European Banking Union 9781509963904, 9783848734887

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Preface The initiative for setting up the present book dates back to 2016, just after the Banking Union (BU) became operational. The literature on this field was already significant – and since then has, indeed, exponentially increased, as manifested by the list of references in the commented articles. Nevertheless, it was our firm belief that a systematic, article-by-article Commentary of the Single Supervisory Mechanism Regulation (SSMR) and the Single Resolution Mechanism Regulation (SRMR), as well as of the acts adopted in this relation by the European Central Bank (ECB) and the Single Resolution Board (SRB) would be of value for academics, supervisors, regulators, resolution authorities and practitioners who may wish to refer to it. The delay in the publication of this demanding work on the two main pillars of the BU (the third still missing) was mainly due to the substantial amendment, in 2019, in the course of the so-called first “Banking Package”, of the SRMR, as well as of the Capital Requirements Regulation and Directive (CRR and CRD IV, respectively) and of the Bank Recovery and Resolution Directive (BRRD), which constitute the largest part of the single market component of the European banking regulatory law. In order to cover these changes in the Commentary – which have substantially affected, directly or indirectly, the content and interpretation of the SSMR and the SRMR, the publication was postponed. However, developments are constant. New delegated and implementing acts, as well as guidelines and recommendations have been adopted by September 2021, which in principle is the cut-off date for information included in this Commentary, while others are in the making. In that respect, the possibility is not excluded that at the time readers keep this book in their hands, some provisions may have been supplemented by new ones or even amended. This Commentary benefits from the invaluable work of many distinguished colleagues, practitioners and academics alike, who have contributed thereto with their insightful analyses. We are indebted to them and wish to cordially thank them for the value they added to this book, as well as for their patience as regards the delays in its finalisation. In the preparation of the manuscripts for publication, valuable assistance has been provided by Mr Raphael Reiss, Ms Claire Marshall and Mr Armin Pezhhan, student research assistants at the Chair of Private Law, Company Law, Banking and Securities Law, Eberhard-Karls-University, Tübingen. Last but not least, we wish to thank our publisher for having accepted to include our book in the Brussels Commentary series, and in particular, Dr. Matthias Knopik, for his substantial contribution to its successful publication. February 2022

Jens-Hinrich Binder Christos Gortsos Klaus Lackhoff Christoph Ohler

V

Authors Kern Alexander Prof. Dr. Kern Alexander is Professor of International financial law and banking regulation at the Faculty of Law, University of Zurich and is a Director of Studies at Queens’ College, University of Cambridge. He is the founder of the Research Network of Sustainable and also Co-Director of the bank governance programme at the University of Oxford. Martina Almhofer Mag. Dr. Martina Almhofer, LL.M. BSc is Assistant Professor (post doc) at the Institute for European and International Law at Vienna University of Economics and Business. Previously, she has worked as a Legal Counsel in the Supervisory Law Division of the ECB Legal Services. Fabian Amtenbrink Prof. Dr. Fabian Amtenbrink is Professor of European Union Law at the Erasmus School of Law, Erasmus University Rotterdam, where he also serves as Vice Dean and Director of Research. He is co-founder and member of the academic board of the Erasmus Center for Economic and Financial Governance and a frequent visiting professor at the College of Europe in Bruges. Jens-Hinrich Binder Prof. Dr. Jens-Hinrich Binder, LL.M. is Professor of private law, company law, banking and securities law at Eberhard Karls University, Tübingen. He is also Co-Director of the Tübingen Research Center on the Determinants of Economic Activity (TRIDEA), and a fellow academic Member of the European Banking Institute (EBI). He has been visiting Professor at Università Cattolica del Sacro Cuore, Milan, and Radboud University Nijmegen. Seraina Neva Grünewald Prof. Dr. Seraina Grünewald is Professor of European and Comparative Financial Law at Radboud University Nijmegen. She is a member of the Academic Board of the European Banking Institute and of the Sustainable Finance Lab in the Netherlands. She is also affiliated as an academic fellow with the EUSFiL Jean Monnet Centre of Excellence at the University of Genoa and with the interdisciplinary University Research Priority Programme Financial Market Regulation at the University of Zurich. Christos V. Gortsos Prof. Dr. Christos V. Gortsos is Professor of public economic law at the Law School of the National and Kapodistrian University of Athens. Inter alia, he is also Vice-President of the Board of Appeal of the European Supervisory Authorities, Member of the European Parliament’s expert group on banking resolution and President of the Academic Board of the European Banking Institute (EBI). In the winter semester of the academic year 2017-2018 he was a Bernard Braudel Senior Fellow at the Law Department of the European University Institute in Florence. His work focuses on international and EU monetary and financial law (regulation), as well as on central banking law.

XI

Authors Georg Gruber Dr. Georg Gruber is Head of the SSM Secretariat Division at the European Central Bank. Elke Gurlit Prof. Dr. Elke Gurlit is Professor of public law, comparative law, and European law at the Faculty of Law and Economics at Johannes Gutenberg University of Mainz. She was a Judge at the Staatsgerichtshof Bremen, Germany. Her main research topics are information law, administrative law and financial market regulation. Christos Hadjiemmanuil Prof. Christos Hadjiemmanuil is a Visiting Professor at LSE Law School, as well as a Professor of International and European monetary and financial institutions at the University of Piraeus. He is a member of the Athens Bar Association. Matthias Haentjens Prof. Dr. Matthias Haentjens, LL.M., is a full Professor of law at Leiden Law School and director of the Hazelhoff Centre for Financial Law since 2012. Prior to joining Leiden Law School, he was an attorney with De Brauw Blackstone Westbroek. He was a visiting scholar at Université de Paris II (Panthéon-Assas), Harvard Law School, New York University School of Law and Ghent University. He has been a member of the Expert Group on Securities and Claims at the European Commission, of the Consultative Working Group on Investment Management at ESMA, and a short-term consultant with the World Bank. Since 2016, he has been appointed a deputy judge in the Court of Amsterdam. Janina Heinz Dr. Janina Heinz is Counsel at Freshfields Bruckhaus Deringer Rechtsanwälte Steuerberater PartG mbB, Frankfurt am Main. In a previous role, she worked at the European Central Bank as legal counsel in the Supervisory Law Division of DG Legal Services. Ann-Katrin Kaufhold Prof. Dr. Ann-Katrin Kaufhold holds the chair of constitutional and administrative law at Ludwig-Maximilians-University Munich. Her research focuses on financial market law, esp. financial supervision, and sustainable finance regulation. Klaus Lackhoff Dr. Klaus Lackhoff, M.Iur.Eur. (Saarbrücken), LL.M. (Iowa), worked for more than 15 years in an international law firm before joining the ECB in 2015 as Head of Section in the Supervisory Law Division. In private practice, he advised on banking supervisory issues and a broad range of financing transactions (e.g. IPOs, asset and structured finance transactions). He was involved in the preparation of the ECB for its supervisory tasks and the drafting of the SSM Framework Regulation. At the ECB he leads a team of lawyers dealing, in particular, with CRR related matters. Christoph Ohler Prof. Dr. Christoph Ohler, LL.M.(Brügge) is full professor for public law, European law, public international law and international economic law at the Friedrich-Schiller University of Jena. His focus of research is on EMU and Banking Union.

