM Regulation and of its application, listing the main findings. The present 
Staff document is accompanying the Commission report, covering in more detail the aspects 
dealt  with  in  the  report.  In  undertaking  its  review,  the  Commission  has  relied  on  document 
analysis,  interviews  and  informal  discussions  with  relevant  stakeholders.  Both  publicly 
available  information,2  as  well  as  non-public  documents  requested  and  received  from  the 
European  Central  Bank  (ECB)3  were  included  in  the  analysis.  Input  was  received  from 
members  of  the  European  Parliament's  ECON  committee,  national  representatives  in  the 
Council,  ECB  staff,  European  Banking  Authority  (EBA)  staff,  Single  Resolution  Board 
(SRB)  staff,  technical  experts  and  senior  management  and  staff  from  several  NCAs  in 
participating  and  non-participating  Member  States,  a  sample  of  banks  categorised  as 
significant  institutions  (SI)  and  less  significant  institutions  (LSI),  and  representatives  of 
banking industry associations. Decisions directly addressed to individual institutions or bank-
specific  data  were  neither  submitted  by  the  SSM  nor  requested  by  the  Commission.  All 
samples shared by the ECB were in anonymised form.  

Given  the  early  stage  of  the  SSM  there  was  no  or  not  sufficient  experience  to  assess  to  the 
same  level  of  detail  all  the  aspects  listed  in  the  Commission's  review  mandate  enshrined  in 
Article 32 of the SSM Regulation. For instance, given that no close cooperation arrangements 
were  concluded  with  Member  States  outside  the  euro  area,  it  is  not  possible  to  assess  the 
impact  of  those  Articles.  Furthermore,  as  the  initial  stage  of  the  SSM  has  required  intense 
efforts for putting in place workable arrangements between the various participating parties, 
and ensuring the effectiveness of supervisory tools, this report will not focus directly on the 
interaction between the SSM and competent authorities  in non-participating Member States. 
Also, in relation to the potential impact on national banking systems, although some emerging 
trends  may  be  noticed,  such  as  an  increased  use  of  cross-border  branches  instead  of 
subsidiaries, there was no sufficient information available to attribute this to a possible impact 
of the SSM and too early to identify other possible impacts on the structures of the national 
banking  systems.  Furthermore,  it  was  too  early  to  grasp  the  fiscal  effects  that  supervisory 
decisions may have on participating Member States or the impact of developments in relation 
to  resolution  financing  arrangements.  Such  assessment  requires  observing  the  interactions 
between the SSM and the Single Resolution Mechanism (SRM) and ongoing discussions on 
establishing a fiscal backstop. 

1 Council Regulation (EU) N° 1024/2013 OJ L 287, 29.10.2013. p. 63. 
2  The  documents  analysed  included,  inter  alia,  ECB  regulatory  and  non-regulatory  acts,  including  the  ECB's 
Supervisory Manual, Reports and Working Documents of various stakeholders, including the European Court of 
Auditors'  "Special  report  No  29/2016:  Single  Supervisory  Mechanism  -  Good  start  but  further  improvements 
needed",  reports  and  resolutions  by  the  European  Parliament  Working  Document  PE  599.709v02-00  on  ECA 
Special Report N°29/2016, documents shared by the EBA, the national competent authorities and some banks. 
3 Prior to requesting and obtaining any non-public information or documents from the ECB, the Commission and 
the ECB have concluded a Memorandum of Understanding on the treatment of shared confidential information.  

5 

 
 
                                                            
The  Staff  working  document  follows  closely  the  structure  of  the  Report  providing  the 
underlying analysis for the different sections of the Report. 

Part  A  deals  with  the  fundamental  aspects  of  the  SSM  setup,  and  addresses  the  areas  of 
evaluation mentioned in sub-paragraphs (e), (g), (i), (l) and partly (a) and (b) of the mandate 
in  Article  32  of  the  SSMR.  It  contains  an  evaluation  of  the  practical  implementation  of 
accountability and independence arrangements, scrutinises the decision-making process at the 
ECB,  examines  the  mechanisms  for  separation  between  the  monetary  and  supervisory 
functions, and the division of tasks between the ECB and the NCAs.  

Part  B  covers  practical  aspects,  analysing  the  effectiveness  of  the  most  prominent  tools 
developed by the ECB for performing its supervisory tasks, such as the categorisation of the 
supervised  institutions,  the  functioning  of  the  Joint  Supervisory  Teams  (JSTs)  and  the 
horizontal supervisory functions. It reflects elements falling under the sub-paragraphs (a) and 
(b) of the mandate in Article 32. 

Part C evaluates the performance of the main supervisory tasks. This includes an analysis of 
the  way  the  ECB  performs  the  common  procedures  towards  all  credit  institutions  in  the 
Banking  Union,  the  way  the  ECB  performs  the  direct  supervision  of  significant  institutions 
(the  fit  and  proper  tests,  the  approval  of  capital  instruments,  the  Supervisory  Review  and 
Evaluation  Process  (SREP)  for  significant  institutions,  the  approval  of  internal  models),  the 
responsibilities carried out vis-à-vis NCAs in the context of the supervision of less significant 
institutions,  the  exercise  of  the  macro-prudential  tasks  conferred  on  the  ECB.  Lastly,  the 
ECB's enforcement and sanctioning powers are evaluated. Sub-paragraphs (c), (d) and partly 
(b) of Article 32 are corresponding to this Part. 

Part D is dedicated to the relationship of the ECB with other relevant bodies, examining the 
role of the ECB in ESFS, and specifically its interaction with the EBA and the SRB and with 
relevant international bodies. Sub-paragraphs (a) and (f) of Article 32 mandate correspond to 
this Part.    

Part E deals with cost effectiveness of the SSM as envisaged in sub-paragraph (j) of Article 
32.  It  analyses  the  supervisory  fees,  indicators  of  the  quality  of  the  supervision,  including 
empirical  evidence  of  the  structural  changes  in  the  euro  area  since  the  establishment  of  the 
SSM. 

Conclusions  and  recommendations  corresponding  to  the  analysis  in  this  accompanying 
document are spelled out in the Report itself, and reflect the Commission's views regarding, 
inter alia, the possible ways of dealing with identified shortcomings. Overall this review sets 
out a positive assessment of the first two years of the ECB acting in its supervisory capacity. 
Some difficulties have been identified at this stage, however none of them concerns essential 
structural  aspects  that  impinge  on  the  functionality  of  the  SSM  and  that  would  therefore 
justify proposing amendments to the SSM Regulation at the current juncture. For addressing 
some  of  these  difficulties,  the  report  provides  interpretations  of  the  regulatory  framework, 
refers to ongoing discussions of amendments to relevant Union law or invites the ECB to take 
certain measures. 

6 

 
 
 
A. Governance of the SSM  

A.1. Accountability, due process and independence arrangements [Article 32(e) SSMR] 

Significant  supervisory  powers  have  been  transferred  for  direct  exercise  to  the  European 
Central Bank (ECB) on the condition that any "shift of supervisory powers from the Member 
States to the Union level should be balanced by appropriate transparency and accountability 
requirements"4.  To  that  end  a  framework  has  been  put  in  place  through  the  SSMR,5  which 
aims to ensure that ECB's exercise of supervisory powers is subject to political, judicial and 
administrative  accountability,  whilst  respecting 
the  ECB  and 
guaranteeing  fair  treatment  and  procedural  rights  for  all  those  concerned.  This  section  will 
assess  the  use  and  effectiveness  of  these  arrangements  during  the  first  two  years  of  Single 
Supervisory Mechanism (SSM) operation. 

independence  of 

the 

A.1.1. Political Accountability [Article 32(e) SSMR] 
The SSMR requires that the ECB shall be accountable to the European Parliament (EP) and to 
the Council for the implementation of that Regulation and specifies the relation with the EP, 
the Council, and national parliaments.  

Annual Report 

The ECB is required by Article 20(2) of the SSMR to submit on an annual basis to the EP, the 
Council, the Commission and the Eurogroup a report on the execution of the tasks conferred 
on it by that Regulation, including information on the envisaged evolution of the structure and 
amount of the supervisory fees. This report shall also be forwarded to the national parliaments 
of  the  participating  Member  States.  Since  the  SSM  became  operational,  the  ECB  has 
submitted  3  comprehensive  annual  reports,  which  are  also  published  on  its  website  and 
presented in the European Parliament and the Eurogroup. 

Accountability towards the European Parliament  

Article  20  of  the  SSMR  provides  the  right  of  the  EP  to  request  the  Chair  of  the  ECB's 
Supervisory  Board  to  participate  in  hearings  on  its  supervisory  tasks.  Confidential  oral 
discussions with the Chair and Vice-Chairs of the competent committee of the EP can also be 
held  upon  request.  Moreover  the  ECB  shall  answer,  orally  or  in  writing,  to  the  questions 
referred to it by the EP. 

Furthermore,  the  ECB  and  the  EP  signed  an  inter-institutional  agreement  to  define  the 
practical modalities of the exercise of democratic accountability6. Under these arrangements 
the  ECB  shall  participate  in  bi-annual  ordinary  public  hearings,  may  be  invited  for  ad-hoc 
exchanges  and  confidential  meetings  and  shall  respond  to  written  questions.  The  ECB  shall 
also forward to the EP a meaningful record of the Supervisory Board proceedings including 
annotated decisions.  

The Chair of the Supervisory Board attended three hearings of the ECON committee in 2015, 
three  in  2016  and  one  in  2017,  two  ad-hoc  meetings  in  2015  and  three  in  2016.  No 
confidential  meeting  has  been  held  so  far.  Additionally,  the  ECB  answered  88  letters  on 

4 Recital 55 SSMR. 
5 Council Regulation (EU) No 1024/2013, OJ L 287, 29.10.2013, p. 63. 
6 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 (2013/694/EU). 

7 

 
 
                                                            
supervisory issues from Members of the European Parliament since the set-up of the SSM (17 
so far in 2017, 34 in 2016, 26 in 2015 and 11 in 2013-2014). 

The EP has issued two reports on the Banking Union7, in which it expresses its views about 
the  functioning  of  the  SSM.  These  reports  generally  welcome  the  efforts  made  by  the  ECB 
while underlying areas that could benefit from further improvement.8 One of the reports also 
welcomes "the efficient and open way in which the ECB has so far fulfilled its accountability 
obligations towards Parliament"9. 

Accountability towards Council and the Eurogroup  

According to Article 20 of SSMR, the Eurogroup may request the Chair of the Supervisory 
Board to participate in hearings on its supervisory tasks. The ECB shall also answer questions 
orally  or  in  writing.  The  Council  and  the  ECB  have  concluded  a  Memorandum  of 
Understanding  on  cooperation  which  includes  the  obligation  for  a  bi-annual  hearing  of  the 
Chair of the Supervisory Board to the Eurogroup, and the duty to respond to oral or written 
questions of the Euro Group.  

The  ECB  in  its  supervisory  capacity  was  present  at  five  ECOFIN  and  informal  ECOFIN 
meetings in 2014, none in 2015 and one in 2016. It attended the Eurogroup once in 2015 and 
twice in 2016, and the Euro working group twice in 2015 and twice in 2016.   

Reporting to national parliaments  

Pursuant to Article 21 of the SSMR, national parliaments of the participating Member States 
may address observations or questions to the ECB on the performance of its supervisory tasks. 
National parliaments may also invite the Chair or a representative of the Supervisory Board, 
together with a representative of the national competent authority (NCA), to participate in an 
exchange of views in relation to the supervision of credit institutions in that Member State. 

The  SSM  was  heard  six  times  by  committees  from  national  parliaments  between  2014  and 
2016 and received one direct question from the Latvian Parliament.  

These reporting channels allow national parliaments to form an opinion on the functioning of 
the  SSM.  Some  difficulties  may  have  emerged  in  those  participating  Member  States  where 
Parliaments can set up investigative committees which under national law may have access to 
supervisory information10.  

on 

Report 

Banking 

7  Annual  Report  on  the  Banking  Union  2015,  http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-
//EP//TEXT+REPORT+A8-2016-0033+0+DOC+XML+V0//EN. 
Annual 
the 
http://www.europarl.europa.eu/sides/getDoc.do?type=REPORT&reference=A8-2017-0019&language=EN. 
8 In the most recent report, the EP calls to ensure higher transparency in supervisory practices, takes note of the 
findings of the European Court of Auditors’ report on the functioning of the SSM and particularly calls to ensure 
sufficient staffing at the ECB; shares the concern of the ECA that an ‘audit gap’ has emerged and urges the ECB 
to  fully  cooperate  with  the  ECA,  calls  to  achieve  a  better  balance  between  proportionality  and  consistency  in 
supervision; underlines that the separation of the supervisory tasks from monetary policy functions should enable 
the SSM to take an independent position on all relevant matters, including on potential effects of ECB interest 
rate targets on the financial position of supervised banks. 
9 Annual Report on the Banking Union 2015, paragraph 39. 
10 In this regard, Article 59(2) CRD allows the disclosure of supervisory information to parliamentary enquiry 
committees, if they have a mandate under national law to investigate supervisory authorities. 

Union 

2016, 

8 

 
 
 
                                                            
A.1.2. Judicial accountability [Article 32(e) SSMR] 

Judicial  accountability  in  the  SSMR  is  designed  to  reflect  the  judicial  control  framework 
applicable to the ECB as laid down in the Treaty on the Functioning of the European Union 
(TFEU)11 and the Statute of the European System of Central Banks and of the ECB (ESCB 
Statute)12. Whilst there is no dedicated Article in the SSMR, recital 60 of the SSMR recalls 
that the legality of ECB acts, other than recommendations and opinions, intended to produce 
legal effects vis-à-vis third parties shall be reviewed by the Court of Justice of the European 
Union (CJEU) pursuant to Article 340 TFEU and Article 35.1 ESCB Statute. Equally, Article 
24(11)  SSMR  confirms  that  the  internal  review  mechanism  implemented  through  the 
Administrative  Board  of  Review  (ABoR)  should  be  without  prejudice  to  rights  to  bring 
proceedings  before  the  CJEU.  In  addition,  recital  61  SSMR  confirms  the  extension  of  the 
liability  regime  of  the  ECB  to  make  good  any  damage  caused  by  it  or  its  servants  in  the 
performance of their supervisory duties.13 

Judicial review of ECB supervisory decisions has been requested on  several occasions since 
the  set-up  of  the  SSM.  Until  January  2017,  13  actions  have  been  brought  to  the  CJEU  by 
significant  and  less  significant  institutions  against  decisions  taken  by  the  ECB,  requesting 
legality  checks  in  light  of  the  SSMR,  of  Union  law,  as  well  as  of  national  law  transposing 
Directives.  Whereas  to  date,  only  in  one  of  these  cases  a  judgement  has  been  issued14, 
ongoing procedures show that the judicial review is actively used to hold the ECB to account. 
The liability regime and the legal standing recognised for addressees of ECB decisions might 
make the ECB prone to be subject to litigation to a larger extent than some national competent 
authorities, whose liability is more restrained under applicable national law. 

A.1.3. Administrative accountability [Article 32(e) SSMR] 

Apart  from  the  political  accountability  arrangements  specified  in  the  SSMR,  the  ECB  is 
subject to various reviews by administrative bodies. The relevant arrangements may be found 
in  the  SSMR,  as  well  as  in  the  statutory  acts  of  these  bodies.  Primarily,  these  concern  the 
regular  review  of  the  functioning  of  the  SSMR  by  the  Commission,  the  European  Court  of 
Auditors'  and  the  European  Banking  Authority.  Moreover,  international  bodies  such  as  the 
International Monetary Fund (IMF) assess to a certain extent the ECB when operating in its 
supervisory capacity.   

SSM review by ECA  

Pursuant to its mandate to examine the operational efficiency of the management of the ECB - 
as provided in the TFEU, the ESCB Statute and the SSMR15 - the European Court of Auditors 
(ECA)  issued  on  18  November  2016  its  first  audit  report  on  the  SSM.  The  ECA  report 
portrays  as  a  success  the  set-up  of  the  SSM  by  the  ECB  within  a  narrow  timeframe,  but 
criticises what it perceives as over-reliance on national competent authorities. The ECA report 
points  to  several  aspects  of  the  SSM  functioning  that  could  be  improved  and  makes 

11 OJ C 202, 07.06.2016. 
12 OJ C 326, 36.10.2012, p.1. 
13 The ECB is subject to the liability regime provided in Article 340 TFEU and Article 35.3 ESCB Statute. Such 
ECB liability regime should not affect the liability incumbent upon NCAs for damage caused in the performance 
of their duties under national law. 
14  Case  T-122/15,  Judgment  of  the  General  Court  (Fourth  Chamber,  Extended  Composition)  of  16  May 
2017Landeskreditbank Baden-Württemberg - Förderbank v European Central Bank. 
15  The  relevant  provisions  may  be  found  in  Article  287(1)  of  the  TFEU,  Article  27  of  the  ESCB  Statute  and 
Article 20(7) of the SSMR. 

9 

 
 
                                                            
recommendations in the areas of governance, accountability, off-site supervision and on-site 
supervision.  The  ECB  has  recognised  the  validity  of  most  of  the  ECA's  recommendations16 
and committed to address them in a constructive way. 

In  addition,  the  ECA  report  emphasises  difficulties  encountered  in  obtaining  from  the  ECB 
information that the ECA considers necessary for performing its audit mandate. This resulted, 
in the ECA's view, in several areas of the SSM activities not being covered by the audit17. The 
reluctance to share certain documents was justified by ECB on grounds that such documents 
would not be necessary for the ECA to perform the audit of the operational efficiency of the 
ECB's management and on the basis of confidentiality rules binding the ECB.  

The  ECA  links  problems  in  accessing  ECB  information  to  the  "audit  gap"  signalled  by  the 
Contact  Committee  of  the  Supreme  Audit  Institutions  (SAIs)  in  the  EU.  The  Contact 
Committee  of  SAIs  in  the  EU,  which  comprises  Member  States'  heads  of  national  audit 
offices  and  the  ECA,  has  issued  a  statement  concluding  that  "an  audit  gap  has  emerged  in 
those  euro  area  countries  where  previous  audit  mandates  of  national  SAIs  over  national 
banking  supervisors  are  not  being  replaced  by  a  similar  level  of  audit  by  the  ECA  over  the 
ECB's  supervisory  activities"18.  At  the  same  time  the  Contact  Committee  acknowledged  a 
second dimension to the audit gap, reflecting the fact that in some countries audit mandates of 
national SAIs over national banking supervisors are limited or absent altogether.  

The ECA report has been discussed in both EP19 and Council20, with a special emphasis on 
the  ECA's  difficulties  in  accessing  ECB  information.  Both  EU  institutions  have  expressed 
their concern as regards the disagreement between the ECB and the ECA on the information 
that  should  be  shared  and  encourage  more  cooperation  between  the  two  institutions. 
Following such criticism the ECB has expressed its willingness to discuss with the ECA.21 

As concerns the more contentious issue of the sharing of information, problems raised by the 
ECA have a double dimension: different views over the scope of the ECA's mandate to audit 
the  ECB  and  different  views  over  the  concrete  information  to  be  exchanged  under  that 
mandate.  

With  regard  to  the  former,  the  Commission  notes  that  the  ECA's  mandate  of  auditing  the 
ECB.  This  mandate  covers  the  operational  efficiency  of  the  management  of  the  ECB  (see 
Article 287 of the TFEU, Article 27.2 of the ESCB Statute, and the SSMR).  This is indeed 
more  limited  than  the  mandates  of  certain  national  SAIs  over  national  banking  supervisory 

16  The  ECB  only  challenged  certain  ECA  recommendations  concerning  the  role  of  Supervisory  Board  in 
determining the budget for SSM activities and concerning the influence of shared services. 
17 In Annex II to the ECA report the areas are listed that are perceived as not being satisfactorily audited because 
of no or scarce evidence provided by the ECB. These include several aspects of the comprehensive assessment, 
decision-making process, operational efficiency of on-site inspections, operational efficiency of planning of off-
site inspections, Supervisory Board meetings and accountability. 
18http://www.eca.europa.eu/sites/cc/Lists/CCDocuments/CC_STATEMENT_2015/CC_SSM_statement_EN.pdf. 
In 9 Member States, national courts of auditors had an extensive mandate to audit the banking supervisors. Since 
the establishment of the SSM, these national courts are no longer able to audit the supervision of their Member 
State's largest banks since they are directly supervised by the SSM. The mandate of the ECA is considered rather 
constrained as compared to the extensive mandates of the respective SAIs. 
19 EP resolution of 15 February 2017 on Banking Union – Annual report 2016 (P8_TA-PROV(2017)0041;  EP 
Working Document on the ECA' Special Report No 29/2016 (Discharge 2016) PE599.709v01. 
20  Council  conclusions  of  21  February  2017  on  the  European  Court  of  Auditors'  Special  Report  No  29/2016: 
"Single Supervisory Mechanism - Good start but further improvements needed". 
21 See interview of Mrs Nouy in Handelsblatt, 
 https://www.bankingsupervision.europa.eu/press/interviews/date/2017/html/sn170418.en.html. 

10 

 
 
                                                            
authorities, although not all national SAIs have mandates over national banking supervisors. 
Yet, whether this amounts to a potential audit gap affecting the ECB's accountability needs to 
be  assessed in  the  broader  context  that  accounts  also  for  the  fact  that  the  ECB  is  subject to 
additional accountability arrangements for its supervisory activities that might not necessarily 
be  found  in  the  national  audit  frameworks.  In  this  context,  it  is  important  that  the  ECB's 
accountability is assessed holistically in light of all accountability arrangements to which it is 
subject.  

As  for  the  differences  in  opinion  between  the  ECB  and  the  ECA  on  the  information  to  be 
shared, the Commission notes that Article 27(2) of the SSMR authorises the ECB to exchange 
information with Union authorities and bodies in the cases where relevant Union law requires 
national competent authorities to  disclose information  to  those  entities and within the limits 
and conditions provided under such Union law. The Commission notes also that Articles 56 
and  57  of  the  CRD  require  competent  authorities  to  exchange  information  with  "persons 
responsible  for  carrying  out  statutory  audits  of  the  accounts  of  institutions",  but  do  not  list 
persons in charge of the audit of the competent authority itself. However, the absence of such 
an explicit reference should not preclude the ECB from sharing information with the ECA, as 
it  is  bound  directly  by  the  obligation  to  provide  information  under  Article  287(3)  second 
subparagraph of the TFEU22. Consequently the ECB is subject to a clear obligation to provide 
to the ECA any document or information necessary for the ECA to carry out its task, within 
the limits of its mandate. 

EBA review of SSM  

The  European  Banking  Authority  (EBA)  was  entrusted,  amongst  others,  with  the  essential 
tasks of contributing to the establishment of high-quality common regulatory and supervisory 
standards and practices, contributing to a common supervisory culture and conducting peer-
review  analyses  of  competent  authorities  in  order  to  strengthen  consistency  in  supervisory 
outcomes23. Furthermore, under Article 107 of the CRD, the EBA is given a specific mandate 
to check consistency of supervisory reviews, evaluations and supervisory measures, whilst all 
competent authorities are obliged to provide the EBA with information to enable it to perform 
such  assessment.  Pursuant  to  these  mandates  the  EBA  has  so  far  issued  two  reports  on 
supervisory convergence. The second report issued in July 2016 considers the state of play at 
the end of 2015 and includes in the assessment also the ECB.24 For the purpose of the report, 
the  EBA  has  performed  a  thorough  review  of  ECB's  supervisory  practices,  including 
scrutinising  parts  of  ECB's  supervisory  manual,  its  information  management  system  IMAS 
used by the ECB for supervisory purposes, bilateral discussions and visits. The ECB has been 
generally cooperative with the EBA for the purpose of this exercise, whilst not always being 
able to provide all the relevant background documentation to enable an accurate review by the 
EBA. Following this exercise, the EBA has prepared conclusions and recommended follow-

22 According to Article 287(3) second subparagraph " The other institutions of the Union, any bodies, offices or 
agencies  managing  revenue  or  expenditure  on  behalf  of  the  Union,  any  natural  or  legal  person  in  receipt  of 
payments  from  the  budget,  and  the  national  audit  bodies  or,  if  these  do  not  have  the  necessary  powers,  the 
competent  national  departments,  shall  forward  to  the  Court  of  Auditors,  at  its  request,  any  document  or 
information necessary to carry out its task." According to Article 27.2 ESCB Statute, the provisions of Article 
287 TFEU shall also apply to the ECA examination of the operational efficiency of the management of the ECB. 
Where there is an exception from Article 287, this is explicitly stated in the TFEU, as in the case of the European 
Investment Bank (Article 287(3) third sub-paragraph. 
23 See Article 8(1) of Regulation (EU) No 1093/2010 (EBA Regulation). 
24 EBA report on the convergence of supervisory practices, EBA-Op-2016-11, 14 July 2016. 

