(1)

Over the past decades, the Union has made considerable progress in creating an internal market for banking services. Consequently, in many Member States, banking groups with their headquarters established in other Member States hold a significant market share, and credit institutions have geographically diversified their business, ▌within both the Euro area and non-euro area .

(1a)

The present financial and economic crisis has shown that the integrity of the single currency and the single market may be threatened by the fragmentation of the financial sector. It is therefore essential to intensify the integration of banking supervision in order to bolster the European Union, restore financial stability and lay the basis for economic recovery.

(2)

Maintaining and deepening the internal market for banking services is essential in order to foster economic growth in the Union and adequate funding of the real economy . However this proves increasingly challenging. Evidence shows that the integration of banking markets in the Union is coming to a halt.

(3)

At the same time , in addition to the adoption of an enhanced EU regulatory framework, supervisors must step up their supervisory scrutiny to take account of the lessons of the financial crisis in recent years, and be able to oversee highly complex and inter-connected markets and institutions.

(4)

Competence for supervision of individual banks in the Union remains mostly at national level. Coordination between supervisors is vital but the crisis has shown that mere coordination is not enough, in particular in the context of a single currency. In order to preserve financial stability in the Union and increase the positive effects of market integration on growth and welfare, integration of supervisory responsibilities should therefore be enhanced. This is particularly relevant to ensure a smooth and sound overview over an entire banking group and its overall health and would reduce the risk of different interpretations and contradictory decisions on the individual entity level.

(5)

The solidity of credit institutions is in many instances still closely linked to the Member State in which they are established. Doubts about the sustainability of public debt, economic growth prospects, and the viability of credit institutions have been creating negative, mutually reinforcing market trends. This may lead to risks for the viability of some credit institutions as well as for the stability of the financial system in the euro area and the Union as a whole , and may impose a heavy burden for already strained public finances of the Member States concerned. ▌

(6)

The European Banking Authority (EBA), established in 2011 by Regulation (EU) No. 1093/2010 of the European Parliament and the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), (3) and the European System of Financial Supervision established by Article 2 of that Regulation and of Regulation (EU) No 1094/2010 of 24 November 2010 establishing a European Supervisory Authority (EIOPA), (4) and Regulation (EU) No 1095/2010 of 24 November 2010 establishing a European Supervisory Authority (ESMA) (5) have significantly improved cooperation between banking supervisors within the Union. EBA is making important contributions to the creation of a single rulebook for financial services in the Union, and has been crucial in implementing in a consistent way the recapitalisation of major Union credit institutions agreed by the European Council in October 2011 , consistent with the guidelines and conditions relating to State aid adopted by the Commission .

(7)

The European Parliament called on various occasions for a European body to be directly responsible for certain supervisory tasks over financial institutions, starting with its resolutions of 13 April 2000 on the Commission communication on implementing the framework for financial markets: Action Plan, (6) and of 21 November 2002 on prudential supervision rules in the European Union. (7)

(8)

The European Council conclusions of 29 June 2012 invited the President of the European Council to develop a road map for the achievement of a genuine Economic and Monetary Union. On the same day, the Euro area Heads of State or Government Summit pointed out that when an effective single supervisory mechanism is established involving the ECB for banks in the euro area, the ESM could, following a regular decision, have the possibility to recapitalize banks directly which would rely on appropriate conditionality, including compliance with state aid rules.

(8a)

The European Council on 19 October 2012 concluded that the process towards deeper economic and monetary union should build on the EU's institutional and legal framework and be characterised by openness and transparency towards Member States which do not use the single currency and by respect for the integrity of the single market. The integrated financial framework will have a Single Supervisory Mechanism (SSM) which will be open to the extent possible to all Member States wishing to participate.

(9)

A European banking union should therefore be set up, underpinned by a comprehensive and detailed single rulebook for financial services for the Single Market as a whole and composed of a single supervisory mechanism and new frameworks for deposit insurance and resolution ▌. In view of the close links and interactions between Member States participating in the common currency, the banking union should apply at least to all Euro area Member States. With a view to maintaining and deepening the internal market, and to the extent that this is institutionally possible, the banking union should also be open to the participation of other Member States.

(10)

As a first step towards the banking union, a single supervisory mechanism should ensure that the Union's policy relating to the prudential supervision of credit institutions is implemented in a coherent and effective way, that the single rulebook for financial services is applied equally to credit institutions in all Member States concerned, and that those credit institutions are subject to supervision of the highest quality, unfettered by other, non-prudential considerations. In particular, the single supervisory mechanism should be consistent with the functioning of the internal market for financial services and with the free movement of capital.  A single supervisory mechanism is the basis for the next steps towards the banking union. This reflects the principle that the ESM will, following a regular decision, have the possibility to recapitalise banks directly when an effective single supervisory mechanism is established. The European Council noted in its conclusions of 13/14 December 2012 that ‘In a context where banking supervision is effectively moved to a single supervisory mechanism, a single resolution mechanism will be required, with the necessary powers to ensure that any bank in participating Member States can be resolved with the appropriate tools’ and that ‘the single resolution mechanism should be based on contributions by the financial sector itself and include appropriate and effective backstop arrangements’.

(11)

As the Euro area’s central bank with extensive expertise in macroeconomic and financial stability issues, the ECB is well placed to carry out clearly defined supervisory tasks with a focus on protecting the stability of Europe’s financial system. Indeed in many Member States Central Banks are already responsible for banking supervision. The ECB should therefore be conferred specific tasks concerning policies relating to the supervision of credit institutions within the participating Member States .

(11a)

The ECB and the national competent authorities of non-participating Member States should conclude a memorandum of understanding describing in general terms how they will cooperate with one another in the performance of their supervisory tasks under Union law in relation to the financial institutions defined in this Regulation. The memorandum of understanding could, inter alia, clarify the consultation relating to decisions of the ECB having effect on subsidiaries or branches established in the non-participating Member State whose parent undertaking is established in a participating Member State, and the cooperation in emergency situations, including early warning mechanisms in accordance with the procedures set out in relevant Union law. The memorandum should be reviewed on a regular basis.