XII

Authors Chryssa Papathanassiou Dr. Chryssa Papathanassiou, LL.M (Yale) is a lawyer admitted to practice in Athens and New York. Her publications focus on financial market infrastructures, banking supervision, and governance. In her recent project, she analyses the evidence of leasing in ancient silver mines. She leads the supervisory cooperation team at ECB Banking Supervision. She is an external university lecturer at the European Business School (EBS) in Wiesbaden, Germany. Mikulas Prokop Mikulas Prokop is a Legal Counsel at the European Central Bank. Georgios Psaroudakis Georgios Psaroudakis is Associate Professor of Commercial Law at the Faculty of Law, Aristotle University of Thessaloniki. He has studied at the Universities of Athens, Oxford and Hamburg. He has published widely (in Greek, English and German), mostly in the areas of corporate, financial and insolvency law. He has chaired or participated at law drafting committees on financial and corporate law, and since 2021 he is chairing the Insolvency Administration Committee established under Greek law. He is also working on the law of bank supervision and resolution at the Bank of Greece. René Smits René Smits is a Professor Emeritus of the Law of the Economic and Monetary Union (EMU) at the University of Amsterdam, consultant on EMU law & EU banking regulation, Member of the Administrative Board of Review of the ECB and assessor at the Belgian Competition Authority (BCA). He worked for De Nederlandsche Bank N.V. (the Dutch central bank) in Amsterdam for 24 years, where he was general counsel (1989-2001), responsible for legal advice, with a focus on EU banking directives, the IMF and the preparations for monetary union (the introduction of the single currency). He also was a member of the Legal Committee of the European System of Central Banks. Later, he worked for the competition authority of the Netherlands. Emiliano Tornese Emiliano Tornese is Deputy Head of Unit “Resolution and Deposit Insurance” in the European Commission’s DG for Financial Stability, Financial Services and Capital Markets Union. In that capacity, he is involved in the negotiations on the completion of the Banking Union, EDIS and ESM backstop. He has been involved with the preparation and negotiation of the BRRD and TLAC implementation, and with the preparation, negotiation and launch of the Single Resolution Mechanism. He is also Part-time Professor at the Florence School of Banking and Finance, based at the European University Institute, and Visiting Professor at the College of Europe, Bruges. Andreas Witte Dr. iur. Andreas Witte; M.Jur., M.Sc. (Oxon), Dipl.-Jur., Wirtschaftsjurist (Bayreuth) joined the Directorate General Legal Services at the European Central Bank in 2014. During 2011-2014 he worked in the Banking Supervision Department of the Deutsche Bundesbank. For a list of his publications, see www.andreaswitte.com.

XIII

Authors Karl-Philipp Wojcik Dr. Karl-Philipp Wojcik has been the General Counsel to the EU Single Resolution Board in Brussels since 2020, after having joined the European Commission as a Member of its Legal Service in 2010. He graduated in Law from the universities of Münster, Paris I Panthéon-Sorbonne (Licence en droit international) and Cologne (Ph.D.), followed executive education at Harvard Kennedy School and qualified for the bar in Germany. Karl-Philipp Wojcik lectures in law at the University of Bonn as well as at the University of Bologna. His publications focus on EU and national law, in particular on EU constitutional and judicial law, EU financial services law, as well as private and company law. Georgios Zagouras Dr. Georgios Zagouras is a syndic at the European Central Bank. He is a university lecturer at the Philipps-Universität Marburg and the European Business School (EBS) in Wiesbaden. He is also a member of the ECB’s Staff Committee and a Board Member of IPSO.

XIV

Abbreviations ABoR AIFs AIFM AIUFASS AKT AMC AML Art. BCBS BFLR BaFin BEEP BGBl. BGHZ BHC BJIBFL BRRD BRRD II BT-Drucks. BU BUCOM BUWG BVerfG CCP CET CEPS cf. CFI CFREU CFT Ch. CIA CJEU CLR CMLR CMTs CPVO CoCo COD COFRA COREP CoRes CRD IV CRD V

Administrative Board of Review Alternative investment funds Alternative Investment Fund Managers Association Internationale des Utilisateurs de Fils de Filaments Artificiels et Synthétiques et de Soie naturelle Apparel, Knitting & Textiles Alliance Asset management company Anti-money laundering Article Basel Committee on Banking Supervision Banking & Finance Law Review (Journal) Bundesanstalt für Finanzdienstleistungsaufsicht (German Federal Financial Supervisory Authority) Bruges European economic policy briefings (Journal) Bundesgesetzblatt (German Law Gazette) Entscheidungen des Bundesgerichtshofes in Zivilsachen (Decisions of the Federal Court of Justice in civil matters) Bank holding company Butterworths Journal of International Banking and Finance Law Bank Recovery and Resolution Directive (Directive 2014/59/EU) Bank Recovery and Resolution Directive no. II (Directive (EU) 2019/879) Bundestags-Drucksache (German Parliament Document) Banking Union Budget Committee Banking Union Working Group Bundesverfassungsgericht (German Federal Constitutional Court) Central counterparty Common equity tier (capital) Centre for European Policy Studies Confer Corporate Finance Institute Charter of Fundamental Rights of the European Union Combating financing of terrorism Chapter Certified internal auditor Court of Justice of the European Union Columbia Law Review (Journal) Common Market Law Review (Journal) Crisis Management Teams Community Plant Variety Office Contingent convertible bonds Cash on delivery Cooperation Framework (Single Resolution Mechanism) Common reporting Resolution Committee Capital Requirements Directive no. IV (Directive 2013/36/EU) Capital Requirements Directive no. V (Directive (EU) 2019/878)

XV

Abbreviations CRR CRR II CTF CYELP DG COMP DGS DGSD DIF DRI DPO DVBl EBA EBAR EBI EBLR EBOR EBU EC ECB ECEFIL ECGI ECJ ECL ECLI ECOFIN ECON ECSC ed/eds EDIS edn EDPS EEA EEC EFSF EIM EIoP EIOPA EIOPAR ELJ ELR ELRev. EMF EMIR EMU ERL ESAs ESCB ESFS ESM XVI

Capital Requirements Regulation (Regulation (EU) 575/2013) Capital Requirements Regulation no. II (Regulation (EU) 2019/876) Counter-terrorist financing Croatian Yearbook of European Law and Policy (Journal) Directorate-General for Competition (European Commission) Deposit guarantee scheme Deposit Guarantee Schemes Directive (Directive 2014/49/EU) Deposit insurance fund Direct recapitalisation instrument Data protection officer Deutsches Verwaltungsblatt European Banking Authority EBA Regulation (Regulation (EU) 1093/2010) European Banking Institute European Business Law Review (Journal) European Business Organization Law Review European Banking Union European Community European Central Bank European Centre for Economic and Financial Law European Corporate Governance Institute European Court of Justice European Company Law (Journal) European Case Law Identifier Economic and Financial Affairs Council Economic and Monetary Affairs Committee (European Parliament) European Coal and Steel Community Editor/s European Deposit Insurance Scheme Edition European Data Protection Supervisor European Economic Area European Economic Community European Financial Stability Facility Early Intervention Measures European Integration online Papers (Journal) European Insurance and Occupational Pensions Authority EIOPA Regulation (Regulation (EU) 1094/2010) European Law Journal Expected loss ratio European Law Review European Monetary Fund European Market Infrastructure Regulation (Regulation (EU) 648/2012) Economic and Monetary Union Eurosystem resolution liquidity European Supervisory Authorities European System of Central Banks European System of Financial Supervision European Stability Mechanism

Abbreviations ESMA ESMAR ESRB ESZB et seq. EU EUCI EUCJ EUCO EUR EuR EUV EuZW EZB EWU FDIA FDIC FICOD I FICOD II FIDE FRBNY FinDAG FINREP FinSAC FMIR Fn FOLTF FROB FSAP FSB FTEs GAAP G-SIBs G-SIFI G-SII GC GDP GDPR GLRA GSII IAASB IADI ICAAP ICCLR ICLQ ICSD IDI IFD