11 

 
 
                                                            
up  actions  for  the  ECB,  which  were  partly  addressed  by  the  ECB  through  the  review  of  its 
Supervisory Review and Evaluation Process (SREP) methodology. 

including 

the  ECB,  and  eventually 

The  EBA  has  been  also  endowed  with  tools  to  discipline  competent  authorities,  especially 
under its breach of Union law powers.25 Such procedure allows the EBA to start upon request, 
or on its own initiative, an investigation over an alleged breach or non-application of Union 
law  by  competent  authorities, 
to  address  a 
recommendation to them. It is however noted that the EBA does not use frequently the breach 
of law tool to issue a recommendation for compliance with Union law. Such procedure could 
be  even  more  difficult  to  carry  out  in  the  context  of  the  SSM,  given  the  specific  voting 
requirements in the EBA's Board of Supervisors involving a double majority from NCAs in 
participating and in non-participating Member States.26 To succeed, such a procedure would 
require  a  majority  of  the  competent  authorities  that  are  in  the  Supervisory  Board  to  take  a 
stance different from the one adopted by the same authority in the Supervisory Board. In this 
context, it seems that one of the key tools of the EBA can be less effective in the case of the 
ECB than it would potentially be in case of another competent authority. 

It results that the ECB is subject to close scrutiny by the EBA as regards its compliance with 
the Single rulebook, and its efforts of aligning supervisory practices and supervisory outputs 
within a common supervisory culture. The EBA also disposes of soft but influential tools to 
require  the  ECB  to  take  action.  However,  although  possible  in  theory,  the  EBA's  power  to 
make formal recommendations to the ECB to comply with Union law may hardly be applied 
in practice due to the potential conflict of interests described above. 

Review by the IMF 

The IMF periodically assesses countries' financial sectors in an exercise known as Financial 
Sector Assessment Program (FSAP). They mainly cover the risks to macro-financial stability, 
the  financial  stability  policy  framework  and  the  authorities’  capacity  to  manage  financial 
crises.  They  include  also  an  assessment  of  compliance  with  international  financial  sector 
standards such as the Basel Core Principles for Effective Banking Supervision (BCP)27. 

Since  the  establishment  of  the  SSM,  the  ECB  is  actively  involved  in  the  FSAP  of  the 
participating  Member  States,  especially  regarding  the  assessment  of  compliance  with  the 
BCP.  As  a  consequence,  IMF  receives  extensive  information  on,  among  others,  the 
supervisory  methodology  applied  by  the  ECB.  This  information  feeds  into  the  IMF's 
conclusions on compliance with the BCP in that country, which are made public. 

In  the  context  of  the  FSAPs  carried  out  since  the  SSM  became  operational28,  the  IMF 
welcomed  the  harmonisation  and  benchmarking  of  supervisory  practices  and  praised  the 
ECB's  supervisory  process  as  "robust  and  conducive  to  a  more  structured,  intense  and 

25 Article 17 of the EBA Regulation. 
26 Decisions in the context of Article 17 EBA Regulation require a simple majority of the voting members of the 
Board of Supervisors, which shall include a simple majority of members from participating Member States and a 
simple majority of members from non-participating Member States (see Article 44 EBA Regulation). Whilst the 
ECB  itself  has  a  representative  in  the  Board  of  Supervisors  of  the  EBA,  such  representative  is  a  non-voting 
member. At the same time authorities from participating Member States have all contributed to the adoption of 
the ECB decision, hence it will be unlikely that a majority would change position for the EBA to launch a breach 
of law procedure against the ECB.  
27 http://www.bis.org/publ/bcbs230.pdf 
28 Ireland (update), Germany, Finland, Netherlands and Luxembourg. 

12 

 
 
                                                            
intrusive supervision"29, while also signalling some areas of further improvement, especially 
the "time-consuming and cumbersome decision making process."30 

Until  now,  the  evaluation  of  the  ECB  (as  supervisory  authority)  by  the  IMF  has  only  been 
carried out as part of the assessment of individual countries. However, the upcoming FSAP of 
the euro area (part of the ongoing IMF Article IV31 consultation with the euro area) will focus, 
as regards banking supervision, on the SSM and especially the ECB as a supervisor. 

Control by the European Ombudsman 

Citizens of a Member State or undertakings with a registered office in the Union can make a 
complaint  to  the  European  Ombudsman  if  they  think  that  there  can  be  a  case  of 
maladministration in the institutions and bodies of the EU, including the ECB. In this regard, 
the  European  Ombudsman  has  launched  so  far  four  investigations  in  relation  with  the 
supervisory  functions  of  the  ECB  and  an  exchange  of  views  took  place  between 
representatives from the ECB and the office of the European Ombudsman on the transparency 
of the SREP. 

A.1.4. Consultation, due process, internal recourse mechanisms and the Administrative 
Board of Review [Article 32(i) SSMR] 

When acting in its supervisory capacity the ECB needs to ensure fair treatment and observe 
the  fundamental  procedural  rights  of  the  parties  directly  affected  by  its  decisions.  This 
requires  that  information  is  provided  to  such  parties,  that  discussions  may  take  place  with 
such  parties,  and  that  this  may  possibly  lead  to  changes  in  the  approach  taken  by  the  ECB.  
Three important mechanisms have been set up to ensure that fundamental procedural rights of 
affected  parties  are  observed:  consultation  requirements,  the  due  process  requirement  for 
adopting supervisory decisions and the internal administrative review mechanism. 

Consultation of stakeholders 

According  to  Article  4(3)  SSMR,  the  ECB  shall  conduct  open  public  consultations  before 
adopting  a  Regulation.  Furthermore,  although  there  is  no  legal  obligation  for  public 
consultations  in  the  case  of  non-binding  instruments,  the  ECB  often  conducts  them  (as  was 
the case of the Guide on Options and Discretions32). Since the SSM became operational, the 
ECB  has  carried  out  9  public  consultations  (some  of  them  including  more  than  one  legal 
instrument). Moreover, during the preparatory phase it released 3 draft regulations for public 
consultation.  Whilst  wide  public  consultations  are  normally  not  required  to  underpin 
supervisory  activities,  they  are  rather  common  as  regards  the  rule-making  component  of 
supervision.  The  ECB  thus  appears  to  develop  a  welcome  consultation  culture,  where  it 
intends to promote more harmonisation of supervisory practices.  

29 Finland FSAP, Technical Note – Banking Supervision, paragraph 43. 
30 Germany Financial System Stability Assessment, paragraph 37 
31 Article IV of the IMF's Articles of Agreement requires countries to undergo an assessment by the IMF of its 
economic and financial developments and policies. The IMF also carries out these discussions at Eurozone level. 
32 https://www.bankingsupervision.europa.eu/ecb/pub/pdf/ecb_guide_options_discretions.en.pdf 

13 

 
 
 
 
                                                            
Due process 

Required  under  Article  22  of  the  SSMR,  and  further  developed  in  Articles  25  to  35  of  the 
ECB's SSM Framework Regulation (the SSMFR)33, due process shall inform all supervisory 
decisions taken by the ECB. The essence of due process under Article 22 SSMR consists of 
the right to be heard,34 right to defence, right to access to the ECB file, and obligation for the 
ECB  to  state  reasons  for  its  decisions35.  These  core  elements  are  further  developed  in  the 
SSMFR  with  rules  on  representation  of  parties,  on  general  obligations  in  supervisory 
procedures, on evidence, witnesses and experts to be used in supervisory procedures, on the 
timing  and  modalities  of  the  right  to  be  heard  through  written  or  oral  procedures,  on  the 
process and limits of access to files, on the motivation, possible suspension and notification of 
supervisory  decisions.  Where  the  right  to  be  heard  applies,  the  ECB  may  not  take  a  final 
decision  before  the  hearing  period  has  elapsed  and  without  taking  due  account  of  the 
arguments made by the parties concerned.  

The  due  process  framework  appears  to  be  solid  and  applied  consistently.  Some  concerned 
parties complained about inadequate deadlines for comments, and insufficient motivation of 
decisions, which impinge on their procedural rights. Furthermore, there are concerns that ECB 
uses  an  extended  interpretation  of  "confidential  information"  that  prevents  parties  to  have 
access to internal ECB documents relevant for their supervisory file. There was no sufficient 
documentation available to the Commission to verify such observations.  

Internal recourse mechanism: ABoR 

The third mechanism aiming to ensure accountability towards addressees of ECB supervisory 
decisions or other parties directly and individually concerned by such decisions consists of the 
Administrative  Board  of  Review  (ABoR),  conceived  as  an  internal  administrative  review 
mechanism for ECB decisions. Provided for by Article 24 of the SSMR, the ABoR was set up 
pursuant to an ECB decision36 in order to review the procedural and substantive conformity of 
ECB supervisory decisions with the SSMR. The ABoR is  composed of individuals who are 
subject to high reputational and expertise standards, who have to act independently and in the 
public interest37. Any ECB supervisory decision may be challenged in front of ABoR, without 
this having automatic suspensory effects. Recourse to ABoR is not compulsory and does not 
affect  parties'  rights  to  bring  proceedings  before  the  CJEU38.  ABoR  may  organise  oral 

33 Regulation ECB/2014/17, OJ L 141, 14.5.2014, p. 1. 
34  There  is  a  temporary  dispense  from  the  right  to  be  heard  only  where  urgent  action  is  needed  to  prevent 
significant  damage  to  the  financial  system  and  with  an  explicit  obligation  for  the  ECB  to  consult  as  soon  as 
possible after (Article 22 paragraph 2 of the SSMR). Furthermore, an exception from the right to be heard also 
applies in the case of investigatory powers (see scope of Article 22(1) SSMR and Article 31(1) last sentence of 
the SSMFR). 
35 The ECB is required to indicate the legal basis, set out the relevant facts of the case, include an assessment of 
the legal and prudential considerations on which the decision is based that should be clear and complete enough 
to allow for an understanding of the decision without need to resort to supporting documentation. Decisions have 
to be more detailed when they have an adverse effect on the concerned parties. 
36 Decision of the ECB concerning the establishment of an Administrative Board of Review and its Operating 
review, 
Rules 
https://www.bankingsupervision.europa.eu/organisation/governance/shared/pdf/abor_cost_guide/guidecostsrevie
w.en.pdf. 
37 ABoR members operate in line with the Terms and Conditions that refer to the Ethics Framework for ECB 
staff – to the extent that it is compatible with the Terms and Conditions – as the basis for its conflict of interests 
requirements. 
38 Proceedings to the CJEU may be brought without requesting an internal review to the ABoR, in parallel to an 
ongoing review in ABoR or after an ABoR review. 

(ECB/2014/16).  The  ECB  has  also  published  a  guide 

the  costs  of 

the 

to 

14 

 
 
                                                            
hearings and has to issue a reasoned opinion within maximum 2 months after an application 
for  review.  Although  the  ABoR  opinion  is  not  binding  (in  terms  of  conclusions)  on  the 
Supervisory Board and the Governing Council, the Supervisory Board is compelled to submit 
a new complete draft decision after each ABoR review.39 

The  internal  administrative  review  mechanism  has  acquired  already  some  substantial 
experience through 19 review cases completed by 13 December 2016. Out of these 19 cases, 4 
were withdrawn following subsequent agreements reached between the ECB and the parties 
concerned.  6  ABoR  reviews  resulted  in  identical  supervisory  decisions,  whilst  7  ABoR 
reviews  triggered  amended  supervisory  decisions  (most  of  them  adding  motivation  to  the 
initial  decision,  in  one  case  deleting  part  of  the  motivation  and  in  one  case  extending  the 
deadline).  Two  cases  were  considered  inadmissible,  as  they  did  not  concern  supervisory 
decisions, but letters by the Supervisory Board Chair or by ECB senior management. Overall, 
it appears that the Supervisory Board does react in its decisions to the comments made by the 
ABoR,  but  it  is  not  possible  for  the  Commission  to  assess  to  what  extent  such  adjustments 
correspond  to  the  substantial  recommendations  by  ABoR  and  to  what  extent  these 
recommendations  are  adequate.  Some  of  the  redrafted  decisions  are  currently  under 
proceedings in front of the CJEU. In its first judgement on a challenge of an ECB supervisory 
decision40,  the  CJEU  confirmed  the  legality  of  the  ECB’s  decision  which  had  taken  into 
account the opinion of the ABoR. Furthermore, the ECB maintains that ABoR opinions have 
had an influence in the ECB’s supervisory practice broader than the individual cases to which 
they relate to. 

Overall the due process framework and the internal administrative review mechanism appear 
to  be  applied  consistently.  They  are  effective  in  setting  relevant  procedural  standards  and 
giving  means  for  safeguarding  the  procedural  rights  of  the  parties  that  may  be  affected  by 
ECB  decisions.  The  ECB  appears  to  be  committed  to  observe  due  process  standards  and  is 
willing to review its own decisions in light of dialogue with the parties concerned or of the 
suggestions  given  by  the  ABoR.    It  is  considered  important  that  the  ECB  strikes  the  right 
balance  when  labelling  documents  as  confidential,  so  as  to  thereby  avoid  any  undue 
restrictions to the right of information of parties concerned by its decisions. ABoR can be held 
to  have  had  a  positive  start,  and  has  proven  to  work  professionally.  While  the  ABoR 
proceedings  are  subject  to  confidentiality  rules  that  prevent  their  publication,  it  would  be 
useful to take advantage of the growing jurisprudence developed by ABoR by ensuring more 
transparency  over  its  work,  for  instance  through  publication  on  the  ECB's  website  of 
anonymised summaries of ABoR decisions. 

A.1.5. Independence [Article 32(e) SSMR] 

Independence from other EU institutions and bodies 

The independence of the ECB is warranted by Article 130 of the TFUE, which states that the 
ECB shall neither seek nor take instructions from other Union institutions, bodies, offices or 
agencies, when performing the tasks and duties conferred to it by the Treaties and the Statute 
of  the  ECB41.  Both  the  Treaty  and  the  Statute  of  the  ECB  lay  down  a  framework  that 

39 The new draft decision may replace the contested decision with an identical decision or an amended decision 
or may abrogate the contested decision. 
40  Case  T-122/15,  Judgment  of  the  General  Court  (Fourth  Chamber,  Extended  Composition)  of  16  May 
2017Landeskreditbank Baden-Württemberg - Förderbank v European Central Bank. 
41 Protocol No 4 on the statute of the European System of Central Banks and of the European Central Bank, OJ 
C 326, 26.10.2012, p. 230. 

15 

 
 
                                                            
strengthens  this  independence,  mainly  through  a  differentiated  legal  personality,  a  separate 
budget and the functioning of its decision-making bodies. 

The independence of the ECB when performing supervisory tasks is confirmed in the SSMR. 
According  to  its  Article  19,  the  ECB  shall  act  independently  when  performing  the  tasks 
conferred  on  it  by  the  SSMR.  Moreover,  the  members  of  the  Supervisory  Board  and  of  the 
steering  committee  shall  act  independently  in  the  interest  of  the  EU  and  without  following 
instructions from the institutions or bodies of the EU.  

The  rules  concerning  financing  and  governance  of  the  ECB's  supervisory  function  also 
reinforce its independence. On the one hand, the expenditure incurred by the ECB as a result 
of  its  supervisory  functions  shall  be  covered  by  fees  levied  on  the  credit  institutions 
established  in  participating  Member  States,  as  set  forth  by  Article  30  of  the  SSMR.  On  the 
other  hand,  Article  26  of  the  SSMR  lays  down  the  rules  regarding  the  appointment  and 
removal of the Chair of the Supervisory Board. The Chair will be appointed on the basis of an 
open  selection  procedure  from  among  individuals  of  recognised  standing  and  experience  in 
banking and financial matters. Once appointed, the Chair will be a full-time professional. The 
Chair's term of office shall not be renewable and the Chair can be removed only if she/he no 
longer  fulfils  the  conditions  required  to  perform  her/his  duties  or  has  been  guilty  of serious 
misconduct. 

Interactions with stakeholders 

The  ECB  shall  also  be  independent  from  other  stakeholders,  and  the  members  of  the 
Supervisory  Board  and  its  steering  committee  shall  act  without  following  instructions  from 
any public or private body, as set forth by Article 19 of the SSMR.  

The ethics framework of the ECB lays down the rules for interaction with stakeholders. This 
framework is built upon different elements. Thus, the members of the Governing Council and 
their  alternates,  when  acting  as  members  of  the  Governing  Council,  shall  comply  with  the 
Code  of  Conduct  for  the  Members  of  the  Governing  Council42.  The  members  of  the 
Supervisory Board and their alternates, in the performance of their duties as members of the 
steering committee or of the Supervisory Board, shall comply with the Code of Conduct for 
the  Members  of  the  Supervisory  Board  of  the  ECB43.  The  ECB  staff  is  bound  by  the 
Conditions  of  Employment,  the  Staff  Rules,  and  specially  by  the  Ethics  Framework44.  This 
Framework  was  reviewed  in  December  2014  to  reflect  ECB's  new  tasks  in  banking 
supervision. 

Moreover,  in  2015  the  ECB  issued  a  Guideline45  and  a  document  of  Implementation 
Practices46  setting  the  principles  for  a  common  ethics  framework  for  the  SSM.  They  are 
addressed to both the ECB and the NCAs, which are responsible for their implementation. 

Finally,  the  Ethics  Committee  of  the  ECB,  regulated  by  Decision  ECB/2014/5947,  provides 
advice  on  questions  of  ethics  on  the  basis  of  individual  requests.  Its  members  shall  not  be 

42 OJ C 123, 24.5.2002, p. 9. 
43 OJ C 93, 20.3.2015, p. 2. 
44 OJ C 204, 20.6.2015, p. 5. 
45 Guideline (EU) 2015/856 of the ECB of 12 March 2015 laying down the principles of an Ethics Framework 
for the Single Supervisory Mechanism  (ECB/2015/12), OJ L 135, 2.6.2015, p. 29. 
46https://www.ecb.europa.eu/ecb/legal/pdf/_additional_info_final_implementation_practices_ssm_ethics_frame
work.pdf. 
47 OJ L 70, 14.3.2015, p. 58. 

16 

 
 
                                                            
current  staff  of  the  ECB  or  current  members  of  bodies  involved  in  the  decision-making 
processes of the ECB, the national central banks or the national competent authorities. These 
ethics  rules  regulate,  among  others,  conflicts  of  interests,  post-employment  restrictions, 
relations with external parties and private financial transactions. 

A.2. Decision-making [Article 32(g)] 

This section scrutinises governance arrangements underpinning the ECB's decision-making in 
relation to supervisory activities, by identifying the typologies of ECB acts, assessing the role 
of the parties involved in their adoption and the decision-making processes. The governance 
structure  supporting  the  ECB's  supervisory  activities  is  largely  constrained  by  the  TFEU's 
designation of the ECB's decision-making bodies as consisting of the Governing Council and 
the Executive Board48. The SSMR could not amend such fundamental aspect laid down in the 
Treaty,  and  developed  instead  specific  supervisory  structures  and  procedures  to  support  the 
Governing Council, when acting upon the tasks conferred to the ECB through the SSMR. 

A.2.1. Typology of acts 

Pursuant to the powers conferred through the SSMR, the ECB may take various supervisory 
actions  that  can  be  classified  as  follows:  1)  acts  addressed  to  individual  institutions 
(supervisory decisions and operational acts49), 2) horizontal acts addressed to all or groups of 
credit institutions (regulations, recommendations, guides, decisions of general application), 3) 
to  NCAs  (regulations,  guidelines,  recommendations,  decisions  and 
acts  addressed 
instructions),    4)  organisational  acts  (regulations,  guides,  decisions  providing  the  practical 
arrangements  for  the  functioning  of  the  SSM),  and  5)  other  acts  (e.g.  answers  to  MEP 
questions, communications with other institutions, etc.). 

The  core  of  the  supervisory  tasks  entrusted  to  the  ECB  is  reflected  in  the  adoption  of 
supervisory decisions, which are legal acts addressed to individual credit institutions, that are 
binding upon their addressees. Examples of supervisory decisions are the decisions imposing 
prudential requirements on credit institutions pursuant to the SREP, decisions in the context 
of  common  procedures  (authorisations,  withdrawals,  acquisition  of  qualifying  holdings), 
orders,  permissions  or  other  decisions  granting,  changing  or  withdrawing  rights,  decisions 
defining  particular  qualifications  or  characteristics,  decisions  imposing  administrative 
penalties. In 2015, about  1500 supervisory decisions were  adopted, of which  most  common 
were  921  approvals  (covering  more  than  2000  individual  procedures  on  authorisation 
applications, authorisation withdrawals, acquisitions of qualifying holdings, management and 
supervisory board appointments), 213 SREP decisions and 137 own funds decisions. In 2016, 
1835  supervisory  decisions  were  taken,  of  which  most  common  were  1191  decisions  on 
approval procedures (covering 2686 individual procedures), 192 own funds decisions and 130 
SREP decisions. The largest number of approval decisions each year represents the so-called 
"fit and proper" decisions on the suitability of management and supervisory board members of 
credit institutions.  

Whilst  most  supervisory  activities  involve  operational  acts  taken  outside  formal  decision-
making  channels,  the  ECB  needs  often  to  make  recourse  to  legally  binding  decisions, 
especially  supervisory  decisions.  The  number  of  decisions  adopted  every  year  shows  that 

48 Article 129 TFEU. 
49 Operational acts are taken outside formal  decision-making procedures, they don't have a specific legal form 
and reflect day-to day supervisory interaction (e.g. non-binding requests, statements, informal communication on 
supervisory expectations). 

17 

 
 
                                                            
there  is  a  very  high  number  of  formal  decisions  adopted  with  regard  to  individual  credit 
institutions and a vast typology of supervisory decisions. 

A.2.2. Parties involved in decision making  

There  is  large  panoply  of  actors  involved  in  the  various  stages  of  the  ECB's  process  for 
adopting supervisory decisions. The originators of draft supervisory decisions are usually the 
Joint  Supervisory  Teams  (JSTs),  which  prepare  the  very  first  draft  based  on  their  ongoing 
supervisory  activities.  NCAs  may  also  originate  draft  decisions  especially  with  regard  to 
common procedures (i.e. authorisation, qualifying holdings) or may be requested by the ECB 
to  prepare  draft  decisions,  given  their  expertise  in  national  law.  Directorates  General  of  the 
ECB, including those responsible for horizontal services contribute to the preparatory process 
and are mainly responsible for reviewing, approving or providing quality assurance for draft 
decisions  prepared  by  JSTs,  whilst  they  may  also  act  as  originators  (e.g.  proposing  to  take 
over  the  supervision  of  an  LSI,  initiate  common  procedures,  proposals  for  instructions  to 
NCAs,  enforcement  or  sanctioning  measures).  The  Secretariat  to  the  Supervisory  Board 
represents the next layer, responsible for ensuring efficient decision-making and institutional 
quality  of  the  decision-making  process.  In  this  capacity  it  prepares  the  documentation, 
procedures  and  meetings  of  the  Supervisory  Board  (which  includes  additional  review  and 
preparation of draft decisions) and takes care of the follow up, including the coordination with 
the Secretariat to the Governing Council, but also the registry and notification of supervisory 
decisions.  

The  Supervisory  Board  is  the  decision-making  body  entrusted  with  the  "planning  and 
execution  of  the  tasks  conferred  on  the  ECB"  in  supervision  and  ultimately  responsible  for 
carrying-out  the  "preparatory  works  regarding  the  supervisory  tasks  conferred  on  the  ECB" 
(Article  26  SSMR).50  In  this  capacity  it  has  to  prepare  complete  draft  decisions  to  be 
submitted  to  the  Governing  Council.  The  Supervisory  Board  may  approve  draft  decisions, 
amend them directly  or send  them back  to the organisational  units for revision. Two voting 
modalities  apply  to  the  Supervisory  Board.  Decisions  are  usually  taken  by  simple  majority 
with each member of the Supervisory Board having one vote and the Chair having the casting 
vote in case of draw (Article 26(6) SSMR). By way of derogation, decisions on the adoption 
of  regulations  organising  or  specifying  the  arrangements  for  carrying  out  ECB  supervisory 
tasks  conferred  through  the  SSMR  require  qualified  majority51  in  the  Supervisory  Board 
(Article 26(7) SSMR and Article 13c ECB Rules of Procedure52). 

