The European Central Bank will start supervising “significant banks” in late 2014. These significant banks will also continue to be supervised by their national supervisor. The Single Supervisory Mechanism (SSM) Framework Regulation, which has just passed the consultation phase, aims to clarify how powers are divided and cooperation is organised between the ECB and national supervisors. It is uncertain whether this aim has been achieved.

The European Central Bank (ECB) will start supervising “significant banks” from 4 November 2014. Factors determining whether a bank is significant include the size of the bank, its importance for the EU economy or a participating member state – i.e. which is in the euro zone or takes part in the SSM – and the significance of its cross-border activities. All these factors are calculated on a consolidated basis. A bank is in principle significant if it is established in a participating member state and meets one of these conditions:

  • the total value of the assets exceeds EUR 30 billion
  • the share of its total assets in the GDP of the participating member state where the bank is established exceeds 20%, unless the total value of the bank’s assets is less than EUR 5 billion
  • the national designated authority (NDA) informs the EC that a bank is highly significant to the domestic economy, and the ECB confirms this significance in a decision.

In addition, the three most significant banks in each of the participating member states will in principle be supervised by the ECB supervision, even if they do not meet the above criteria.

The ECB published a draft regulation on 7 February 2014 setting a framework for cooperation within the SSM between the ECB and NDAs. NDAs currently supervising a significant bank will continue to be involved in that supervision. The draft Framework Regulation further specifies the SSM as already adopted and aims to clarify how the ECB and NDAs will cooperate and share powers. It is uncertain whether this aim has been achieved. This is regrettable as clarity on these issues is of great practical importance to banks.

Below is a list of important practical issues:

English language

  • The draft Framework Regulation provides that the ECB will try to enter into an agreement with the significant banks about using the English language. If agreement is reached, banks will have to get used to communicating in English with the ECB (and in practice probably also with the NDA).

Relationship between ECB and NDA

  • In most cases, the ECB will take the (ultimate) decision, e.g., to issue a statement of no objection.
  • It depends on the subject matter whether the ECB or the NDA is the first “counter” where the bank submits a request. For example: to notify the intention to establish a new branch office in a participating member state, the bank will have to turn to the NDA. But where it concerns provision of cross-border services to that member state, the bank will have to go to the ECB. In practice it will not always be evident which authority the bank needs to communicate with, e.g., when minor changes in the organisation have to be notified.

Legal protection

  • A clear separation of powers between the ECB and NDAs is also needed if a bank wants to lodge objections or appeal against a decision. The bank will need to know whether it should follow a European or national administrative procedure. An example of a grey area is where the Dutch Central Bank (DNB) decides to issue a direction or warning to comply with a statutory rule. If the bank opposes the decision, will it have to follow Dutch administrative procedure, even if the ECB has supervisory powers in relation to that same rule? This is relevant because the original decision becomes final if objections or appeal are lodged late or not at all.
  • The “European procedure” for lodging objections with the ECB is set out in the draft Framework Regulation. The rules for lodging an appeal to the General Court, which forms part of the European Court of Justice, are set out in the Treaty on the Functioning of the European Union. There is no requirement to lodge objections before lodging an appeal to the General Court, but under Dutch law this is generally the case.
  • The SSM Regulation provides that (in most cases) the ECB should hear the banks before it makes a decision. The draft Framework Regulation provides that this right to be heard may be exercised in writing. There is therefore no automatic right to meet with the ECB; the ECB determines if a meeting should take place. This arrangement will not always be in the bank’s interest.

The draft Framework Regulation was submitted to market parties for consultation until 7 March 2014. The current planning is to publish the final text on 4 May 2014.

If feedback given during the consultation phase does not lead to clarification in the final version of the Framework Regulation, we recommend that banks share their views with DNB on problems and inconsistencies that have been identified. In longer-term projects, it might be useful or even essential to anticipate the ECB’s direct supervision and to try to establish timely contact with the ECB (via DNB).