ECB-SSM announces July 2020 changes to its internal organization and supervisory tone

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On July 29, 2020, the European Central Bank (ECB) announced1 changes to the internal organization of the Single Supervisory Mechanism (SSM) (the July 2020 Changes). This is the first shake-up of the SSM’s structure in six years. The ECB-SSM has communicated that it is committed to implementing and operationalizing the July 2020 Changes before the end of 2020.2 No announcements on amendments to the non-SSM organizational structure have been communicated as of yet but these may follow the outcomes from the ECB’s Strategic Review3, which has been delayed until at least mid-2021 due to COVID-19.

Why now?

Since the SSM commenced its operations in November 2014, these are the first set of wide-reaching reorganization efforts and amendments to existing and key positions4 but they also feature the introduction of new departmental structures. The July 2020 Changes comes days after the introduction of an amendment5 to the Rules of Procedure of the ECB’s Supervisory Board, i.e., the SSM’s decision-making body to reflect the start of SSM close-cooperation with the national competent authorities (NCAs) of Bulgaria and Croatia in joining the Banking Union and ERM II.6

These internal reorganization efforts introduced by the July 2020 Changes also provide an indication in a much more established supervisory culture looking to further step up its supervisory scrutiny in respect of priorities within the SSM’s existing mandate and focus areas7 . This includes not only COVID-19 and other areas that are of interest to the SSM, including with respect to the EU’s changes in rules for financial holding companies8, which will likely add to the ECB-SSM’s supervisory responsibilities, but also with respect to the Investment Firms Regulation and Investment Firms Directive regime (IFR/IFD)9 , which will also, from June 2021, add to the ECB-SSM’s supervisory responsibilities.

In many ways the July 2020 Changes also advance the further “europeanisation” of Banking Union rulemaking as well as more proactive and possibly tighter engagement and action with NCAs. Recent issues that certain NCAs may have been facing and which are viewed by some stakeholders and policymakers as presenting gaps in the efficacy of Banking Union supervision and the EU’s Single Rulebook may also be drivers of the July 2020 Changes. Moreover, the July 2020 Changes create an environment in which the ECB-SSM may be even more active in how it also engages with IFR/IFD firms (and affiliates) including where these remain supervised by NCAs.

For Banking Union Supervised Institutions (BUSIs) regardless of whether they are categorized10 as “significant credit institutions” (SCIs) and subject to direct ECB-SSM supervision and indirect NCA supervision, or categorized as “less significant credit institutions” (LSIs), the July 2020 Changes will likely translate, certainly following the initial ECB internal implementation phase, into a further sharpening of tone in terms of supervisory engagement. This applies both to the terms of on-going supervisory engagement, including the Supervisory Review and Evaluation Process (SREP) but also thematic and ad-hoc reviews, including with respect to on-site inspections and internal model investigations.11

The most far-reaching amendment however will be that BUSI’s supervision will now be grouped according to a BUSI’s business model (as supported by subject matter and risk experts). This new approach will apply in addition to the existing approach of whether they are a SCI or LSI, which determines how and who leads on their supervision. The July 2020 Changes generally will impact supervisory engagement with existing BUSIs more than applicants seeking an authorization to become a BUSI.

What the July 2020 Changes do and seek to achieve

In the ECB-SSM’s own words (our emphasis added in bold): “The reorganization builds on six years of experience in European banking supervision and shifts the focus towards more risk-focused supervision. It will reinforce the supervisory strategy and risk function – our second line of defense – and facilitate closer cooperation between bank-specific and thematic supervisory teams, ensuring greater consistency in the treatment of banks and thus fostering the transparency and predictability of supervisory actions.”