The Governing Council is the final decision-making body that endorses or objects to the draft 
supervisory decisions. Although the decision making chain is long, ultimately all supervisory 
decisions adopted prior to the implementation of the delegation framework were taken by the 
Governing Council, with no final decision adopted at any lower level. Many of the decisions 
taken by the Governing Council reflect routine decisions or recurrent decisions that prior to 

the  Supervisory  Board.  Rules  of  Procedure  of 

50 The Steering committee of the Supervisory Board has been established in accordance with Article 26 SSMR 
without having any decision-making powers, but mainly in charge of deciding about the meetings and finalising 
the  agenda  for 
the 
ECB, OJ L 182, 21.6.2014, p. 56. 
51 Qualified majority in the Supervisory Board is based on a double majority system requiring at least 55% of the 
votes of members, representing at least 65% of the total population. A blocking minority consists of at least the 
minimum  number  of  Supervisory  Board  member  representing  35%  of  the  total  population,  plus  one  member. 
Each  of  the  four  ECB  representatives  appointed  by  the  Governing  Council  shall  be  assigned,  under  the 
population criterion, the median population of participating Member States, and one vote under the number of 
members criterion (an Annex to the amended rules of procedure of the ECB provides the details). 
52 Decision ECB/2004/2, OJ L 080 , 18.3.2004, p. 33. 

the  Supervisory  Board  of 

18 

 
 
                                                            
the  creation  of  the  SSM  were  taken  at  managerial  level  by  NCAs.  No  information  was 
available to the Commission as regards the exercise of voting rights; hence it is not possible in 
this report to assess the effectiveness of voting arrangements. 

A.2.3. Decision-making process for binding acts 

The ECB in its supervisory capacity acts on the basis of four decision making procedures: 1) 
the  non-objection  procedure  for  the  bulk  of  decisions  related  to  the  supervisory  tasks 
transferred to the ECB pursuant to Article 4 SSMR, whereby the Governing Council by non-
objection  endorses  draft  decisions  adopted  by  the  Supervisory  Board  or  rejects  such  draft 
decisions in case of an objection53, 2) the procedure for adopting decisions for the purpose of 
carrying  out  macro-prudential  tasks  referred  to  in  Article  5  SSMR,  whereby  the  Governing 
Council may endorse, object or amend a proposal by the Supervisory Board, may request the 
Supervisory  Board  to  submit  a  proposal  or  may  take  itself  a  decision  in  the  absence  of  a 
proposal  by  the  Supervisory  Board;  3)  decisions  on  the  general  framework  specifying  the 
arrangements  for carrying out  supervisory tasks, which are taken by the Governing Council 
on the basis of a proposal from the Supervisory Board, outside the scope of the non-objection 
procedure  and  4)  the  standard  ECB  decision  making  procedure  whereby  the  Governing 
Council  adopts  decisions  prepared  by  the  ECB's  Executive  Board  on  issues  affecting  the 
organisational  set  up  of  the  ECB,  such  as  rules  of  procedure,  the  setting  up  of  the 
Administrative  Board  of  Review  and  the  separation  between  monetary  and  supervisory 
functions.  Among  these  procedures,  the  non-objection  procedure  is  considered  the  standard 
decision-making procedure for tasks conferred under the SSMR as it is required to be used for 
adopting most of the ECB's acts under the SSMR.  

Given  the  high  number  of  decisions  and  their  varied  typology,  the  involvement  of  the 
Supervisory  Board  and  Governing  Council  in  every  decision  appeared  to  put  an  important 
strain on the resources of these two bodies, involving all NCAs and National Central Banks. 
There are important differences across supervisory decisions, in terms of complexity, impact 
and  relevance  for  supervised  entities.  Such  diversity  exists  across  types  of  decisions  (e.g. 
SREP  decisions  compared  to  approval  of  CET1  instruments),  as  well  as  within  the  same 
category of decisions (e.g. fit and proper decision for the Board of a major parent company 
compared to fit and proper decision for the management of an integrated subsidiary). Prior to 
the implementation of the delegation framework of decision-making powers, such differences 
were  not  taken  into  account  in  the  decision-making  process,  which  appears  to  imply  a 
disproportionate  impact on resources in  case of routine decisions, or  decisions with a lower 
overall impact. This situation prevented the ECB's decision-making bodies from focusing on 
important  supervisory  matters,  and  often  required  a  disproportionate  amount  of  efforts  and 
resources from both the ECB and NCAs in preparing the formal decision-making process54. 

The ECB introduced in 201555 the written procedure for decision-making by the Supervisory 
Board,  to  speed  up  and  allow  bundling  of  similar  decisions.  This  has  become  the  standard 
modality for the adoption of routine draft decisions to be endorsed by the Governing Council 

53  The  procedure  is  detailed  in  Article  13g  of  the  ECB's  Rules  of  procedure,  ECB/2004/2  (2004/257/EC)  as 
amended. 
54  NCAs  have  complained  about  the  resources  they  need  to  dedicate  for  preparing  their  position  for  the 
Supervisory Board and the Governing Council on issues which are not at all relevant from their point of view 
and which used to be dealt with at middle management level within their organisations. 
55 Decision (EU) 2015/716 of the European Central Bank of 12 February 2015 amending Decision ECB/2004/2 
adopting the Rules of Procedure of the European Central Bank (ECB/2015/8). 

19 

 
 
                                                            
under the non-objection procedure, decisions on technical issues, or in case of emergency56. 
Since it is expedient (giving Supervisory Board members maximum 5 days for consideration 
and  allowing  for  the  bundling  of  certain  procedures  into  single  decisions),  the  written 
procedure has alleviated time constraints and the decision overload for the Supervisory Board 
but  did  not  resolve  the  decision  making  burden  for  the  Governing  Council,  nor  the  time 
constraints  stemming  from  the  length  of  the  non-objection  procedure.  Some  national 
authorities have raised transparency concerns in relation to the assessment of comments made 
during  written  procedures.  However,  the  ECB  has  put  in  place  procedures  that  ensure  the 
evaluation  of  all  comments  by  the  relevant  business  areas  within  the  ECB  and  effective 
communication  with  the  NCAs  as  a  follow-up  to  comments  received  in  written  procedures. 
The  application  of  these  procedures  could  not  be  verified,  as  the  Commission  did  not  have 
access to confidential documents related to concrete cases.  

Despite some positive effects of measures taken during the first year to address challenges of 
supervisory decision-making, the volume of decisions to be taken by the Supervisory Board 
and the Governing Council remains extremely high (about 1500 decisions taken in 2015 and 
1800 decisions taken in 2016). 

A.2.4. Delegation framework 

Against  this  background,  the  ECB  has  acknowledged  that  the  adoption  of  each  and  every 
supervisory  decision  by  the  Governing  Council  is  unsatisfactory  from  an  operational 
efficiency perspective. To address this, it has envisaged the use of delegation to allow certain 
supervisory decisions to be taken at managerial level. Upon an explicit mandate given by the 
ECB's Executive Board and following consultation of the ECB's Legal Committee and of the 
Supervisory  Board,  the  Governing  Council  has  adopted  on  16  November  2016  a  legal 
framework for delegation that has been published on 1 June 2017 in the Official Journal of the 
European Union57 and will become operational on 21 June 2017. 

The delegation framework adopted by the ECB is based on a layered legal structure consisting 
of  three  levels  and  will  initially  be  applied  to  a  limited  type  of  supervisory  decisions.  The 
general  framework  (first  layer)  establishes  the  possibility  of  delegating  decision-making 
powers to ECB managerial staff carrying out supervisory tasks, on the basis of a delegation 
decision adopted by the Governing Council under the non-objection procedure (second layer) 
and  a  nomination  decision  issued  by  the  Executive  Board  (third  layer).  The  general 
framework  clarifies  the  procedural  requirements  for  adopting  a  delegation  decision,  the 
transparency  requirements  attached  to  the  exercise  of  delegation  and  the  revocability  of 
delegations. The general framework does not restrict the application of delegation to specific 
supervisory activities. 

56 Whenever a draft decision is susceptible of discussion by Board members or concerns a policy issue decision-
making will take place at a meeting. Decisions should be taken at meetings also when at least three members of 
the Supervisory Board object. In 2015, out of the 800 written procedures 40 were objected and re-submitted for 
approval. 
57  Decision  (EU)  2017/933  of  the  European  Central  Bank  of  16  November  2016  on  a  general  framework  for 
delegating decision-making powers for legal instruments related to supervisory tasks (ECB/2016/40); Decision 
(EU)  2017/934  of  the  European  Central  Bank  of  16  November  2016  on  the  delegation  of  decisions  on  the 
significance of supervised entities (ECB/2016/41); Decision (EU) 2017/935 of the European Central Bank of 16 
November 2016 on delegation of the power to adopt fit and proper decisions and the assessment of fit and proper 
requirements  (ECB/2016/42);  Decision  (EU)  2017/936  of  the  European  Central  Bank  of  16  November  2016 
nominating  heads  of  work  units  to  adopt  delegated  fit  and  proper  decisions  (ECB/2017/16);  Decision  (EU) 
2017/937  of  the  European  Central  Bank  of  16  November  2016  nominating  heads  of  work  units  to  adopt 
delegated decisions on the significance of supervised entities (ECB/2017/17) 

20 

 
 
                                                            
Delegation decisions  are proposed by the Supervisory Board  and adopted by the Governing 
Council under the non-objection procedure. Two areas have been identified as being the most 
suitable  for  testing  the  system,  namely  fit-and-proper  decisions  for  members  of  the 
management  board  of  significant  supervised  entities  and  minor  amendments  to  significance 
decisions. These delegation decisions set out the perimeter of delegation and the substantive 
criteria  for  exercising  delegated  powers,  thereby  establishing  proportionate  boundaries  to 
supervisory  discretion  and  ensuring  that  the  procedural  rights  of  the  concerned  parties  are 
safeguarded.  

For  example,  the  delegation  of  fit  and  proper  decisions  covers  a  broad  scope  of  decisions, 
applying  to  all  decisions,  except  for  those  excluded  pursuant  to  several  criteria:  size  and 
nature of the supervised entity, the anticipated outcome of the decision (negative decisions are 
excluded),  the  timely  submission  of  the  proposal  by  the  relevant  NCA  and  a  set  of  specific 
aspects  of  the  fit  and  proper  assessment  (e.g.  reputational  issues  related  to  criminal 
proceedings,  or  administrative  actions  related  to  non-compliance  with  financial  services 
regulation).  The  envisaged  criteria  for  the  performance  of  the  fit-and  proper  assessment 
through delegation stem from national laws transposing CRD IV and from the ECB's Guide to 
Fit and Proper Supervision. The delegation decision in the area of amendments to significance 
decisions aims at rendering more efficient the regular update of the list of entities subject to 
ECB's  direct  supervision.  Delegation  is  excluded  for  the  "initial"  determination  of 
significance  or  whenever  the  entity  at  the  highest  level  of  consolidation  changes,  but  is 
possible  for  changes 
the 
declassification of an entity from a significant to a less significant institution implies that the 
institution  will  exit  the  perimeter  of  direct  ECB  supervision,  such  declassification  was 
included in the scope of delegation as it covers situations where there is very little supervisory 
discretion. Generally such declassification relates to intra-group operations that do not affect 
the significance of the supervised group at the highest level of consolidation, but the reduction 
of its perimeter (e.g. a subsidiary is sold but the group remains significant) or to cases where 
the supervised entity has completed a three consecutive years period during which the criteria 
for being considered significant have not been met, and therefore the supervisory discretion 
attached  to  such  a  decision  is  not  only  very  limited  but  also  its  implications  have  been 
prepared  in  advance  with  the  relevant  national  competent  authorities  (Article  47  of  the 
SSMFR). 

in  status  from  significant 

less  significant.  Although 

to 

The ECB estimates that the implementation of the delegation framework on the basis of these 
two  selected  areas  would  significantly  reduce  the  number  of  supervisory  decisions  to  be 
adopted by the Governing Council in a year. The ECB does not expect delegation to affect the 
quality  of  the  decisions,  nor  the  amount  of  preparation  underpinning  them.  Yet,  delegation 
would significantly alleviate the burden of the Supervisory Board and the Governing Council 
and help them concentrate on important supervisory issues. The Commission understands that 
the ECB needs to make operational adjustments in order to ensure that a dual track decision-
making is available in the respective areas that results in legally sound decisions, of the same 
quality, that respect due process and are adequately notified and registered. Depending on the 
result of these two pilot cases, the ECB is also willing to consider expanding the framework to 
other areas. 

21 

 
 
 
 
A.3. Separation between monetary and supervisory functions within ECB [Article 32(l) 
SSMR] 

The SSMR requires that the supervisory tasks of the ECB are carried out separately from its 
monetary policy function58. This means that each function has to be exercised in accordance 
with its objectives, that there should be organisational separation and separate reporting lines 
for staff59 and that the Governing Council should operate in completely differentiated settings 
as  regards  monetary  and  supervisory  functions.60  To  implement  the  separation  requirement, 
the ECB has adapted its procedural rules and adopted a Decision on the implementation of the 
separation  between  monetary  policy  and  supervision  functions.61  Separation  is  primarily 
reflected  in  the  organisational  separation  of  the  ECB  staff  dedicated  to  the  two  functions, 
separate management lines, specific decision-making procedures entailing different reporting 
lines, professional secrecy requirements and regulated exchanges of confidential information. 
Furthermore,  potential  conflicts  resulting  from  differences  of  views  expressed  by  the 
competent authorities regarding an objection by the Governing Council to a draft decision of 
the  Supervisory  Board  have  to  be  dealt  with  by  the  mediation  panel62  set  up  in  the  ECB, 
which  has  not  been  used  so  far  in  the  absence  of  any  objection  raised  by  the  Governing 
Council to draft decisions submitted by the Supervisory Board.  

Notwithstanding the separation arrangements, the ECB remains a unitary institution, where in 
addition  to  the  common  decision-making  body  (i.e.  the  Governing  Council),  the  Executive 
Board  retains  overall  responsibility  for  organisational,  human  resources  and  administrative 
issues, covering both functions.63 Furthermore, certain internal ECB services that existed prior 
to assumption of supervisory tasks under the SSMR continue to serve both functions. This is 
particularly  the  case  of  the  so-called  shared  services64  and  of  services  responsible  for  tasks 
related to macro-prudential supervision.65  

A.3.1. Shared services 

The  shared  services  referred  to  in  the  ECB  Decision  are  departments  providing  support 
functions  within  the  ECB.  At  the  current  juncture,  all  business  areas  identified  as  shared 
services  already  existed  before  the  creation  of  the  SSM.  They  include  Administration, 
Information  Technology,  Communication,  Human  Resources,  Budget  and  Organisation, 

58 Recital (65), Art. 25 of the SSMR. 
59 In this respect, recital (65) SSMR further clarifies that staff involved in carrying out the tasks conferred upon 
the ECB by the SSMR should report to the Chair of the Supervisory Board. In addition, recital 74 stipulates that 
professional  secrecy  requirements  should  apply  to  the  exchange  of  information  between  staff  of  the  ECB 
carrying out supervisory duties and staff not involved in supervisory duties. 
60 Decision of the ECB of 19 February 2004 adopting the Rules of Procedure of the ECB (ECB/2004/2), OJ L 
80, 18.3.2004, p. 33.as amended. 
61  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). 
62 Regulation (EU) No 673/2014 of the ECB of 2 June 2014 concerning the establishment of a Mediation Panel 
and its Rules of Procedure (ECB/2014/26), OJ L 179, 2.6.2014, p. 72. 
63  Art.  3(3)  of  Decision  ECB/2014/39.  Staff  carrying  out  supervisory  tasks  report  to  the  Executive  Board  in 
respect of organisational, human resources and administrative issues, but shall be subject to functional reporting 
to the Chair and the Vice Chair of the Supervisory Board. 
64  Art.  3(4)  of  Decision  ECB/2014/39.  Both  the  existing  and  the  potential  new  shared  services  are  subject  to 
restrictions on disclosure of confidential information containing assessments or policy recommendations to the 
respective other policy function, except on a need to know basis. Ibid Art. 6. 
65 Art. 6 of Decision ECB/2014/39. 

22 

 
 
                                                            
Internal  audit  and  Legal  service.66  The  SSMR  does  not  preclude  that  internal  ECB  support 
functions be used by both the monetary and supervisory functions. A duplication of internal 
support  functions  would  arguably  undermine  efficiency  and  cost  effectiveness  within  the 
ECB, therefore, the concept of shared services is in principle compatible with the separation 
requirement.  

At  the  same  time,  it  is  imperative  that  the  support  functions  are  adequately  reinforced  and 
equipped  to  deal  with  the  increased  workload  stemming  from  the  addition  of  the  new 
supervisory functions, to prevent competition for resources and to manage potential conflicts. 
A  business  area  may  be  identified  as  shared  service  because  of  the  technical  nature  of  the 
support  or  advice  offered,  which  assumes  there  is  little  potential  for  conflicts  of  interest. 
Nonetheless,  certain  shared  services  may  be  more  prone  to  conflicting  objectives  when 
exercising both functions, and therefore need to be carefully scrutinised in terms of applicable 
safeguards,  particularly  the  existence  of  separate  reporting  lines.  This  issue  has  been 
identified  also  in  the  ECA  report  on  the  SSM  and  as  a  follow-up  the  ECB  is  currently 
undertaking  an  assessment  of  the  risks  related  to  the  use  of  shared  services,  in  particular  in 
view of identifying potential conflicts of interest and conflicting needs which shared services 
may be exposed to, and developing and implementing the necessary safeguards. 

The  most  prominent  example  of  shared  services  is  the  Legal  Service  of  the  ECB,  as  it 
regularly provides input for monetary and supervisory decisions. The ECA and several NCAs 
raised  concerns  as  to  the  possible  conflicts  of  interest  with  which  the  ECB's  Legal  Service 
might  be  confronted  and  a  potential  incompatibility  with  the  separation  requirement.67  In 
general,  issues  relating  to  the  ECB's  supervisory  function  appear  to  be  dealt  with  by  the 
Supervisory Law Division, whose organigram presents separated reporting lines up to Deputy 
Director  General  level,  and  which  reports  to  the  Vice-Chair  of  the  Supervisory  Board. 
Nevertheless,  there  have  been  instances  where  questions  regarding  the  interpretation  of  the 
SSMR, when they involve also institutional issues, or the interpretation of CRD/CRR68 have 
been  treated by other divisions  within  the ECB's Directorate General  Legal Services, which 
report directly to the relevant Executive Board member; in this case it remains unclear how 
reporting  lines  to  the  Vice-Chair  of  the  Supervisory  Board  are  applied  and  how  potential 
conflicts are solved.  

It  is  noted  that  NCAs  that  are  also  central  banks  have  a  single  legal  department  serving  all 
functions of the NCA/CB and that these precedents were considered relevant for maintaining 
a  single  Legal  Service  at  the  ECB.  At  this  stage  there  is  no  evidence  available  to  the 
Commission as regards concrete conflicts of interest within ECB's Legal Service. However, in 
light of the fact that the ECB's Legal Service opinions are often used as input for ECB's policy 
decisions  under  both  functions,  it  would  be  necessary  to  assess  in  depth  whether  current 
separation arrangements within the Legal Service are sufficient or need to be reinforced. 

A.3.2. Separation of the macro-prudential tasks provided in the SSMR 

In line with its Treaty mandate to contribute to the smooth conduct of policies related to the 
stability of the financial system the ECB has always performed a macro-prudential oversight 

66 See also: Special Report of the European Court of Auditors ECA 2016/29 "Single Supervisory Mechanism – 
Good Start but Further Improvements Needed", page 31.  N.B. The titles of the services are consistent with the 
titles used in the ECA Report and do not correspond to the titles of the ECB organisational units.  
67 One NCA even explicitly stated that it would prefer a separate legal department of the SSM, even if this better 
separation would lead to higher costs. 
68 Regulation (EU) No 575/2013, OJ L 176, 27.6.2013, p. 1. 

23 

 
 
                                                            
function  through  a  dedicated  department  that  became  the  Directorate-General  Macro-
prudential Policy and Financial Stability (DG-MF). With the conferral to the ECB of specific 
macro-prudential tasks (the so-called top-up powers) in Article 5 of the SSMR, the Governing 
Council  decided  to  leverage  on  the  expertise  and  capacity  of  the  existing  department  and 
anchor  these  additional  tasks  within  DG-MF.69  At  the  same  time,  the  ECB  designed  a 
dedicated decision-making process providing for the involvement of the Supervisory Board.70   

The dedicated process requires the national competent or designated authorities to notify both 
the Supervisory Board and the Governing Council on the intention to adopt macro-prudential 
measures. The Supervisory Board should submit its proposal in relation to such initiative, on 
the basis of input prepared by DG-MF, with the contribution of JSTs and Directorate-General 
Micro-Prudential  Supervision  IV  (DG  MS  IV),  and  of  the  relevant  committees.71  The 
Governing Council is responsible for the final decision.  

Different  from  decision-making  for  other  tasks  conferred  through  the  SSMR  (i.e.  micro-
prudential tasks based on Article 4 of the SSMR), the dedicated process for adopting macro-
prudential decisions gives the Governing Council a more prominent role throughout the whole 
decision-making process, allowing the Governing Council to request the Supervisory Board to 
act and to adopt on its own a decision where the Supervisory Board did not propose a draft.   

A.4. Division of tasks between ECB and NCAs [Article 32(a) and(b)] 

A.4.1. Distribution of tasks and responsibilities  

The  SSM  was  conceived  as  a  system  composed  of  the  ECB  and  the  NCAs,  where  all 
components  play  an  active  role  and  where  the  nature  of  responsibilities  incumbent  on  the 
various components is defined. The ECB is in charge of the overall functioning of the SSM as 
a  system,  whilst  all  components  of  the  SSM  are  subject  to  the  duty  of  cooperation  in  good 
faith. NCAs are responsible for assisting the ECB with the preparation and implementation of 
acts  relating  to  the  tasks  conferred  on  the  ECB,  and  should  observe  the  ECB's  instructions 
when doing so. Whilst the system was built on the idea to fully use the specific knowledge 
and  expertise  of  the  NCAs,  the  degree  of  direct  involvement  of  the  ECB  was  conceived  to 
increase with the size, complexity and systemic importance of the supervised entities, as well 
as to ensure a consistent and coherent supervision within the Banking Union. Such embedded 
cooperative framework has been further specified in the SSMFR adopted by the ECB. 

It  is  within  this  cooperative  framework  that  the  ECB  exercises  direct  supervisory 
responsibilities, which include not only the overall supervision of significant institutions, but 
also  direct  responsibilities  as  regards  the  licencing  and  withdrawal  of  authorisation  for  all 
credit institutions in the participating Member States, the assessment of qualifying holdings, 
as well as the exercise of the additional macro-prudential tasks over credit institutions in the 
participating Member States.  

69 DG-MF is not considered by the ECB as a shared service, as it exercise a specific function. 
70 Article 13h of the ECB's rules of procedure (ECB/2004/2 as amended by ECB/2014/1). 
71  The  'relevant  committees  and  internal  structures'  referred  to  in  the  Article  are  the  Financial  Stability 
Committee (FSC) in SSM composition (which is an expert group composed of both the representatives of the 
central banks and the national competent authorities), Macro-prudential Coordination Group (MPCG, composed 
on senior management of DG-MF and the Macro-prudential Forum which is a joint meeting of the Supervisory 
Board and the Governing Council. The FSC in SSM composition and the MPCG are providing an input for the 
draft decisions of the Supervisory Board. The Macro-prudential Forum is a platform for joint discussions without 
the decision-making power. The ECB staff supporting these structures is, according to the ECB, organisationally 
separated from the staff conducting monetary policy analysis. 

