Since 4 November 2014, the Single Supervisory Mechanism (SSM) has placed significant institutions in participating countries under the direct supervision of the European Central Bank (ECB). The new European Supervisory Authorities, namely the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) commenced operation on 1 January 2011. At the same time, the European Systemic Risk Board (ESRB) was established.
European System of Financial Supervision (ESFS)
Together with the national supervisory authorities, the above-mentioned authorities are to ensure enhanced and harmonised financial supervision within the EU Single Market. In view of the impact of the most recent global financial crisis, the Council of the European Union, the EU Commission and the European Parliament recognised the necessity to put in place mechanisms to ensure an effective financial supervision for the EU Single Market. They agreed to establish the European System of Financial Supervision (ESFS) on 22 September 2010.
The starting point for the new supervisory structures was the de Larosière report, which was drawn up by a group of experts under the chairmanship of the former Governor of the Banque de France, Jacques De Larosière and published in February 2009.
In addition to the ESRB, the EBA, EIOPA and ESMA, the ESFS comprises the Joint Committee of the European Supervisory Authorities (“Joint Committee”) and the national supervisory authorities. The three European Supervisory Authorities are the legal successors of the Level 3 committees and have their own legal personality. Consequently, the Committee of European Banking Supervisors (CEBS) in London is now the EBA, the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) in Frankfurt am Main is now EIOPA and the Committee of European Securities Regulators (CESR) in Paris is now ESMA.
Micro- and macro-prudential supervision
The primary objective of the ESFS is to ensure that the regulations applying to the financial sector are properly applied. In this way, the ESFS is supposed to maintain financial stability, ensure confidence in the financial system as a whole and provide adequate consumer protection.
The ESFS’ concept is based on two pillars: macro-prudential supervision by the ESRB on the one side, and micro-prudential supervision by a network consisting of the European and national supervisory authorities on the other.
Under the heading of macro-prudential supervision, the ESRB oversees the stability of the financial system as a whole. The micro-prudential authorities, meanwhile, deal with solvency supervision of financial institutions and market supervision. The (micro-prudential and macro-prudential) supervisory pillars of the ESFS are to cooperate closely and provide each other with relevant information. In order to ensure better cross-sector coordination, the EBA, EIOPA and ESMA are to meet regularly and cooperate closely in their Joint Committee.
Single Supervisory Mechanism (SSM)
The lessons learned from the financial crisis led to a revival of the plan to create a uniform supervisory scheme for banks in the euro area. The idea behind it is to ensure more effective monitoring of the banking industry and uniform application of European financial market legislation.
Following an initiative of the European Commission of June 2012, the Heads of State and Government of the euro area issued a summit statement in Brussels on 29 June 2012: in it, they voiced their support for the establishment of a single supervisory mechanism (SSM) for banks in the euro area as a matter of urgency.
In this statement, the Heads of State also determined the legal basis for the future European banking supervision: Article 127(6) of the Treaty on the Functioning of the European Union (TFEU), pursuant to which the Council, acting by means of regulations, may unanimously, and after consulting both the European Parliament and the European Central Bank (ECB), confer specific tasks upon the ECB concerning policies relating to the prudential supervision of credit institutions.
Council Regulation (EU) No 1024/2013 of 15 October 2013 provided the legal basis for transferring supervisory powers to the ECB. Initially, the new regime only applies to banks in the euro area. Non-euro area member states may join the SSM on a voluntary basis. The ECB started executing its powers on 4 November 2014, following a transitional period of approximately one year.
The transfer of supervisory powers to the ECB affects neither BaFin's securities supervision nor its insurance supervision directorates. In this regard, there have been no changes to the ESFS. The supervisory structures of the ESRB, ESAs and the national supervisory authorities within the ESFS have remained unchanged as well: The ECB has been integrated into the ESFS as a competent authority acting partly side by side with and partly instead of the national supervisory authorities within the banking sector.