European Securities and Markets Authority ESMA Regulation (Regulation (EU) 1095/2010) European Systemic Risk Board Europäisches System der Zentralbanken Et sequens (the following) European Union European Union Classified Information European Union Court of Justice (Court of Justice of the European Union) European Council Euro(s) Europarecht (Journal) Vertrag über die Europäische Union (Treaty on European Union) Europäische Zeitschrift für Wirtschaftsrecht (Journal) Europäische Zentralbank (European Central Bank) Europäische Währungsunion Federal Deposit Insurance Act Federal Deposit Insurance Corporation Financial Conglomerates Directive no. I (Directive 2002/87/EC) Financial Conglomerates Directive no. II (Directive 2011/89/EU) Fédération Internationale Pour Le Droit Européen Federal Reserve Bank of New York Finanzdienstleistungsaufsichtsgesetz (German Financial Services Supervision Act) Financial reporting Financial Sector Advisory Center (World Bank) Financial markets, institutions, and risks Footnote Failing or likely to fail Fondo de Reestructuración Ordenada Bancaria Financial sector assessment program Financial Stability Board Full-time equivalents Generally Accepted Accounting Principles Global Systemically Important Banks Global Systemically Important Financial Institution Global Systemically Important Institution General Court Gross domestic product General Data Protection Regulation (Regulation (EU) 2016/679) Group-level resolution authority Global systemically important institution International auditing and assurance standards board International association of deposit insurers Internal Capital Adequacy Assessment Process International Company and Commercial Law Review (Journal) International and Comparative Law Quarterly (Journal) International central securities depositories Insured depository institution Investment Firms Directive (Directive (EU) 2019/2034) XVII

Abbreviations IFR IFRS IGA IIA ILAAP IMF INSOL IOLR IPSAS IRBA IRRBB IRT ISIN ITS IVS IVSC J. Fin. Reg. JCMS JFR JIBLR JÖR JST KWG LAA LCR LDT LFA LREM LSI Maastricht J. of Eur. & Comp. L. MaRisk MCC MEIP MEOP MEPs MiFID I MiFID II MIS MJ M-MDA MoU MPE MREL NCA NCB XVIII

Investment Firms Regulation (Regulation (EU) 2019/2033) International financial reporting standards Intergovernmental agreement Institute of Internal Auditors Internal Liquidity Adequacy Assessment Process International Monetary Fund International Association of Restructuring, Insolvency & Bankruptcy Professionals International Organizations Law Review (Journal) International public sector accounting standards Internal ratings-based approach Interest rate risk in the banking book Internal resolution team International Securities Identification Number Implementing technical standards International Valuation Standards International Valuation Standards Council Journal of Financial Regulation Journal of Common Market Studies Journal of Financial Research Journal of International Banking Law & Regulation Jahrbuch des öffentlichen Rechts der Gegenwart (Journal) Joint supervisory team Kreditwesengesetz (German Banking Act) Loss-absorption amount Liquidity coverage requirement Liability Data Template Loan facility agreement Leverage ratio exposure measure Less significant institution Maastricht Journal of European and Comparative Law Mindestanforderungen an das Risikomanagement (minimum requirements for risk management) Market confidence charge Market Economy Investor Principle Market Economy Operator Principle Members of the European Parliament Markets in Financial Instruments Directive no. I (Directive 2004/39/EC) Markets in Financial Instruments Directive no. II (Directive 2014/65/EU) Management Information System Maastricht Journal of European and Comparative Law Maximum Distributable Amount related to MREL Memorandum of understanding Multiple point of entry Minimum requirement for own funds and eligible liabilities National competent authority National central bank

Abbreviations NCWO NCWOL NDA NJW No. NRA NSFR NVwZ NWULR OCR OECD OJ OLA OLAF OMT O-SIIs Ox. J. Leg. Stud. P2G P2R para(s). PONV PSD PSD II PSPP Q&A RCA Reg. ROI RTS RWA SAG sent. SEP SFR SI SNE SPE SRB SRB-FR SREP SRB SRF SRM SRMR SRMR II SSH

No Creditor Worse Off (principle) No Creditor Worse Off than under Liquidation National designated authority Neue Juristische Wochenschrift (Journal) Number National resolution authority Net stable funding ratio Neue Zeitschrift für Verwaltungsrecht (Journal) Northwestern University Law Review Overall capital requirement Organisation for Economic Co-operation and Development Official Journal Orderly liquidation authority European Anti-Fraud Office (Office de Lutte Anti-Fraude) Outright Monetary Transactions Other Systemically Important Institutions Oxford Journal of Legal Studies Pillar 2 guidance Pillar 2 requirements Paragraph(s) Point of non-viability Payment Services Directive (Directive 2007/64/EC) Payment Services Directive no. II (Directive (EU) 2015/2366) Public sector purchase programme Questions and answers Recapitalisation amount Regulation Return on investment Regulatory technical standards Risk weighted assets Sanierungs- und Abwicklungsgesetz (German Bank Recovery und Resolution Act) Sentence Supervisory examination programme Supervisory Fees Regulation (Regulation (EU) No 1163/2014, ECB/2014/41) Significant Institution Seconded national expert Single point of entry Single Resolution Board SRB Financial Regulation Supervisory review and evaluation process Single Resolution Board Single Resolution Fund Single Resolution Mechanism Single Resolution Mechanism Regulation (Regulation (EU) 806/2014) Single Resolution Mechanism Regulation no. II (Regulation (EU) 2019/877) Single supervisory handbook XIX

Abbreviations SSM SSM‑FR SSMR STE subpara(s). TBTF TEC TEU TFEU TLAC TLOF TREA TRIM UCLAF UCITS UCITS IV UK UNCITRAL US USA VO VwVfG WCCAs WDCCI WM Yale JREG ZBB ZFR ZHR ZÖR

XX

Single Supervisory Mechanism Single Supervisory Mechanism Framework Regulation (Regulation (EU) No. 468/2014) Single Supervisory Mechanism Regulation (Regulation (EU) 1024/2013) Short term exercise Sub-paragraph(s) Too-big-to-fail Treaty (establishing the) European Community Treaty on European Union Treaty on the Functioning of the European Union Total loss-absorbing capacity Total liabilities and own funds Total risk exposure amount Targeted review of internal models Unité de coordination de la lutte anti-fraude Undertakings for Collective Investment in Transferable Securities UCITS Directive no. IV (Directive 2009/65/EC) United Kingdom United Nations Commission on International Trade Law United States (of America) United States of America Verordnung (Regulation) Verwaltungsverfahrensgesetz (German Administrative Procedure Act) Written coordination and cooperation arrangements (for supervisory colleges) Write-down and Conversion of Capital Instruments Wertpapier-Mitteilungen (Journal) Yale Journal on Regulation Zeitschrift für Bankrecht und Bankwirtschaft (Journal) Zeitschrift für Finanzmarktrecht (Journal) Zeitschrift für das gesamte Handelsrecht und Wirtschaftsrecht (Journal) Zeitschrift für öffentliches Recht (Journal)

List of Cases Court

Case

SSM/ SRM

Article

paragraph number in which the court case is cited

CJEU

Case C-9/56, 13 June 1958, Meroni & Co., Industrie Metallurgiche, SpA v High Authority

SSM

4

127

CJEU

Case C-248/83, 21 May 1985, Commission v Germany

SSM

4

113

CJEU

Case C-361/88, 30 May 1991, Commission v Germany

SSM

4

110

CJEU

Case C-300/89, 11 June 1991, Commission v Council

SSM

4

76

CJEU

Case C-617/10, 26 February 2013, Aklagaren v Hans Akerberg Fransson

SSM

4

51

CJEU

C-270/12, 22 January 2014, United Kingdom v Parliament and Council

SSM

4

127

CJEU

Case C-450/17 P, 8 May 2019, Landeskreditbank BadenWürttemberg

SSM

4

5 12

CJEU

Case C-493/17, 11 December 2018, Weiss,

SSM

4

CJEU

Case T-712/15, 13 December 2017, Crédit Mutuel Arkéa v ECB

SSM

6

66

CJEU

Case C-450/17, 8 May 2019, Landeskreditbank Baden-Württemberg v ECB

SSM

6

63

CJEU

Case C-62/14, 16 June 2015, Gauweiler and others v Deutscher Bundestag

SRM

8

57

CJEU

Case 25/62, 15.7.1963, Plaumann v Commission

SRM

12-12k

25

CJEU

Case C-9/56, 13 June 1958, Meroni v ECSC High Authority

SSM

1

9

CJEU

Case C-222/02, 12 October 2004, Peter Paul

SSM

1

30 et seq.