24 

 
 
                                                            
NCAs remain responsible for the direct ongoing supervision of less significant institutions, as 
well  as  for all  other tasks  that  were  not  conferred  on the  ECB  via  the SSMR.  Additionally, 
they are involved in the tasks directly entrusted to the ECB providing draft decisions (in the 
case of authorisation, qualifying holdings), undertaking preparatory work (e.g. outsourcing of 
certain  activities  to  NCAs  subject  to  some  materiality  threshold  is  currently  discussed)  and 
participating in JSTs, on site-inspections, networks or ad hoc groups to the Supervisory Board 
and  Governing  Council.  Their  key  preparatory  role  with  regard  to  the  licencing  and 
withdrawal  of  authorisation  and  the  assessment  of  qualifying  holdings  for  all  credit 
institutions  is  highlighted  in  the  SSMR  and  is  largely  justified  by  the  fact  that  most  of  the 
substantial rules are enshrined in national legislation transposing the relevant CRD provisions.  

Furthermore,  authorities  designated  for  macro-prudential  purposes  maintain  their  primary 
responsibilities  in  relation  to  the  application  of  capital  buffers  and  other  measures  aimed  at 
addressing  systemic  or  macro-prudential  risks,  whilst  the  ECB's  macro-prudential  tasks  are 
supplementary.  

NCAs are not only involved in the execution of SSM related tasks in their own jurisdiction, 
but also participate in decision-making regarding entities in other jurisdictions, through their 
representative in the Supervisory Board. Thereby a cross-fertilisation of supervisory practices 
takes place, which is beneficial to all parties and contributes to a bottom-up development of 
the SSM culture.  

The  involvement  of  NCAs  in  support  of  ECB's  activities  has  been  resource  intensive, 
especially in the set-up phase and resulted in several NCAs increasing their staff to be able to 
cope with extensive responsibilities in the context of the SSM. In parallel, the ECB has also 
steadily reinforced its resources and is constantly developing its own expertise at a fast pace. 
ECB  staff  is  fully  in  charge  of  the  coordination,  overall  functioning  and  coherence  of  the 
system,  where  NCAs  contribution  is  largely  limited  to  preparatory  policy  discussions  and 
preparation of national representatives in the Supervisory Board and the Governing Council. 
The ECB is also in lead of all JSTs and has gradually increased its participation in such teams. 
Most of the JSTs, which account for the largest contribution in terms of NCA assistance, are 
currently composed of 1/3 ECB staff against 2/3 NCA staff. At this stage of the SSM, such a 
ratio may be considered to be balanced in view of the statutory distribution of responsibilities 
and  the  duty  of  assistance  by  the  NCAs.  Conversely,  the  composition  ratio  of  on-site 
inspection teams appears to be problematic, as only 10% of such teams consist of ECB staff. 

A specific dimension of the division of tasks between the ECB and the NCAs relates to the 
supervision of less significant institutions. The ECB's responsibilities with regard to LSIs are 
integrated in the construction of the SSM72. The ECB is entrusted with the overall functioning 
of the system and its tasks are conferred for all credit institutions, but need to be exercised in 
accordance  with  the  distribution  of  responsibilities  provided  in  Article  6.  Thus,  unless 

72  Whilst  clearly  responsible  for  the  authorisation,  withdrawal  of  authorisation  and  assessment  of  qualifying 
holdings  in  the  case  of  LSIs,  the  ECB  is  not  responsible  for  their  direct  supervision.  Instead  the  ECB  may 
instruct the competent authorities as to how to perform their supervisory tasks and adopt supervisory decisions, 
including  instructions  to  NCAs  as  to  how  to  use  specific  supervisory  powers  for  groups  or  categories  of 
institutions. The underlying objective is to ensure consistency of supervisory outcomes in the SSM. Furthermore, 
the ECB may decide at any time to take over the direct supervision of one or more LSIs, may use at any time its 
investigatory powers towards LSIs. Nota bene, the ECB can only decide to take over full supervision, not only 
specific supervisory tasks with regard to an LSI. The ECB may also request from NCAs ad hoc or continuous 
information on the way they perform their tasks to the ECB, and is entrusted with the general oversight over the 
functioning of the system. 

25 

 
 
                                                            
otherwise  decided  by  the  ECB,  it  is  for  NCAs  to  perform  supervisory  tasks  over  LSIs.  The 
ECB has an oversight function but also an overall duty to ensure consistency of supervisory 
outputs  throughout  the  Banking  Union  and  to  intervene  directly  by  taking  over  LSI 
supervision, should this be needed. Given the ECB's ultimate responsibility for the effective 
and consistent functioning of the SSM, the ECB has, at any point, the right (and obligation) to 
make  use  of  available  tools  if  deemed  necessary  for  fulfilling  its  mandate.  This  implies 
flexibility, and some uncertainty as to the role of the ECB vis-a-vis LSIs, in terms of both the 
extent to which the ECB can give instructions to NCAs for the supervision of LSIs and the 
situations in which it would take over direct supervision of LSIs.  

The ECB has spelled out in the SSMFR the criteria to be taken into account for taking over 
direct supervision of LSIs.73 However such criteria are not exhaustive and do not reflect for 
instance developments in the area of resolution.  

Whilst  there  seems  to  be  overall  clarity74  as  to  the  tasks  remaining  with  NCAs75,  it  is 
legitimate to ask how these remaining NCA tasks affect the capacity of the ECB to perform 
its  competences  especially  in  view  of  its  objective  to  ensure  the  stability  of  the  Union's 
financial system and the unity and integrity of the internal market. This has to be analysed in 
the  context  of  structural  developments  in  the  banking  sector,  where  financial  actors  are 
extremely  adaptable,  including  in  terms  of  corporate  structure,  and  ready  to  exploit  any 
regulatory  or  supervisory  loophole.  For  instance,  third  country  groups  are  becoming  ever 
more complex and interconnected, operating through complicated networks, involving a wide 
range of entities taking often the form of branches or investment firms.  

A.4.2. Reliance on national law 

National law has major relevance in the carrying out of ECB's supervisory tasks, as national 
law  not  only  transposes  substantial  Union  law  included  in  relevant  Directives  (particularly 
CRD and BRRD76) but also frames the powers and tools available to supervisory authorities 
for  performing  their  tasks.  This  is  an  unprecedented  situation,  with  the  ECB  being  the  first 
Union institution required to apply national law and acting on the basis of national laws.  

It  is  in  relation  to  this  interaction  between  national  and  EU  levels  that  the  precise  scope  of 
ECB  powers  has  to  be  defined,  particularly  the  extent  to  which  the  ECB  may  exercise 
supervisory  powers  laid  down  in  national  laws  transposing  or  implementing  Union  law.  A 
clear  division  of  powers  between  the  ECB  and  the  NCAs,  which  does  not  depend  on  the 
willingness of the ECB and individual NCAs to agree how powers should be exercised, would 
avoid an inconsistent approach and much legal uncertainty. 

73 Article 67 of the SSMFR. 
74 There were some misunderstandings as to the exact distribution of the responsibilities and powers between the 
ECB and the NCAs, where tasks have been conferred on the ECB (which will be discussed in the next section). 
75  Such  remaining  tasks  are  generally  defined  negatively  as  those  that  have  not  been  transferred  to  the  ECB 
through  the SSMR.  Recital 28  contains a non-exhaustive  list of  such  tasks: receiving notifications from  credit 
institutions  in  relation  to  the  right  of  establishment  and  the  free  provision  of  services,  supervision  of  bodies 
which are not covered by the definition of credit institution under Union law but which are supervised as credit 
institutions  under  national  law,  supervision  of  credit  institutions  from  third  countries  establishing  a  branch  or 
providing  cross-border  services  in  the  Union,  supervision  of  payment  services,  carrying-out  day-to-day 
verifications of credit institutions, acting as competent authority in relation to markets in financial instruments, 
the  prevention  of  the  use  of  the  financial  system  for  the  purpose  of  money  laundering,  terrorist  financing  and 
consumer protection.  
76 Directive 2014/59/EU, OJ L173, 12.6.2014, p. 190. 

26 

 
 
                                                            
Based  on  the  joint  reading  of  the  SSMR  and  the  CRD,  the  ECB  has  been  clearly  endowed 
with broad supervisory powers for the purpose of performing the tasks conferred to it. This is 
not limited to the powers explicitly listed in the SSMR but extends to all supervisory powers 
set in national transposition  laws even when these are not  explicitly listed in  the text  of the 
CRD77. Hence, where a supervisory power enshrined in national law is intended to underpin a 
supervisory function under Union law, the ECB should be capable of exercising such power 
within  the  limits  of  its  supervisory  tasks  set  in  Articles  4  and  5  of  the  SSMR.78  On  the 
contrary, where a supervisory power enshrined in national law is purely provided to underpin 
functions  that  a  competent  authority  has  under  national  law  (but  not  under  relevant  Union 
law) the power should be exclusively exercised by the national competent authority, such as 
the  power  to  approve  mergers  or  acquisitions  for  competition  purposes.  Nor  does  the  ECB 
have powers conferred to national authorities under the relevant Union law, but which do not 
relate to the specific tasks conferred to the ECB under Articles 4 and 5 SSM-Regulation, such 
as  for  instance  supervision  of  credit  institutions  as  regards  markets  in  financial  instruments 
and  anti-money  laundering.  However,  the  ECB  may  instruct  national  authorities  to  exercise 
their powers if and insofar this proves necessary to carry out the tasks conferred on the ECB 
under Article 4 and 5 SSMR (in accordance with Article 9(1) third subparagraph).  

B. Supervisory tools [Article 32(a), (b) SSMR] 

This  section  assesses  the  main  tools  that  the  ECB  has  developed  in  view  of  performing  its 
supervisory  tasks.  During  the  first  two  years  of  existence  of  the  SSM,  the  following 
instruments and processes have proved essential to ensure the effectiveness of the exercise of 
ECB competences and the smooth functioning of the SSM itself: categorisation of institutions 
within the Banking Union, based on the distinction in the SSMR between significant and less 
significant institutions, the setup of joint supervisory teams, the roles of horizontal services, 
on-site  inspections,  the  participation  in  colleges  of  supervisors  and  the  harmonisation  of 
options and discretions. 

B.1. Categorisation of supervised entities  

In  view  of  performing  its  supervisory  tasks,  the  ECB  has  developed  the  concept  of 
"supervised  entity",  which  includes  the  following  entities  established  in  a  participating 
Member  State:  credit  institutions,  financial  holding  companies,  mixed  financial  holding 
companies and branches of credit institutions established in non-participating Member States. 
In addition, the ECB uses the concept of "supervised group" to refer to groups whose parent 

77 In accordance with Article 9(1) second subparagraph of the SSMR, for the exclusive purpose of carrying out 
the supervisory tasks conferred on it by the SSMR, the ECB shall have (i) all the powers and obligations set out 
in the SSMR; and (ii) all the powers and obligations, which competent authorities shall have under the relevant 
Union law. The relevant Union law assigning supervisory powers to competent authorities in relation to  credit 
institutions consists mainly of the CRD, CRR and BRRD. Under Section IV on Supervisory powers, Article 64 
of the CRD requires that competent authorities be given “all supervisory powers to intervene in the activity of 
institutions that are necessary for the exercise of their function” under the CRD and the CRR. It therefore results 
from Article 9 of the SSMR and Article 64 of the CRD that the ECB should not only have the powers explicitly 
listed in the CRD and the CRR, but also all supervisory powers to intervene in the activity of credit institutions 
that were given to national authorities for performing their broad supervisory function under the CRD and the 
CRR. 
78 Where individual supervisory powers are provided in national law they must be first assessed with a view to 
establish whether they underpin one of the tasks conferred to the ECB via the SSMR. To this end, characteristics, 
purpose  and  nature  of  supervisory  powers  under  national  law  and  of  the  corresponding  supervisory  functions 
under relevant Union law should be assessed. It should be taken into account that the tasks conferred to the ECB 
pursuant to Articles 4 and 5 of the SSMR are broad in nature and cover crucial prudential supervisory aspects 
enshrined in the CRD and CRR, as well as the early intervention mechanism in the BRRD. 

27 

 
 
                                                            
undertakings  are  located  in  a  participating  Member  State.  Such  concepts  are  useful  for  the 
ECB  to  identify  the  perimeter  of  entities  under  SSM  supervision,  including  at  consolidated 
level.  

On the basis of the criteria and conditions listed in Article 6 of the SSMR79, the ECB assesses 
on  an  annual  basis  whether  a  supervised  entity  or  supervised  group  is  significant.  Such 
assessment is done at the highest consolidated level in the participating Member States. A list 
of  significant  and  less  significant  supervised  entities  is  published  every  year  on  the  ECB 
website,  with  regular  updates  to  reflect  changes  in  banking  groups  composition;  as  of  1 
January  2017,  it  comprised  125  significant  entities  or  groups.  This  list  constitutes  a 
transparent communication tool distinguishing between entities under direct ECB supervision 
and entities supervised by NCAs.  

Although  the  default  criteria  for  determining  significance  are  enshrined  in  the  SSMR,  the 
ECB has some discretion to change the default qualification. It may ascertain the existence of 
particular circumstances that would qualify a supervised entity as being less significant even 
where  it  meets  the  size  criteria.  The  ECB  has  broadly  specified  how  it  assesses  "particular 
circumstances".80 In a few instances81 the ECB exercised its discretion to exempt entities from 
being  considered  significant,  without  however  rendering  public  the  justification  for  such 
assessment. According to the ECB, the few cases where particular circumstances were applied 
represented outlier situations. As a matter of principle, a re-qualification of an institution as a 
LSI could be considered as reasonable as long as there are specific factual circumstances to 
support  that  decision,  and  the  objectives  of  the  SSM  are  not  affected.  Re-qualification  was 
conceived to remain exceptional, which requires the notion of "particular circumstances" to be 
interpreted restrictively. To be transparent about the way it exercised its discretion, the ECB 
has  disclosed  the  institutions  benefitting  from  particular  circumstances,  but  did  not  make 
public detailed information justifying the application of particular circumstances.  

Branches  of  credit  institutions  established  in  non-participating  Member  States  that  fulfil  the 
significance criteria are also considered significant supervised entities. They are however not 
signalled  in  the  ECB's  list  of  supervised  entities.  The  ECB  exercises  for  such  branches  the 
powers granted under Union law to the competent authorities of the host Member State, whilst 
NCAs  in  host  Member  States  remain  competent  for  branches  that  are  less  significant.82 
Significant  supervised  branches  do  not  necessarily  coincide  with  significant  branches 
determined  in  accordance  with  Article  51  CRD  or  with  'significant  plus'  branches,  a 
subcategory currently envisaged by the EBA as part of its revised Guidelines on supervision 

79 The following criteria are necessary to be met by a supervised entity to be consider as significant: 1) the total 
value of assets exceeds EUR 30 billion; 2) the ratio of total assets over the GDP of the participating Member 
State of establishment exceeds 20 %, unless the total value of assets is below EUR 5 billion; 3) the supervised 
entity is, in the Member State where it is established, one of the three largest institutions; 4) upon notification by 
the NCA that it considers such an institution of significant relevance with regard to the domestic economy, the 
ECB  takes  a  decision  confirming  such  significance  following  a  comprehensive  assessment  by  the  ECB, 
including  a  balance-sheet  assessment,  of  that  credit  institution;  5)  the  ECB  considers  on  its  own  initiative  an 
institution to be significant where it has subsidiaries in more than one participating MS and cross-border assets 
or liabilities represent a significant part of its total assets and liabilities; 6) institutions having received financial 
assistance from the EFSF or the ESM. 
80 Articles 70 and 71 SSMFR. 
81 The published list of significant and less significant institutions identifies by an asterisk the institutions which 
are exempted by the SSM from being a significant institution. 
82 Branch supervision is entrusted to the authority in the home country, with the host country supervisor having 
limited powers, in accordance with Articles 40-46, 49-52 CRD. 

28 

 
 
                                                            
of  significant  branches.  The  two  sets  of  concepts  have  to  be  considered  in  conjunction  for 
identifying the involvement of the ECB in the supervision of such branches.  

The  ECB  uses  further  categorisations  of  supervised  entities  in  view  of  conducting 
proportionate  supervision,  enabling  peer  comparisons  and  defining  the  level  of  supervisory 
engagement. Based on institutions' systemic importance and complexity, the ECB divides SIs 
into  5  different  clusters,  with  cluster  1  institutions  representing  the  highest  systemic  impact 
and  the  highest  supervisory  complexity.83  These  clusters  should  not  be  confused  with  the 
different  scores  assigned  by  the  ECB  to  institutions  reflecting  their  "riskiness".84  These,  as 
well  as  further  categorisations  developed  by  the  ECB  appear  to  be  instrumental  to  the 
performance  of  various  supervisory  activities,  especially  within  the  SREP.  Their  relevance 
and interaction is however not always straightforward, especially when used to determine the 
level of supervisory engagement or the choice of supervisory output. Also, the EBA noted in 
its  supervisory  convergence  related  work  that  the  ECB's  categorisations  may  not  be  fully 
aligned with the categorisation developed in the EBA's Guidelines on the Supervisory Review 
and Evaluation Process.  

As  the  LSI  sectors  across  participating  Member  States  differ  significantly  in  terms  of  the 
number  of  banks  per  Member  State  and  the  size  of  those  banks,85  a  proportionate  approach 
was warranted. Thus, a categorisation based on riskiness and potential impact of institutions 
on  the  relevant  domestic  market,  has  been  developed  by  the  ECB  together  with  NCAs  to 
determine supervisory engagement by the ECB and the level of information to be provided by 
the relevant NCA to the ECB. This prioritisation framework qualifies LSIs as high, medium 
or low priority, whereby the medium and low priority categories are used only for statistical 
and internal purposes and not subject to approval by the SSM decision-making bodies, whilst 
the high-priority category requires more intense communications from the NCAs to the ECB 
and  increased  vigilance  from  the  ECB.86  It  proves  useful  for  a  better  understanding  of  the 
ECB's engagement in LSI supervision, and for shaping cooperation of NCAs with the ECB. 

B.2. Joint Supervisory Teams (JSTs) 

The  Joint  Supervisory  Teams  (JSTs)  are  representative  of  the  SSM  as  a  system;  they 
constitute the tool whereby the ECB leverages on the expertise of NCA staff for performing 
its  direct supervisory  responsibilities  towards  SIs.  The  JST  were  created  on  the  basis  of  the 
SSMFR  and  are  not  mentioned  in  the  SSMR.  They  are  responsible  for  the  ongoing 
supervision of the SIs, that is, they are entrusted with the implementation of the tasks listed in 

83 To determine the impact of an SI, the ECB uses size, complexity and geographical diversification as leading 
indicators, further refined with more bank specific analysis on substitutability, interconnectedness and implicit 
groups.  On  the  basis  of  such  analysis  the  systemic  impact  of  an  institution  is  considered.  This  impact 
categorisation is than further adjusted in relation to the complexity involved in supervising the institution (e.g. 
whether it is a conglomerate or an institution using sophisticated internal models). 
84 The ECB uses a four-grade scale with qualifiers for the overall Risk Assessment System (RAS) scores, which 
are based on the analysis of various categories of risks. Higher scores reflect an increased risk to the viability of 
the institution stemming from one or several features of its risk profile, including its business model, its internal 
governance framework, and individual risks to its solvency or liquidity positions. 
85 
https://www.bankingsupervision.europa.eu/ecb/pub/pdf/intro_list_sse_201730.en.pdf?b9e9406ffa95250a604e4b
ce6b0185cf. 
86 LSIs may be qualified as high priority for various reasons: their size – when they are close to being classified 
as  SIs;  for  the  intrinsic  riskiness,  their  interconnectedness.  Each  participating  Member  State  is  designating  at 
least three high-priority LSIs. The number of LSIs classified as high-priority LSIs remained stable at around 100 
institutions, going from 108 institutions in 2015 to 93 in 2016 to 101 in 2017.  

regularly 

updated 

LSIs, 

See 

list 

of 

29 

 
 
                                                            
the Supervisory Examination Programme, including performing the SREP, coordination with 
on-site inspections, liaising with NCAs. 

A JST is established for each SI and comprises staff from both the ECB and the NCAs of the 
participating Member States in which the parent credit institution, subsidiaries or cross-border 
branches of that banking group are established. Whilst approximately 2/3 of JST members are 
NCA staff, each JST is led by a coordinator from the ECB and one or more sub-coordinators 
from the NCAs (one per NCA involved in the supervision of that SI). For large JSTs, a core 
JST is also established. A core JST is composed of the JST coordinator and sub-coordinators, 
and  it  organises  the  allocation  of  tasks  among  JST  members,  prepares  and  revises  the 
Supervisory Examination Programme and monitors its implementation.  

The development of the framework for JSTs has been a learning-by-doing process, which still 
undergoes  adaptations.  Challenges  relate  to  the  fact  that  JSTs  represent  a  new  form  of 
supervisory cooperation that requires resources integration within a new institutional set-up. 
Existing  supervisory  teams  have  been  enriched  through  the  JSTs  with  a  new  European 
dimension,  which  adds  a  cross-border  perspective  and  offers  mutual  learning  experience. 
During these first years of functioning, JSTs have proved to be functional and credible, doing 
most  of  the  groundwork  for  supervisory  decisions.  However,  they  have  also  shown  some 
structural weaknesses that could hinder their efficiency in practice. The main concerns relate 
to the following aspects: 

  Double  uncoordinated  reporting  lines:  NCA  staff  report  to  the  JST  coordinator  for 
tasks related to the JSTs and to their NCA superior for any other task. However, the 
ECB has no formal managerial control over the NCA members of the JST, and human 
resources matters are managed by the NCA. These double reporting lines (functional 
and  hierarchical)  may  expose  NCA  staff  in  the  JST  to  possible  conflicts  in  terms  of 
staff  issues  (workload,  appraisals  etc),  and  may  also  interfere  with  due  information 
sharing.  

  Language:  Although  within  the  JSTs  the  working  language  is  mainly  English,  this 
may  not  be  the  case  for  the  supervised  institutions,  which,  in  accordance  with  the 
SSMFR often opt for the use of their national language in their relations with the ECB. 
This means that fundamental information generated by SIs for internal use will not be 
written  in  English.  JSTs'  functioning  may  be  affected  by  this  language  difference.  It 
may be envisaged to condition the appointment of ECB coordinators to knowledge of 
the language used by the supervised institution. 
Insufficient  staff  allocation:  The  staff  allocated  to  JSTs  by  both  the  ECB  and  the 
NCAs  is  not  always  sufficient,  especially  as  some  tasks  have  proven  to  be  more 
complex  and  resource-demanding  than  anticipated.  As  a  consequence,  JSTs  may  be 
understaffed.  Better  allocation  of  resources  and  more  flexibility  in  adjusting  staff 
levels to supervisory needs should be possible. 

 

B.3. Horizontal functions  

One of the objectives of the SSM is to ensure harmonised supervision in the Banking Union. 
To  this  end,  a  dedicated  Directorate-General  (DG  IV)  hosts  the  so-called  'horizontal 
functions',  which  define  the  ECB's  supervisory  policies,  ensure  convergence  of  supervisory 
approaches among JSTs and coordinate the execution of other essential specialised tasks. The 
scope  and  nature  of  tasks  of  DGIV  is  reflected  in  its  organisational  structure,  where  each 

30 

 
 
division is responsible for a separate area87.  Given  the nature of the tasks of the DG IV, its 
interaction with the NCAs also follows special arrangements different than for JSTs. Thus, the 
SSM  has  established  a  number  of  informal  Networks  under  the  auspices  of  DG  IV,  which 
serve as platforms for discussion and development of new policies and procedures related to 
supervision.  

B.3.1. Convergence and consistency 

The  horizontal  services  play  a  key  role  in  the  conduct  of  the  ECB's  supervisory  tasks, 
especially  in  ensuring  the  convergence  of  supervisory  practices.  They  assume  the  main 
responsibility  in  the  development  of  the  policies  supporting  the  ECB's  direct  and  indirect 
supervisory  tasks  and  largely  shape  the  ECB's  methodologies.  Horizontal  services  also 
directly  carry  out  procedures  that  are  common  for  all  credit  institutions  in  participating 
Member  States,  such  as  authorisation,  withdrawals  of  authorisation  and  the  assessment  of 
qualifying  holdings.  Furthermore,  they  coordinate  international  cooperation,  determine 
supervisory  priorities88,  benchmarking  and  quality  assurance  across  the  supervised  entities, 
conduct analysis of systemic risks etc.   