(12)

The ECB should be conferred those specific supervisory tasks which are crucial to ensure a coherent and effective implementation of the Union's policy relating to the prudential supervision of credit institutions, while other tasks should remain with national authorities. The ECB's tasks should include measures taken in pursuance of macro-prudential stability , subject to specific arrangements reflecting the role of national authorities .

(13)

Safety and soundness of large banks is essential to ensure the stability of the financial system. However, recent experience shows that smaller banks can also pose a threat to financial stability. Therefore, the ECB should be able to exercise supervisory tasks in relation to all credit institutions authorised in, and branches established in, participating Member States.

(13a)

When carrying out the tasks conferred on it, and without prejudice to the objective to ensure the safety and soundness of credit institutions, the ECB should have full regard to the diversity of credit institutions and their size and business models, as well as the systemic benefits of diversity in the European banking industry.

(13b)

The exercise of the ECB's tasks should contribute in particular to ensure that credit institutions fully internalise all costs caused by their activities so as to avoid moral hazard and the excessive risk taking arising from it. It should take full account of the relevant macroeconomic conditions in Member States, in particular the stability of the supply of credit and facilitation of productive activities for the economy at large.

(13c)

Nothing in this Regulation should be understood as changing the accounting framework applicable pursuant to other acts of Union and national law.

(14)

Prior authorisation for taking up the business of credit institutions is a key prudential technique to ensure that only operators with a sound economic basis, an organisation capable of dealing with the specific risks inherent to deposit taking and credit provision, and suitable directors carry out those activities. The ECB should therefore have the task to authorise credit institutions and should be responsible for the withdrawal of authorisations , subject to specific arrangements reflecting the role of national authorities .

(15)

In addition to the conditions set out in Union law for authorisation of credit institutions and the cases for withdrawal of such authorisations, Member States may currently provide for further conditions for authorisation and cases for withdrawal of authorisation. The ECB should therefore carry out its task with regard to authorisation of credit institutions and withdrawal of the authorisation in case of non-compliance with national law upon a proposal by the relevant national competent authority, which assesses compliance with the relevant conditions set out by national law.

(16)

An assessment of the suitability of any new owner prior to the purchase of a significant stake in a credit institution is an indispensable tool to ensure the continuous suitability and financial soundness of credit institutions’ owners. The ECB as a Union institution is well-placed to carry out such an assessment without imposing undue restrictions to the internal market. The ECB should have the task to assess the acquisition and disposal of significant holdings in credit institutions , except in the context of bank resolution .

(17)

Compliance with Union rules requiring credit institutions to hold certain levels of capital against risks inherent to the business of credit institutions, to limit the size of exposures to individual counterparties, to publicly disclose information on a credit institutions’ financial situation, to dispose of sufficient liquid assets to withstand situations of market stress, and to limit leverage is a prerequisite for credit institutions’ prudential soundness. The ECB should have the task to ensure compliance with those rules , including in particular granting approvals, permissions, derogations, or exemptions foreseen for the purposes of those rules.

(18)

Additional capital buffers, including a capital conservation buffer, a countercyclical capital buffer to ensure that credit institutions accumulate during periods of economic growth a sufficient capital base to absorb losses in stressed periods, global and other systemic institution buffers, and other measures aimed at addressing systemic or macro-prudential risk, are key prudential tools ▌. In order to ensure full coordination, where national authorities impose such measures, the ECB should be duly notified. Moreover, where necessary the ECB should be able to apply higher requirements and more stringent measures, subject to close coordination with national authorities. The provisions in this Regulation on measures aimed at addressing systemic or macro-prudential risk are without prejudice to any coordination procedures provided for in other acts of Union law. National competent or designated authorities and the ECB, shall act in respect of any coordination procedure provided for in such acts after having followed the procedures provided for in this Regulation.

(19)

The safety and soundness of a credit institution depend also on the allocation of adequate internal capital, having regard to the risks to which it may be exposed, and on the availability of appropriate internal organisation structures and corporate governance arrangements. The ECB should therefore have the task to apply requirements ensuring that credit institutions have in place robust governance arrangements, processes and mechanisms, including strategies and processes for assessing and maintaining the adequacy of their internal capital. In case of deficiencies it should also have the task to impose appropriate measures including specific additional own funds requirements, specific disclosure requirements, and specific liquidity requirements.

(20)

Risks for the safety and soundness of a credit institution can arise both at the level of an individual credit institution and at the level of a banking group or of a financial conglomerate. Specific supervisory arrangements to mitigate these risks are important to ensure the safety and soundness of credit institutions. In addition to supervision of individual credit institutions, the ECB's tasks should include supervision at the consolidated level, supplementary supervision, supervision of financial holding companies and supervision of mixed financial holding companies , excluding the supervision of insurance undertakings .

(21)

In order to preserve financial stability, the deterioration of an institution's financial and economic situation must be remedied at an early stage . The ECB should have the task to carry out early intervention actions as defined in relevant Union law. It should however coordinate its early intervention action with the relevant resolution authorities. As long as national authorities remain competent to resolve credit institutions , the ECB should moreover coordinate appropriately with the national authorities concerned to ensure a common understanding about respective responsibilities in case of crises, in particular in the context of the cross border crisis management groups and the future resolution colleges established for these purposes.

(22)

Supervisory tasks not conferred on the ECB should remain with national authorities. Those tasks should include the power to receive notifications from credit institutions in relation to the right of establishment and the free provision of services, to supervise bodies which are not covered by the definition of credit institutions under Union law but which are supervised as credit institutions under national law, to supervise credit institutions from third countries establishing a branch or providing cross-border services in the Union, to supervise payments services, to carry out day-to-day verifications of credit institutions, to carry out the function of competent authorities over credit institutions in relation to markets in financial instruments, the prevention of the use of the financial system for the purpose of money laundering and terrorist financing and consumer protection .

(22a)

The ECB should cooperate, as appropriate, fully with the national authorities which are competent to ensure a high level of consumer protection and the fight against money laundering.

(23)

The ECB should carry out the tasks conferred on it with a view to ensuring the safety and soundness of credit institutions and the stability of the financial system of the Union as well as of individual participating Member States and the unity and integrity of the Internal Market, thereby ensuring also the protection of depositors and improving the functioning of the Internal Market, in accordance with the single rulebook for financial services in the Union. In particular the ECB should duly take into account the principles of equality and non-discrimination.

