Explanatory Memorandum to COM(2012)511 - Specific tasks for the European Central Bank concerning policies relating to the prudential supervision of credit institutions - Main contents
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| dossier | COM(2012)511 - Specific tasks for the European Central Bank concerning policies relating to the prudential supervision of credit ... |
|---|---|
| source | COM(2012)511  |
| date | 12-09-2012 |
Today, the solidity of the banking sector is in many instances still closely linked to the Member State in which they are established. Doubts about the sustainability of public debt, economic growth prospects, and the viability of credit institutions have been creating negative, mutually reinforcing market trends. This may lead to risks for the viability of some credit institutions as well as for the stability of the financial system, and may impose a heavy burden for already strained public finances of the Member States concerned.
The situation poses specific risks within the euro area, where the single currency increases the likelihood that developments in one Member State can create risks for economic development and the stability of the Euro area as a whole. Furthermore, the current risk of financial disintegration along national borders significantly undermines the Single Market for financial services and prevents it from contributing to economic recovery.
The creation of the European Banking Authority (EBA) by Regulation (EU) No. 1093/2010 of the European Parliament and the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), and of the European System of Financial Supervision (ESFS) already contributed to improved cooperation between national supervisors and to the development of a single rulebook for financial services in the EU. However, supervision of banks remains to a large extent within national boundaries and thereby fails to keep up with integrated banking markets. Supervisory failings have, since the onset of the banking crisis, significantly eroded confidence in the EU banking sector and contributed to an aggravation of tensions in euro area sovereign debt markets.
The Commission has therefore called in May 2012, as part of a longer term vision for economic and fiscal integration, for a banking union to restore confidence in banks and in the euro. One of the key elements of the banking union should be a Single Supervisory Mechanism (SSM) with direct oversight of banks, to enforce prudential rules in a strict and impartial manner and perform effective oversight of cross border banking markets. Ensuring that banking supervision across the Euro area abides by high common standards will contribute to build the necessary trust between Member States, which is a pre-condition for the introduction of any common backstops.
At the Euro area summit on 29 June, 2012, the Heads of State or Government have called on the Commission 'to present proposals for the setting up of a single supervisory mechanism shortly. When such a mechanism will be in place for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalize banks directly'. The European Council conclusions of the meeting held on the 28/29 June 2012 state that this Euro Area statement and the proposals that the Commission will present accordingly should take into account the development of 'a specific and time-bound road map for the achievement of a genuine Economic and Monetary Union'.
Contents
The Commission has taken into account the analysis done in the context of the adoption of the 'supervisory package' creating the European Supervisory Authorities, which assessed operational, governance, financial and legal aspects relevant to the establishment of a SSM. The preparation of a formal impact assessment was not possible within the timetable set by the Euro area Summit of 29 June.
The proposal is based on Article 127 (6) TFEU, which provides a legal basis for conferring specific tasks on the ECB concerning policies relating to the prudential supervision of credit institutions and other institutions with the exception of insurance undertakings.
The proposal confers certain key supervisory tasks necessary for the supervision of credit institutions on the ECB, while all tasks not spelt out in the regulation will remain the competence of national supervisors. The proposal also mandates the ECB with carrying out supervision of financial conglomerates. However, to ensure compliance with Article 127 (6) TFEU, the ECB will be only responsible for carrying out its tasks for the supplementary supervision of financial conglomerates on a group-wide basis, while the prudential supervision of the individual insurance undertaking itself will be carried out by national competent authorities.
The objectives of the proposed action cannot be sufficiently achieved by the Member States and can therefore be better achieved by the EU. Recent events have clearly demonstrated that only supervision at the European level can ensure appropriate oversight of an integrated banking sector and a high level of financial stability in the EU and the Euro area in particular. The provisions of this proposal do not go beyond what is necessary to achieve the objectives pursued. The ECB is entrusted with the supervisory tasks which need to be exercised at EU level to ensure uniform and effective application of prudential rules, risk control and crisis prevention. National authorities will continue to carry out certain tasks which can be better performed at national level.