CJEU

Case C-209/03, 15 March 2005, Bidar

SSM

1

28

CJEU

Case C-164/07, 05 June 2008, Wood

SSM

1

24

CJEU

Case C-149/10, 16 September 2010, Chatzi

SSM

1

24

CJEU

Case C-628/11, 18 March 2014, International Jet Management GmbH

SSM

1

28

CJEU

Case C-62/14, 16 June 2015, Gauweiler

SSM

1

32

CJEU

Case C-270/12, 22 January 2014, UK v. European Parliament and Council

SRM

1

11

CJEU

Cases C-9/56 and C-10/56, 13 June 1958, Meroni v High Authority

SRM

1

12

CJEU

Case C-425/13, 16 July 2015, Comission v. Council

SSM

8

3

CJEU

Case C-327/91, 09 August 1994, France v Commission

SSM

8

6

CJEU

Case C-370/12, 27 November 2012, Pringle

SSM

8

10

CJEU

Case C-62/14, 16 June 2015, Gauweiler

SSM

8

10

CJEU

Case 2/15, 16 May 2017, Avis, Opinion

SSM

8

12

CJEU

Case C-248/83, 21 May 1985, Commission v Germany

SSM

9

18

CJEU

Case C-730/79, 17 September 1980, Philip Morris Holland BV v Commission

SSM

9

28

CJEU

Joined Cases C-15/98 and C-105/99, 19 October 2000, Italy and Sardegna Lines v Commission

SSM

9

28

CJEU

Case C-401/09 P, 27 January 2011, Evropaïki Dynamiki v ECB, Opinion of AG Mengozzi

SSM

9

17

CJEU

Case C-617/10, 26 February 2013, Åklagaren v Hans Åkerberg Fransson

SSM

9

18

CJEU

Case C-209/78, 29 October 1980, van Landewyck

SSM

14

30

CJEU

Case C-188/92, 9 March 1994, Textilwerke Deggendorf

SSM

14

59

CJEU

Case 199/99, 26 September 2002, Sgaravatti

SSM

14

30

CJEU

Case C-417/11 P, 15 November 2012, Council v Bamba

SSM

14

34

CJEU

Case C-18/14, 25 June 2015, CO Sociedad de Gestión y Participación SA et al v. De Nederlandsche Bank NV et al

SSM

14

25

XXI

List of Cases Court

Case

SSM/ SRM

Article

paragraph number in which the court case is cited

CJEU

Case C-219/17, 27 June 2018, Berlusconi and Fininvest, Opinion of AG Campos Sánchez-Bordona

SSM

14

59, 60

CJEU

Case C-663/17 P, 5 November 2019, ECB v Trasta Komercbanka and Others

SSM

14

9, 45, 63,

CJEU

Case C-665/17 P, 5 November 2019, Commission v Trasta Komercbanka and Others et BCE

SSM

14

9, 45, 63,

CJEU

Case C-669/17 P, 5 November 2019, Trasta Komercbanka and Others v ECB

SSM

14

9, 45, 63,

CJEU

Case C-417/11 P, 15.11.2012, Council v Bamba

SSM

15

46

CJEU

Case C-219/17, 27.07.2018, Berlusconi and Fininvest, Opinion of AG Campos Sánchez-Bordona

SSM

15

8, 36, 37, 48,

CJEU

Case T-712/15, 13 December 2017, Crédit Mutuel Arkéa v ECB

SSM

16

14

CJEU

Case T-52/16, 13 December 2017, Crédit Mutuel Arkéa v ECB

SSM

16

14

CJEU

Case T-327/13, 16 October 2014, Mallis and Malli v Commission and ECB

SSM

20

20

CJEU

Case C-17/74, 23 October 1974, Transocean Marine Paint Association v Commission

SSM

22

3, 5

CJEU

Case C-85/76, 13 February 1979, Hoffman-La Roche v Commission

SSM

22

3

CJEU

Case C-301/87, 14 February 1990, France v Commission

SSM

22

18

CJEU

Case C-49/88, 27 June 1991, Al-Jubail Fertilizer Company v Council

SSM

22

5

CJEU

Case C-32/95 P, 24 October 1996, Commission v Lisrestal

SSM

22

5, 8

CJEU

Case C-315/99, 10 July 2001, Ismeri Europa Srl v Court of Auditors

SSM

22

18

CJEU

Case C-378/00, 21 January 2003, Commission v Parliament and Council

SSM

22

29

CJEU

Case C-204/00, 7 January 2004, Aalborg Portland A/S v Commission

SSM

22

20, 23, 25, 26, 27

CJEU

Case C-109/10 P, 25 October 2011, Solvay SA v Commission

SSM

22

27

CJEU

Case C-584/10, 18 July 2013, Commission v Kadi

SSM

22

14, 15

CJEU

Case C-365/12 P, 27 February 2014, Commission v EnBW

SSM

22

22

CJEU

Case 25/62, 15 July 1963, Plaumann & Co. v Commission

SSM

24

22

CJEU

Case 22/70, 31 March 1971, Commission v Council

SSM

24

1

CJEU

Joined Cases 41-44/70, 13 May 1971, International Fruit Company v Commission

SSM

24

22

CJEU

Case C-316/91, 2 March 1994, Parliament v Council

SSM

24

1

CJEU

Case C-386/96 P, 5 May 1998, Dreyfus v Commission

SSM

24

22

CJEU

Case 206/89 R, 31 July 1989, S. v Commission

SSM

24

22

CJEU

Case C-27/04, 13 July 2004, Commission v Council

SSM

24

1

CJEU

Case C-370/12, 27 November 2012, Pringle v Government of Ireland (“Pringle”)

SSM

24

3

CJEU

Case C-62/14, 16 June 2015, Gauweiler v Deutscher Bundestag

SSM

24

3

CJEU

Case C-152/18 P, 2 October 2019, Crédit mutuel Arkéa v ECB

SSM

24

3, 39

CJEU

Case C-153/18 P, 2 October 2019, Crédit mutuel Arkéa v ECB

SSM

24

3, 39

CJEU

Joined Cases C‑663/17 P, C‑665/17 P and C‑669/17 P, 5 November 2019, ECB v Trasta Komercbanka; AS, Ivan Fursin and Others and European Commission v Trasta Komercbanka AS, Ivan Fursin and Others and Trasta Komercbanka AS, Ivan Fursin and Others v ECB

SSM

24

19

CJEU

Case C-9/56, 13 June 1958, Meroni v High Authority

SSM

26

79

CJEU

Case C-5/85, 23 September 1986, Akzo Chemie v Commission

SSM

26

79

CJEU

Case C-301/02, 26 May 2005, Tralli v ECB

SSM

26

79

CJEU

Case C-270/12, 22 January 2014, UK v Parliament and Council

SSM

26

79

XXII

List of Cases Court

Case

SSM/ SRM

Article

paragraph number in which the court case is cited

CJEU

Case C-140/13, 12 November 2014, Altmann and others v Bundesanstalt für Finanzdienstleistungsaufsicht