(24)

The conferral of supervisory tasks on the ECB ▌should be consistent with the framework of the European System of Financial Supervision (ESFS) set up in 2010 and its underlying objective to develop the single rulebook and enhance convergence of supervisory practices across the whole Union. Cooperation between the banking supervisors and the supervisors of insurance and securities markets is important to deal with issues of joint interest and to ensure proper supervision of credit institutions operating also in the insurance and securities sectors. The ECB should therefore be required to cooperate closely with the European Banking Authority , the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority, within the framework of the ESFS . The ECB should carry out its tasks in accordance with the provisions of this Regulation and without prejudice to the competence and the tasks of the other participants within the ESFS. It should also be required to cooperate with relevant resolution authorities and facilities financing direct or indirect public financial assistance.

▌

(26)

The ECB should carry out its tasks subject to and in compliance with relevant Union law ▌including the whole of primary and secondary Union law, Commission decisions in the area of State aids, competition rules and merger control and the single rulebook applying to all Member States. The EBA is entrusted with developing draft technical standards and guidelines and recommendations ensuring supervisory convergence and consistency of supervisory outcomes within the Union. The ECB should not replace the exercise of these tasks by the EBA, and should therefore exercise powers to adopt regulations in accordance with Article 132 TFEU and in compliance with Union acts adopted by the European Commission upon drafts developed by the EBA and subject to Article 16 of Regulation (EU) No. 1093/2010 .

(26a)

Where necessary the ECB should enter into memoranda of understanding with competent authorities responsible for markets in financial instruments describing in general terms how they will cooperate with one another in the performance of their supervisory tasks under Union law in relation to financial institutions defined in Article 2. Such memoranda should be made available to the European Parliament, the Council and competent authorities of all Member States.

(26b)

For the carrying out of its tasks and the exercise of its supervisory powers, the ECB should apply the material rules relating to the prudential supervision of credit institutions. Those rules are composed of the relevant Union law, in particular directly applicable Regulations or Directives, such as those on capital requirements for banks and on financial conglomerates. Where the material rules relating to the prudential supervision of credit institutions are laid down in Directives, the ECB should apply the national legislation transposing those Directives. Where the relevant Union law is composed of Regulations and in areas where, on the date of entry into force of this Regulation, those Regulations explicitly grant options for Member States, the ECB should apply also the national legislation exercising these options. Such options should be construed as excluding options available only to competent or designated authorities. This is without prejudice to the principle of the primacy of EU law. It follows that the ECB should, when adopting guidelines or recommendations or when taking decisions, base itself on, and act in accordance with, the relevant binding Union law.

(26c)

Within the scope of the tasks conferred on the ECB, national law confers on national competent authorities certain powers which are currently not required by Union law, including certain early intervention and precautionary powers. The ECB should be able to require national authorities to make use of these powers, in order to ensure the performance of full and effective supervision within the Single Supervisory Mechanism.

(27)

In order to ensure that supervisory rules and decisions are applied by credit institutions, financial holding companies and mixed financial holding companies, effective, proportionate and dissuasive sanctions should be imposed in case of breaches. In accordance with Article 132(3) TFEU and Council Regulation (EC) No. 2532/98 of 23 November 1998 concerning the powers of the European Central Bank to impose sanctions, (8) the ECB is entitled to impose fines or periodic penalty payments on undertakings for failure to comply with obligations under its regulations and decisions. Moreover, in order to enable the ECB to effectively carry out its tasks relating to the enforcement of supervisory rules set out in directly applicable Union law, the ECB should be empowered to impose pecuniary sanctions on credit institutions, financial holding companies and mixed financial holding companies for breaches of such rules. National authorities should remain able to apply sanctions in case of failure to comply with obligations stemming from national law transposing Union Directives. Where the ECB considers it appropriate for the fulfilment of its tasks that a sanction is applied for such breaches, it should be able to refer the matter to national authorities for those purposes.

(28)

National supervisors have important and long-established expertise in the supervision of credit institutions within their territory and their economic, organisational and cultural specificities. They have established a large body of dedicated and highly qualified staff for these purposes. Therefore, in order to ensure high quality European supervision national supervisors should be responsible for assisting the ECB in the preparation and implementation of any acts relating to the exercise of the ECB supervisory tasks. This should include in particular the ongoing day-to-day assessment of a bank's situation and related on site verifications.

(28a)

The criteria laid down in Article 5(4b) to define the scope of institutions that are less significant should be applied at the highest level of consolidation within participating Member states based on consolidated data. Where the ECB carries out the tasks conferred upon it by this Regulation with regard to a group of credit institutions that is not less significant on a consolidated basis, it should carry out those tasks on a consolidated basis with regard to the group of credit institutions and on an individual basis with regard to the banking subsidiaries and branches of that group established in participating Member states.

(28b)

The criteria laid down in Article 5(4b) to define the scope of institutions that are less significant should be specified in a framework adopted and published by the ECB in consultation with national competent authorities. On that basis, the ECB should be responsible to apply those criteria and verify, through its own calculations, whether these criteria are met. The ECB’s request for information to perform its calculation should not force the institutions to apply accounting frameworks differing from those applicable to them pursuant to other acts of Union and national law.

(28c)

Where a bank has been considered significant or less significant, that assessment should generally not be modified more often than once every 12 months, except if there are structural changes in the banking groups, such as mergers or divestitures.

(28d)

When deciding, following a notification by a national competent authority, whether an institution is of significant relevance with regard to the domestic economy and should therefore be supervised by the ECB, the ECB should take into account all relevant circumstances, including level-playing-field considerations.