According to Article 127 (6) TFEU, the Council acts by means of regulations. Therefore a regulation is the only legal instrument that allows for the conferral of supervisory tasks on the ECB.
OF THE PROPOSAL
4.1. Conferral of specific supervisory tasks on the ECB
4.1.1. Structure
The ECB will be responsible for specific tasks concerning the prudential supervision of credit institutions which are established in Member States whose currency is the Euro (participating Member States) with the objective to promote the safety and soundness of credit institutions and the stability of the financial system. The ECB will carry out its tasks within the framework of the ESFS and will cooperate closely with national supervisors and the EBA.
4.1.2. Scope of supervisory activities
After a transitional period, the ECB will be responsible for carrying out key supervisory tasks for all credit institutions established in participating Member States, regardless of their business model or size. The ECB shall be the host supervisor for credit institutions established in non-participating Member States, which establish a branch or provide cross-border services in a participating Member State.
4.1.3. Cooperation with the European Supervisory Authorities
The ECB will carry out its tasks within in the framework of the European System of Financial Supervision and will closely cooperate with the three European supervisory Authorities. The EBA will keep its powers and tasks to further develop the single rulebook and ensure convergence and consistency of supervisory practice. The ECB will not take over any tasks of the EBA and the exercise of its regulatory powers in accordance with Article 132 TFEU will be limited to areas which are necessary for the proper exercise of the tasks conferred on the ECB by this regulation.
The composition of the board of supervisors of the EBA will remain unaffected and representatives from national competent authorities will continue shaping decision-making in the EBA. However, to reflect the ECB's supervisory responsibilities, representatives from competent authorities from participating Member States shall coordinate and express, for matters falling in the competences of the ECB, a common position.
4.2. Tasks of the ECB
4.2.1. Tasks of the ECB
The ECB will be exclusively competent for key supervisory tasks which are indispensable to detect risks for banks' viability and require them to take the necessary action. The ECB will, inter alia, be the competent authority for licensing and authorizing credit institutions, assessing qualifying holdings, ensuring compliance with the minimum capital requirements, ensuring the adequacy of internal capital in relation to the risk profile of a credit institution (Pillar 2 measures), conducting supervision on a consolidated basis and supervisory tasks in relation to financial conglomerates. Furthermore, the ECB will also ensure compliance with provisions on leverage and liquidity, apply capital buffers and carry out, in coordination with resolution authorities, early intervention measures when a bank is in breach of, or is about to breach, regulatory capital requirements. The ECB will also coordinate and express a common position of representatives from competent authorities of the participating Member States in the Board of Supervisors and the Management Board of the EBA, for topics relating to the abovementioned tasks.
4.2.2. Role of national supervisors
National supervisors will continue to play an important role with the creation of a Single Supervisory Mechanism.
First, all tasks not conferred on the ECB will remain with national supervisors. For example, national supervisors will remain in charge of consumer protection and the fight against money laundering, and of the supervision of third country credit institutions establishing branches or providing cross-border services within a Member State.
Second, even for the tasks conferred on the ECB, most day-to-day verifications and other supervisory activities necessary to prepare and implement the ECB's acts could be exercised by national supervisors operating as an integral part of the SSM. An SSM covering all banks in the participating Member States can only work based on a model which integrates a strong role for national level supervisory expertise. The proposal recognises that within the SSM national supervisors are in many cases best placed to carry out such activities, due to their knowledge of national, regional and local banking markets, their significant existing resources and to locational and language considerations, and therefore enables the ECB to rely on national authorities to a significant extent. Preparatory and implementing activities which national authorities could deliver within the SSM for example include the following
· In case of a request for authorisation of a new bank, the national supervisor could be responsible for assessing compliance with any conditions of authorisation set out in national law, and could propose a decision to the ECB which could authorise the bank if it is satisfied that the conditions set out in EU law are met. A similar procedure applies to the withdrawal of authorisation.