SSM

27

3

CJEU

Case C-15/16, 19 June 2018, Bundesanstalt für Finanzdienstleistungsaufsicht v Ewald Baumeister

SSM

27

3, 4, 22, 25, 28, 29, 30, 34, 38, 41, 47

CJEU

Case C-15/16, 12 December 2017, Bundesanstalt für Finanzdienstleistungsaufsicht v Ewald Baumeister, Opinion of AG Bot

SSM

27

24, 28

CJEU

Case C-594/16, 13 September 2018, Enzo Buccioni v Banca d’Italia

SSM

27

3, 4, 5, 29, 30, 45, 54, 55

CJEU

Case C-594/16, 12 June 2018, Enzo Buccioni v Banca d’Italia, Opinion of AG Bobek

SSM

27

5, 29

CJEU

Case C-358/16, 13 September 2018, UBS Europe and others v DV and others

SSM

27

3, 8, 10, 12, 50

CJEU

Case C-358/16, 1 July 2017, UBS Europe and others v DV and others, Opinion of AG Kokott

SSM

27

3

CJEU

Case C-162/15 P, 14 March 2017, Evonik Degussa GmbH v Commission

SSM

27

43

CJEU

Case 8/81, 19 January 1982, Ursula Becker v Finanzamt MünsterInnenstadt

SSM

27

63

CJEU

Case 152/84, 26 February 1986, M. H. Marshall v Southampton and South-West Hampshire Area Health Authority

SSM

27

63

CJEU

Case C-450/17 P, 8 May 2019, Landeskreditbank BadenWürttemberg – Förderbank v ECB

SSM

27

86

CJEU

Case C-422/18 P, 2 October 2019, ECB v Espírito Santo Financial, Opinion of AG Pikamäe

SSM

27

36

CJEU

Case C-11/00, 10 July 2003, Commission of the European Communities v ECB

SSM

28

2

CJEU

Case C-450/17 P, 8 May 2019, Landeskreditbank BadenWürttemberg – Förderbank v ECB

SSM

28

6

CJEU

Case C-352/98 P, 4 July 2000, Bergaderm and Goupil v Commission

SSM

28

20

CJEU

Case C-11/00, 10 July 2003, Commission of the European Communities v ECB

SSM

29

1

CJEU

Case T-122/15, 16 May 2017, Landeskreditbank BadenWürttemberg v ECB

SSM

32

17

CJEU

Case C-58/08, 06 June 2010, Vodafone Ltd

SRM

4

6

CJEU

Case C-209/03, 15 March 2005, Bidar

SRM

6

10

CJEU

Case C-628/11, 18 March 2014, International Jet Management GmbH

SRM

6

10

CJEU

Case C-62/14, 16 June 2015, Gauweiler and others v Deutscher Bundestag

SRM

10

35, 42

CJEU

Case 9/56, 13 June 1958, Meroni & Co. v High Authority of the European Coal and Steal Community

SRM

18

100

CJEU

Case C-491/01, 10 December 2002, The Queen v Secretary of State for Health, British American Tobacco (Investments) Ltd. and Imperial Tobacco Ltd

SRM

18

12

CJEU

Case C-434/02, 14 December 2004, Arnold André GmbH & Co. KG v Landrat des Kreises Herford

SRM

18

12

CJEU

Case C-210/03 P, 14 December 2004, Swedish Match AB and Swedish Match UK Ltd v Secretary of State for Health

SRM

18

12

CJEU

Joined Cases C-154/04 and C‑155/04, 12 July 2005, Alliance for Natural Health and Others v Secretary of State for Health and National Assembly for Wales

SRM

18

12

CJEU

Case C-66/04, 6 December 2005, United Kingdom v Parliament and Council

SRM

18

12

XXIII

List of Cases Court

Case

SSM/ SRM

Article

paragraph number in which the court case is cited

CJEU

Case C-217/04, 2 May 2006, United Kingdom v Parliament and Council

SRM

18

12

CJEU

Case 9/56, 13 June 1958, Meroni & Co., Industrie Metallurgiche, SpA v High Authority

SRM

21

20

CJEU

Case C-14/83, 10 April 1984, Sabine von Colson und Elisabeth Kamann v Land Nordrhein-Westfalen

SRM

21

4

CJEU

Case C-314/85, 22 October 1987, Foto-Frost v Hauptzollamt Lübeck Ost

SRM

21

36

CJEU

Case C-143/88, 21 February 1991, Zuckerfabrik Süderdithmarschen AG v Hauptzollamt Itzehoe

SRM

21

36

CJEU

Case C-92/89, 21 February 1991, Zuckerfabrik Soest GmbH v Hauptzollamt Paderborn

SRM

21

36

CJEU

Case 9-56, 13 June 1958, Meroni & Co., Industrie Metallurgiche, SpA v High Authority of the European Coal and Steel Community

SRM

23

5, 8

CJEU

Case 9-56, 13 June 1958, Industrie Metallurgiche, SpA v High Authority of the European Coal and Steel Community

SRM

27

114

CJEU

Case C-639/17, 17 January 2019, SIA KPMG Baltics v SIA Ķipars AI

SRM

27

98

CJEU

Case C‑156/15, 10 November 2016, Private Equity Insurance Group SIA v Swedbank AS

SRM

27

73

CJEU

Case 9-56, 13 June 1958, Meroni v High Authority of the European Coal and Steel Community

SRM

29

40

CJEU

Case C-25/62, 15 July 1963, Plaumann v Commission

SRM

29

26

CJEU

Case 60/81, 11 November 1981, IBM v. Commission

SRM

29

26

CJEU

Joined Cases 205–215/82, 21 September 1983, Deutsche Milchkontor GmbH v Germany

SRM

29

5

CJEU

Case 294/83, 23 April 1986, Les Verts v European Parliament

SRM

29

22

CJEU

Case 314/85, 22 October 1987, Foto-Frost v Hauptzollamt LübeckOst

SRM

29

19

CJEU

Case C-97/91, 3 December 1992, Oleificio Borelli SpA v Commission

SRM

29

19

CJEU

Case C-239/99, 15 February 2001, Nachi Europe GmbH v Hauptzollamt Krefeld

SRM

29

22

CJEU

Case C–521/04 P(R), 19 April 2005, Tillack v Commission, order of the President of the Court

SRM

29

19

CJEU

Case C 64/05 P, 19 December 2007, Sweden v Commission

SRM

29

19

CJEU

Case C-362/08 P, 26 January 2010, Internationaler Hilfsfonds eV v Commission

SRM

29

26

CJEU

Case C 38/09 P, 15 April 2010, Schräder v CPVO

SRM

29

44

CJEU

Case C-270/12, 22 January 2014, UK v Parliament and Council

SRM

29

41, 42, 43, 46

CJEU

Case C-132/12 P, 27 February 2014, Stichting Woonpunt v Commission

SRM

29

26

CJEU

C-290/13 P, 4 September 2014, Rütgers Germany GmbH v ECHA

SRM

29

44

CJEU

Joined Cases C-622/16 P to C-624/16 P, 6 November 2018, Scuola Elementare Maria Montessori v Commission

SRM

29

28

CJEU

Case C-135/16, 25 July 2018, Georgsmarienhütte GmbH v Bundesrepublik Deutschland

SRM

29

22

CJEU

Case C-219/17, 19 December 2018, Berlusconi and Fininvest v Banca d'Italia

SRM

29

19,

CJEU

Case C-450/17 P, 8 May 2019, Landeskreditbank BadenWürttemberg – Förderbank v ECB

SRM

31

5

CJEU

Case 22-70, 31 March 1971, Commission v Council (ERTA)