(29)

As regards the supervision of cross-border banks active both inside and outside the Euro area the ECB should cooperate closely with the competent authorities of non participating Member States. As a competent authority the ECB should be subject to the related obligations to cooperate and exchange information under Union law and should participate fully in the colleges of supervisors. In addition, since the exercise of supervisory tasks by a European institution brings about clear benefits in terms of financial stability and sustainable market integration, Member States not participating in the common currency should therefore also have the possibility to participate in the new mechanism. However, it is a necessary pre-condition for an effective exercise of supervisory tasks, that supervisory decisions are implemented fully and without delay. Member States wishing to participate in the new mechanism should therefore undertake to ensure that their national competent authorities will abide by and adopt any measure in relation to credit institutions requested by the ECB. The ECB should be able to establish a close cooperation with the competent authorities of a Member State not participating in the common currency. It should be obliged to establish the cooperation where the conditions set out in this regulation are met. ▌

(29a)

Taking into account that non-euro area participating Member States are not present in the Governing Council for as long as they have not joined the euro in accordance with the Treaty, and they cannot fully benefit from other mechanisms provided for euro area Member States, additional safeguards in the decision making process are foreseen in this Regulation. However, those safeguards, in particular Article 6(5d), should be used in duly justified, exceptional cases. They should only be used as long as those specific circumstances apply. The safeguards are due to the specific circumstances in which non-euro area participating Member States are under this Regulation, since they are not present in the Governing Council and cannot fully benefit from other mechanisms provided for euro area Member States. Therefore, the safeguards cannot and should not be construed as a precedent for other areas of EU policy.

(29b)

Nothing in this Regulation should alter in any way the current framework regulating the change of legal form of subsidiaries or branches and the application of such framework, or be understood or applied as providing incentives in favour of such change. In this respect, the responsibility of competent authorities of Member States which do not participate in the Single Supervisory Mechanism should be fully respected, so that those authorities continue to enjoy sufficient supervisory tools and powers over credit institutions operating in their territory in order to have the capacity to fulfil this responsibility and effectively safeguard financial stability and public interest. Moreover, in order to assist the competent authorities in fulfilling their responsibilities, timely information on a change of legal form of subsidiaries or branches should be provided to depositors and to the competent authorities.

(30)

In order to carry out its tasks, the ECB should have appropriate supervisory powers. Union law on the prudential supervision of credit institutions provides for certain powers to be conferred on competent authorities designated by the Member States for those purposes. To the extent that these powers fall within the scope of the supervisory tasks conferred on the ECB, for participating Member States the ECB should be considered the competent authority and should have the powers conferred on competent authorities by Union law. This includes powers conferred by those acts on the competent authorities of the home and the host Member States and the powers conferred on designated authorities.

(30a)

The ECB should have the supervisory power to remove a member of a management body in accordance with the provisions of this regulation.

(31)

In order to carry out its tasks effectively, the ECB should be able to require all necessary information, and to conduct investigations and on-site inspections , where appropriate in cooperation with national competent authorities. The ECB and the national supervisory authorities should have access to the same information without credit institutions being subject to double reporting requirements .

(31a)

Legal profession privilege is a fundamental principle of Union law, protecting the confidentiality of communications between natural or legal persons and their advisors, in accordance with the conditions laid down in the case-law of the European Court of Justice.

(31b)

When the ECB needs to require information from a person established in a non-participating Member State but belonging to a credit institution, financial holding company or mixed financial holding company established in a participating Member State, or to which such credit institution, financial holding company or mixed financial holding company has outsourced operational functions or activities, and when such requirements will not apply and will not be enforceable in the non-participating Member State, the ECB should coordinate with the national competent authority in the non-participating Member State concerned.

(31c)

This Regulation does not affect the application of the rules established by Articles 34 and 42 of the Protocol on the Statute of the ECB. The acts adopted by the ECB under this Regulation should not create any rights or impose any obligations in non-participating Member States, except where such acts are in accordance with relevant Union law, in accordance with Protocols No 4 and 15.

(32)

Where credit institutions exercise their right of establishment or to provide services in another Member State, or where several entities in a group are established in different Member States, Union law provides for specific procedures and for attribution of competences between the Member States concerned. To the extent that the ECB takes over certain supervisory tasks for all participating Member States, those procedures and attributions should not apply to the exercise of the right of establishment or to provide services in another participating Member State.

(32a)

When carrying out its tasks under this Regulation and when requesting assistance from national competent authorities, the ECB should have due regard to a fair balance between the involvement of all national competent authorities involved, in line with the responsibilities for solo, sub-consolidated and consolidated supervision set out in applicable Union legislation.

(32b)

Nothing in this regulation should be understood as conferring on the ECB the power to impose sanctions on natural or legal persons other than credit institutions, financial holding companies or mixed financial holding companies, without prejudice to the ECB's power to require national authorities to act in order to ensure that appropriate sanctions are imposed.

(33)

As an institution established by the Treaties the ECB is an institution of the Union as a whole. It should be bound in its decision-making procedures ▌by Union rules and general principles on due process and transparency. The right of the addressees of the ECB’s decisions to be heard should be fully respected as well as their right to request a review of the decisions of the ECB according to the rules set out in this Regulation .

(34)

The conferral of supervisory tasks implies a significant responsibility for the ECB to safeguard financial stability in the Union, and to use its supervisory powers in the most effective and proportionate way. Any shift of supervisory powers from the Member State to the Union level should be balanced by appropriate transparency and accountability requirements. The ECB should therefore be accountable for the exercise of these tasks towards the European Parliament and the Council ▌as democratically legitimised institutions representing the European people and the Member States. That should include regular reporting, and responding to questions by the European Parliament in accordance with its Rules of Procedure, and by the Eurogroup. Any reporting obligations should be subject to the relevant professional secrecy requirements .

(34a)

The ECB should also forward the reports, which it addresses to the European Parliament and the Council, to the national parliaments of the participating Member States. National parliaments of the participating Member States should be able to address any observations or questions to the ECB on the performance of its supervisory tasks, to which the ECB may reply. The internal rules of those national parliaments should take into account details of the relevant procedures and arrangements for addressing the observations and questions to the ECB. In this context particular attention should be attached to observations or questions related to the withdrawal of authorisations of credit institutions in respect of which actions necessary for resolution or to maintain financial stability have been taken by national authorities in accordance with the procedure set out in Article 13(2a). The parliament of a participating Member State should also be able to invite the Chair or a representative of the Supervisory Board to participate in an exchange of views in relation to the supervision of credit institutions in that Member State together with a representative of the national competent authority. This role for national parliaments is appropriate given the potential impact that supervisory measures may have on public finances, credit institutions, their customers and employees, and the markets in the participating Member States. Where national supervisors take action under this Regulation, accountability arrangements provided under national law should continue to apply.