It is worth highlighting the specific role of horizontal services in ensuring the consistency of 
supervisory decisions. Based on the groundwork of the JSTs or NCAs, the horizontal services 
review certain decisions with a view to ensure the quality of the decision, but also consistency 
with the relevant ECB policy and with decisions already applied to peer institutions. DG IV 
thus contributes substantially to the content of supervisory decisions. This is much welcomed 
as it appears to be an efficient way to ensure coherent, high-quality supervision for all banks 
in participating Member States. Questions have been raised as to the transparency related to 
substantial interventions by DG IV over JST draft decisions. In this sense, some NCAs have 
raised  concerns  that  changes  operated  by  horizontal  functions  are  not  always  explained  to 
NCA  staff  participating  in  the  relevant  JST.  Sharing  timely  such  information  with  NCAs  is 
important for the NCAs to prepare their position for the Supervisory Board. To prevent any 
bottlenecks  and  ensure  transparency,  more  systematic  and  timely  communication  should  be 
ensured  to  JST  coordinators  and  sub-coordinators  about  changes  proposed  by  the  ECB's 
horizontal services to the substance of JST proposals for draft decisions. 

B.3.2. Support Networks 

The SSMR does not envisage the establishment of formal Committees apart from the Steering 
Committee  which  supports  the  functions  of  the  Supervisory  Board.89  Instead,  the  SSMR 
provides for the general duty of assistance by NCAs. To incorporate NCAs' input with regard 
to supervisory policy developments, the ECB has set up a variety of structures to support its 
supervisory activities. These structures take different forms (i.e. task forces, working groups, 
networks, expert groups), may be temporary or long term, dedicated to specific projects or to 
broad  policy  areas.  The  most  representative  structure  consists  of  informal  Networks,  a 

87  The  divisions  are  the  following:  Authorisation,  Centralised  On-Site  Inspections,  Crisis  Management, 
Enforcement & Sanctions, Internal Models, Methodology & Standards Development, Planning & Coordination 
of SEP, SSM Risk Analysis, Supervisory Policies and Supervisory Quality Assurance. Their functioning will be 
assessed in more detail in part C. 
88 For the list of 2017 priorities, see:  
https://www.bankingsupervision.europa.eu/banking/priorities/html/index.en.html. 
89 Article 26(10) SSMR. 

31 

 
 
                                                            
majority of which function under the auspices and in the areas of competence of DG IV.90 The 
Networks  are  chaired  by  the  representatives  of  the  ECB  and  include  participants 
(predominantly on managerial level) from the NCAs. They cover a wide range of topics and 
constitute,  for  NCAs,  the  main  tool  to  influence  policy  stances  on  horizontal  areas  of 
supervision, as the most important issues and stances of the ECB and NCAs are discussed in 
these structures.  

Networks  are  heterogeneous  in  terms  of  the  dynamics  of  their  work,  as  well  as  in  their 
ultimate  influence  on  the  ECB's  processes  and  decision-making.  The  absence  of  formal 
mandates,  accountability,  common  governance  processes  and  practices  makes  it  difficult  to 
assess and compare their relative effectiveness and impact. Some NCAs signalled that policy 
stances agreed in the Network by a majority of the members are sometimes not reflected in 
the corresponding policy proposal presented to the Supervisory Board. Another criticism from 
NCAs is that issues are not always sufficiently discussed in the Networks before proposals are 
made to the Supervisory Board.   

The ECB's use of networks to request NCA's input on policy issues represents a flexible tool 
of cooperation within the SSM. Whilst there is no need for formalising all such networks, a 
clearer  status  for  stable  and  influential  networks  could  give  a  better  overview  of  their 
mandate,  governance  and  reporting  lines.  Furthermore,  it  would  be  useful  that  the 
proliferation of networks is avoided by streamlining existing structures and identifying areas 
that would most benefit from output of such cooperative structures.  

B.4. On-site inspections 

Prior  to  the  establishment  of  the  SSM,  national  practices  with  regard  to  on-site  inspections 
differed  widely  among  competent  authorities.  Some  NCAs  had  separate  organisational 
structures specifically dedicated to the conduct of on-site inspections, and independent from 
the so-called 'account teams', or on-going supervision. 91 Other NCAs did not have a dedicated 
on-site  unit  at  all,  and  the  on-site  inspections  were  carried  out  by  the  members  of  the 
accounting teams of each specific bank.92  

In this context, and building on best practices, the ECB has established a dedicated centralised 
ECB division for on-site supervision. The ECB followed a mixed model where the need for 
on-site  inspections  is  determined  by  the JSTs, but  the  on-site  division  is  responsible  for the 
planning and staffing of the on-site teams. Although the JST members can participate in on-
site inspections, they cannot lead an on-site mission.93 It is the head of the mission (who may 
be  ECB  or  NCA  staff)  who  signs  the  inspection  report,  on  the  basis  of  which  the  JST  is 
responsible for preparing recommendations. The creation of the SSM led a number of NCAs 
to  adjust  their  own  organisational  structure  to  reflect  the  ECB's  approach  to  on-site 
inspections.  

90 At the moment, ECB relies on 10 Networks some of which have their own sub-structures (expert groups that 
hold  technical-level  discussions).  The  main  Networks  roughly  correspond  to  the  divisional  structure  of  the 
DGIV. 
91 E.g., France, Germany. The special independent status of on-site inspection teams was reinforced by various 
safeguards  such  as  separate  reporting  lines  to  ensure  that the  on-site  report of  independent  examiners  was  not 
influenced by any input of account team supervision. 
92 E.g., Spain, the Netherlands. 
93 JST staff is routinely invited to participate in on-site mission. However, due to the high workload, JST staff is 
only able to accept participation in about 25% to 30% of all on-site inspections. 

32 

 
 
                                                            
As  already  pointed  out  above94,  the  ECB  staff  dedicated  to  on-site  inspections  represents  a 
small proportion of the staff dedicated by NCAs to on-site inspections.95 In the start-up  phase 
of the SSM, this situation could be justified by the organisational difficulties and higher costs 
of setting up cross-border inspection teams, the difficulties in finding staff with the necessary 
language skills for direct interaction with institutions and the importance of local knowledge 
for  on-site  inspections  compared  to  on-going  supervision.  This  situation  is  however  not 
tenable in the long run and a more balanced staff contribution from the ECB and the NCAs is 
needed, reflecting the same ratio as in the case of JSTs.96  

Furthermore,  given  that  the  staff  resources  for  on-site  missions  are  planned  by  the  ECB  in 
advance,  it  is  difficult  to  accommodate  ad-hoc  needs  for  on-site  inspections.  Allocation  of 
NCA staff for on-site inspections of SIs appears currently not to be sufficiently addressed by 
joint ECB-NCA planning of resources. The ECB also considered addressing shortages in staff 
for  on-site  inspections  by  increasing  reliance  on  external  consultants  in  on-site  inspection 
teams, but without allowing such external consultants to take the lead on on-site inspections.  

Notwithstanding  the staff shortage for  effective inspections, it is important to underline that 
the dedicated ECB division has successfully developed the framework for conducting on-site 
inspections.  A  dedicated  chapter  of  the  supervisory  manual  sets  out  the  processes  and 
activities  in  relation  to  on-site  supervision,  completed  by  an  extensive  description  of 
methodologies  for  each  risk  category.  In  addition,  the  ECB  is  currently  setting  up  a 
comprehensive training curriculum for on-site inspectors across the SSM in cooperation with 
the EBA.  

B.5. Supervisory colleges 

As declared by the ECB, "colleges of supervisors are key to coordinating the supervision of 
cross-border  banking  groups."97  This  is  particularly  the  case  for  banking  groups  with  a 
presence  in  non-euro  area  countries.  The  ECB  currently  participates  in  45  colleges  of 
supervisors and, in its capacity of consolidating supervisor, is responsible for the organisation 
and functioning of 26 of these colleges. The ECB is particularly valuing college participation 
where it is the competent authority for subsidiaries of groups headquartered outside the euro 
area, as well as where it is competent to perform host country supervisory tasks in relation to 
branches that are considered significant institutions. The JSTs have developed processes and 
procedures to ensure that colleges are functioning, in line with relevant technical standards.98 
The  ECB  has  also  agreed  or  is  in  the  process  of  negotiating  Memoranda  of  Understanding 
with  EU  and  third  country  authorities  to  ensure,  amongst  others,  appropriate  information 
exchange, cooperation in ongoing supervision and in emergency situations, conduct of on-site 
inspections and internal models investigations. 

94 See part on interaction between ECB and NCAs. 
95 Currently, the relevant ECB division has an official staffing level of 41 full time experts (FTEs), which may 
increase  to  about  50  full-time  equivalents  (FTEs)  when  including  job-rotations  and  temporary  staff.  This 
compares to about 650 FTE employed in on-site inspection in NCAs, which translates into a significantly lower 
ratio of ECB staff/NCA staff compared to the off-site supervision. With the current staff level, the ECB is able to 
participate in about 8% of all inspections of SIs within participating member states. 
96 In order to enable ECB to participate in about 25% to 30% of all SI on-site missions, around 100 additional 
FTEs would have to be recruited. 
97 ECB Annual Report on Supervisory Activities 2016, p.44. 
98 Commission Delegated Regulation (EU) 2016/98 and Commission Implementing Regulation (EU) 2016/99. 

33 

 
 
                                                            
Competent  authorities  outside  the  euro  area  that  chair  supervisory  colleges,  as  well  as  the 
EBA99, are very  positive about the ECB's performance in  supervisory colleges, arguing that 
the ECB carries more weight as a single authority compared to when several authorities from 
participating Member States were members of these supervisory colleges. Furthermore, they 
appreciate the quality of the ECB's contributions to supervisory colleges, which contributes to 
raising the level of discussions.  

For supervisory colleges chaired by the ECB, supervisors outside the SSM indicated that the 
ECB  has  improved  the  way  the  colleges  work  compared  to  the  pre-SSM  period,  when 
colleges  were  hosted  by  NCAs.  Particularly  praised  were  better  prepared  agendas  and  high 
quality  discussions.  On  the  shortcomings  side,  some  authorities  and  the  EBA  noted  that 
differences remain in the functioning of colleges depending on the jurisdictions involved and 
that  some  issues  have  persisted,  such  as  the  failure  to  adopt  Joint  Decisions  for  group 
recovery  plans.100  Furthermore,  on  certain  topics  the  ECB  does  not  always  communicate 
clearly within the college as long as final decisions were not taken.101  

Overall, colleges remain the key tool for coordinating the supervision of cross-border banking 
groups with activities outside the euro area. They are currently the main tool for interaction 
with NCAs from non-participating Member States. The colleges are also an important tool for 
the ECB to perform its tasks in relation to branches of credit institutions from non-euro area 
countries, for which it acts as a host supervisor.  

B.6. Options and discretions  

CRR,  CRD102  and  the  LCR  Delegated  Act103  provide  for  options  and  discretions  that 
competent authorities may exercise. As those texts entered into force before the SSM was in 
place, NCAs determined initially how those options and discretions would be applied in their 
respective Member States. In 2015 the ECB started to work towards the harmonisation of the 
exercise of those options and discretions, with a view to promote a prudent and harmonized 
treatment for institutions in the Banking Union. This process was structured in various stages. 

First, the ECB identified over 120 options and discretions attributed to competent authorities. 
Following an individual analysis, the Supervisory Board agreed on policy recommendations 
that were reflected in a draft regulation for options and discretions of a general nature (such as 
the  transitional  arrangements  for  own  funds  calculations),  and  a  draft  guide  for  options  and 

99 The EBA has also the task of facilitating the functioning of supervisory (and also resolution) colleges. As an 
observer, the EBA participates in the so-called closely monitored colleges (on the basis of a yearly selection of 
several EU banking groups) and assesses their functioning in light of a list of criteria which include compliance 
with  the  requirements  in  the  relevant  EU  acts.  In  particular,  the  EBA  monitors  adoption  of  the  group  risk 
assessment  reports,  joint  decisions  on  group  recovery  plans,  and  joint  decisions  on  capital  and  liquidity.  In 
addition,  EBA  is  appraising  the  overall  functioning  of  the  colleges  against  the  requirements  laid  down  in  the 
implementing  technical  standards  on  operational  functioning  of  colleges.  It  takes  into  account  the  overall 
interaction and cooperation within the college, dynamics of college meetings etc. Subsequently, EBA provides 
its  feedback  to  supervisory  authorities  and  conducts  comparative  assessment  between  various  colleges, 
highlighting best practices as well as areas where improvement is needed. The main findings are also publicly 
available in the form of annual Reports.   
100 It should be noted that the BRRD envisages a possibility to adopt recovery plans for individual entities or a 
number  of  entities  in  the  group,  instead  of  the  group  recovery  plan.  However,  it  is  important  for  the  SSM  to 
strive to address all EBA recommendations on the improvement on the colleges functioning. 
101 This was for instance the case with ECB's communication in colleges about its approach to internal  model 
approval. 
102 Directive 2013/36/EU, OJ L 176, 27.6.2013, p. 338. 
103 Commission Delegated Regulation (EU) 2015/61, OJ L 11, 17.1.2015, p.1. 

34 

 
 
                                                            
discretions for which a case-by-case analysis is required (such as capital waivers). Those draft 
texts  were  released  for  public  consultation  in  November-December  2015  and  finalised  in 
March 2016. The ECB Regulation104 that entered into force on 1 October 2016 and the Guide 
apply exclusively to the exercise of options and discretion in relation to significant institutions 
supervised by the ECB. 

In  a  second  phase,  the  ECB  identified  8  additional  options  and  discretions  attributed  to 
competent  authorities  that,  given  their  case-by-case  nature  were  addressed  through  policy 
recommendations  added  to  the  Guide  on  options  and  discretions.105  In  parallel,  the  ECB 
developed criteria for assessing the eligibility of institutional protection schemes (IPS).106 The 
final  Guide  that  is  applicable  to  all  IPS  in  the  Banking  Union  was  published  on  12  July 
2016.107  A  consolidated  version  of  the  Guide  covering  the  initial  set  of  options  and 
discretions, the policies for the 8 additional options and discretions and the criteria for the IPS 
eligibility assessment was published in November 2016. 

Finally,  in  order  to  enhance  the  consistency  of  the  rules  applied  within  each  participating 
Member State, the ECB has extended the harmonisation exercise to LSIs108. It reviewed the 
options  and  discretions  applied  to  SIs  with  a  view  to  determine  whether  LSIs  should  be 
subject to the same policy recommendations, or whether a different approach is warranted (for 
example,  to  ensure  proportionality  in  supervision).  Consequently,  the  ECB  prepared  two 
different  texts:  a  draft  Guideline,  of  binding  nature,  for  those  options  and  discretions  for 
which  a  specific  policy  rationale  justifies  the  adoption  of  a  common  approach;  and  a  draft 
Recommendation,  non-legally  binding,  for  other  options  and  discretions  where  a    common 
approach would help to promote consistent supervisory practices. The two ECB instruments 
addressed to NCAs were subject to public consultation between November 2016 and January 
2017, and were finally published on 13 April 2017109. The NCAs are expected to comply with 
the Guideline from 1 January 2018. 

Some stakeholders raised concerns as to whether the ECB is empowered to issue a regulation 
for this purpose, and on how this exercise would interact with national provisions exercising 
such options. The ECB is empowered to adopt regulations to the extent necessary to perform 
specific tasks concerning policies relating to the prudential supervision of credit institutions, 
in accordance with Article 132 of the Treaty on the Functioning of the European Union and 
Articles 34 and 25.2 of the Statute of the ECB. Regarding options exercised through national 
provisions, the ECB must apply national legislation according to Article 4.3 SSMR, where the 
exercise  of  options  was  attributed  to  Member  States.  By  contrast,  options  granted  only  to 
competent authorities fall within the remit of the ECB as far as they affect SIs. Member States 
should  ensure  that  national  legislation  does  not  constrain  the  exercise  of  options  given  to 

104 Regulation ECB/2016/4, OJ L 78, 24.3.2016, p. 60. 
105  An  amendment  to  the  ECB  Guide on  options  and discretions  was  released  for  public consultation in  May-
June 2016 and the final addendum was published on 10 August 2016. 
106 CRR lays down a specific regime for IPS, provided that they comply with certain requirements and subject to 
supervisory authorisation. 
107  The  Supervisory  Board  approved  the  approach  of  the  ECB  when  assessing  those  requirements  and  a  draft 
Guide was released for comments between February and April 2016. 
108  Although  the  ECB  is  not  the  competent  authority  for  direct  supervision  of  LSIs,  it  is  responsible  for  the 
effective and consistent functioning of the SSM, according to Article 6.1 of the SSMR. In order to ensure this 
consistency,  it  can  issue  regulations,  guidelines  or  general  instructions  to  NCAs,  as  set  forth  in  Article  6.5 
SSMR. 
109  Guideline  ECB/2017/9,  OJ  L101,  13.4.2017,  p.  156.  And  Recommendation  ECB/2017/10,  OJ  C120, 
13.4.2016, p. 2. 

35 

 
 
                                                            
competent authorities, which derive their competence to exercise such options directly from 
Union law.110 

The ECB made great efforts to foster harmonisation and has gone a long way in achieving a 
uniform exercise of options and discretions enshrined in Union law. However, the approach 
agreed  for  some  options  or  discretions  is  not  always  the  most  conservative,  nor  fully 
harmonised. For instance, regarding the transitional arrangements for own funds calculations, 
stricter  national  rules  applicable  prior  to  the  entry  into  force  of  the  ECB  Regulation  shall 
prevail  over  the  harmonized  treatment  set  forth  by  the  ECB  Regulation.  Those  cases  could 
have benefited from a more ambitious approach. 

C. Evaluation of performance of the main supervisory tasks 

This section assesses the performance by the ECB of the core supervisory tasks conferred to it 
by the SSMR. Given their relevance in terms of substance or workload, the following tasks 
will  be  analysed  in  detail:  common  procedures  (authorisation,  withdrawal  of  authorisation, 
assessment of qualifying holdings), the ongoing supervision of SIs (involving fit-and proper 
assessment, own funds and internal model approvals, the supervisory and evaluation review 
process), the oversight of supervision of LSIs by the NCAs, additional macro-prudential tasks. 

C.1. Common procedures [Article 32(d) SSMR] 

The  ECB  has  been  conferred  three specific  tasks  with  regard  to  all  credit  institutions  in  the 
Banking Union (SIs and LSIs): authorisation, withdrawal of authorisation and assessment of 
acquisitions and qualifying holdings (referred to as "common procedures"). Their specificity 
relates not only to the broad scope in terms of entities covered by such ECB tasks, but also to 
the  prominent  role  given  to  NCAs  in  preparing  the  relevant  decisions.  Common  procedures 
are particularly relevant to assess the effectiveness of the cooperation between the ECB and 
the NCAs.  

C.1.1. Authorisation of credit institutions and withdrawal of authorisations 

The SSMR provides the ECB with ultimate responsibility for the authorisation ("licensing") 
and  withdrawal  of  authorisations  for  all  credit  institutions  established  in  a  participating 
Member  State.111  Given  that  the  corresponding  substantial  rules  on  authorisation  are  only 
subject  to  minimum  harmonisation  in  the  CRD,  and  are  extensively  developed  in  national 
laws, the NCAs hold a central role in preparing the related decisions in accordance with the 
special procedure laid down in Article 14 of the SSMR. Credit institutions submit applications 
for authorisations to the NCAs112, which assess compliance with national laws. If the NCA is 
satisfied from the perspective of compliance with relevant national law, it will send a proposal 
to  the  ECB,  which  has  to  make  its own  assessment,  and  shall  object  to  authorisation  where 
compliance with relevant Union law is not ensured.    

consequently  national 

110 The ECB's exercise should prevail, given that "the principle of the primacy of European Law may be invoked 
and 
law  becomes 
conflicting  with 
inapplicable"https://www.bankingsupervision.europa.eu/legalframework/publiccons/pdf/reporting/feedback_stat
ement_options_discretions.en.pdf?8f290fb3d019af7b9f801f38d60f5157 , p.10. 
111 Until 31 December 2016, the ECB adopted 95 decisions related to authorisation of institutions or withdrawal 
of the authorisation. 
112 NCAs shall inform the ECB of an application for authorisation within 15 working days after obtaining it. 

the  provisions  of  EU 

legislation 

36 

 
 
                                                            
Unlike authorisations, withdrawals of authorisation may not only be initiated on the basis of 
NCAs  proposals,  but  also  by  the  ECB,  following  consultation  of  the  relevant  NCA. 
Furthermore,  resolution  authorities  may  object  to  the  ECB's  intention  to  withdraw  an 
authorisation, if they consider that this would affect resolution or financial stability. In such 
cases, the ECB shall abstain from proceeding to the withdrawal for the period agreed by both 
authorities.  It  is  noted  that  resolution  authorities  may  only  object  withdrawing  the 
authorisation of an institution entering resolution, whilst competences for authorisation of any 
institution issuing from the resolution (including bridge institutions) follow the distribution of 
tasks for authorisation in the SSMR. 

Concrete  time  limits  for  authorisation  or  withdrawal  of  authorisation  are  based  on  national 
law, as the CRD only requires that a decision be taken within 12 months after the application 
was lodged. By contrast, the SSMR clearly frames the ECB's timeline, providing that drafts 
proposed by NCAs are deemed to be adopted unless the ECB objects within 10 working days, 
extendable  once  in  justified  cases.  This  deadline  is  not  coordinated  with  deadlines  for 
authorisation  set  out  in  national  law  and  may  be  challenging  for  the  ECB  in  its  current 
decision making environment, where approval by the Supervisory Board and the Governing 
Council are likely to consume most of the 10 days. This supposes that the ECB's assessment 
is done in parallel and in close cooperation with the relevant NCA. In the start-up phase of the 
SSM,  the  ECB  had  difficulties  with  some  NCAs  that  were  reluctant  to  coordinate  their 
assessment  process  of  an  application  for  authorisation  with  the  ECB  in  the  absence  of  a 
specific  requirement  for  cooperation.113  The  obligation  of  cooperation  in  good  faith  is 
incumbent on all parties in the SSM and the duty of assistance by the NCAs, made explicit in 
Article 6 of the SSMR, is a fundamental principle for the functioning of the SSM, which does 
not need to be repeated throughout the SSMR in relation to specific tasks. 

C.1.2. Assessment of acquisitions and disposals of qualifying holdings  

The  acquisition  of  a  holding  of  a  certain  size  ("qualifying  holding")  in  a  bank  allows  the 
acquirer to access the banking business, similarly to the access that would be achieved by the 
creation of a new credit institution. Therefore, the CRD requires that acquisition of qualifying 
holdings is notified to the authority that authorised the acquired institution, which can object 
to the acquisition.114  

Within the SSM, the ECB is the competent authority for assessing acquisitions and disposals 
of  qualifying  holdings  in  both  SIs  and  LSIs.115  However,  unlike  the  responsibility  for 
authorisations  in  the  context  of  resolution,  the  ECB  is  not  competent  to  assess  acquisitions 
and  disposals  in  the  case  of  a  bank  in  resolution.116According  to  the  SSMR,  the  potential 
acquirer  notifies  the  NCA  of  the  institution  it  intends  to  acquire,  which  shall  submit  to  the 
ECB  a  draft  decision  to  oppose  or  not  the  acquisition  at  least  15  working  days  before  the 
expiry of the assessment period set in the CRD.117 Given that in the absence of a reaction by 

113 As opposed to Article 15(2) SSMR where NCAs are explicitly required to assist the ECB, Article 14 SSM, 
does not contain any such explicit clause. 
114 Articles 22-27 CRD. Unlike the case of authorisation, the procedure for objecting to acquisitions of qualifying 
holdings  and  the  applicable  timelines  are  provided  for  in  detail  in  the  CRD,  leaving  to  Member  States  more 
reduced margin of transposition. 
115  Until  31  December  2016,  the  ECB  adopted  193  decisions  related  to  proposed  acquisitions  of  qualifying 
holdings. 
116 Article 4(1)(c) SSMR 
117 The CRD gives 60 days for the assessment by the competent authority of acquisitions of qualifying holdings, 
whose running may be suspended up to 30 days where further information is necessary. Article 22 CRD. 

