The European Single Supervisory Mechanism. What Impact for Specialised Lending Institutions? Caroline Knaak

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1 Caroline Knaak DG MS III DIV ISO Head of Division Institutional and Sectoral Oversight The European Single Supervisory Mechanism What Impact for Specialised Lending Institutions? EUROFINAS, Cascais 16 October 2015

2 Rubric Overview Value Added of the Single Supervisory Mechanism Specialised Lending Institutions in the Scope of the SSM Significant, Less Significant and Highly Prioritised Institutions Specialised Lending Institutions under the SSM approach Indirect Supervision on Specialised Lending Institutions 6 SSM Priorities with relevance for Specialised Lending Institutions 7 What is new for Specialised Lending Institutions? What remains? Note: NCA = National Competent Authority ; LSI = Less Significant Institution 2

3 Rubric Value Added of the Single Supervisory Mechanism Euro-area wide perspective of the ECB Promoting the best supervisory knowledge and standards Detecting patterns and trends that indicate problems or an emerging crisis Acting decisively where necessary to protect the interests of the SSM Assuring mutual support of supervisors in all areas of expertise Supervisory standards of highest quality require a considerable investment Stocktake and agreement on standards assuring consistency of supervision Higher transparency for all parties involved 3

4 Specialised Rubric Lending Institutions in the Scope of the SSM Credit Institutions not belonging to an SSM group of institutions competition Leasing Institutions not belonging to an SSM group of institutions with or without national banking license incorporated in Euro Area other EU Area non EU Factoring Institutions not belonging to an SSM group of institutions competition collaboration observed Institutions EU Definition = deposit taking + loan granting Incorporated in the Euro Area highest level of consolidation is relevant SSM Institutions involved in Special Lending also taking deposits Loan granting companies belonging to an SSM group of institutions Leasing/Factoring companies belonging to an SSM group of institutions Special Lending Institutions in the SSM scope 4

5 Rubric Significant, Less Significant and Highly Prioritised Institutions Application of proportionality Single Rule Book Increasing intensity of SSM attention Low priority Medium priority High priority Highest priority Less Significant Institutions Significant Institutions 5 migration

6 Rubric Specialised Lending Institutions under the SSM approach A single supervision system pragmatically implemented ECB MONITORS THE SINGLE SYSTEM Direct Supervision Joint Supervisory Teams (JSTs) ECB Staff NCA Staff Horizontal/ Specialised Functions ECB Staff Indirect Supervision ECB Staff NCA Staff Significant Special Lending Institutions Peer Groups Sectors Less Significant Special Lending Institutions 6

7 Rubric Specialised Lending Institutions under the SSM approach Additional perspectives on (supervision of) Specialised Lending Institutions Supervision System (Goups of) Institutions Sectors Topics of Special Interest 7 National Competent Authority

8 Rubric Specialised Lending Institutions under the SSM approach Supervision of Specialised Lending Institutions requires intense collaboration Peers include directly and indirectly supervised institutions Ongoing cooperation of DGMS3 with DGsMS1+2 necessary Specialised Lending Institutions exist in many SSM countries A consistent approach to supervision requires an intense cooperation of the DGMS3 with all relevant NCAs Comparable regulatory issues must be treated consistently In regulatory matters DGMS3 closely cooperates with DGMS4 Recent example: Thematic Review on Car Financing carried out by DGMS3 in collaboration with DGMS2 and several NCAs 8

9 Rubric Indirect Supervision on Specialised Lending Institutions Indirect supervision ECB s oversight intensity depends on the individual prioritisation of the Specialised Lending Institutions Intensity of the institutional oversight Early warning / Crisis CRISIS KRISE Special institutions e.g. near to significant High priority LSIs All LSIs The ECB follows a proportionate approach ECB Oversight relies on quantitative/ qualitative information from NCAs (normally no direct contact to the banks) 9

10 Indirect Rubric Supervision on Specialised Lending Institutions NCAs and ECB have clear responsibilities in LSI supervision Regular flow of quantitative and qualitative information Request of additional information ECB - DGMS III Oversight Guidelines and General instructions NCAs Supervision Proportionality: ECB Focus is on high priority LSIs Supervision Supervisory reporting ECB directly responsible for common procedures (e.g. licensing) Application handled by NCA Joint assessment with NCA Decisions taken by ECB If necessary ECB can Carry out on-site examinations Take over direct supervision for individual LSIs 10 LSIs (less significant institutions)

11 Indirect Rubric Supervision on Specialised Lending Institutions Applying the ECB s tools for indirect supervision Ex ante notification of procedures and draft decisions by NCAs to ECB ECB assessment of draft material decisions and procedures Regular ex post reporting by NCAs on their supervisory activities Issuance of ECB regulations, guidelines or general instructions to NCAs Thematic reviews: deep dives into specific risk areas Possibility to request information and to perform on-site inspections Possibility to take over supervision of individual LSIs at any time Technical cooperation 11

12 SSM Priorities with relevance for Special Lending Institutions Rubric Selected 2015/2016* priorities Stocktakes on business models (sustainability, profitability drivers) and organisation (governance) NPL project (NPL Framework stocktake, effective solutions for NPLs) Monitoring of CRD-IV-implementation (in particular transitory period) Operational Risks (conduct Risk, IT and riskmanagement systems, cybersecurity and data integrity, online banks) Develop consistent supervisory practices (e.g. supervisory planning, SREP for LSIs) Assure SSM-wide comparability of data (develop proxies and workarounds for ngaap figures) Stocktake on Models (starting with institutions under direct supervision) Note: * 2016 not yet finalised 12

13 Rubric What is new for Special Lending Institutions? What remains? ECB is responsible for the well-functioning of SSM supervision ECB investigates and compares on an SSM level (Specialised Lending Institutions with all SSM institutions and with peers) ECB identifies best practice and promotes SSM expert knowledge ECB is in charge of direct supervision of significant Specialised Lending Institutions in the scope of the SSM NCAs continue to have privileged regional knowledge on all Specialised Lending Institutions in their legislation and on their banking system structures NCAs remain in charge of day to day supervision of less significant Specialised Lending Institutions in the scope of the SSM (and of those with national banking licenses) National Competent Authorities remain the first point of contact for Specialised Lending Institutions in their country of origin 13

14 Rubric Thank you for your attention! 14