On 4 November 2014, the ECB will assume the tasks conferred on it by the SSM Regulation. Article 6, part 4 of the SSM Regulation establishes that the ECB will directly supervise credit institutions, financial holding companies and mixed financial holding companies, that are deemed “significant” at the highest level of consolidation within the participating member states.
In July, August and September 2014, the ECB circulated decisions (“Decisions”) pursuant to article 6, part 4 of the SSM Regulation qualifying the addressed entities as significant under article 50 of the Single Supervisory Mechanism Framework Regulation (Regulation ECB/2014/17).
The Decisions are addressed to the supervised entities and will take effect as of 4 November 2014. On 4 September 2014, the ECB published its final list as to what it considers to be significant supervised entities and less significant entities as required by article 49(1) of the SSM Regulation. The list of 120 institutions accounts for almost 85% of all the banking assets in the euro area.
In deciding whether an institution should be considered significant, the ECB has given regard to:
- The total value of their assets
- The importance to the economy of the country
- The scale of their cross border activities
- Whether they have requested or received public financial assistance from the European Stability Mechanism or the European Financial Stability Facility
Article 24 of the SSM Regulation allows an addressed entity, within one month from notification of ECB’s decision, to request that the ECB’s Administrative Board of Review carry out an internal administrative review of the decision. Proceedings may also be filed against the Decisions before the European Court of Justice under Article 263 of the Treaty on the Functioning of the European Union (“TFEU”).
The SSM structure marks the start of a new regulatory era in which the ECB will supervise credit institutions established within a Eurozone Member State. The exception is the UK, which has elected not to participate in the SSM stating that although banking union is urgently required to restore stability to the Eurozone banking system, there is a significant risk that the UK could be marginalised, as banking union participants moved towards closer integration.
One of the initial challenges faced by the ECB is to develop a new regulatory style and fit which is in line with the European requirements under the SSM Regulation, including the named regulations for procedural questions, the Capital Requirements Regulation (“CRR”) for the regulatory content and the question of how to handle the ECB’s decision making powers in case of conflict.
Neither the ECB’s Administrative Board of Review, nor the European Courts, have any precedent or experience regarding decision making under the SSM or the relevant material law. The fact that the European Courts will face this role in financial services matters is new and will require a review of the relevant procedural rules. The anti-trust jurisdiction may well serve as a blue-print.
A number of new legal and procedural questions will arise from the new regulatory landscape. For example, there are issues over:
- which procedural rules apply to the complaints filed against the ECB’s decisions and other measures
- which material laws apply to measures under the SSM
- which courts, European or national, are the competent forum in which the judicial decisions ought to be made
It is crucial for those market participants, who are subject to the ECB’s supervision and regulation, to participate in the development of this new supervisory and regulatory culture.
It is apparent that a number of credit institutions feel that their inclusion in the new SSM scheme is not in line with CRR and SSM Regulation requirements and therefore may seek to challenge their inclusion under the SSM remit. It remains to be seen how the ECB will handle any such requests for review and how the European Courts will tackle this new workload.