· National supervisors could carry out ongoing day-to-day assessment of a bank's situation and on site verifications, implementing general guidance or regulations issued by the ECB. For these purposes national supervisors could make use of their existing powers, for example to carry out on site examinations. If on the basis of the ongoing assessment it appears that a bank is in serious difficulties the national supervisor would warn the ECB.
· In case of a request of a bank to use an internal risk model, the national supervisor could assess the request and its compliance with EU law and any guidance issued by the ECB and could propose to the ECB whether and under which conditions to validate the model. After validation, the national supervisor could oversee the application of the model and monitor its ongoing use.
· Sanctioning powers would be shared between the ECB and the national level.
4.3. Powers of the ECB
4.3.1. Supervisory and investigatory powers
For the purposes of carrying out its tasks, the ECB will be considered as the competent authority of participating Member States and will have the supervisory powers that those authorities shall have in accordance with the EU banking legislation. Those include supervisory powers such as the authorisation of credit institutions and the withdrawal of authorisations and the removal of a member of a credit institution's management board. In addition, for the purposes of carrying out the supervisory tasks conferred on it, the ECB may impose pecuniary sanctions and periodic penalty payments. The approach on sanctions laid down in this regulation is without prejudice to that in other fields where EU institutions have the power to impose sanctions, including, in certain cases, on parent undertakings.
In order to be able to carry out its tasks the ECB will have all necessary investigatory powers. In particular, the ECB will be able to request all relevant information from supervised entities and persons involved in their activities, related or connected to those activities or carrying out operational functions on their behalf. It will also be empowered to conduct all necessary investigations, including on-site inspections. The exercise of the investigatory powers will be subject to appropriate safeguards.
4.3.2. Specific provision on authorisation and home host issues
The authorisation of credit institutions by the ECB will take into account the additional conditions that may be set out by national legislation. In particular, the ECB will grant the authorisation following a proposal made by the national competent authority where the conditions set out in national legislation are met.
Where credit institutions exercise the right of establishment and the free provision of services in other Member States, Union law provides for a clear attribution of competences between home and host Member States and for specific notification. For the tasks conferred on it, the ECB will assume the role of both home and host supervisor for credit institutions exercising the right of establishment and the free provision of services in other participating Member States. In relation to the issues covered by those tasks, there is therefore no need for attribution of competences between home and host Member States and for specific notification procedures and the relevant provisions will no longer apply between participating Member States.
Under Union law, supervisors of cross-border banking groups participate in consolidated supervision of the group and coordinate their supervisory activities in the framework of colleges of supervisors. However, for banking groups established only in participating Member States, the ECB will take over all relevant supervisory tasks. For these groups the provisions on cooperation between supervisors and on colleges will therefore no longer apply.
4.4. Relationship with Member States whose currency is not the Euro
The proposal takes into account the situation of Member States that have not adopted the euro in three ways.
First, under the related proposal amending Regulation (EU) No. 1093/2010 establishing the European Banking Authority, it is proposed that voting arrangements within the EBA should be adapted to ensure EBA decision-making structures continue to be balanced and effective and preserve fully the integrity of the Single Market (see section 4.1.3).
Second, as regards the supervision of cross-border banks active both within and outside the Euro area, the proposal does not affect in any way the position of non participating Member States in the Colleges of Supervisors set up under Directive 2006/48/EC. The provisions on those colleges and the obligation to cooperate and exchange information in consolidated supervision and between home and host supervisors will apply fully to the ECB – as the competent authority for the participating Member States. Those provisions will provide an effective framework for the cooperation between the ECB and the national supervisors in Member States that have not adopted the euro.