Consequently, the July 2020 Changes aim to:

  • Ensure continued effective supervision of BUSIs “in the euro area and beyond” – which can be read not only in reference to the ECB-SSM’s new areas of interest but also in relation to the post-Brexit operating environment as well as the extension of close-cooperation arrangements with respect to Bulgaria and Croatia that commence in October 2020. 12
  • Reinforce the ECB-SSM’s supervisory strategy and risk function while concurrently ensuring greater consistency in supervisory outcomes;
  • Align and increase coordination between bank-specific and thematic supervisory teams – i.e., BUSIs’ Joint Supervisory Teams will be more centrally coordinated and one might expect an increase in thematic reviews as well as on-site inspections;
  • Improve transparency and predictability of supervisory actions.

The ECB-SSM has created13 two additional “business areas” in addition to the existing five areas and has redistributed the tasks across these. Consequently, due to the change in how BUSIs will be supervised, i.e., by business model, the ECB-SSM has decided that:

  1. Bank-specific supervision (BSS) will be grouped into three Directorates, “…generally structured according to the business models” of BUSIs to “…create more synergies and allow a better comparison of common risks and challenges.” Consequently, BUSIs subject to the supervision of the former Directorates General (DG) Microprudential Supervision (MS)14 will be reallocated to the following new DGs:
    1. DG Systemic and International Banks (DG/SIB), where the majority of former SCIs in DG MS I may migrate to;
    2. DG Universal and Diversified Institutions (DG/UDI) where some former DG MS I but more DG MS II firms may be assigned to;
    3. DG Specialized Institutions and Less Significant Institutions (DG/SPL), where some SCIs may be allocated but which will be responsible for supervisory engagement and oversight in respect of LSIs;
  1. Dedicated horizontal supervision will be led by a new Directorate General Horizontal Line Supervision (DG/HOL)15to strengthen risk expertise in the supervision of BUSIs, to conduct benchmarking and industry-wide assessments, such as thematic reviews, and to develop policy stances and maintain supervisory methodologies;
  2. A strengthened and improved supervisory risk function in the form of Directorate Supervisory Strategy and Risk (D/SSR) will be introduced to conduct strategic planning, propose supervisory priorities and ensure consistent treatment of all BUSI (not just SCIs). The creation of a new Directorate in this area takes over a number of responsibilities from a number of Divisions previously housed in DG MS IV;
  3. A structurally independent on-site supervision function, the Directorate General On-site and Internal Model Inspections (DG/OMI) will be created, which grows from the previous Centralized On-Site Inspections Division as a subset of the previous DG MS IV;
  4. It will build a stronger governance and operations function in the Directorate General SSM Governance and Operations (DG/SGO) to support decision-making. DG/SGO will also be responsible for authorizations (such as fit and proper assessments and qualifying holding procedures) and innovation. As in the changes summarized above, DG-SGO will operate as a standalone Directorate General and take over responsibilities from large parts of the former DG MS IV and some divisions housed in the DG Secretariat General to the Supervisory Board.

The Press Release announcing the July 2020 Changes confirmed that:

  • Patrick Amis, current head of DG MS III will drive efforts and lead on the new DG/SPL i.e. “Bank Specific Supervision” in respect of specialized institutions (that are SCIs) and LSIs thus providing continuity in respect of LSI matters;
  • Korbinian Ibel will move from the current post as the head of DG MS IV to lead the new DG/UDI i.e. “Bank Specific Supervision” in respect of universal and diversified institutions;
  • Ramón Quintana, will step-up from the head of DG MS II to head the new DG/SIB in respect of systemic and international BUSIs;
  • Stefan Walter, will switch from the head of DG MS I to lead the new DG/HOL on horizontal line supervision; and
  • Pedro Teixeira will continue his focus on SSM governance and operations in his existing role as head of DG Secretariat to the Supervisory Board being translated into the new DG/SGO.

Announcements with respect to heads of DG/OMI and D/SSR as well as senior managers of sub-teams within the new organizational set-up more generally will be communicated in due course and our Eurozone Hub will cover this separately.

