On 4 November, after the publication of the final results of the Comprehensive Assessment, the Single Supervisory Mechanism (SSM) will assume its supervisory responsibilities, and the ECB will become the direct supervisor of nearly 128 banks in the Eurozone.
The legal basis for the SSM is Council Regulation 1024/2013, of 15 October 2013, conferring specific tasks on the ECB concerning policies relating to the prudential supervision of credit institutions and the recent SSM Framework regulation published on April 2014.
Clear progress has also been achieved in the organization of the ECB´s supervisory function, as the Supervisory Board is functioning and the four General Directors responsible for micro-prudential supervision have already been appointed. Hundreds of European professionals are now joining the ECB to complete its supervisory teams.
No less important, although not as visible, is the new SSM’s Supervisory Manual, containing common rules to be applied by the joint (ECB and NCAs) or national supervisory teams in significant and less significant entities, respectively.
In the long term, the latter could be the main achievement. The SSM not only comprises the 128 banks under direct ECB supervision but all the Eurozone banks (more than 6000) subject to the same regulatory framework provided for in the CRR and EBA’s technical standards and highly harmonized supervisory practices. This represents the beginning of a new era for all of them.
Issues like Corporate Governance Quality, risk management, the soundness of internal models –including data quality – and capital and liquidity strategies, will be on the agendas of all the supervisors. More interesting will be the SSM management team approach to assessing challenging new areas for consideration such as quality of the strategy, robustness of the culture, the common understanding of the ECB and of how a recovery plan should look or the collaboration of the ECB with the new resolution body with respect to restructuring plans.
Banks in the Eurozone should be realistic in recognising their weak areas (especially those that appear in the AQR and/or the stress test) and adopt remediation plans before the ECB or any other supervisor requires them. November could be too late.
The ECB will want to define its own style and approach to supervision. Our view is that they will want this to be unique and not to be seen as a duplicate of an existing NCA, every bank will need to be ready for the ‘new style’.
To discuss this issue further, please contact:
Head of Financial Services, KPMG in Spain