SRM

31

48

CJEU

Case C-9/56, 13 June 1958, Meroni v ECSC High Authority

SRM

42

5

XXIV

List of Cases Court

Case

SSM/ SRM

Article

paragraph number in which the court case is cited

CJEU

Case C-11/00, 10 July 2003, Commission v ECB

SRM

42

12

CJEU

Case C-301/02 P, 26 May 2005, Tralli v ECB

SRM

42

13

CJEU

Case C-217/04, 2 May 2006, United Kingdom v Parliament and Council

SRM

42

1

CJEU

Case C-270/12, 22 January 2014, United Kingdom v Parliament and Council

SRM

42

1, 4, 5

CJEU

Case C-402/05 P, 3 September 2008, Kadi

SRM

44

1

CJEU

Case C-362/14, 6 October 2015, Schrems

SRM

44

1

CJEU

Case C-270/12, 22 January 2014, UK v. Parliament and Council

SRM

45

18

CJEU

Case 9-56, 13 June 1958, Meroni v High Authority

SRM

47

6

CJEU

Case 98/80, 14 May 1981, Romano v Institut national d'assurance maladie-invalidité

SRM

47

6

CJEU

Case C-270/12, 22 January 2014, UK v Parliament and Council

SRM

47

6

CJEU

Case C-20/70, 21 October 1970, Commission v Council (“AETR”)

SRM

57

3

CJEU

Case C-5/71, 2 December 1971, Aktien-Zuckerfabrik Schöppenstedt v Council

SRM

57

11

CJEU

Case C-204/86, 27 September 1988, Hellenic Republic v Council

SRM

57

4

CJEU

Case C-152/88, 26 June 1990, Sofrimport SARL v Commission

SRM

57

11

CJEU

Case C-300/89, 11 June 1991, Commission v Council (“titanium dioxide”)

SRM

57

5

CJEU

Case C-370/12, 27 November 2012, Thomas Pringle v Governement of Ireland and others

SRM

57

13

CJEU

Case C- 392/02, 15 November 2005, Commission v Denmark

SRM

58

14

CJEU

Case C-284/90, 31 March 1992, Council v Parliament

SRM

58

14

CJEU

Joined Cases 205 to 215/82, 21 September 1983, Deutsche Milchkontor GmbH and others v Federal Republic of Germany

SRM

59

7

CJEU

Case C-270/83, 28 January 1986, Commission v French Republic

SRM

59

18

CJEU

Case C-101/01, 6 November 2003, Bodil Lindqvist

SRM

59

5

CJEU

Case C-222/04, 10 January 2006, Ministero dell'Economia e delle Finanze v Cassa di Risparmio di Firenze SpA et al.

SRM

59

18

CJEU

Case C-231/05, 18 July 2007, Oy AA

SRM

59

18

CJEU

Case 25/62, 15 July 1963, Plaumann v Commission

SRM

61

3, 4

CJEU

Joined Cases 8-11/66, 15 March 1967, Cimenteries and others v Commission

SRM

61

6

CJEU

Case 138/79, 29 October 1980, Roquette v Council

SRM

61

19

CJEU

Case 283/81, 6 October 1982, CILFIT v Ministry of Health

SRM

61

4

CJEU

Case 84/82, 20 March 1984, Germany v Commission

SRM

61

19

CJEU

Case 23/86 R, 17 March 1986, UK v Parliament

SRM

61

21

CJEU

Case 34/86, 3 July 1986, Council v Parliament, Opinion of AG Mancini

SRM

61

2

CJEU

Case 314/85, 22 October 1987, Foto-Frost v Hauptzollamt LübeckOst

SRM

61

4

CJEU

Case 190/84, 25 February 1988, Parti écologiste “Les Verts” v Parliament

SRM

61

2

CJEU

Case 204/86, 27 September 1988, Greece v Council

SRM

61

5, 19

CJEU

Case C-301/87, 14 February 1990, France v Commission

SRM

61

20

CJEU

Case C-269/90, 21 November 1991, Technische Universität München v Hauptzollamt München-Mitte

SRM

61

5

CJEU

Case C-284/90, 31 March 1992, Council v Parliament

SRM

61

2, 19, 21

CJEU

Joined Cases C-181 and C-248/91, 13 June 1993, Parliament and Council v Commission

SRM

61

2

XXV

List of Cases Court

Case

SSM/ SRM

Article

paragraph number in which the court case is cited

CJEU

Case C-228/92, 26 April 1994, Roquette Frères v Hauptzollamt Geldern

SRM

61

19

CJEU

Case C-210/06, 16 December 2008, Cartesio

SRM

61

4

CJEU

Case C-402/11 P, 18 October 2012, Jager & Polacek GmbH v OHIM (not yet reported) (against the General Court)

SRM

61

22

CJEU

Case 9/56, 13 June 1958, Meroni v High Authority

SRM

63

5

CJEU

Case 5/85, 23 September 1986, Akzo Chemie v Commission

SRM

63

5

CJEU

Case C-315/99 P, 10 July 2001, Ismeri Europa v Court of Auditors

SRM

63

14

CJEU

Case C-301/02 P, 26 May 2005, Tralli v ECB

SRM

63

5

CJEU

Case C-539/09, 15 November 2011, Commission v Germany

SRM

63

14

CJEU

Case C-270/12, 22 January 2014, UK v Parliament and Council

SRM

63

5

CJEU

Case 25/62, 15 July 1963, Plaumann v Commission

SRM

64

6

CJEU

Case 294/83, 23 April 1986, Parti écologiste "Les Verts" v Parliament

SRM

64

6

CJEU

Case C-269/90, 21 November 1991, Technische Universität München v Hauptzollamt München-Mitte

SRM

64

4

CJEU

Case C-316/91, 2 March 1994, Parliament v Council

SRM

64

6

CJEU

Case C-526/14, Kotnik and Others (not yet reported)

SRM

64

6

CJEU

Case C-583/11 P, 3 October 2013, Inuit Tapiriit Kanatami and Others v Parliament and Council (not yet reported)