37 

 
 
                                                            
the competent authority the acquisition is deemed to be approved, such timelines have proved 
challenging for the ECB, as in the case of authorisations. The approval of qualifying holdings 
is made even more complex in the context of group-wide restructurings, where the ECB has 
to  align  and  synchronise  assessments  with  regard  to  related  acquisitions  in  several  Member 
States.  In  this  context  coordination  and  common  procedures  are  crucial  to  avoid  the  risk  of 
taking  conflicting  decisions  on  related  qualifying  holdings  or  being  constrained  to  give 
unjustified  approvals  for  the  sake  of  avoiding  conflicting  decisions.  To  address  these 
challenges the  ECB has  developed various tools and work processes with NCAs setting out 
clear procedures and timelines, including for early reporting. 

An  issue  that  appeared  in  the  context  of  approvals  of  acquisitions  of  qualifying  holdings 
relates to the allocation of roles between the ECB and the NCAs in connection to the on-going 
supervisory  tasks  concerning  qualifying  holdings.  In  accordance  with  Article  26(2)  of  the 
CRD,  competent  authorities  shall  take  the  appropriate  measures  where  persons  with  a 
qualifying holding are likely to affect the prudent and sound management of an institution or 
otherwise cease to meet the criteria in the CRD. The SSMR conferred to the ECB the task of 
assessing notifications of acquisitions of qualifying holdings, except in the case of a bank in 
resolution.  Interpreting  such  task  as  being  limited  to  the  moment  of  acquisition,  but  not  as 
referring also to the ongoing assessment of qualifying holdings in accordance with Union law, 
would defeat the purpose of conferring the task to the ECB in the first place. As in the case of 
granting of authorisation, which is paired with the ECB task of withdrawing authorisation, the 
ECB's  competence  to  approve  qualifying  holdings  would  be  ineffective  in  the  absence  of  a 
pairing  competence  to  verify  compliance  with  the  conditions  for  approval  and  the  power  to 
take the necessary remedying measures.  

C.2. On-going supervision of significant institutions (SIs) [Article 32 (c) SSMR] 

The bulk of supervisory tasks transferred to the ECB are related to the ongoing supervision of 
credit  institutions.  In  accordance  with  the  distribution  of  tasks  between  the  ECB  and  the 
NCAs,  the  ECB  performs  directly  such  tasks  in  relation  to  significant  institutions  (SIs)118. 
NCAs  are  involved  in  the  preparation  and  implementation  of  the  ECB's  decisions,  in 
accordance  with  their  duty  to  assist  the  ECB.  The  involvement  of  NCAs  takes  mainly  the 
form  of  participation  in  the  JSTs,  which  undertake  the  ground  work  for  most  of  the  direct 
responsibilities incumbent on the ECB. The way in which the ECB carries out its supervisory 
tasks  is  largely  influenced  by  the  work  undertaken  by  the  EBA  in  developing  the  single 
rulebook  and  forging  convergence  of  supervisory  practices.  Hence,  there  is  a  clear  link 
between  ECB's  performance  of  on-going  supervision  and  EBA's  efforts  to  foster  the  level-
playing field in regulation and supervision throughout the internal market. 

C.2.1. Fit and proper assessments  

The  ECB  has  been  entrusted  with  the  task  of  ensuring  that  credit  institutions  have  robust 
governance  arrangements,  which  includes  checking  compliance  with  the  fit  and  proper 
requirements for the management of SIs.119 Given that the ECB has to assess the suitability of 
the managers of all subsidiaries of SIs, the amount of procedures is extremely high, with fit 
and  proper  approvals  representing  the  largest  part  of  supervisory  decisions  adopted  by  the 
ECB.  Until  31  December  2016,  the  ECB  adopted  1.767  decisions  related  to  4.253  fit  and 

118 Within the ECB, DG Micro-Prudential Supervision I and DG Micro-Prudential Supervision II are responsible 
for the direct day-to-day supervision of SIs. 
119 Article 4(1)(e) SSMR. 

38 

 
 
                                                            
proper  procedures,  whilst  there  is  still  a  backlog  compared  to  the  number  of  notifications 
received.  

The substantial requirements for fit and proper assessments are laid down in broad terms in 
the CRD and have been implemented through more detailed criteria in national law. Thus the 
details of the different criteria, as well as the procedural rules, such as deadlines, the type of 
supervisory procedure applicable (e.g. ex ante supervisory approval or ex post notification of 
an appointment) are laid down in national law transposing the CRD. The EBA has developed 
guidelines  to  streamline  the  application  of  fit  and  proper  assessments,120  which  still  leave 
some  room  for  competent  authorities  to  add  detail.  The  ECB  remains  therefore  confronted 
with a large diversity of rules and procedures stemming from 19 different legal systems. To 
bridge  to  the  extent  possible  differences  in  supervisory  practices,  the  ECB  has  prepared  its 
own guide aiming to harmonise the implementation of assessment criteria for fit and proper 
assessment.  The  ECB  clarified  when  consulting  on  such  guide  that  it  is  not  intended  to 
substitute  requirements  stemming  from  Union  or  national  law,  nor  to  replace  the  EBA 
Guidelines, but to achieve common supervisory practices. The ECB published the Guide on 
15 May 2017 and committed that once the revised guidelines of the EBA will be finalised the 
ECB will consider whether it is necessary to change the Guide to bring it in line with the final 
version the EBA Guidelines. 

In parallel, the ECB has developed a delegation framework, including a delegation decision 
setting out the limits and criteria for allowing certain fit and proper decisions to be delegated 
to management level. Such limits are directly linked to the fit and proper Guide developed by 
the  ECB.  This  new  development  is  expected  to  substantially  alleviate  de  decision-making 
burden  (in  terms  of  number  of  decisions  to  be  adopted)  for  the  Supervisory  Board  and  the 
Governing Council. It will however only partly alleviate the complexity of the analysis to be 
performed by the ECB, as long as relevant national laws develop in a non-harmonised way.  

The area of fit and proper assessment is illustrative for the relationship between the ECB and 
the EBA. The ECB has been actively involved when the EBA developed its revised guidelines 
on fit and proper assessments, but the ECB has been much less communicative on the way it 
developed  in  parallel  its  own  guide  on  fit  and  proper  assessment.  There  do  not  seem  to  be 
divergences  on  the  substance  of  the  rules,  whereas  the  timing  of  their  finalisation  and 
publication was not aligned, which may require subsequent updates of the ECB Guide.  

C.2.2. Own funds approvals and waivers 

According  to  Article  4(1)(d)  SSMR,  the  ECB  is  entrusted  with  the  task  of  ensuring 
compliance  by  SIs  with  own  funds  and  liquidity  requirements.  The  quality  of  instruments 
used by banks to comply with capital requirements is essential for their effectiveness. Hence, 
one of the key tools related to this task is the approval of own funds instruments. Such prior 
approval  by  the  competent  authority  is  mandatory  for  institutions  to  consider  capital 
instruments  as  CET1  (Article  26(3)  CRR),  while  for  AT1  and  T2  instruments  pre-approval 
processes  can  be  envisaged  by  the  competent  authorities  (Recital  75  CRR).  Reductions, 
repurchases  or  redemptions  of  own  funds  instruments  also  require  prior  approval  by  the 
competent authority (Article 78 CRR). The Supervisory Manual sets out the methodology that 
JSTs must follow when assessing CET1 instruments. For AT1 and T2 instruments, the ECB 

120 Guidelines on the assessment of the suitability of members of the management body and key function holders 
(EBA/GL/2012/06)  and  Guidelines  on  Internal  Governance  (GL  44).  On  the  former  the  EBA  is working  on  a 
revised version that was published for consultation on 28 October 2016 and is currently finalised. 

39 

 
 
                                                            
has  also  released  Guidance121,  laying  down  the  ECB's  assessment  methodology  and 
procedure122 and the documentation that institutions must submit as part of their application. 
In terms of numbers, supervisory decisions in relation to own funds instruments represent the 
second largest category after fit and proper decisions.123  

The EBA is required to monitor the quality of own funds instruments issued by institutions, 
on the basis of information provided by competent authorities (Article 80 CRR). During this 
exercise, the EBA has noted that the ECB has submitted for review to EBA a relatively small 
amount of cases, taking into account the large number of directly supervised institutions. This 
appears  to  be  the  consequence  of  the  absence  of  an  internal  procedure  that  would  allow  a  
regular and consistent check of JST's draft decisions on own  funds instruments before they 
are  submitted  to  the  Supervisory  Board.  Such  procedure  could  contribute  to  consistency 
between  JST's  work  on  own  funds  instruments  and  could  also  allow  for  more  proactive 
participation by the ECB in the EBA's monitoring of the high quality of capital.  

In relation to own funds and liquidity requirements, competent authorities have the discretion 
to waive their application in the case of institutions belonging to a group (Article 7 CRR for 
own  funds,  large  exposures,  securitisations,  disclosure  and  leverage;  and  Article  8  CRR  for 
liquidity). Capital and liquidity waivers have been largely discussed as part of the ECB work 
on  options  and  discretions,  with  the  ECB's  policy  stance  to  the  application  of  such  waivers 
being  published  in  the  ECB's  Guide  on  options  and  discretions.  This  includes  detailed 
guidance  about  the  criteria  that  the  ECB  will  follow  in  its  assessment  and  about  the 
documentation that institutions are expected to provide. In this regard, it is worth noting that 
in  the  case  of  cross-border  liquidity  waivers,  the  Guide  foresees  the  application  of  partial 
liquidity  requirements  after  granting  the  waiver.  This  regime  will  be  reviewed  before  2019 
with  a  view  to  reduce  such  requirements  and  thus  "ensure  the  safety  and  freedom  of  cross-
border  intragroup  liquidity  flows".  Moreover,  the  Supervisory  Manual  describes  the 
methodology to be applied by JSTs when assessing these applications.  

The ECB carried out 40 waiver proceedings in 2016 and none in 2015. The harmonisation of 
criteria in relation with waivers will likely have a positive impact on the Banking Union.  

C.2.3. Internal models 

Institutions may use internal models to quantify the risk weighted assets in relation to certain 
portfolios.  Contrary  to  the  so-called  standardised  approaches,  these  more  sophisticated 
approaches allow banks to estimate the relevant risk parameters – and on that basis calculate 
minimum  capital  requirements  –  internally.  When  the  ECB  became  operational,  several 
thousands of such internal models were already employed by institutions. 

Competent  authorities  and,  in  case  of  SIs,  the  ECB  have  to  approve  internal  models  before 
their first use, as well as any material changes to previously approved models, and also have 
to review approved models on an ongoing basis. The approval of new models and changes to 
existing models are dealt with by the ECB through the so-called "Model Approval Process" 
(MAP),  while  an  example  of  ongoing  review  of  existing  models  is  the  so-called  "Targeted 
Review of Internal Models" (TRIM) currently conducted by the SSM.  

121  Public  Guidance  on  the  review  of  the  qualification  of  capital  instruments  as  Additional  Tier  1  and  Tier  2 
instruments https://www.bankingsupervision.europa.eu/ecb/pub/pdf/public_guidance_at1_and_t2.en.pdf. 
122 The ECB has opted for an ex-post assessment of AT1 and T2 instruments. 
123 The ECB adopted 62 decisions on classifications of capital instruments in 2015 and 76 in 2016. Regarding 
reductions of own funds, the ECB adopted 84 decisions in 2015 and 121 in 2016. 

40 

 
 
                                                            
Initially  the  ECB's  efforts  have  focused  on  the  MAP,124  which  has  been  successfully 
launched,  and  is  constantly  improving  performance.  120  out  of  201  Internal  Model 
Investigations (IMIs) have been finalised so far by the ECB.125 The investigations conducted 
so far cover a wide range of risks and approval types. 82% of the model assessments related 
to  credit  risk  models,  12%  to  market  risk  models  and  6%  to  operational  risk  models.  The 
majority of investigations concerned material changes to previously approved models, whilst 
about  13%  of  model  assessments  related  to  new  models.126      The  whole  model  approval 
process takes about 40 to 45 weeks on average127. The ECB has constantly increased its staff 
engaged in model approvals and now has sufficient capacity to cover pending cases and new 
cases,  which  should  eliminate  the  backlog  from  the  start-up  phase  in  due  course.  In  this 
respect,  SSM  data  clearly  shows  a  significant  increase  in  concluded  cases  for  the  last  two 
quarters of 2016,128 suggesting further progress in terms of speed of the process. 

As  of  late  2015  the  ECB  has  also  stepped  up  its  efforts  concerning  the  review  of  existing 
models.  The  TRIM  focuses  on  the  most  critical  models.  Criticality  of  models  has  been 
assessed  in  terms  of  amount  of  assets  covered  by  the  model  and  deviation  of  model  results 
from  observed  outcomes  in  reality.  The  ECB,  in  cooperation  with  NCAs  and  supported  by 
external  contractors,  has  developed  a  methodological  framework  for  TRIM,  codified  in  a 
TRIM handbook. One of the goals of TRIM is to communicate supervisory expectations and 
make  recommendations  to  institutions  to  ensure  that  internal  models  give  consistent  results. 
The  ECB  relies  on  TRIM  to  inform  its  positions  in  international  fora,  as  well  as  a  tool  to 
channel  the  implementation  of  regulatory  developments  in  this  area.  The  objective  in  this 
respect is to develop a methodology  that  can  be used  after finalization of TRIM for regular 
model supervision. 

There are mixed views among stakeholders as regards the ECB's efforts in relation to model 
approval  and  review.  Some  credit  institutions  consider  the  ECB  as  being  too  intrusive  or 
criticise the length of the approval procedure, which is perceived to have increased compared 
to  model  approvals  before  the  establishment  of  the  SSM.  At  the  same  time,  the  Secretary 
General  of  the  Basel  Committee  on  Banking  Supervision  praised  the  SSM  commitment  in 
reviewing  internal  models  at  a  hearing  on  12  October  2016  at  the  European  Parliament's 
ECON committee.129  

124 In general, the MAP is composed of four stages: assessment phase, central consistency check, draft decisions 
phase and decision phase. In the assessment phase, an on-site assessment and review of the model (or changes) 
based on a centrally defined consistent methodology and an agreed assessment plan is conducted. The findings 
and their severities are captured in an assessment report. The central consistency check of the assessment report 
is  performed  by  the  SSM  Internal  Models  Division  (INM)  in  order  to  ensure  a  comparable  and  harmonised 
assessment  of  the  models  and  the  findings  including  their  severities.  In  the  draft  decision  phase  JSTs  and  the 
INM prepare a draft decision which contains the remediating activities the institution has to initiate in order to be 
permitted to apply the model. In the decision phase, the draft decision is reviewed and approved. In this phase, 
the institution concerned has the chance to comment on the draft decision before it becomes final. 
125   For 2017, an additional 92 IMIs are scheduled, of which 39 IMIs have already been launched in 2016 and 53 
are to be started in 2017. 
126 51% of the model assessments were related to approvals of material changes, 13% to initial internal model 
approvals, 11% to approval of internal model extensions, and 15% are IMIs triggered on SSM initiative. 
127 There is a large dispersion in terms of length of investigations though, ranging from under 5 weeks to over 25 
weeks, since the length of the investigation heavily depends on the number  of models or exposure classes that 
are in scope of an investigation. 
128 47% of all finalised cases have been concluded in the last two quarters of 2016. 
129 
monetary-affairs-meeting-12102016-%28pm%29.  

http://www.europarl.europa.eu/news/en/news-room/20161005IPR45669/committee-on-economic-and-

41 

 
 
                                                            
The approval of models and their review by the ECB constitute a major step in harmonising 
supervisory  practices.  It  is  therefore  important  that  this  harmonised  practice  applied  to  the 
approval and review of internal models within the SSM is spread across the EU. In this sense, 
it  is  noted  that  the  ECB  has  closely  cooperated  with  the  EBA  in  areas  covered  by  EBA's 
mandate  for  draft  RTS  Guidelines,  and  although  ECB  issued  its  TRIM  Guide  before  the 
finalisation of the RTS on the assessment methodology for market risk, the ECB committed to 
update its Guide so as to reflect the final RTS. At the same time, it is noted that the ECB was 
less active in cooperating  with the EBA in areas where the EBA does not have a mandate for 
developing  draft  RTS  but  is  considering  issuing  guidelines,  such  as  for  the  development  of 
convergent supervisory practices on the materiality assessment for internal model methods for 
counterparty credit risk. 

C.2.4. Supervisory Review and Evaluation Process  

One of the core supervsiory tasks consist of the performance of the SREP. Through the SREP, 
competent  authorities  analyse  the  risks  incurred  by  every  institution,  its  business  model, 
governance structure and its capital and liquidity adequacy. As a result, competent authorities 
may  impose  additional  capital  requirements  or  other  supervisory  measures  on  individual 
institutions,  through  the so-called  SREP  decision.  Until  the establishment  of  the  SSM,  each 
NCA had developed its own SREP methodology, based on the CRD as well as on guidelines 
gradually developed by the EBA.130 Yet, large divergences were still noticed.  

The SSM carried out its first SREP exercise based on a common methodology in 2015. This 
methodology was further refined for the 2016 SREP exercise and is expected to be stable in 
2017.  The  ECB's  SREP  methodology  requires  banks  to  be  assessed  along  4  elements: 
business model, governance and risk management, risks to capital and risks to liquidity and 
funding.  The  assessment  of  each  element  is  based  on  quantitative  and  qualitative  elements, 
combining automated anchoring with constrained expert judgement by JSTs, and results in the 
determination for each institution of the so-called overall SREP score.131 Based on the SREP 
score, the JSTs suggest a capital add-on, liquidity related measures and qualitative measures 
to be imposed on institutions.132  

The proposals of the JSTs are complemented with the horizontal analysis by DG MS IV (such 
as peer group analysis and benchmarking), with a view to ensure consistent outcomes across 
JSTs.  According  to  the  ECB,  the  methodology  applied  horizontally  is  discussed  with  the 
NCAs, via the horizontal network on methodologies and standards, the High-Level Group on 
SREP  and  Supervisory  Board  and  that  NCAs  should  be  able  to  fully  retrace  the  methods 
employed based on the information tabled to the Supervisory Board for approving the SREP 
decisions. Several NCAs complained that this would not be possible in practice since not all 
SREP decisions are discussed individually or in detail at the Supervisory Board, as often such 

evaluation 

130 More precisely, the EBA Guidelines on common procedures and methodologies for the supervisory review 
and 
https://www.eba.europa.eu/documents/10180/935249/EBA-GL-2014-
process 
13+(Guidelines+on+SREP+methodologies+and+processes).pdf.  
The  ECB  has  endorsed  these  Guidelines,  therefore  the  ECB's  methodology  should  comply  with  the  common 
standards set by the EBA. 
131  Each  of  the  four  elements  was  assigned  a  risk  score  from  1  to  4  (1  corresponding  to  lowest  risk  and  4 
corresponding to highest risk). These four scores were then translated into a single overall risk score. 
132 The current CRD leaves it to the full discretion of supervisors to impose a specific composition of Own Funds 
with which the supervised institution has to meet its Pillar 2 capital add-on. This discretion has been confined by 
the EBA SREP Guidelines, which stipulate that at least 56% of the add-on should be met with CET1 and at least 
75% with Tier 1. The ECB has adopted the most conservative approach in this regard by requiring banks to meet 
the full capital add-on with CET1 only.  

42 

 
 
                                                            
decisions are approved in batches. The draft SREP decisions are approved by the Supervisory 
Board  and  sent  to  the  relevant  institutions  for  comments.  Taking  into  account  the  input 
received, the decisions are finalised by ECB staff and submitted for adoption to the Governing 
Council through the non-objection procedure. The final SREP decisions are communicated to 
the supervised institutions.133  

The development by the ECB of a common methodology for all SIs in participating Member 
States and its unitary application is a remarkable achievement134. Such methodology and its 
application  have  steadily  improved  showing  the  ECB's  learning  capacity  and  willingness  to 
adapt.  With  regard  to  the  2015  SREP  exercise,  the  first  based  on  a  common  ECB 
methodology, several banks complained that the justification for the capital add-on provided 
in  the  SREP  decisions  was  insufficient  to  understand the  underlying  rationale.  This  made  it 
allegedly difficult for institutions to challenge these decisions or to assess what changes they 
should implement in order to reduce their capital add-ons in the future. However, many banks 
also admitted that the ECB's SREP decisions were more detailed and better justified than the 
previous SREP decisions adopted by NCAs. 

Another criticism of the banking industry regarding the 2015 exercise was the lack of clarity 
on  the interaction  between  the  communicated  Pillar  2  capital  add-on  and  the capital  buffers 
set  forth  by  CRD.  More  precisely,  it  appeared  that  the  ECB  frontloaded  the  full  Capital 
Conservation Buffer (CCB) through the Pillar 2 capital add-on, despite the different phase-in 
arrangements implemented by many Member States. By doing so, the ECB also changed the 
consequences  of  an  eventual  breach  of  the  CCB  (as  breaching  the  buffer  requirement  has 
specific  consequences envisaged in CRD  – namely restrictions to  distributions based on the 
Maximum  Distributable  Amount  (MDA),  which  are  not  applicable  for  a  breach  of  Pillar  2 
capital add-ons) and the relevant stacking order for triggering consequences in case of breach 
(given that buffers sit on top of Pillar 2 requirements, and would be breached first where there 
is not sufficient capital). This fuelled concern in the market for AT1 capital instruments, given 
the  uncertainty  as  to  the  pay-out  of  distributions  in  case  of  a  bank  close  to  breaching  the 
buffer requirement. 

As much of such uncertainty related to the equivocal wording of the relevant CRD provisions, 
the  Commission  reacted  by  developing  a  staff  note  clarifying  its  view  on  the  correct 
interpretation  of  the  relevant  CRD  Articles  and  outlining  plans  for  streamlining  the  Pillar  2 
framework.  The  Commission's  November  2016  legislative  proposal  on  the  review  of  CRD 
and  CRR  includes  some  targeted  amendments  to  clarify  the  applicable  framework  and  to 
foster convergence in the way different supervisory authorities implement Pillar 2. 

Based  on  the  Commission's  clarifications,  the  ECB  implemented  several  changes  to  its 
methodology for the 2016 exercise. The main change was the introduction of Pillar 2 capital 
guidance. It now captures certain elements of risk that in the 2015 SREP were included in the 
Pillar 2 requirement, such as the frontloading of the CCB or the outcome of supervisory stress 
tests. Pillar 2 guidance is a supervisory expectation, and thus does not affect the calculation of 
the  MDA  and  the  triggering  of  automatic  restrictions  on  distributions.  Should  an  institution 
fail to meet its Pillar 2 guidance, the ECB will adopt corrective measures that are adapted to 

133 For the 2015 exercise, along the SREP decision the ECB also issued letters to encourage banks to promptly 
inform the supervisors should the capital position of the bank get too close to the SREP requirement (reaching 
the so-called early warning threshold) or should its financial situation deteriorate. 
134 Until 31 December 2016, the ECB adopted 343 SREP decisions for SIs.  

43 

 
 
                                                            
the  bank’s  individual  situation.135  Another  relevant  change  in  the  2016  SREP  exercise  was 
related to the communication policy. The ECB increased the level of detail provided on the 
justification of SREP decisions  and included additional information  to  enable institutions to 
understand  where  their  risk  exposures  are  in  relation  to  their  peer  group.  Furthermore,  the 
ECB has published a "SSM SREP Methodology Booklet"136 which provides insight into the 
ECB  SREP  methodology  and  procedures.  The  ECB  does  not  foresee  major  changes  to  the 
SREP methodology in 2017.  

The results of the 2016 SREP have kept the overall SREP CET1 demand for 2017 at 10.1% 
(excluding  systemic  buffers),  the  same  level  as  in  the  previous  year.  However,  in  the  2016 
SREP,  capital  shifted  from  the  Pillar  2  add-on  requirement  to  Pillar  2  guidance  and,  as  a 
consequence,  the  MDA  trigger  decreased  substantially,  from  an  average  of  10.2%  to  8.3%. 
SREP decisions also included, where necessary, liquidity measures (such as the requirement 
of  minimum  survival  periods  or  minimum  amounts  of  liquid  assets)  and  other  qualitative 
measures (related to, for instance, the quality and independence of the management body). 