(34b)

This Regulation is without prejudice to the right of the European Parliament to set up a temporary Committee of Inquiry to investigate alleged contraventions or maladministration in the implementation of Union law pursuant to Article 226 TFEU or to the exercise of its functions of political control as laid down in the Treaties, including the right for the European Parliament to take a position or adopt a resolution on matters which it considers appropriate.

(34c)

In its action, the ECB should comply with the principles of due process and transparency.

(34d)

The regulation referred to in Article 15(3) TFEU should determine detailed rules enabling access to documents held by the ECB resulting from the carrying out of supervisory tasks, in accordance with the Treaty.

(34e)

Pursuant to Article 263 TFEU, the Court of Justice of the European Union is to review the legality of acts of, inter alia, the ECB, other than recommendations and opinions, intended to produce legal effects vis-à-vis third parties.

(34f)

In accordance with Article 340 TFEU, the ECB should, in accordance with the general principles common to the laws of the Member States, make good any damage caused by it or by its servants in the performance of their duties. This should be without prejudice to the liability of national competent authorities to make good any damage caused by them or by their servants in the performance of their duties in accordance with national legislation.

(34 g)

Regulation No 1 determining the languages to be used by the European Economic Community applies to the ECB by virtue of Article 342 TFEU.

(34h)

When determining whether the right of access to the file by persons concerned should be limited, the ECB should respect the fundamental rights and observe the principles recognised in the Charter of Fundamental Rights of the European Union, notably the right to an effective remedy and to a fair trial.

(34i)

The ECB should provide natural and legal persons with the possibility to request a review of decisions taken under the powers conferred upon it by the present regulation and addressed to them, or which are of direct and individual concern to them. The scope of the review should pertain to the procedural and substantive conformity with this regulation of such decisions while respecting the margin of discretion left to the ECB to decide on the opportunity to take these decisions. For that purpose, and for reasons of procedural economy, the ECB should establish an administrative board of review to carry out such internal review. To compose the board, the Governing Council of the ECB should appoint individuals of a high repute. In making its decision, the Governing Council should, to the extent possible, ensure an appropriate geographical and gender balance across the Member States. The procedure laid down for the review should provide for the Supervisory Board to reconsider its former draft decision as appropriate.

(35)

The ECB is responsible for carrying out monetary policy functions with a view to maintaining price stability in accordance with Article 127(1) TFEU. The exercise of supervisory tasks has the objective to protect the safety and soundness of credit institutions and the stability of the financial system. They should therefore be carried out in full separation, in order to avoid conflicts of interests and to ensure that each function is exercised in accordance with the applicable objectives. The ECB should be able to ensure that the Governing Council operates in a completely differentiated manner as regards monetary and supervisory functions. Such differentiation should at least include strictly separated meetings and agendas.

(35a)

Organisational separation of staff should concern all services needed for independent monetary policy purposes and should ensure that the exercise of the tasks conferred by this Regulation is fully subject to democratic accountability and oversight as provided for by this Regulation. The staff involved in carrying out the tasks conferred on the ECB by this Regulation should report to the Chair of the Supervisory Board.

(36)

In particular, a Supervisory Board responsible for preparing decisions on supervisory matters should be set up with the ECB encompassing the specific expertise of national supervisors. The board should therefore be chaired by a Chair , have a Vice Chair ▌and include representatives from the ECB and from national authorities. The appointments for the Supervisory Board in accordance with this Regulation should respect the principles of gender balance, experience and qualification. All members of the Supervisory Board should be timely and fully informed on the items on the agenda of its meetings, so as to facilitate the effectiveness of the discussion and the draft decision making process.

(36a)

When exercising its tasks, the Supervisory Board shall take account of all relevant facts and circumstances in the participating Member States and shall perform its duties in the interest of the Union as a whole.

(36b)

With full respect to the institutional and voting arrangements set by the Treaties, the Supervisory Board should be an essential body in the exercise of supervisory tasks by the ECB, tasks which until now have always been in the hands of national competent authorities. For this reason, the Council should be given the power to adopt an implementing decision to appoint the Chair and the Vice-Chair of the Supervisory Board. After hearing the Supervisory Board, the ECB should submit a proposal for the appointment of the Chair and the Vice-Chair to the European Parliament for approval. Following the approval of this proposal, the Council should adopt that implementing decision. The Chair should be chosen on the basis of an open selection procedure, on which the European Parliament and the Council should be kept duly informed.

(36c)

In order to allow for an appropriate rotation while ensuring the full independence of the Chair, the Chair's term of office should not exceed five years and should not be renewable. In order to ensure full coordination with the activities of the EBA and with the prudential policies of the Union, the Supervisory Board should be able to invite EBA and the European Commission as observers. The Chair of the European Resolution Authority, once established, should participate as observer in the meetings of the Supervisory Board.

(36d)

The Supervisory Board should be supported by a Steering committee with a more limited composition. The Steering committee should prepare the meetings of the Supervisory Board and should perform its duties solely in the interest of the Union as a whole and should work in full transparency with the Supervisory Board.

(36e)

The Governing Council of the ECB should invite the representatives from non-euro area participating Member States whenever it is contemplated by the Governing Council to object to a draft decision prepared by the Supervisory Board or whenever the concerned national competent authorities inform the Governing Council of their reasoned disagreement with a draft decision of the Supervisory Board, when such decision is addressed to the national authorities in respect of credit institutions from non-euro area participating Member States.

(36f)

With a view to ensuring separation between monetary policy and supervisory tasks, the ECB should be required to create a mediation panel. The setting up of the panel, and in particular its composition, should ensure that is resolves differences of views in a balanced way, in the interest of the Union as a whole.

(37)

The Supervisory Board , the steering committee and staff of the ECB carrying out supervisory duties should be subject to appropriate professional secrecy requirements. Similar requirements should apply to the exchange of information with the staff of the ECB not involved in supervisory activities. This should not prevent the ECB from exchanging information within the limits and under the conditions set out in the relevant Union legislation, including with the European Commission for the purposes of its tasks under Articles 107 and 108 TFEU and under Union law on enhanced economic and budgetary surveillance.