SRM

65

18

CJEU

Case C-47/16, 16 March 2017, Valsts ieņēmumu dienests v "Veloserviss” SIA

SRM

66

9

CJEU

Case T-323/16, 28 November 2019, Banco Cooperativo Español v SRB

SRM

70

22

CJEU

Case T-365/16, 28 November 2019, Portigon AG v SRB

SRM

70

22

CJEU

Case C-9/56, 13 June 1958, Meroni v High Authority

SRM

75

22, 23

CJEU

Case C-270/12, 22 January 2014, UK v Parliament and Council

SRM

75

23, 25

CJEU

Case C-9/56, 13 June 1958, Meroni v High Authority

SRM

76

3

CJEU

CON/2013/76

SRM

77

4

CJEU

Case 25/62, 15 July 1963, Plaumann v Commission

SRM

85

15

CJEU

Case C-62/70, 23 November 1971, Bock v Commission

SRM

85

14

CJEU

Case 3/75 R, 16 January 1975, Johnson v Commission

SRM

85

26

CJEU

Case 92/78 R, 06 March 1979, Simmenthal

SRM

85

26

CJEU

Case C-56/89 R, 13 June 1989, Publishers Association v Commission

SRM

85

26

CJEU

Case C-386/96, 05 May 1998, Dreyfus v Commission

SRM

85

14

CJEU

Case C-404/96 P, 05 May 1998, Glencore Grain v Commission

SRM

85

14

CJEU

Case C-404/04 P-R, 11 January 2007, Technische Glaswerke Ilmenau v Commission

SRM

85

26

CJEU

Case C-483/07 P, 17 February 2009, Galileo v Commission

SRM

85

16

CJEU

Case C-355/08, 05 May 2009, WWF UK v Council and Commission

SRM

85

16 26

CJEU

Case C-21/14, 12 June 2014, Commission v Rusal Armenal

SRM

85

CJEU

Case C-9/56, 13.06.1958, Meroni v High Authority I

SRM

86

8

CJEU

Case C-10/56, 13.06.1958, Meroni v High Authority II

SRM

86

8

CJEU

Case C-12/03 P, 15.02.2005, Tetra Laval BV v Commission

SRM

86

8

CJEU

Case C-270/12, 22.01.2014, United Kingdom v Parliament and Council

SRM

86

8

CJEU

Case 18/60, 12 July 1962, Worms v High Authority

SRM

87

2

CJEU

Joint Cases 19/69, 20/69, 25/69, 30/69, 28 May 1970, Richez-Parise v Commission

SRM

87

14

XXVI

List of Cases Court

Case

SSM/ SRM

Article

paragraph number in which the court case is cited

CJEU

Case 74/74, 14 May 1975, CNTA v Commission

SRM

87

16

CJEU

Joined Cases 56/74 to 60/74, 2 June 1976, Kampffmeyer v Commission and Council

SRM

87

16

CJEU

Case 132/77, 10 May 1978, Exportation des Sucres v Commission

SRM

87

18

CJEU

Joined Cases 64/76, 113/76, 167/78, 239/78, 27/79 to 28/79 and 45/79, 19 May 1982, Dumortier Frères v Council

SRM

87

17

CJEU

Case C-352/98 P, 4 July 2000, Bergaderm and Goupil v Commission

SRM

87

11

CJEU

Case C-312/00 P, 10 December 2002, Commission v Camar and Tico

SRM

87

8, 14

CJEU

Case C-222/02, 12 October 2004, Paul and Others v BRD

SRM

87

12

CJEU

Case C-243/05 P, 9 November 2006, Agraz and Others v Commission

SRM

87

16

CJEU

Case C-282/05 P, 19 April 2007, Holcim (Deutschland) v Commission

SRM

87

14, 15

Court of first instance

Case T-380/94, 12 December 1996, AIUFASS and AKT v Commission

SSM

4

108

Court of first instance

Case T-149/95, 5 November 1997, Etablissements J. Richard Ducros v Commission

SSM

4

108

Court of first instance

Case T-214/95, 30 April 1998, Vlaamse Gewest v Commission

SSM

4

108

Court of first instance

Case T-187/06, 19 November 2008, Ralf Schräder v CPVO

SSM

4

150

Court of first instance

Case T-496/11, 4 March 2015, United Kingdom v ECB

SSM

4

154

Court of first instance

Case T-122/15, 16 May 2017, Landeskreditbank BadenWürttemberg v ECB

SSM

4

2, 10

Court of first instance

Joined Cases T-133/16 to T-136/16, 24 April 2018, Caisse régionale de crédit agricole mutuel Alpes Provence v ECB

SSM

4

133

Court of first instance

Case T-122/15, 16 May 2017, Landeskreditbank BadenWürttemberg v ECB

SSM

6

56

Court of first instance

Case T-496/11, 04 March 2015, UK v ECB

SSM

1

34

Court of first instance

Case T‑279/06, 02 July 2009, European Dynamics v ECB

SSM

9

17

Court of first instance

Case T-247/16, 12 September 2017, Trasta Komercbanka AS et al v ECB

SSM

14

38, 40

Court of first instance

Case T-457/09, 17 July 2014, Westfälisch-Lippischer Sparkassenund Giroverband v Commission

SSM

14

45

Court of first instance

Case T-443/08, 24 March 2011, Freistaat Sachsen et al v Commission

SSM

14

Court of first instance

Cases T-133/16 to 136/16, 24 April 2018, Caisse régionale de crédit agricole mutuel Alpes Provence

SSM

14

2, 65

Court of first instance

Case T-321/17 R, Niemelä et al. v. ECB, action brought on 22.5.2017, OJ C 283, 28.8.2017

SSM

14

9, 38, 40

Court of first instance

Cases T-133/16 to 136/16, 24.04.2018, Caisse régionale de crédit agricole mutuel Alpes Provence

SSM

15

52

Court of first instance

Case T-450/93, 6 December 1994, Lisrestal v Commission

SSM

22

8

Court of first instance

Case T-25/95 and T‑104/95, 15 March 2000, Cimenteries CBR v Commission

SSM

22

25

Court of first instance

Case T-5/02, 25 October 2002, Tetra Laval BV v Commission

SSM

22

23

Court of first instance

Case T-134/03, 27 September 2005, Common Market Fertilizers v Commission

SSM

22

13

XXVII

List of Cases Court

Case

SSM/ SRM

Article

paragraph number in which the court case is cited

Court of first instance

Case T-410/03, 18 June 2008, Hoechst GmbH v Commission

SSM

22

25

Court of first instance

Case T-161/05, 30 September 2009, Hoechst GmbH v Commission

SSM

22

20, 22, 23, 26

Court of first instance

Case T-194/06, 16 June 2011, SNIA v Commission

SSM

22

15

Court of first instance

Case T-122/15, 16 May 2017, L-Bank v ECB

SSM

22

28, 29

Court of first instance

Case T‑712/15, 16 February 2017, Crédit mutuel Arkéa v ECB

SSM

24

39,

Court of first instance

Case T-122/15, 16 May 2017, Landeskreditbank BadenWürttemberg – Förderbank v ECB

SSM

24

31, 38

Court of first instance

Case T-247/16, 12 September 2017, Trasta Komercbanka AS v ECB, Case T-247/16 is now named Fursin and Others v ECB

SSM

24

40

Court of first instance

Case T-52/16, 13 December 2017, Crédit mutuel Arkéa v ECB

SSM

24

39

Court of first instance

Case T-474/04, 12 October 2007, Pergan Hilfsstoffe für industrielle Prozesse v Commission

SSM

27

15

Court of first instance

Case T-198/03, 30 May 2006, Bank Austria Creditanstalt AG v Commission

SSM

27

25, 35, 36

Court of first instance

Case T-353/94, 18 September 1996, Postbank NV v Commission

SSM

27

39

Court of first instance

Case T-122/15, 16 May 2017, Landeskreditbank BadenWürttemberg – Förderbank v ECB

SSM

27

86

Court of first instance

Case T-122/15, 16 May 2017, Landeskreditbank BadenWürttemberg – Förderbank v ECB

SSM

28

6

Court of first Instance

T-122/15, 16 May 2017, Landeskreditbank Baden-Württemberg – Förderbank v. ECB

SRM

7

11

Court of first instance

Joined Cases T-98/16, T-196/16 and T-198/16, 19 March 2019, Italy and Others v Commission

SRM

18

44

Court of first instance

Case T-280/18, ABLV Bank v SRB

SRM

18

98

Court of first instance

Case T-281/18, 6 May 2019, ABLV Bank AS v ECB

SRM

18

98

Court of first instance

Case T-599/18, 10 October 2019, Aeris Invest v SRB

SRM

20

38, 40,

Court of first instance

Case T-2/19, 10 October 2019, Algebris (UK) and Anchorage Capital Group v SRB

SRM

20

38, 40

Court of first instance

Case T-187/06, 19 November 2008, Ralf Schräder v CPVO

SRM

21

28

Court of first instance

Joined Cases T-244/93 and T-486/93, 13 September 1995, TWD Textilwerke Deggendorf GmbH v Commission