The substantial improvement of the 2016 SREP process is very much appreciated and proves 
the SREP to be the most efficient and effective supervisory convergence tool available to the 
ECB.  Notwithstanding  its  overall  positive  assessment,  some  aspects  of  the  SREP  could 
benefit  from  further  refinement,  especially  in  light  of  the  EBA  SREP  Guidelines  and  the 
feedback  given  by  the  EBA  in  the  context  of  its  convergence  assessment  work.  The  ECB 
follows a holistic approach in order to define the overall SREP score based on the aggregation 
of  scores  attached  to  the  different  SREP  elements,  and  links  the  overall  SREP  scores  to 
specific  ranges  for  Pillar  2  capital  requirements  serving  as  a  constrain  for  the  final  level  of 
additional own funds requirements under Pillar 2. The risk-by-risk approach to the setting of 
additional own funds requirements in EBA's Guidelines provides no link between scores and 
the amount of additional capital requirements, and does not consider that concerns related to 
all  SREP  elements  (e.g.  business  model  and  strategy)  should  be  addressed  with  additional 
capital  requirements.  Also,  ECB  is  currently  developing  its  own  methodology  on  Pillar  2 
guidance, a concept that is being discussed by the legislators on the basis of the Commission's 
November  2016  proposal.  Pending  the  finalisation  of  the  legislative  work  and  in  view  of 
avoiding  creating  uncertainty  and  divergent  practices,  it  is  important  that  such  ECB 
methodology is developed in close cooperation with the EBA and the Commission. 

Lastly, it is observed that the risk analysis under SREP mainly triggers the application through 
the SREP decision of supervisory powers related to capital and liquidity requirements and to 
qualitative  measures  including  governance  arrangements.  However,  Article  16(2)  SSMR 
provides  the  ECB  with  a  larger  toolbox  of  supervisory  powers  to  address  supervisory 
concerns,  including  those  arising  from  its  SREP  process.  The  toolbox  also  includes  the 
possibility  for  the  ECB  to  require  institutions  to  apply  a  specific  provisioning  policy  or 
treatment  of  assets  in  terms  of  own  funds  requirements.137  This  power  could  prove 
particularly  useful  in  the  context  of  addressing  banks  exposures  related  to  non-performing 
loans.  It  enables  the  ECB  to  require  banks  to  adjust  their  level  of  provisioning  within  the 
boundaries of the accounting framework. This would not amount to a power to adjust bank's 
balance sheets for accounting purposes, but may be equally influential given that it entitles the 

135 After the introduction of Pillar 2 guidance, the stacking order of requirements adopted has Pillar 2 guidance 
as a top layer (breached before capital buffer requirements), followed by capital buffers, Pillar 2 capital add on 
requirement and Pillar 1 capital requirements. 
136 https://www.bankingsupervision.europa.eu/ecb/pub/pdf/srep_methodology_booklet_2016.en.pdf 
137 Article 16(2)(d) of the SSMR. 

44 

 
 
                                                            
ECB  to  influence  a  bank's  provisioning  level  within  the  limits  of  the  applicable  accounting 
framework  and  to  apply  the  necessary  adjustments  (deductions  and  similar  treatments)  in 
case, for example, accounting provisioning is not sufficient from a supervisory perspective.138 

C.2.5. Enforcement and sanctioning 

The  ECB  distinguishes  between  enforcement  and  sanctioning  measures.  Enforcement 
measures  refer  to  coercive  measures  that  are  exercised  in  order  to  compel  compliance  and 
have  no  punitive  character,139  whereas  sanctioning  measures  have  in  addition  a  punitive 
dimension and are applicable in the case of misconduct.  According to Article 18(1) SSMR, 
the  ECB  may  impose  administrative  pecuniary  penalties  on  credit  institutions,  financial 
holding companies and mixed financial holding companies in case of breach of requirements 
under  relevant  directly  applicable  acts  of  Union  law.  Thus  ECB's  sanctioning  powers  are 
limited to legal persons only and to imposing pecuniary sanctions. For other cases the ECB 
may require NCAs to open proceedings (for instance, if an institution breaches a requirement 
laid down in the national transposition of a relevant EU Directive, if the sanction is imposed 
to  a  member  of  the  board  of  the  institution,  or  in  cases  of  non-pecuniary  sanctions).140 
Moreover, the ECB may impose sanctions in case of breach of ECB regulations or decisions. 
Last  but  not  least,  the  ECB  may  impose  pecuniary  enforcement  measures  (i.e.  periodic 
penalty payments) against legal persons, as well as any other enforcement measures provided 
in national laws for ensuring compliance with the CRD-CRR. 

In  2015  the  ECB  focused  on  the  set-up  of  a  dedicated  division  and  the  preparation  of  the 
necessary sanctioning framework, whilst it had initiated only one sanctioning proceeding and 
one  enforcement  proceeding.  In  2016,  the  ECB  initiated  41  direct  sanctioning  proceedings 
and  one  enforcement  proceeding.141  Since  it  became  operational,  the  ECB  has  submitted  to 
different  NCAs  eight  requests  to  open  proceedings  with  a  view  to  taking  action  in  order  to 
ensure  that  appropriate  penalties  are  imposed.  So  far,  two  of  the  national  administrative 
proceedings opened upon ECB request have been completed by the NCAs. 

This  framework  may  give  rise  to  some  implementation  issues.  First,  it  may  be  problematic 
that the scope of the ECB's sanctioning powers differs from the scope of its supervisory tasks. 
For infringements concerning requirements falling under the scope of the ECB's supervisory 
functions but not covered by its sanctioning powers, the ECB is thus forced to rely on NCAs. 
In  some  cases,  there  may  be  an  ECB  sanctioning  proceeding  against  an  institution  and  a 
parallel  sanctioning  proceeding  against  an  individual  initiated  by  the  NCA  on  the  same 

138 Such powers are enshrined in Article 16(2)(d) of the SSM Regulation, which has the same wording as Article 
104(1)(d) of the CRD. They do not amount to accounting powers that would allow the ECB to impose a specific 
provision, but they allow the ECB to influence the provisioning policy of a bank within the limits of accounting 
standards,  for instance where  such framework  allows for  flexibility in  selecting  policies  or requires  subjective 
estimations,  and  the  specific  implementation  chosen  by  the  institution  is  not  adequate  or  sufficiently  prudent 
from a supervisory point of view. Furthermore they allow the ECB to require credit institutions to apply specific 
adjustments (deductions, filters or similar measures) to own funds calculations where the accounting treatment 
applied by the bank is considered not prudent from a supervisory perspective. 
139 This would include periodic penalty payments for non-compliance, cease and desist orders, etc. 
140  The  SSMFR lays down  additional  rules  on  the  proceedings  for  imposing  penalties,  and  on  the  cooperation 
with NCAs. In this regard, the SSMFR determines that NCAs shall open sanctioning proceedings against a SI 
only at the request of the ECB. 
141  On 31 December 2016, 34 sanctioning proceedings and one enforcement proceeding were still pending. 

45 

 
 
                                                            
breach.142 Furthermore, launching proceedings in cases not covered by the ECB's sanctioning 
powers  depends  on  NCA  action,  an  additional  step  that  prevents  quick reactions  and  leaves 
room for forbearance. In this context, the principle of cooperation in good faith is crucial, and 
it  is  important  that  NCAs  work  together  with  the  ECB  in  order  to  ensure  the  proper 
functioning of the sanctioning framework. 

Secondly,  as  the  CRD  only  provides  the  general  rules  for  sanctioning  and  requires 
transposition, the actual framework applicable to credit institutions supervised by the ECB is 
largely  dependent  on  national  regulation.  This  means  that  important  elements  of  the 
sanctioning  framework,  such  as  the  catalogue  of  sanctions  or  enforcement  measures  and 
methods  for  calculating pecuniary  sanctions  (depending  on  loose  concepts  in  Union  law,  as 
"annual turnover") may differ throughout the participating Member States, thus raising major 
questions from a level playing field perspective. Furthermore, substantial national differences 
may also arise in relation to the interplay between sanctioning and enforcement powers, with 
the effect that the same measure may pertain to the ECB as long as it is qualified by national 
law  as  an  enforcement  power,  but  be  outside  of  ECB's  remit  if  qualified  as  non-pecuniary 
sanction.143  

The  current  sanctioning  framework  in  the  CRD  and  the  SSMR  allows  for  the  necessary 
adaptation to national regimes given that sanctioning measures and powers are only subject to 
minimum  harmonisation  by  Union  law.  Therefore,  close  cooperation  is  essential  to  allow  a 
smooth  implementation  of  this  framework.  In  any  case,  and  regardless  of  the  specific 
sanctioning regime applicable in each participating Member State, the ECB is entrusted with 
the task to ensure compliance by credit institutions with relevant Union law   (in this regard, 
see Recital 23 SSMR) and hence is entitled to adopt the necessary enforcement measures. 

C.3. Oversight of NCA supervision of LSIs [Article 32(b) SSMR] 

The LSI population is made of a very diverse group of banks of different sizes, riskiness and 
business models. In addition, the proportion of LSIs in the banking system varies significantly 
from Member State to Member State, and so do the approaches and staffing levels of NCAs 
with regard to LSI supervision. Furthermore, the majority of LSIs have a regional or national 
focus and consequently compete with banks in other Member States to a significantly lesser 
extent  than  SIs.  However,  LSIs  still  do  compete  with  SIs  active  in  their  Member  States. 
Furthermore, the failure of some more systemic LSIs or the simultaneous failure of a larger 
number  of  smaller  LSIs  (e.g.  because  they  are  linked  via  an  IPS)  may  destabilise  domestic 
financial systems and create negative spill-over effects for other Member States.  

For these reasons, the ECB has been entrusted with an oversight function in relation to LSIs 
that  would  allow  it  to  ensure  the  consistent  application  of  high  supervisory  standards 
throughout the Banking Union. Moreover, according to Article 6 of the SSMR, the ECB, on 
its own initiative and after consulting the relevant NCA or at the request of the NCA, may at 

142 Within the SSM, the application of sanctions to individuals is entrusted to NCAs because Union law does not 
harmonise  the  conditions  for  engaging  the  responsibility  of  individuals  involved  in  a  breach  are  actually 
responsible for  that breach,  and  thus  the  sanctions in  such  cases  can be  imposed only  on  the basis of national 
rules.  Moreover,  the  imposition of  fines of  a  significant  level  on  individuals  would raise  issues relating  to  the 
respect  of  fundamental  rights  –  see  ECJ  Judgment  of  Judgment  of  5  June  2012,  Bonda,  C-489/2010,  ECHR, 
Engel  and  Others  v.  the  Netherlands,  8  June  1976,  Series  A  no.  22,  and  Sergey  Zolotukhin  v.  Russia,  no. 
14939/03, 10 February 2009. 
143 For instance, cease-and-desist orders are an enforcement measure under some national frameworks and a non-
pecuniary sanction under others, the latter being out of the scope of the ECB powers. 

46 

 
 
                                                            
any time take over the responsibility for the direct supervision of LSIs. Furthermore the ECB 
may  issue  regulations,  guidelines  or  general  instructions  to  NCAs  on  how  they  should 
perform the supervisory tasks with regard to LSIs, or on how to exercise specific powers for 
groups or specific categories of institutions. 

DG Micro-Prudential Supervision III (DG MS III), with around 80 FTEs,  is responsible for 
ECB's  oversight  function.144  The  involvement  of  the  ECB  in  LSI  supervision  conducted  by 
NCAs  consists  mainly  of  organising  and  analysing  notifications  from  NCAs  on  LSIs,  and 
cooperating with NCAs. The ECB has issued guidance to NCAs setting out, on the basis of 
the  proportionality  principle,  rules  on  notification  of  supervisory  activities  by  NCAs.  With 
regard to high-priority LSIs,  NCAs are requested to notify ex-ante any material supervisory 
procedures and material supervisory draft decisions, whereas, with regard to other LSIs, the 
submission  of  institution-specific  templates,  of  the  NCAs  annual  report  on  LSIs  and  of  the 
supervisory examination programme is sufficient. Instances of a deterioration of the financial 
situation as well as the imposition of administrative penalties are to be notified for all LSIs. 
The notifications are seen by the ECB as a key tool to gain better insight into the LSI sector 
and its supervision by NCAs.145 Until December 2016, the ECB received 179 notifications of 
NCAs  in  relation  to  LSIs,  of  which  141  were  notifications  of  material  draft  decisions  or 
procedures, and 38 were related to the deterioration of the financial situation of the LSI.  

Despite  the  efforts  undertaken  by  the  SSM,  capital-add  on  decisions  by  NCAs  are  still 
communicated in a non-harmonised way. Furthermore, SREP decisions also show differences 
in the implementation of the SREP throughout Member States, notably in terms of the capital 
requirement  definition,146  which  make  it  difficult  for  the  ECB  to  aggregate  and  compare 
capital add-ons via simple statistics such as average add-ons per country or variance of SREP 
add-ons per country. A  common SREP  methodology  would facilitate also the reporting and 
comparison. 

As  part  of  its  oversight  function,  the  ECB  is  also  determined  to  increase  cooperation  with 
regard  to  LSI  supervision  by  exchanging  staff  with  NCAs  and  by  participating  in  on-site 
supervision. However, at this stage these initiatives still appear in their infancy as there were 
only few exchanges in 2016.147 Furthermore, the ECB conducts "road shows" in participating 
Member States to inform NCAs about its initiatives. However, overall the ECB believes that 
the  numerous  bilateral  contacts  between  ECB  and  NCAs  and  the  cooperation  in  common 
procedures provide valuable information for it to have a good picture of how LSI supervision 
is conducted by NCAs in the participating Member States. 

To ensure a level playing field in the exercise of supervisory powers by NCAs in relation to 
LSIs and to ensure consistency of supervisory outcomes within the SSM, the ECB can issue 
regulations,  guidelines,  general  instructions,  recommendations  or  act  through  other  means, 
such as its Supervisory Manual, or by developing specific standards related to LSIs together 

144 DG MS III is organised along the following lines: (i) oversight of NCAs’ supervisory practices for LSIs and 
cooperation  between  NCAs  (ii)  institution-specific  and  sectoral  oversight  of  LSIs;  and  (iii)  analysis  provision 
and methodological support. 
145 Notifications help the ECB to gain knowledge on LSIs and on NCAs supervisory practices; enable the ECB to 
receive  early  warning  and  detect  emerging  issues  on  specific  LSIs;  but  also  create  synergies  by  combining 
knowledge  from  NCAs  and  the  ECB,  identifying  and  sharing  best  supervisory  practices,  thereby  promoting 
consistency of supervisory outcomes; and fostering high quality supervision. 
146  E.g. for certain banks there are pillar 2 requirements set below their current level of total capital, or some 
include the capital conservation buffers while others do not. 
147  There were  staff  exchanges  only  between  two NCAs  and  ECB  in  2016.  Only  one  ECB  full  time  staff  was 
dedicated to LSI on-site supervision and the ECB cooperated with NCAs in only five LSI on-site inspections. 

47 

 
 
                                                            
with NCAs. So far, the ECB has published three recommendations148 on dividend policies and 
two guidelines149 on the supervision of institutional protection schemes, addressed to NCAs. 
In addition, the ECB has issued several non-public guidelines, recommendations and general 
instructions that are addressed to NCAs and not to LSIs directly. For instance, the ECB has 
issued recommendations on supervisory planning, recovery planning and on-site inspections. 
Furthermore,  apart  from  its  efforts  to  extend  the  harmonised  exercise  of  options  and 
discretions  to  LSIs,  the  ECB  is  developing  in  cooperation  with  the  NCAs  a  SREP 
methodology for LSIs to foster convergence in the way NCAs conduct their SREP for LSIs. 
This methodology is developed under the umbrella of the SSM SREP methodology and will 
apply to LSIs in a proportionate manner and adjusted to the LSIs’ specificities. In 2015 and 
early 2016, the main achievement of the project was the definition of a common, harmonised 
Risk  Assessment  System  (RAS),  that  was  put  on  trial.  The  subsequent  steps,  which  are 
currently  being  taken,  consist  of  developing  methodologies  for  the  quantification  of  capital 
and  liquidity  requirements,  and  methodologies  for  the  assessment  of  capital  and  liquidity 
adequacy. Once finalised, this methodology should enable the NCAs to run a comprehensive 
and harmonised SREP from 2018 onwards. 

The ECB did not yet take over direct supervision of any LSI. There was also no information 
available  that  would  allow  assessing  the  involvement  of  the  ECB  as  regards  LSIs  whose 
situation deteriorates. According to the SSMFR and the ECB's guidelines, the ECB should be 
able  to  gather  extensive  information  on  such  LSIs,  and  the  NCAs  are  obliged  to  engage  in 
more intense cooperation and information sharing.  

C.4. Performance of macro-prudential functions [Article 32(d) SSMR] 

Article  5  of  the  SSMR  entrusts  the  ECB  with  certain  macro-prudential  powers  within  the 
Banking Union, so as to ensure a proper coordination and information flow between the ECB 
and  national  authorities  responsible  for  macro-prudential  tasks  (i.e.  NCAs  or  national 
designated  authorities)  in  the  participating  Member  States,  and  so  as  to  enable  the  ECB  to 
object to or strengthen macro-prudential measures proposed by such national authorities. 

Therefore, within the Banking Union, an appropriate layer of coordination has been built into 
the  macro-prudential  framework.  Macro-prudential  powers  remain  at  national  level  with 
national  authorities  responsible  for  applying  requirements  for  capital  buffers,  including 
countercyclical buffer rates, and any other measures aimed at addressing systemic or macro-
prudential risk provided for in the CRR/CRD IV. Macro-prudential action within the Banking 
Union is, however, subject to specific internal upfront coordination with the ECB. The ECB 
can endorse, object or strengthen the proposed measure.150 The national prerogative is hence 
complemented  by  the  power  of  the  ECB  to  apply  higher  requirements  than  the  ones 

148  Recommendation  of  the  European  Central  Bank  of  28  January  2015  on  dividend  distribution  policies 
(ECB/2015/2), Recommendation of the European Central Bank of 17 December 2015 on dividend distribution 
policies (ECB/2015/49) and Recommendation of the European Central Bank of 13 December 2016 on dividend 
distribution policies (ECB/2016/44). 
149 Guideline (EU) 2016/1993 of the European Central Bank of 4 November 2016 laying down the principles for 
the coordination of the assessment pursuant to Regulation (EU) No 575/2013 of the European Parliament and of 
the  Council  and  the  monitoring  of  institutional  protection  schemes  including  significant  and  less  significant 
institutions (ECB/2016/37) and Guideline (EU) 2016/1994 of the European Central Bank of 4 November 2016 
on  the  approach  for  the  recognition  of  institutional  protection  schemes  for  prudential  purposes  by  national 
competent authorities pursuant to Regulation (EU) No 575/2013 of the European Parliament and of the Council 
(ECB/2016/38). 
150  The  relevant  national  authority  has  to  notify  its  intention  to  the  ECB  ten  working  days  prior  to  taking  its 
decision. The ECB may object within five working days. 

48 

 
 
                                                            
established  by  the  national  authority  and  apply  a  more  stringent  measure,  if  deemed 
necessary.  

All national competent or designated authorities within the Banking Union notify the ECB of 
their decisions on the activation of the following instruments: countercyclical capital buffers, 
Global  Systemically  Important  Institution  (G-SII)  and  Other  Systemically  Important 
Institution (O-SII) buffers, systemic risk buffers, and measures under Article 458 of the CRR. 
So far the ECB objected once to a national notification, but did not decide to strengthen the 
proposed measures as its objection was reflected in the relevant final decision of the notifying 
national authority.151  

In  response  to  the  Commission's  consultation  on  the  review  of  the  EU  macro-prudential 
framework, the ECB has publicly expressed certain concerns in relation to the framing of its 
macro-prudential tools. The ECB highlighted the uncertainty as regards the sequencing of the 
coordination on the specific activation procedures for the use of the various macro-prudential 
instruments in the CRD IV/CRR152 and called for clarifying that the notification mechanism 
to the ESRB should start only after the requirements set by the SSMR are met. Furthermore, 
the ECB claimed that the timeline for internal upfront coordination within the Banking Union 
(10 or 5 working days, respectively, pursuant to Article 5 SSMR) is challenging.153 However, 
the  principle  of  cooperation  in  good  faith  should  smoothen  the  implementation  of  this 
procedure, while allowing a quick reaction by national authorities to address systemic risks.  

When  assessing  the  shared  responsibilities  of  the  ECB/SSM  and  national  authorities 
designated  for  macro-prudential  policy  within  the  Banking  Union,  the  vast  majority  of 
stakeholders  that  responded  to  the  public  consultation  on  the  review  of  the  EU  macro-
prudential policy framework noted that the current asymmetric nature of the ECB powers is 
appropriate,  given  that  it  adequately  deals  with  a  potential  inaction  bias  concern  at  the 
national level when systemic risks may be building up.  

The  different  allocation  of  responsibilities  in  the  Banking  Union  for  micro-prudential  and 
macro-prudential  supervision  responsibilities  is  worth  noting.  Whereas  micro-prudential 
supervision  is  organised  along  the  lines  "significant"  versus  "less  significant"  institutions, 
macro-prudential supervision is a prerogative extending over all institutions regardless of their 
significance.  Furthermore,  there  may  be  some  uncertainty  concerning  the  scope  of  the 
"macro-prudential tasks and tools" covered by Article 5 SSMR,154  since there is no definition 

151  
Each quarter the ECB publishes the Governing Council statement on Macro-prudential Policies, which 
provides updates on the macro-prudential measures activated during the quarter and on its own decisions relative 
to these measures.  
152  
This is currently only specified in Recital 24 to the SSMR but not in the legislative text "[…] National 
competent authorities or national designated authorities and the ECB shall only act in respect of any coordination 
procedure provided for in such acts after having followed the procedures provided for in this Regulation." 
153  In  its  response  to  the  public  consultation  on  the  review  of  the  EU  macro-prudential  policy  framework,  the 
ECB  suggests  that  the  deadline  for  the  ECB  to  object  to  an  intended  macro-prudential  measure  by  national 
authorities should be extended to 30 days. 
154  
The "macro-prudential tasks and tools" pursuant to Article 5 SSMR comprise the application of "capital 
buffers  to  be  held  by  credit  institutions"  and  of  "any  other  measures  aimed  at  addressing  systemic  or  macro-
prudential  risks".  The  definition  in  Article  101(1)  of  the  ECB  Framework  Regulation  does  not  provide  much 
clarity either: "For the purpose of this Part, macro-prudential tools means any of the following instruments: (a) 
the  capital  buffers  within  the  meaning  of  Articles  130  to  142  of  Directive  2013/36/EU;  (b)  the  measures  for 
domestically  authorised  credit  institutions,  or  a  subset  of  those  credit  institutions  pursuant  to  Article  458  of 
Regulation  (EU)  No  575/2013;  (c)  any  other  measures  to  be  adopted  by  NDAs  or  NCAs  aimed  at  addressing 
systemic or  macro-prudential risks provided for, and subject to the procedures set out, in Regulation (EU) No 
575/2013 and Directive 2013/36/EU in the cases specifically set out in relevant Union law." 

49 

 
 
                                                            
of macro-prudential tools it is not entirely clear whether some measures fall within the scope 
of the Article 5 SSMR.155  Additional uncertainties arise in relation to the possibility of using 
Pillar 2 capital add-ons as a macro-prudential tool. In its response to the public consultation 
on  the  review  of  the  EU  macro-prudential  framework,  the  ECB  advocated  for  a  clearer 
separation of responsibilities and allocation of tools. 

D. Relationship with other relevant bodies  

D.1. Interaction with the ESAs and the ESRB [Article 32(a)(d) and (f) SSMR] 

The  SSM  was  envisaged  in  the  context  of  the  well-established  European  Supervisory 
Authorities  (ESAs)  and  takes  full  advantage  of  their  work.  Therefore,  the  taking  up  of 
supervisory  tasks  by  the  ECB  "should  be  consistent  with  the  framework  of  the  European 
System  of  Financial  Supervision  (ESFS)  and  its  underlying  objective  to  develop  the  single 
rulebook and enhance convergence of supervisory practices across the whole Union"156. The 
SSMR  explicitly  requires  the  ECB  to  cooperate  closely  with  the  EBA,  the  European 
Securities  and  Markets  Authority  (ESMA),  the  European  Insurance  and  Occupational 
Pensions Authority (EIOPA) and the European Systemic Risk Board (ESRB).  