(38)

In order to carry out its supervisory tasks effectively, the ECB should exercise the supervisory tasks conferred on it in full independence, in particular from undue political influence and from industry interference which would affect its operational independence.

(38a)

The use of cooling-off periods in supervisory authorities forms an important part of ensuring the effectiveness and independence of the supervision conducted by those authorities. To this end, and without prejudice to the application of stricter national rules, the ECB should establish and maintain comprehensive and formal procedures, including proportionate review periods, to assess in advance and prevent possible conflicts with the legitimate interest of the SSM/ECB where a former member of the Supervisory Board begins work within the banking industry he or she once supervised.

(39)

In order to carry out its supervisory tasks effectively, the ECB should dispose of adequate resources. Those resources should be obtained in a way that ensures the ECB's independence from undue influences by national competent authorities and market participants, and separation between monetary policy and supervisory tasks. The costs of supervision should be ▌ borne by the entities subject to it. Therefore, the exercise of supervisory tasks by the ECB should be financed ▌by annual fees charged to credit institutions established in the participating Member States. It should also be able to levy fees on branches established in a participating Member State by a credit institution established in a non-participating Member State to cover the expenditure incurred by the ECB when carrying out its tasks as a host supervisor over these branches. In case a credit institution or a branch is supervised on a consolidated basis, the fee should be levied on the highest level of a credit institution within the involved group with establishment in participating Member States. The calculation of the fees should exclude any subsidiaries established in non-participating Member States.

(39a)

Where a credit institution is included in consolidated supervision, the fee should be calculated at the highest level of consolidation within participating Member States and allocated to the credit institutions established in a participating Member State and included in the consolidated supervision, based on objective criteria relating to the importance and risk profile, including the risk weighted assets.

(40)

Highly motivated, well-trained and impartial staff is indispensable to effective supervision. In order to create a truly integrated supervisory mechanism, appropriate exchange and secondment of staff with and among all national supervisors of participating Member States and the ECB should be provided for. To ensure a peer control on an on-going basis , particularly in the supervision of large banks, the ECB should be able to request that national supervisory teams involve also staff from competent authorities of other participating Member States , making it possible to install supervisory teams of geographical diversity with specific expertise and profile. The exchange and secondment of staff shall establish a common supervisory culture. On a regular basis the ECB will provide information how many staff members from the national competent authorities of the participating Member States are seconded to the ECB for the purposes of the SSM .

(41)

Given the globalisation of banking services and the increased importance of international standards, the ECB should carry out its tasks in respect of international standards and in dialogue and close cooperation with supervisors outside the Union, without duplicating the international role of the EBA. It should be empowered to develop contacts and enter into administrative arrangements with the supervisory authorities and administrations of third countries and with international organisations, while coordinating with the EBA and while fully respecting the existing roles and respective competences of the Member States and the Union institutions.

(42)

Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data (9) and Regulation (EC) No 45/2001 of the European Parliament and of the Council of 18 December 2000 on the protection of individuals with regard to the processing of personal data by the Community institutions and bodies and on the free movement of such data (10) are fully applicable to the processing of personal data by the ECB for the purposes of this Regulation.

(43)

Regulation (EC) No 1073/1999 of the European Parliament and of the Council of 25 May 1999 concerning investigations conducted by the European Anti-Fraud Office (OLAF) (11) applies to the ECB. The ECB has adopted Decision ECB/2004/11 of 3 June 2004 concerning the terms and conditions for European Anti-Fraud Office investigations of the European Central Bank  (12).

(44)

In order to ensure that credit institutions are subject to supervision of the highest quality, unfettered by other, non-prudential considerations and that the negative mutually reinforcing impacts of market developments concerns banks and Member States is addressed in a timely and effective way, the ECB should start carrying out specific supervisory tasks as soon as possible. However, the transfer of supervisory tasks from national supervisors to the ECB requires a certain amount of preparation. Therefore, an appropriate phasing-in period should be provided for. ▌

(44a)

When adopting the detailed operational arrangements for the implementation of the tasks conferred upon the ECB by this Regulation, the ECB should provide for transitional arrangements which ensure the completion of ongoing supervisory procedures, including any decision and/or measure adopted or investigation commenced prior to the entry into force of this Regulation.

▌

(45a)

The Commission has stated in its Communication of 28 November 2012 on a Blueprint for a deep and genuine economic and monetary union that ‘Article 127 paragraph 6 TFEU could be amended to make the ordinary legislative procedure applicable and to eliminate some of the legal constraints it currently places on the design of the SSM (e.g. enshrine a direct and irrevocable opt-in by non-euro area Member States to the SSM, beyond the model of “close cooperation”, grant non-euro area Member States participating in the SSM fully equal rights in the ECB's decision-making, and go even further in the internal separation of decision-making on monetary policy and on supervision)’. It has also stated that ‘a specific point to be addressed would be to strengthen democratic accountability over the ECB insofar as it acts as a banking supervisor’. It is recalled that the Treaty on European Union provides that proposals for treaty change may be submitted by the Government of any Member State, the European Parliament, or the European Commission, and may relate to any aspect of the Treaties.

(46)

This Regulation respects the fundamental rights and observes the principles recognised in the Charter of Fundamental Rights of the European Union, notably the right to the protection of personal data, the freedom to conduct a business, the right to an effective remedy and to a fair trial, and has to be implemented in accordance with those rights and principles.

(47)

Since the objectives of this Regulation, namely setting up an efficient and effective framework for the exercise of specific supervisory tasks over credit institutions by a Union institution, and ensuring the consistent application of the single rulebook to credit institutions, cannot be sufficiently achieved at the Member State level and can therefore, by reason of the pan-Union structure of the banking market and the impact of bank failures on other Member States, be better achieved at the Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives,

(1)

‘participating Member State’ means a Member State whose currency is the euro or a Member State whose currency is not the euro which has established a close cooperation in accordance with Article 6 ;

(2)

‘national competent authority’ means any national competent authority designated by participating Member States in accordance with Directive 2006/48/EC of the European Parliament and the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (recast) (13) and Directive 2006/49/EC of the European Parliament and the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions (recast) (14);

(3)

‘credit institutions’ means credit institutions as defined in Article 4(1) of Directive 2006/48/EC;

(4)

‘financial holding company’ means a financial holding company as defined in Article 4(19) of Directive 2006/48/EC;

(5)

‘mixed financial holding company’ means a mixed financial holding company as defined in Article 2(15) of Directive 2002/87/EC of the European Parliament and of the Council of 16 December 2002 on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate (15);

(6)

‘financial conglomerate’ means a financial conglomerate as defined in Article 2(14) of Directive 2002/87/EC

(6a)

‘national designated authority’ means a designated authority within the meaning of the relevant Union law.