Third, Member States that have not adopted the euro but wish to participate in the banking union will be able to enter into a close supervisory cooperation with the ECB subject to meeting specific conditions. These include in particular that those Member States abide by and implement relevant ECB acts. For a Member State that has entered into a close cooperation arrangement, the ECB will carry out the supervisory tasks conferred on it in this regulation as regards the credit institutions established in the Member State concerned. A representative of the Member State may take part in the activities of the supervisory board set up by the Regulation for carrying out the planning and execution of the ECB's tasks in the area of prudential supervision of credit institutions, subject to the conditions set out in the decision establishing the close cooperation in compliance with the Statute of the ESCB and the ECB.
4.5. Organisational principles
4.5.1. Independence and Accountability
The ECB will be independent when carrying out banking supervision and will be subject to strong accountability provisions to ensure that it uses its supervisory powers in the most effective and proportionate way, within the boundaries set by the Treaty in parallel to the arrangements provided for the European Supervisory Authorities. The ECB shall therefore be accountable for its tasks to the European Parliament and to the Council/the Eurogroup. The ECB will be subject to regular reporting requirements and will respond to questions. The chair of the supervisory board will present an annual report on the ECB's supervisory activities to the EP and the Eurogroup and may be heard by the competent committees of the EP on any other occasions. The ECB will also be obliged to respond to any questions asked by the EP and its members on its supervisory activities. Moreover, under the Treaty, the President and the Vice-President of the Governing Council as the body with final responsibility for the ECB's action, as well as the other members of the Executive Board, are appointed by the European Council after consultation of the European Parliament. As the Chair of the supervisory board will be selected from the Members of the Executive Board, this also ensures a significant role of the EP for the selection of the Chair. As regards the budget, in accordance with 314(1) TFEU the ECB's budget is not part of the Union budget. Nevertheless, with a view to ensuring accountability within this framework, the ECB will be required to develop a separate budget line for supervisory tasks from its general budget. Expenditures relating to the ECB's supervisory tasks will be financed by charging fees from supervised institutions.
4.5.2. Governance
Monetary policy tasks will be strictly separated from supervisory tasks to eliminate potential conflicts of interest between the objectives of monetary policy and prudential supervision. To implement the necessary separation between both tasks and ensure appropriate attention to supervisory tasks, the ECB will ensure that all preparatory and executing activities within the ECB will be carried out by bodies and administrative divisions separated from those responsible for monetary policy. To this end a supervisory board will be set up that will prepare decisions on supervisory matters. The Governing Council will be ultimately responsible for taking decisions but may decide to delegate certain tasks or decision-making power to the supervisory board. The supervisory board will be led by a Chair and a Vice-Chair elected by the ECB Governing Council and composed in addition to them of four representatives of the ECB and of one representative of each national central banks or other national competent authority.
4.5.3. Exchange of information
For the exercise of its supervisory tasks, the ECB will be subject to the professional secrecy requirements provided for in the EU banking legislation and will be allowed to exchange information with relevant national authorities under the conditions set out in that legislation.
4.6. Entry into force and review
Due to the urgency of setting up an effective SSM, the regulation will enter into force on 1 January 2013. In order to ensure a smooth start of the mechanism a phasing-in approach is envisaged, which provides for the possibility for the ECB as of 1 January 2013 to apply its supervisory tasks to any banks, in particular banks which have received or requested public financial assistance, while the most significant credit institutions of European systemic importance shall be subject to ECB supervision as of 1 July 2013. The ECB will assume in full its tasks in relation to all other banks as from 1 January 2014 at the latest.
It is expected that the Directive on Access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms and the Regulation on prudential requirements for credit institutions and investment firms proposed by the Commission on 20 July 2011 (CRD IV package)[1] will enter into force on 1 January 2013 and the ECB will therefore be able to exercise its supervisory tasks on the basis of those acts. Nevertheless if this was not the case, a specific transitional provision enables the ECB to carry out its tasks already on the basis of Directives 2006/48/EC and 2006/49/EC (CRD III).
By 1 January 2016, the Commission will publish a report on the experiences acquired with the operation of the SSM and the procedures laid down in this regulation.
This proposal has no implication for the Union budget, since in accordance with the Treaty the ECB's budget is not part of the Union budget.