Introduction

As of today, Tuesday 4 November 2014, the Single Supervisory Mechanism (the "SSM") will be in effect. From now on, all banks established in a Euro Member State will be subject to prudential supervision by the European Central Bank (the "ECB"). The SSM is applicable to all banks − approximately 4,900 − that are located in participating Member States.

The ECB will exercise direct prudential supervision with respect to all 'significant' Dutch banks. The ECB will − via the Dutch Central Bank ("DNB") − indirectly also exercise a fair amount of influence on the other non-significant Dutch banks. The SSM is primarily based on the SSM Regulation (click here) and the Framework Regulation (click here).

In this newsletter, we will discuss the practical consequences of the SSM. We will also set out the mechanics of the SSM.

Expected practical consequences

We expect the SSM to have amongst others the following practical consequences on banking supervision:

  • Banks will have to amend their current reporting procedures and application procedures (for example applications for declarations of no-objection).
  • The supervisory culture with the ECB will be different from the supervisory culture with DNB: less focus on behaviour and culture, more data-driven.
  • Dutch significant banks will have a non-Dutch coordinator and non-Dutch supervisors.
  • The ECB will conduct on-site supervision, which means that supervisors of the ECB will be present at the premises of the bank.

Significant bank

Criteria

Under the SSM, the ECB's banking supervision in participating Member States will be direct in respect of significant banks and indirect in respect of less significant banks. Significance will be determined at a group level.

A bank (or financial holding company) established in a participating Member State that at the highest level of consolidation meets any of the following conditions is considered significant:

  1. the total value of its assets exceeds EUR 30 billion;
  2. the ratio of its total assets over the GCP of the participating Member State exceeds 20%;
  3. the national competent authority ("NCA", in the Netherlands: DNB) considers an institution of significant relevance with regard to the domestic economy and the ECB takes a decision confirming such significance;
  4. at its own initiative, the ECB considers an institution to be of significant relevance where it has established banking subsidiaries in more than one participating Member State and its cross-border assets or liabilities represent a significant part of its total assets;
  5. the institution receives or requests financial assistance from the European Financial Stability Facility or the European Stability Mechanism;
  6. the institution is one of the three most significant banks in a participating Member State.

What this means in practice

On 4 September 2014, the ECB published a final list of significant and less significant banks and groups (click here). ECB will directly supervise 120 significant banking groups. These represent almost 85% of total banking assets in the euro area and comprise around 1,200 individual banks.

The following banks are considered to be significant supervised banks in the Netherlands: (i) ABN AMRO Group N.V., (ii) ING Bank N.V., (ii) Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., (iv) SNS Reaal N.V., (v) N.V. Bank Nederlandse Gemeenten, (vi) Nederlandse Waterschapsbank N.V. and (vii) RFS Holding N.V.

Furthermore, subsidiary banks established in participating Member States are also considered significant banks. Those banks are directly supervised by ECB both on a solo and on a consolidated basis.

For the Netherlands this means that, for example, the following banks are considered significant banks as well: Deutsche Bank Nederland N.V. (subsidiary of Deutsche Bank Group), Bank Insinger de Beaufort N.V. (subsidiary of BNP Paribas Group) and Theodoor Gilissen Bankiers N.V. (subsidiary of Precision Capital Group).

Competent supervisor

Significant banks

The ECB is the direct prudential supervisor of significant banks. The ECB is also in charge of the daily supervision on significant banks.

Less significant banks

The ECB shall indirectly supervise less significant banks. In respect of the powers that are not conferred on the ECB, the NCA's shall maintain their powers. However, at any moment, at its own initiative, the ECB can exercise direct supervision on a non-significant bank.

Other supervision on banks in the Netherlands

The Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, "AFM") remains the competent supervisory authority for the conduct supervision on banks. DNB remains responsible for prudential supervision in respect of those powers that are not conferred to the ECB. This includes supervision on payment services and supervision with respect to the prevention of money laundering and terrorism financing.

Tasks conferred on the ECB

Significant banks

The ECB's supervisory tasks and powers with respect to significant banks include:

  1. to authorise banks and to withdraw authorisations of banks;
  2. to issue declarations of no-objection for the acquisition and disposal of qualifying holdings in banks;
  3. to carry out the tasks which the NCA shall have for banks which wish to establish a branch or provide cross-border services in a non-participating Member State;
  4. to ensure compliance with the CCR requirements by banks regarding own funds requirements, securitisations, large exposure limits, liquidity, leverage and reporting and public disclosure of information on those matters;
  5. to ensure compliance with CRD IV requirements which impose requirements on banks to have in place sound business practices, including integrity testing and suitability testing of the persons responsible for the management of banks, risk management of processes, internal control mechanisms, remuneration policies and practices and effective internal capital adequacy assessment processes (ICAAP), including Internal Ratings Based models;
  6. to carry out supervisory reviews, including supervisory review and evaluation process ("SREP") and stress tests;
  7. to carry out supervision on a consolidated basis over bank's parents, including over financial holding companies and mixed financial holding companies;
  8. to participate in supplementary supervision of a financial conglomerate in relation to the bank included in it; and
  9. to carry out supervisory tasks in relation to resolution and recovery plans and early intervention.

Less significant banks

In relation to less significant supervised banks, the ECB shall also carry out the tasks mentioned above under (i) and (ii), i.e. granting licenses and declarations of no-objections. The ECB may decide to include less significant banks in its direct supervision.

Applicable law

In its supervisory tasks, the ECB applies Dutch law to Dutch banks.

Supervisory structure

Supervisory Board

For the planning and implementation of the SSM, the ECB has established a 'Supervisory Board'. The Supervisory Board will prepare supervisory decisions. The Supervisory Board is composed of:

  1. one chair (Danièle Nouy);
  2. one vice Chair;
  3. four representatives of ECB, and
  4. one representative of the NCA in each participating Member State.

Governing council

The decisions prepared by the Supervisory Board will be submitted to the Governing Council of the ECB (the Executive Board of the ECB, chaired by Mario Draghi). A draft decision shall be deemed adopted unless the Governing Council objects.

Administrative Board

The ECB has established an Administrative Board of Review for the purposes of carrying out an internal administrative review of decisions taken by the ECB. An appeal can be brought before the Court of Justice of the European Union.

Joint Supervisory Teams

The Joint Supervisory Teams ("JSTs") will be the main operational structure for the conduct of supervision under the SSM. They will exercise supervision over a significant entity or a significant group. The Supervisory Board will be responsible for the JSTs. The ECB shall establish one JST for each significant entity or group.

Each JST consists of ECB and NCA supervisors. The JST shall be under the coordination of a designated ECB staff member and one or more NCA sub-coordinators. The coordinator is from a different Member State than the supervised bank or group. The coordinator supervises the review and evaluation of the supervisory examination programme with respect to the significant supervised bank or significant supervised group that it supervises.