(6b)

‘qualifying holding’ means a qualifying holding as defined in Article 4(11) of Directive 2006/48/EC.

(6c)

‘Single supervisory mechanism (SSM)’ means a European system of financial supervision composed by the European Central Bank and national competent authorities of participating Member States as described in Article 5 of this regulation.

(a)

To authorise credit institutions and to withdraw authorisations of credit institutions subject to the provisions of Article 13 ;

(aa)

for credit institutions established in a participating Member State, which wish to establish a branch or provide cross-border services in a non participating Member State, to carry out the tasks which the competent authority of the home Member State shall have under the relevant Union law;

(b)

To assess applications for the acquisition and disposal of qualifying holdings in credit institutions , except in the case of a bank resolution, and subject to the provisions of Article 13a ;

(c)

To ensure compliance with the acts referred to in the first subparagraph of Article 4(3), which impose prudential requirements on credit institutions in the areas of own funds requirements, securitisation, large exposure limits, liquidity, leverage, and reporting and public disclosure of information on those matters;

(f)

To ensure compliance with the acts referred to in the first subparagraph of Article 4(3), which impose requirements on credit institutions to have in place robust governance arrangements, including the fit and proper requirements for the persons responsible for the management of credit institutions, risk management processes , internal control mechanisms , remuneration policies and practices and effective internal capital adequacy assessment processes , including Internal Ratings Based models ;

(g)

To carry out supervisory reviews, including where appropriate in coordination with the EBA, stress tests and their possible publication, in order to determine whether the arrangements, strategies, processes and mechanisms put in place by credit institutions and the own funds held by these institutions ensure a sound management and coverage of their risks, and on the basis of that supervisory review to impose on credit institutions specific additional own funds requirements, specific publication requirements, specific liquidity requirements and other measures in the cases specifically made available to competent authorities by relevant Union law ;

(i)

To carry out supervision on a consolidated basis over credit institutions' parents established in one of the participating Member States, including over financial holding companies and mixed financial holding companies, and to participate in supervision on a consolidated basis, including in colleges of supervisors without prejudice to the participation of national competent authorities of participating Member States in these colleges as observers , in relation to parents not established in one of the participating Member State;

(j)

To participate in supplementary supervision of a financial conglomerate in relation to the credit institutions included in it and assume the tasks of a coordinator where the ECB is appointed as the coordinator for a financial conglomerate in accordance with the criteria set out in relevant Union law;

(k)

To carry out supervisory tasks in relation to recovery plans, and early intervention where a credit institution or group in relation to which the ECB is the consolidating supervisor, does not meet or is likely to breach the applicable prudential requirements and, only in the cases explicitly stipulated by relevant Union law for competent authorities, structural changes required from credit institutions to prevent financial stress or failure, excluding any resolution powers.

—

Those that are less significant on a consolidated basis, at the highest level of consolidation within the participating Member States, or individually in the specific case of branches, which are established in participating Member States, of credit institutions established in non-participating Member States. The significance shall be assessed based on the following criteria:

(i)

the total value of its assets exceeds 30 billion euro; or

(ii)

the ratio of its total assets over the GDP of the participating Member State of establishment exceeds 20 %, unless the total value of its assets is below 5 billion euro; or

(iii)

following a notification by its national competent authority that it considers such an institution of significant relevance with regard to the domestic economy, the ECB takes a decision confirming such significance following a comprehensive assessment by the ECB, including a balance-sheet assessment, of that credit institution.

(a)

The ECB shall issue regulations, guidelines or general instructions to national competent authorities, according to which the tasks defined in Article 4 excluding letters (a) and (b) thereof are performed and supervisory decisions are adopted by national competent authorities.

(b)

When necessary to ensure consistent application of high supervisory standards, the ECB may at any time, on its own initiative after consulting with national authorities or upon request by a national competent authority, decide to exercise directly itself all the relevant powers for one or more credit institutions referred to in paragraph 4b, including in the case where financial assistance has been requested or received indirectly from the EFSF or the ESM;

(c)

The ECB shall exercise oversight over the functioning of the system, based on the responsibilities and procedures set out in this Article, and in particular paragraph 4e(c);

(d)

The ECB may at any time make use of the powers referred to in Articles 9 to 12;

(e)

The ECB may also request, on an ad hoc or continuous basis, information from the national competent authorities on the performance of the tasks carried out by them under this Article.

(a)

the specific methodology for the assessment of the criteria referred to in paragraph 4b, subparagraphs 1 to 3 and the criteria under which paragraph 4b, subparagraph 4 ceases to apply to a specific credit institution and the resulting arrangements for the purposes of implementing paragraphs 4c and 4d. These arrangements and the methodology for the assessment of the criteria referred to in paragraph 4b, subparagraphs 1 to 3 shall be reviewed to reflect any relevant changes, and shall ensure that where a bank has been considered significant or less significant that assessment shall only be modified in case of substantial and non transitory changes of circumstances, in particular those circumstances relating to the situation of the bank which are relevant for that assessment;

(b)

the definition of the procedures, including time-limits, and the possibility to prepare draft decisions to be sent to the ECB for consideration, for the relation between the ECB and the national competent authorities regarding the supervision of credit institutions not considered as less significant in accordance with in paragraph 4b;

(c)

the definition of the procedures, including time-limits, for the relation between the ECB and the national competent authorities regarding the supervision of credit institutions considered as less significant in accordance with in paragraph 4b. Such procedures shall in particular require national competent authorities, depending on the cases defined in the framework, to:

(a)

The Member State concerned notifies the other Member States, the Commission, the ECB and the EBA the request to enter into a close cooperation with the ECB in relation to the exercise of the tasks referred to in Article 4 and Article 4a with regards to all credit institutions established in the Member State concerned , in accordance with Article 5 ;

(b)

In the notification, the Member State concerned undertakes:

(c)

The Member State concerned has adopted relevant national legislation to ensure that its national competent authority will be obliged to adopt any measure in relation to credit institutions requested by the ECB, in accordance with paragraph 5.

