Introduction

On 30 October 2014, the Regulation of the European Central Bank on supervisory fees was published on the website of the ECB after having been adopted by the ECB Governing Council on 22 October 2014 (hereinafter referred to as the “Fee Regulation”).1

The Single Supervisory Mechanism Regulation (SSM Regulation or SSMR)2 provides for the levying of an annual supervisory fee by the ECB on credit institutions established in the participating Member States and branches established in a participating Member State by a credit institution established in a non-participating Member State. The Fee Regulation addresses the arrangements for calculation of the overall amount of the annual supervisory fee levied by the ECB, the methodology and criteria for calcu- lating the individual fee, and the procedure for collection of the fee.

This Client Briefing follows a series of briefings dealing with the new legal regime established by the SSM Regulation and the SSM Framework Regulation (SSMFR)3.

Overview of the Levy of the Annual Supervisory Fee

Annual costs and determining the annual supervisory fee

The overall amount of the annual supervisory fee levied on the supervised entities shall cover the full costs incurred by the ECB in relation to its supervisory tasks conferred on it by the SSM Regulation.4 Both the costs incurred by the core supervisory functions as well as by shared services (e.g. IT, human resources and premises) shall be recovered via the fee. Therefore, the annual costs form the basis for determining the annual supervisory fee.5

For this purpose, the ECB calculates the estimated annual costs by the end of each calendar year in re- spect of the fee period for the following calendar year. Within four months after the end of each fee peri- od, the ECB determines the actual annual costs for that period.6 The overall amount of the annual supervisory fee is the sum of the estimated annual costs and any surplus or deficit from the previous fee period (determined by deducting the actual annual costs from the estimated annual costs levied for the  previous fee period). The ECB will publish the total amount to be levied by 30 April of the relevant fee period.7

Split of costs between the categories of significant and less significant entities

The annual supervisory fee comprises an amount to be paid by all credit institutions and branches that are supervised within the Single Supervisory Mechanism (SSM). Since the supervisory responsibilities of the ECB and each national competent authority (NCA) are allocated on the basis of significance of the supervised entities, the annual supervisory fee determined by the ECB as outlined above is split into two parts: (a) annual costs to be recovered from significant supervised entities and (b) annual costs to be recovered from less significant supervised entities. The split is made on the basis of the costs allocated to the relevant functions which perform the direct supervision of significant supervised entities and the indirect supervision of less significant supervised entities.8

Annual individual fee payable based on fee factors

Following the split of the overall amount of the annual supervisory fee into two parts, the annual fee payable by each significant entity respectively each less significant entity will be determined primarily on the basis of fee factors.9

Pursuant to the allocation approach stipulated in the Fee Regulation, the annual individual fee payable is composed of a minimum fee component and a variable fee component:

  • Within both categories (significant/less significant), the minimum fee component is a fixed per- centage of 10% the relevant part of the overall amount of the annual supervisory fee. This mini- mum fee component of each of the two categories is split equally among all fee debtors within the relevant category; for significant entities and groups with total assets of EUR 10 billion or less, the minimum fee component is halved.
  • The amount remaining in each of the two categories, i.e. 90% of each of the two parts of the overall amount of the annual supervisory fee, is designated as the variable fee component. This variable fee component of each of the two categories is allocated to individual fee debtors in the relevant cate- gory according to the respective fee debtor’s share in the sum of all fee debtors’ fee factors within that category.

The fee factors used are the amount of total assets and total risk exposure at the reference date of 31 December or, at the fee debtor’s option, of a deviating accounting year-end. The fee debtor is required to submit the data by close of business on 1 July of the year following the reference date.10 The ECB will publish a further decision outlining the applicable methodology and procedures for determining and collecting the data regarding the fee factors and for the calculation of the fee factors.11 In the event a fee debtor fails to provide the fee factors, the ECB will determine the fee factors and may impose sanctions.12

Fee debtor

The ECB will levy the supervisory fee on credit institutions established in the participating Member States. Where credit institutions are part of a supervised group, the ECB is required to calculate the fee at the highest level of consolidation within participating Member States. Further, the ECB will levy the supervisory fee on branches established in a participating Member States by a credit institution estab-lished in a non-participating Member State. Where two or more branches are established by the same credit institution in the same participating Member State, the branches are deemed to be one branch.13

The annual supervisory fee for each supervised entity and each supervised group will be specified in a fee notice, i.e. a decision by the ECB issued to and payable by the fee debtor.14 The procedural rights of each entity under the SSM Regulation and SSM Framework Regulation apply to the fee notice, in particular the right to be heard, the duty to state reasons etc.,15 and each entity may avail itself of the usual reme- dies (ABoR, CJEU) against the fee notice.16

In the case of a supervised group, the group shall nominate the fee debtor and notify the identity of the fee debtor to the ECB by 1 July of each year in respect of the following fee period. The notification needs to state the names of all supervised entities of the group covered by the notification and needs to be signed on behalf of all these entities.17

Fee not linked to the supervisory effort dedicated to indi- vidual entity

The allocation of the annual costs via the supervisory fee is solely based on the fee factors and does not take into consideration the actual particular supervisory effort dedicated to an individual entity. That means that expenditure incurred in relation to, for example, authorising new entities or on-site inspec- tions will not be levied on the individual entities concerned but distributed via the annual supervisory fee.18 In the event that the ECB needs to make use of external resources to carry out its tasks, e.g. in the context of on-site inspections, these costs will be recovered via the annual supervisory fee, too.19

Role of NCA

The SSMR and the Fee Regulation are without prejudice to the right of each NCA to levy fees under na- tional law. The ECB has no authority with regard to the setting of fees at national level.20 Fees likely to be continued to be charged by a NCA might include those expenses incurred by the NCA in the context of the assistance provided by it to the ECB when directly supervising significant banks.21

Apart from that, the ECB is to cooperate with the NCA in the context of the levy of the supervisory fee. On the one hand, the ECB shall communicate with the NCA before deciding on the final fee level to en- sure supervision remains cost-effective and reasonable. On the other hand, the NCA shall assist the ECB in levying fees upon request of the ECB.22

Transitional period

The fee notice for the first fee period will be issued together with the fee notice for the 2015 fee period. Each supervised group shall nominate the fee debtor and notify the ECB accordingly by 31 December 2014. The fee debtor shall communicate the contact details for the submission of the fee notice by 1 March 2015.

The Fee Regulation does not provide for a basis to recover costs incurred before November 2014, i.e. cost incurred before November 2014, e.g. the costs of the comprehensive assessment, will not be recovered.23

Outlook

The ECB will need to conduct a review of the Fee Regulation by 2017.24 In particular, the ECB might consider in the course of the review to use alternative variables with regard to the fee factors.25 Such review will provide an opportunity for the institutions concerned to contribute their views.