Outlook

The July 2020 Changes not only refine the SSM’s efficacy but also its reach while equally sharpening the supervisory tone. For BUSIs and their relevant business lines and their control functions the challenges will be in responding to perhaps greater and more intrusive supervisory engagement with a more confident supervisor that is adapting to a new set-up with equally new staff joining or moving into new roles across all levels of seniority. It also remains to be seen whether the ECB-SSM will publish an updated public version of its (internal) Supervisory Manual, which details ECB-SSM relevant policies and procedures for supervision of new as well as existing BUSIs.

Equally, even if these changes are ECB internal, they will impact Banking Union NCAs but also more broadly those NCAs, as well as the other European Supervisory Authorities (EBA, ESMA and EIOPA) that form the European System of Financial Supervision (ESFS) in their interactions with the ECB-SSM related to their respective supervisory mandates and areas of responsibility.

BUSIs may need to also consider whether certain client/market facing documentation or internal policies and procedures need amending as well as which internal stakeholders across all levels of seniority may require additional training on the existing and new operating structure of the SSM both in terms of the ECB but also its interaction with the wider ESFS.

If you would like to discuss strategic options or any of the items mentioned above, in particular how to plan ahead for any operational impact from meeting compliance requirements and/or in respect of impact on policies and procedures or how these priorities may affect your business or your clients more generally, please contact our Eurozone Hub key contacts.


  1. Details are set out in a Press Release available here.
  2. From a practical perspective, and perhaps more crucially, the July 2020 Changes, even if they are to be implemented in the remaining four months of 2020, are also being implemented during a time when large parts of the ECB-SSM are still working from home and likely to continue to do so for the remainder of 2020 and early parts of 2021.
  3. See details of which are available here.
  4. As of publication, the current list of the ECB(-SSM) organizational composition and key persons is available here.
  5. See amendment published July 23, 2020 available here. ECB(-SSM) watchers may have noticed changes also to the ECB(-SSM) websites in the disappearance, during early June 2020 of the “Legal Acts” tabs, which has provided a chronological list of all published ECB legislative and rulemaking instruments. The existing contents and future publications of material that would have been publically available in a clear, comprehensive and central manner via those tabs has now been moved to the “ECB-Corner” on the EUR-Lex website (at time of publication available here.). While there are some grounds for this shift (and it should be noted that no other European Supervisory Authority, including the ESRB, EBA, ESMA or EIOPA has at present taken a similar path), a formal public communication from the ECB(-SSM) to market participants and other stakeholders, setting out the grounds and justifications for replacing the previous resource with what some may perceive to be a more difficult to access resource as well as what additional material/analysis will be made on the ECB-Corner versus the existing trusted solution remains to follow. In the event that you require support in accessing legal and rulemaking texts of the ECB(-SSM) please do get in contact with any key contacts of our Financial Institutions Regulatory Team in Europe and/or our Eurozone Hub.
  6. See latest coverage in our series on this development available here.
  7. See details from our Eurozone Hub as well as in our most recent edition of our annual outlook (published pre-COVID-19) in Navigating 2020 as well as our coverage on the impact on COVID-19 on BUSIs three lines of defense (3LoD) model available here.
  8. See latest coverage in our series on this development available here.
  9. See latest coverage in our series on this development available here.
  10. The July 2020 Changes do not affect the concept of SCI versus LSIs.
  11. See coverage available here on the ECB-SSM’s rules relating to on-site inspections and internal model investigations and steps BUSIs may wish to take.
  12. See latest coverage in our series on this development available here.
  13. It claims on a headcount-neutral and cost-neutral basis – although over time we expect that headcount and costs will have to rise to reflect the additional scope of work and also to incorporate new and suitably qualified supervisory staff from Bulgaria and Croatia, who have historically been underrepresented in the ECB(-SSM).
  14. These formerly being comprised of: of DG MS I, which in eight divisions led on the direct supervision (SCIs), through Joint Supervisory Teams (JSTs), as complemented by eight divisions in DG MS II in respect of supervision of smaller SCIs as supported by DG MS III in respect of LSI supervisory coordination and relations with NCAs.
  15. Which replaces some SSM shared functions/expert lines previously grouped in teams in DG MS III and DG MS IV.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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