(a)

where , in the opinion of the ECB, the conditions set out in paragraph 2(a) to (c) are no longer met by a Member State concerned; or

(b)

where, in the opinion of the ECB, the national competent authority of a Member State does not act in accordance with the obligation referred to in paragraph 2(c).

—

whether the absence of such suspension or termination could jeopardize the integrity of the SSM or have significant adverse consequences as regards the fiscal responsibilities of the Member States;

—

whether such suspension or termination could have significant adverse consequences as regards the fiscal responsibilities in the Member State which has notified the objection in accordance with Art. 19(3);

—

whether or not it is satisfied that the national competent authority concerned has adopted measures which, in the ECB's opinion:

(a)

credit institutions established in the participating Member States ;

(b)

financial holding companies established in the participating Member States ;

(c)

mixed financial holding companies established in the participating Member States ;

(d)

mixed-activity holding companies established in the participating Member States ;

(e)

persons belonging to the entities referred to in (a) to (d) ▌;

(f)

third parties to whom the entities referred to in (a) to (d) have outsourced ▌functions or activities;

(a)

require the submission of documents;

(b)

examine the books and records of the persons referred to in Article 9 (1) (a) to ( f ) and take copies or extracts from such books and records;

(c)

obtain written or oral explanations from any person referred to in Article 9(1) (a) to ( f ) or their representatives or staff;

(d)

interview any other ▌person who consents to be interviewed for the purpose of collecting information relating to the subject matter of an investigation;

(a)

the credit institution does not meet the requirements of the acts referred to in the first subparagraph of Article 4(3);

(b)

the ECB has evidence that the credit institution is likely to breach the requirements of the acts referred to in the first subparagraph of Article 4(3) within the next 12 months;

(c)

based on a determination, in the framework of a supervisory review in accordance with Article 4(1)(g), that the arrangements, strategies, processes and mechanisms implemented by the credit institution and the own funds and liquidity held by it do not ensure a sound management and coverage of its risks.

(a)

to require institutions to hold own funds in excess of the capital requirements laid down in the acts referred to in the first subparagraph of Article 4(3) related to elements of risks and risks not covered by the relevant Union acts,

(b)

to require the reinforcement of the arrangements, processes, mechanisms and strategies;

(c)

to require institutions to present a plan to restore compliance with supervisory requirements pursuant to the acts referred to in the first subparagraph of Article 4(3) and set a deadline for its implementation, including improvements to that plan regarding scope and deadline;

(d)

to require institutions to apply a specific provisioning policy or treatment of assets in terms of own funds requirements;

(e)

to restrict or limit the business, operations or network of institutions or to request the divestment of activities that pose excessive risks to the soundness of an institution;

(f)

to require the reduction of the risk inherent in the activities, products and systems of institutions;

(g)

to require institutions to limit variable remuneration as a percentage of net revenues when it is inconsistent with the maintenance of a sound capital base;

(h)

to require institutions to use net profits to strengthen own funds;

(i)

to restrict or prohibit distributions by the institution to shareholders, members or holders of Additional Tier 1 instruments where the prohibition does not constitute an event of default of the institution;

(j)

to impose additional or more frequent reporting requirements, including reporting on capital and liquidity positions;

(k)

to impose specific liquidity requirements, including restrictions on maturity mismatches between assets and liabilities;

(l)

to require additional disclosures;

(m)

to remove at any time members from the management body of credit institutions who do not fulfil the requirements set out in the acts referred to in the first subparagraph of Article 4(3).

(a)

the functioning of the SSM within the European System of Financial Supervision and the impact of the supervisory activities of the ECB on the interests of the Union as a whole and on the coherence and integrity of the single market in financial services, including its possible impact on the structures of the national banking systems within the EU, and regarding the effectiveness of cooperation and information sharing arrangements between the SSM and national competent authorities of non-participating Member States ;

(aa)

the division of tasks between the ECB and the national competent authorities within the SSM, the effectiveness of the practical modalities of organisation adopted by the ECB, and the impact of the SSM on the functioning of the remaining supervisory colleges;

(ab)

the effectiveness of the ECB’s supervisory and sanctioning powers and the appropriateness of conferring on the ECB additional sanctioning powers, including in relation to persons other than credit institutions, financial holding companies or mixed financial holding companies;

(ac)

the appropriateness of the arrangements set out respectively for macroprudential tasks and tools under Article 4a and for the granting and withdrawal of authorisations under Article 13;

(b)

the effectiveness of independence and accountability arrangements;

(c)

the interaction between the ECB and the European Banking Authority;

(d)

the appropriateness of governance arrangements, including the composition of , and voting modalities in, the Supervisory Board and its relation with the Governing Council. as well as the collaboration in the Supervisory Board between euro area Member States and the other participating Member States in the SSM ;

(da)

the interaction between the ECB and the national competent authorities of non-participating Member States and the effects of the SSM on these Member States;

(db)

the effectiveness of the recourse mechanism against decisions of the ECB;

(dc)

the cost effectiveness of the SSM;

(dd)

the possible impact of the application of Article 6(5b), 6(5c), and 6(5d) on the functioning and integrity of the SSM;

(de)

the effectiveness of the separation between supervisory and monetary policy functions within the ECB and of the separation of financial resources devoted to supervisory tasks from the budget of the ECB, taking into account any modifications of the relevant legal provisions including at the level of primary law;

(df)

the fiscal effects that supervisory decisions taken by the SSM have on participating Member States and the impact of any developments in relation to resolution financing arrangements;

(dg)

the possibilities of developing further the SSM, taking into account any modifications of the relevant provisions, including at the level of primary law, and taking into account whether the rationale of the institutional provisions in this Regulation is no longer present, including the possibility to fully align rights and obligations of euro area Member States and other participating Member States.