D.1.1 Interaction with the EBA 

The EBA is undoubtedly the most relevant ESA interacting with the ECB, whilst interaction 
with the other ESAs is more sporadic. Since the ECB's control by the EBA has been already 
discussed  in  the  context  of  the  assessment  of  the  ECB's  accountability,  the  present  section 
focuses  more  generally  on  the  respective  roles  of  the  ECB  and  the  EBA  and  on  practical 
aspects of their interaction, building on observations made in the context of ECB's exercise of 
supervisory tasks.   

Regulatory dimension 

The SSMR reaffirms the EBA's role as an EU-wide independent regulatory agency entrusted 
with  the  development  of  the  Single  Rulebook  for  the  banking  sector  and  specifies  that  the 
SSM "should not replace the exercise of those tasks by EBA"157. Moreover, the SSM should 
exercise  its  own  powers  in  compliance  with  binding  technical  standards  developed  by  the 
EBA. Lastly, the SSM is "subject to Article 16 of the EBA Regulation"158, which means that 
it also has to follow the Guidelines and Recommendations developed by the EBA, or explain 
why it chooses not to follow them.  

Whereas in law, the functions of the EBA and the ECB are clearly differentiated, in practice it 
is not as straightforward to separate regulatory and supervisory competences. Unlike national 
competent authorities, the ECB's rules adopted in its supervisory capacity cover the banking 
population  in  19  Member  States,  which  sets  the  ECB's  exercise  of  competences  for 
implementation  of  rules  in  a  different  perspective  compared  to  the  NCAs  exercising  such 
implementation  functions.  Therefore,  whenever  the  ECB  takes  an  implementation  initiative 
this  clearly  affects  the  EBA,  especially  where  an  ECB  initiative  predates  final  regulatory 

The  uncertainty  about  whether  some  measures  are  within  the  scope  of  Article  5  SSMR  concerns,  in 

155  
particular, measures under Article 124 and 164 CRR, and the identification of G-SIIs and O-SIIs.  
156 Recital 31 of the SSMR. 
157 Recital 32 of the SSMR. 
158 Ibidem. 

50 

 
 
                                                            
output by the EBA159. Also, in practice there is for end-users of regulation some equivoque as 
to  the  hierarchy  of  norms,  as  the  ECB  may  use  directly  applicable  Regulations  or  other 
binding instruments to specify rules, including where EBA Guidelines and Recommendations 
apply.  

Specifically with regard to EBA Guidelines and Recommendations, which have a comply-or-
explain  status,  the  ECB  has  implemented  a  process  of  reporting  its  compliance  where  it 
exercises direct supervision for significant institutions. However, this does not help creating 
more transparency for end users. The ECB demonstrated that it is striving to comply with all 
the Guidelines that fall within its areas of competence.160 In some instances it appears that the 
ECB  has  however  taken  different  views  from  the  EBA  as  regards  the  content  of  specific 
provisions in EBA's guidelines.  

Last but not least, the EBA questions and answers (Q&A tool) is an important instrument to 
achieve convergence in the interpretation of the Single Rule Book. The ECB has launched its 
own  Q&A  tool,  to  clarify  questions  by  ECB  and  NCA  staff  related  to  practical  aspects  of 
supervision,  as  well  as  regulatory  issues  linked  to  the  ECB's  regulatory  and  policy 
instruments. It is of outmost importance that such ECB tool avoids any overlap and conflict 
with  the  Q&As  published  by  the  EBA  (which  include  Q&As  for  which  the  Commission  is 
responsible  as  they  concern  interpretation  of  Union  law).  Reportedly,  such  conflicts  have 
unfortunately occurred in a few instances. The ECB has committed to fixing such conflicts. 

Governance dimension 

In terms of governance arrangements, the EBA Regulation grants the SSM an observer status 
in the EBA Board of Supervisors (BoS)161, whereas the BoS members representing the SSM 
countries  retain  their  independent  full  membership  status.  This  may  be  perceived  as  an 
anomaly,  as  the  ECB  is  ultimately  a  competent  authority  that  should  have  an  equal  saying 
within the EBA's BoS.  

The  EBA  can  participate  in  the  Supervisory  Board  only  upon  invitation.  In  practice,  it 
participated on some occasions,  with regard to  selected topics discussed by the Supervisory 
Board. It could be beneficial for the EBA to participate more often in the Supervisory Board 
where topics of common interest are discussed, given that supervisory convergence, which the 
EBA  is  tasked  to  promote  and  facilitate,  can  be  achieved  more  easily  and  effectively  if  the 
EBA and the SSM cooperate closely.  

Participation in EBA activities 

The SSM actively participates not only in the EBA BoS, but also in all of its sub-structures 
and technical groups. The EBA deems the SSM's participation extremely helpful, as it often 
helps  to  bridge  the  differences  between  individual  representatives  of  national  competent 
authorities. In addition, the SSM brings valuable additional expertise and a broad euro area-
wide (as opposed to narrow national interest-centred) perspective to the table. Overall, in the 

159 This was for instance the case with ECB's consultation on a ECB Guide guide on materiality assessment for 
changes to counterparty credit risk models published in December 2016, which was prepared independently from 
the EBA's parallel work on this topic. The EBA hat sent out questionnaires to the competent authorities – which 
were not answered by the ECB. 
160 Some EBA Guidelines are adopted in the areas where the ECB is not a competent authority, e.g., Anti-Money 
Laundering.  
161 Article 40(1)(d) of the EBA Regulation. 

51 

 
 
                                                            
context  of  the  development  of  EBA  Binding  Technical  Standards,  Guidelines  and 
Recommendations, the ECB has demonstrated its added value by both active involvement at 
all stages of the drafting process and facilitating a common understanding and, in some cases, 
common stances among NCAs.  

However,  the  EBA  observed  that  the  ECB's  involvement  is  not  equally  intense  in  all  areas 
covered  by  the  EBA  groups,  with  the  ECB  sometimes  being  in  a  driving  position,  whilst 
being  less  active  in  other  instances.  It  would  be  welcomed  if  the  ECB  would  ensure 
responsiveness  and  pro-active  participation  consistently,  especially  where  the  EBA  calls  for 
its intervention. 

EU-wide stress test exercises  

The  ECB  is  also  closely  involved  in  the  context  of  other  important  EBA  tasks,  such  as  the 
EU-wide stress test. The EBA is responsible for the development of a complete methodology 
(where  the ECB  provides  its input and  expertise  as  well)  whereas  the  competent  authorities 
(including  the  ECB)  are  responsible  for  the  quality.  The  success  of  the  exercise  thereby 
heavily  depends  on  coordinated  efforts  of  the  EBA  and  competent  authorities  and  the 
introduction of the SSM made the interaction and coordination easier. However, despite the 
absence of direct control by EBA over performance of the quality assurance process, the EBA 
is often perceived as the body accountable for the EU-wide stress test. Hence any weaknesses 
identified and inevitably reported in the media, both in the methodology and in the process, 
are  often  attributed  to  the  EBA,  not  the  competent  authorities.  Given  that  the  stress  test  is 
mainly  a  joint  exercise  where  responsibilities  are  clearly  distributed,  it  is  necessary  that  all 
competent authorities involved (including the ECB) and the EBA cooperate closely with each 
other and make every effort to avoid reputational damage for each other.  

D.1.2. Interaction with the ESRB and the other ESAs 

The cooperation between the SSM and the other two ESAs is particularly important and best 
manifested  in  their  mutual  agreements  or  formally  concluded  Memoranda  of  Understanding 
on information exchange. Such cooperation is crucial for the ECB to exercise supervision on a 
consolidated basis, as well as to deal with other topics that fall under the remit of ESMA or 
EIOPA, such as cross-sectorial regulation and policy, specifically where Technical Standards, 
Guidelines and Recommendations are developed by the Joint Committee of the three ESAs. 
The  Memorandum  of  Understanding  that  ESMA  has  concluded  with  the  ECB  in  2015 
envisages  cooperation  in  the  field  of  statistics,  risk  management,  supervision,  market 
infrastructures  and  regulation.  It  covers  arrangements  related  to  the  supervision  of  Central 
Securities  Depositaries  and  includes  a  template  Memorandum  of  Understanding  to  be  used 
between national authorities responsible for markets in financial instruments and the ECB.162  
Arrangements  on  structural  cooperation  with  EIOPA  were  discussed  on  a  number  of 
occasions  between  the  Chair  of  the  Supervisory  Board  and  the  Chair  of  EIOPA.  Whilst  a 
letter  of  agreement  on  the  exchange  of  statistical  data  between  the  ECB  and  EIOPA  was 
signed in 2011,163 this has not been finalised yet by a Memorandum of Understanding, which 
would  include  also  the  necessary  cooperation  arrangements  with  the  ECB  acting  in  its 
supervisory capacity.  

162  For  more  information,  see  https://www.esma.europa.eu/press-news/esma-news/esma-national-securities-
regulators-and-ecb-exchange-information.  
163https://eiopa.europa.eu/Publications/Letters/EIOPA_LETTER_AGREEMENT_ECB%20(Exchange_Stat_Dat
a).pdf. 

52 

 
 
                                                            
The European Systemic Risk Board (ESRB) is entrusted with macro-prudential oversight.164 
To fulfil its tasks, the ESRB collects and analyses relevant information (including statistical 
or aggregated supervisory data), issues warnings and recommendations165, monitors follow-up 
to  its recommendations  etc. In  addition,  the  ESRB  is  responsible  for  developing  the  macro-
prudential scenarios for the EU-wide stress tests carried out by the EBA and EIOPA. 

The institutional representation of the ECB in its supervisory capacity in the ESRB's General 
Board is not yet formalised,166 as the ESRB was established prior to the introduction of the 
Banking  Union.  Cooperation  between  the  ECB  in  its  supervisory  capacity  and  the  ESRB  is 
necessary  in  view  of  the  ECB's  micro-  and  macro-prudential  tasks.  The  interaction  and 
cooperation  between  the  ESRB  and  SSM  technical  committees  has  improved  over  time, 
notably as regards information sharing and the avoidance of work duplication, but their scope 
and focus remains different. 

D.2. Cooperation with the SRB 

The  Single  Resolution  Board  (SRB)  was  established  as  an  independent  EU  agency  and  is 
operational since January 2016 as the euro area resolution authority. The SRB is tasked with 
drawing the resolution plans, and carrying out the resolution of banks that cannot be wound 
down in accordance with regular insolvency proceedings. The cooperation between the ECB 
and the SRB has started intensively, with a Memorandum of Understanding being signed that 
allows for the exchange of information necessary for the SRB to prepare and take resolution 
actions.  An  intensive  interaction  between  the  ECB  and  the  SRB  takes  place  when  early 
intervention  measures  are  planned  to  be  taken  by  the  ECB  with  regard  to  an  institution  for 
which SRB is the resolution authority. Such measures should be notified to the SRB, which 
may prepare for the resolution of the institution in question and, together with the ECB, shall 
closely monitor the compliance with the early intervention measures.  

Further, the ECB as the competent authority is empowered to make the determination when 
an institution under its supervision is failing or likely to fail (FOLF). This determination is a 
pre-condition  for  triggering  resolution167  and  therefore  the  transfer  of  powers  to  the  SRB. 
Importantly,  the  conditions  for  the  determination  of  FOLF168  are  rather  broad  and  therefore 
leave a large margin of discretion to the competent authority.  

As the SRMR was agreed after the SSMR, there is no explicit mentioning of the SRB in the 
SSMR,  nor  a  clear  definition  of  the  role  of  the  ECB  in  relation  to  early  intervention  and 
resolution,  but  rather  generic  references  to  such  role.  Hence  there  may  be  a  few 
inconsistencies  in  the  terminology  as  well  as  in  some  of  the  provisions.  One  notable 
divergence  concerns  the  difference  between  the  scope  of  the  direct  supervision  of  the  ECB 
and  the  remit  of  entities  falling  under  the  competence  of  the  SRB.  The  latter  has  a  more 
extended  scope  that  includes  cross  boarder  LSIs  not  directly  supervised  by  the  ECB.169 

164  Regulation  (EU)  No  1092/2010  of  the  European  Parliament  and  of  the  Council  of  24  November  2010  on 
European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk 
Board.  
165  the  Recommendations  can  be  addressed  to  the  EU  as  a  whole  or  to  Member  States,  the  European 
Commission, the European supervisory authorities or national authorities. 
166 On 20 September 2017, the Commission put forward legislative proposals that propose to formalise the role 
of the ECB's Supervisory Board in the ESRB. See https://ec.europa.eu/info/law/better-regulation/initiatives/com-
2017-538_en. 
167 Article 32 of BRRD and 18 of the SRMR. 
168 Listed in Article 32(2) of BRRD. 
169 Art. 7(2) of the SRMR. 

53 

 
 
                                                            
Furthermore, there is some overlap between the early intervention powers in the BRRD and 
the supervisory powers listed in the SSMR, each backed by different procedures. In light of 
the fact that the BRRD early intervention powers need to be transposed in national legislation 
that the ECB should apply, there appears to be a clear case for the ECB to choose to exercise 
the  same  power  on  the  basis  of  the  SSMR,  which  in  practice  results  in  circumventing 
procedural requirements attached to the use of early intervention powers under the BRRD.  

D.3. Participation in the BCBS and the FSB  

The  Financial  Stability  Board  (FSB)  and  the  Basel  Committee  of  Banking  Supervisors 
(BCBS) are important standard-setting bodies that determine the global regulatory agenda for 
the banking sector.  

The FSB monitors and makes recommendations about the global financial system and brings 
together  national  authorities  responsible  for  financial  stability,  international  financial 
institutions,  international  regulatory  or  supervisory  bodies,  and  committees  of  central  bank 
experts.170  To  a  large  extent,  the  FSB  determines  the  regulatory  agenda  for  the  BCBS  and 
therefore  serves  as  a  political  compass  of  the  required  reforms,  including  in  the  area  of 
prudential supervision, such as the finalisation of the post-crisis reform agenda. The ECB is 
represented at FSB in both its capacities, as a central bank and as a supervisory authority. On 
behalf of the ECB, the Vice-Chair of the Supervisory Board is a member of the FSB Plenary.  

In  contrast  with  its  observer  status  in  the  Board  of  Supervisors  of  the  European  Banking 
Authority, the ECB has obtained the status of a full member of the BCBS in 2014, extending 
the  EU  representation  in  the  Committee171.    The  membership  status  allows  it  to  be  directly 
involved in the development of international standards in the area of banking supervision. In 
cooperation with the EBA (which has an observer status), the ECB contributes to coordination 
of  the  positions  among  EU  Basel  members  with  regard  to  key  developments  and  reforms 
currently deliberated at the Basel table.  

E. Cost-effectiveness of the Single Supervisory Mechanism [Article 32(j) SSMR] 

This section focuses on the cost-effectiveness of the SSM, assessing the developments in the 
effectiveness  of  the  supervisory  process  and  in  the  cost  of  supervision  in  the  first  years  of 
existence of the SSM.  

E.1. Effectiveness of supervision 

The  decision  by  the  co-legislators  to  confer  supervisory  powers  to  the  ECB,  rather  than 
establishing a new authority, and the possibility to hire qualified staff from existing national 
supervisory  authorities  has  ensured  overall  a  relatively  smooth  setting-up  of  the  Single 
Supervisory Mechanism.  

Despite the challenges inherent to the first years of SSM functioning, a vast majority of banks 
under direct supervision of the ECB noticed an improvement in the quality of supervision in 
2015, particularly in terms of supervisory consistency across entities of a banking group. This 
positive  development  has  also  been  confirmed  by  NCAs,  which  observed  marked 
improvements in the functioning of the supervisory colleges thanks to the effective leadership 

170 See http://www.fsb.org/about/  
171 Next to the supervisory authorities of Belgium, France, Germany, Italy, Luxembourg, the Netherlands, Spain, 
Sweden, and the UK. 

54 

 
 
                                                            
of the ECB. Moreover, significant institutions have signalled improved interactions with the 
ECB in 2016. The informal meetings with the ECB provide banks with an opportunity to raise 
potential issues. 

The  set-up  of  the  SSM  is  leading  to  enhanced  harmonisation  of  the  supervisory  practices 
applied in the different participating Member States. This harmonisation may, in turn, foster 
financial  integration  in  the  Euro  area.  In  this  regard,  the  ECB  believes  that  the  SSM 
contributed  to  re-establish  financial  integration  after  the  financial  and  sovereign  debt  crises 
between 2007 and 2011.172 

E.2. Analysis of supervisory fees 

There  has  been  a  growing  trend  over  the  last  decades,  both  within  the  EU  and  globally,  to 
change the financing structure of regulators and supervisors, moving from public financing to 
a fee-based system where institutions that are subject to supervision contribute to the budget 
of  supervisory  authorities.  The  mandatory  nature  of  supervisory  fees,  which  is  typically 
established  by  law,  ensures  that  the  fee-based  funding  structure  does  not  compromise  the 
financial independence of regulators and supervisors. Fee-based financing arrangements also 
internalise  the  costs  of  supervision  into  the  decision  making  of  institutions,  thus  potentially 
discouraging them to enter into complex businesses, the supervision of which were too costly. 

The  budget  of  the  ECB  for  supervision,  which  in  2016  exceeded  EUR  400  million,  is 
exclusively financed through supervisory fees. It is divided into two parts on the basis of the 
underlying activity, i.e. supervision of SI or LSIs. These sub-budgets are then financed by SIs 
and LSIs respectively173 (see Figure 1). The share of the budget for the supervision of LSIs in 
the ECB budget was between 10.8% and 11.6%. This largely corresponds to the proportion of 
staff working on SI and LSI supervision respectively (421 vs. 69 average FTEs in 2015; 504 
vs  80  average  FTEs  in  2016).  Indirect  costs,  such  as  shared  services,  have  also  been 
distributed in similar proportions. 

Figure 1. ECB budget for supervision in 2015 and 2016 (EUR thousands) 

500000
400000
300000
200000
100000
0

31944 

264069 

47016 

357520 

LSI supervision

SI supervision

2015 budget (in EUR
thousands)

2016 budget (in EUR
thousands)

Source: ECB 

The  ECB  decided  that  the  allocation  of  the  supervisory  budget  through  supervisory  fees  is 
based  on  a  bank's  average  of  risk  weighted  assets  and  asset  values.  One  might  argue  that  a 
simple  average  of  total assets  and risk-weighted  assets  does  not  necessarily  fairly  reflect  an 

the 

See 

Report 

172 
https://www.ecb.europa.eu/pub/pdf/other/financialintegrationineurope201604.en.pdf. 
173 ECB Regulation of 22 October 2014 on supervisory fees173 lays down the allocation of the annual supervisory 
budget to banks and branches from non-participating Member States established in the banking union. 

Integration 

Financial 

Europe 

2016, 

page 

the 

on 

in 

5, 

55 

 
 
 
                                                            
institution's risk profile174 and that, as a matter of principle, bank risk-weighted assets should 
be primarily an indication of the institution's riskiness. However, currently this view is not yet 
fully shared among bank supervisors. There is currently no clear agreement to which extent 
risk weights applied by banks can truly reflect bank riskiness. The ECB intends to review its 
methodology on supervisory fees in 2017. 

The interviews and workshops undertaken with SIs have not indicated any issues with regard 
to supervisory fees. They overall accept supervisory fees as a "cost of doing business", even 
though  fees  increased  slightly  in  2016.    Only  a  few  smaller  significant  institutions  from 
smaller  EU Member States  were concerned that the cost of supervision has  overall gone  up 
(25%  in  some  specific  cases).  The  overall  increase  in  supervisory  costs  for  institutions  was 
also  confirmed  by  some  national  supervisors,  who  indicated  that  their  costs  have  increased. 
The  increase  in  costs  has  largely  been  a  result  of  two  factors.  Firstly,  NCAs  continue  to 
provide  the  majority  of  resources  for  the  JSTs  and  on-site  inspections.  According  to  some 
interviewed  NCAs,  they  were  willing  to  reduce  their  resources,  and  thus  costs,  allocated  to 
supervision  of  significant  institutions,  but  were  unable  to  do  so  as  the  SSM  continued  to 
request  the  NCAs  to  devote  more  human  resources  to  the  JSTs.  Secondly,  NCAs  indicated 
that  even  though  savings  could  potentially  have  been  achieved  in  the  supervision  of 
significant institutions, the creation of the SSM required NCAs to increase their supervisory 
budgets  due  to  attendance  of  Supervisory  Board  meetings  at  the  SSM  and  the  need  to  get 
thereby involved in supervisory decision making for all SIs in the Banking Union. The build-
up  of  resources  at  ECB  level  was  hence  not  offset  by  a  reduction  of  resources  and  costs  in 
NCAs. 

to 

the  Commission's  Call 

As far as the costs of supervision of LSIs are concerned, some small euro area banks, which 
responded 
they  were 
disproportionately  affected  by  the  mandatory  fees  charged  for  ECB  oversight.  However,  as 
shown in Figure 2, the average ECB supervisory fees per EUR 1 million assets for LSIs were 
roughly twice as low as for SIs in 2015; thus, for the same amount of assets, the supervisory 
fees paid by LSIs were much lower than for SIs. The difference of supervisory costs for SIs 
and LSIs narrowed slightly in 2016.  

for  Evidence175,  claimed 

that 

174 According to Article 30(3) if Regulation (EU) No 1024/2013, the fees are to be based on objective criteria 
relating to the importance and risk profile of the credit institutions concerned, including risk weighted assets. 
175 http://ec.europa.eu/finance/consultations/2015/financial-regulatory-framework-review/index_en.htm.  

56 

 
 
 
 
                                                            
Figure  2.  Cost  of  supervision:  SI  and  LSI  supervisory  fees176  (EUR)  for  EUR  1  million  of 
bank assets177   

12,86 

6,84 

17,67 

10,52 

SIs

LSIs

20

15

10

5

0

2015

2016

Source: Commission computations 

E.3. Performance management system in SSM 

The  SSM  has  launched  its  supervisory  dashboard  as  a  key  instrument  of  performance 
measurement in the second half of 2015. The 2015 supervisory dashboard was presented for 
the first time in the Supervisory Board meeting in Spring 2016 and is discussed on a quarterly 
basis  by  senior  managers.  It  includes  key  performance  indicators  on  ECB-SSM  resources, 
outputs and outcomes, facilitating the assessment of the effectiveness of business processes in 
the SSM. 

The  dashboard  covers  a  wide  range  of  indicators  covering  human  and  financial  resources; 
output  (duration  of  decisions  /  communication;  supervisory  activities,  including  SREP 
progress;  on-site  inspections;  internal  model  investigation;  thematic  reviews;  assessment  of 
recovery plans; fit & proper assessments; breach reporting assessments) and outcome (SI risk 
indicators; RAS automatic ratings; financial indicators of SI). 

The  expansion  of  the  ECB's  performance  measurement  could  enable  monitoring  in  a 
systematic  way  more  dimensions  of  supervisory  effectiveness.  In  this  regard  results  and 
impact indicators could be considered, which would allow measuring the progress achieved in 
harmonisation  of  supervisory  practices  for  LSIs,  robustness  and  consistency  of  internal 
models.  It  could  be  also  considered  to  set  desirable  targets  for  the  effectiveness  indicators, 
such as the reduction of NPLs the ECB would like to see among the directly overseen SIs. 

Given that the SSM is a unique mechanism covering resources of both ECB and NCAs, the 
performance measurement system could also include NCA resources and dimension as far as 
this  is  relevant  for  monitoring  the  cost-efficiency  and  cost-effectiveness  of  the  SSM. 
Moreover, the EBA has a statutory interest in monitoring the effectiveness of supervision in 
the whole EU. Last but not least, it is noted that the quantitative data used for the dashboard 
and  other  performance  measurement  purposes  are  not  disclosed  widely,  thereby  potentially 
affecting the transparency and the confidence of stakeholders in the SSM. 

176 Source: ECB decisions on the total amount of annual supervisory fees. 
177 Total assets applied as published by the ECB: 
https://www.bankingsupervision.europa.eu/organisation/fees/calculator/html/index.en.html. 

57