European Central Bank – close cooperation within the Single Supervisory Mechanism with non-euro EU Member States

KEY POINTS

The European system of banking supervision (SSM) was established as the system of banking supervision composed of the ECB and the national competent authorities (NCAs) of participating Member States to ensure safe and sound banks, a stable and integrated financial system and the consistent supervision of all banks. All euro-area countries participate automatically in European banking supervision.

Member States that do not use the euro can participate in the SSM by requesting that close cooperation be established between the ECB and their NCA. Once close cooperation has been established, these Member States can join both the SSM and the Single Resolution Mechanism, which ensures the orderly resolution of failing banks.

The establishment of close cooperation contributes to the safety and soundness of banks and fosters the process of financial integration across the single market.

Under close cooperation, the NCAs are obliged to adopt any measure in relation to supervised entities at the request of the ECB. The legal acts adopted by the ECB are binding and enforceable, and the NCAs must provide the ECB with all the information necessary for the purposes of carrying out the ECB’s supervisory tasks.

The SSM regulation, the SSM framework regulation and the ECB decision on close cooperation describe the process of establishing close cooperation and how it works.

Steps for the establishment of close cooperation:

1. the non-euro-area Member State formally requests to enter into close cooperation under the SSM;
2. the non-euro-area Member State prepares and adopts national legislation that allows the ECB to exercise its supervisory tasks within the framework of close cooperation, and the ECB assesses that legislation;
3. the ECB carries out a comprehensive assessment of the banks of the Member State concerned, similar to that conducted on euro-area banks in 2014 before the SSM was set up;
4. the ECB adopts a decision that indicates how supervisory tasks will be transferred to the ECB and when the close cooperation will commence.

Supervision under close cooperation.

• Once close cooperation is established, the Member State concerned becomes a member of the SSM and its NCA is in a position comparable to all other NCAs of Member States participating in the SSM. This means that significant credit institutions in the countries participating in close cooperation will be supervised by the ECB via instructions given to the NCAs, and credit institutions classified as less significant will continue to be supervised by the NCAs, with the ECB performing an oversight role.

Suspension or termination of close cooperation:

• the ECB may suspend the close cooperation for up to 6 months, giving reasons for its decision;
• the termination of the close cooperation can be initiated by the ECB or by the Member State with which there is close cooperation.

Once a Member State with which there is close cooperation fulfils the necessary conditions for the adoption of the euro and that Member State adopts the euro, it becomes a member of the Eurosystem.