While the new European supervisory structure, consisting of three European supervisory authorities (EBA, EIOPA and ESMA) and the European Systemic Risk Council, became operational in 2011, the European Commission’s proposals of 12 September 2012 to introduce a Single Supervisory Mechanism for banks under the authority of the European Central Bank was another game changer.
Indeed, the proposal for a Single Supervisory Mechanism (SSM) was the first building block of the Banking Union, which also encompasses a single EU Deposit Guarantee Scheme and Resolution Scheme set up under the control of an EU Resolution Authority.
Adopted in October 2013, the SSM was launched in November 2014, date when the ECB took over the supervisory responsibility of banks located in the Euro-zone. Prior to this important event, the ECB conducted a comprehensive assessment of the banking sector, covering the 130 significant banks identified according to the criteria of the SSM Regulation (consolidated balance sheet bigger than EUR 30 billion, etc.): the supervisory risk assessment, the Asset Quality Review (AQR) and the stress tests.
The Comprehensive Assessment concluded in November 2014 revealed the robustness and the reliability of the European Banking sector at large and the Luxembourg Banking sector in particular.
On 20 September 2017, the European Commission adopted a draft proposal for a regulation that would amend the regulations on EBA, EIOPA, ESMA, EuVeCa, EuSEF, MiFIR, ELTIF, benchmarks and prospectuses. The review in itself had been scheduled in the original ESA regulations and was preceded by a Commission consultation to which the ABBL has responded. Nevertheless, a number of proposals came as a surprise as they had not been covered by the original consultation.
Hereafter a selected number of proposed modifications that would impact Luxembourg:
- Outsourcing / delegation or risk transfer to third countries of material parts of activities must be notified to EBA / ESMA via the national supervisor (ECB or CSSF). EBA / ESMA shall verify compliance with EU rules. In case of non-compliance, EBA / ESMA may recommend to the national supervisor to amend its decision or to withdraw the authorization granted to the bank (article 31a).
- The current Management Board is replaced by an Executive Board composed of three full-time members and chaired by the Chairperson. There is a significant transfer of powers from the Supervisory Board, where all national supervisors have a voting power, to the Executive Board. Notably, the Executive Board will have full decision power on a.o. the arbitrage of disagreements and on the outsourcing / delegation to third countries (articles 45 and 47.3).
- EBA / ESMA are granted the power to impose fines and penalty payments when a financial institution fails to provide the requested information (article 35 and following).
- EBA / ESMA are tasked to elaborate a strategic supervisory plan against which national supervisors (including the ECB for the SSM) will be assessed (article 29a).
- Peer reviews of the national competent authorities like the CSSF are replaced by a review by EBA / ESMA officials (article 30).