SRM

29

22

Court of first instance

Case T-187/06, 19 November 2008, Schräder v CPVO

SRM

29

44

Court of first instance

Case T‑96/10, 7 March 2013, Rütgers Germany GmbH v ECHA

SRM

29

44

Court of first instance

Cases T-133/16 to T-136/16, 24 April 2018, Caisse régionale de crédit v ECB

SRM

29

7

Court of first instance

Case T-411/17, 23 September 2020, Landesbank BadenWürttemberg v SRB

SRM

31

41

Court of first instance

Case T-105/99, 14. December 2000, CCRE v Commission

SRM

58

5

Court of first instance

Case T-45/06, 24 September 2008, Reliance Industries Ltd v Council and Commission

SRM

59

6

XXVIII

List of Cases Court

Case

SSM/ SRM

Article

paragraph number in which the court case is cited

Court of first instance

Joined Cases T-79/89 et al., 27 February 1992, BASF AG and others v Commission

SRM

61

19

Court of first instance

Case T-251/00, 20 November 2002, Lagardère v Commission

SRM

61

22

Court of first instance

Case T-324/05, 02 October 2009, Estonia v Commission

SRM

63

5

Court of first instance

Case T-483/13, 20 July 2016, Oikonomopoulos v Commission

SRM

66

8

Court of first instance

Case T-41/96 R, 03 June 1996, Bayer v Commission

SRM

85

26

Court of first instance

Case T-243/01, 18 March 2005, Sony v Commission

SRM

85

17

Court of first instance

Case T-411/06, 08 October 2008, Sogelma v EAR

SRM

85

14

Court of first instance

Case T-16/04, 02 March 2010, Arcelor v Parliament and Council

SRM

85

16

Court of first instance

Case T-381/11, 04 June 2012, Eurofer v Commission

SRM

85

16

Court of first instance

Case T-133/08, 18 September 2012, Schräder v CPVO

SRM

85

7

Court of first instance

Case T‑201/04, 17.09.2007, Microsoft v Commission

SRM

86

8

Court of first instance

Case T-231/97, 9 July 1999, New Europe Consulting and Brown v Commission

SRM

87

16

Court of first instance

Case T-178/98, 24 October 2000, Fresh Marine v Commission

SRM

87

14

Court of first instance

Case T-415/03, 19 October 2005, Cofradía de `San Pedro de Bermeo’ and Others v Council

SRM

87

11, 16

Court of first instance

Case T-279/03, 10 May 2006, Galileo and Others v Commission

SRM

87

17

Court of first instance

Case T-113/04, 12 December 2007, Atlantic Container Line AB and Others v Commission

SRM

87

17

Court of first instance

Case T-429/05, 3 March 2010, Artegodan v Commission

SRM

87

11

Other Jurisdictions

BVerfG, 30 July 2019, NJW 2019, 3204

SRM

18

Other Jurisdictions

BVerfGE 151, 202

SSM

4

Other Jurisdictions

BVerfGE 154, 17

SSM

4

12

Other Jurisdictions

Verwaltungsgerichtshof Kassel, Case 6 A 2227/08, 6.10.2010, BeckRS 2010, 54766

SSM

15

38

Other Jurisdictions

Nixon v United States, 506 US 224 (1993)

SRM

61

2

Other Jurisdictions

BGHZ 94, 324

SRM

63

20

12

XXIX

Single Supervisory Mechanism Regulation Art. 1 SSMR Subject matter and scope This Regulation confers on the ECB specific tasks concerning policies relating to the prudential supervision of credit institutions, with a view to contributing to the safety and soundness of credit institutions and the stability of the financial system within the Union and each Member State, with full regard and duty of care for the unity and integrity of the internal market based on equal treatment of credit institutions with a view to preventing regulatory arbitrage. The institutions referred to in Article 2(5) of the Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms are excluded from the supervisory tasks conferred on ECB in accordance with Article 4 of this Regulation. The scope of the ECB’s supervisory tasks is limited to the prudential supervision of credit institutions pursuant to this Regulation. This Regulation shall not confer on the ECB any other supervisory tasks, such as tasks relating to the prudential supervision of central counterparties. When carrying out its tasks according to this Regulation, and without prejudice to the objective to ensure the safety and soundness of credit institutions, the ECB shall have full regard to the different types, business models and sizes of credit institutions. No action, proposal or policy of the ECB shall, directly or indirectly, discriminate against any Member State or group of Member States as a venue for the provision of banking or financial services in any currency. This Regulation is without prejudice to the responsibilities and related powers of the competent authorities of the participating Member States to carry out supervisory tasks not conferred on the ECB by this Regulation. This Regulation is also without prejudice to the responsibilities and related powers of the competent or designated authorities of the participating Member States to apply macroprudential tools not provided for in relevant acts of Union law. Bibliography Kern Alexander, ‘The European Central Bank and Banking Supervision: the regulatory limits of the Single Supervisory Mechanism’ ECFR 24 (2016), 467; Henning Berger, ‘Der einheitliche Aufsichtsmechanismus (SSM) – Bankenaufsicht im europäischen Verbund’, WM (2015), 501; Jens-Hinrich Binder, Alexander Glos and Jan Riepe, Handbuch Bankenaufsichtsrecht (RWS Verlag, Cologne 2018); Jens-Hinrich Binder and Christos V. Gortsos, The European Banking Union (C.H. Beck/Hart/Nomos, Munich/Oxford/Baden-Baden 2016); Giuseppe Boccuzzi, The European Banking Union: Supervision and Resolution (Palgrave/Macmilan, Houndmills, Basingstoke Hampshire, New York, NY 2015); Jan Ceyssens, ‘Teufelskreis zwischen Banken und Staatsfinanzen – Der neue Europäische Bankaufsichtsmechanismus’, NJW (2013), 3704; Veerle Colaert, ‘European Banking, Securities and Insurance Law: Cutting through sectoral lines’, CMLRev 42 (2015), 1579; Larisa Dragomir, European Prudential Banking Regulation and Supervision (Routledge, London and New York 2010); Guido Ferrarini and Fabio Recine, ‘The Single Rulebook and the SSM: Should the ECB have more say in prudential rule-making?’ in: Danny Busch and Guido Ferrarini (eds), European Banking Union (2015), 118; François Gianviti, ‘The Objectives of Central Banks’ in: Mario Giovanoli and Diego Devos (eds), International Monetary and Financial Law (Oxford University Press, Oxford 2010), 449; Alberto de Gregorio Merino, ‘Legal developments in the Economic and Monetary Union during the debt crisis: the mechanisms of financial assistance’, CMLRev 49 (2012), 1613; Alicia Hinarejos, The Euro area Crisis in Constitutional Perspective (Oxford University Press, Oxford 2014); Luis M. Hinojosa-Martínez and José María Beneyto (eds), European Banking Union. The New Regime (Wolters Kluwer, Alphen aan den Rijn 2016); House of Lords, European Union Committee, European Banking Union: Key Issues and Challenges, HL Paper 88, 12 December 2012; IMF, A Banking Union for the Euro Area, IMF Staff Discussion Note, February 2013, SDN/13/01; Ulrich Karpenstein and

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Olaf Langner, ‘Das Urteil des BVerfG zur Bankenunion: Bis hierher und nicht weiter?‘, EuZW (2020), 270; Ann-Katrin Kaufhold, ‘Instrumente und gerichtliche Kontrolle der Finanzaufsicht‘, Die Verwaltung (2016), 339; Ann-Katrin Kaufhold, Systemaufsicht (Mohr Siebeck, Tübingen 2016); Natalia Kohtamäki, Die Reform der Bankenaufsicht in der Europäischen Union (Mohr Siebeck, Tübingen 2012); Klaus Lackhoff, Single Supervisory Mechanism (C.H. Beck/Hart/Nomos, Munich/Oxford/Baden-Baden 2017); Rosa M. Lastra, International Financial and Monetary Law (2nd edn, Oxford University Press, Oxford 2015); Matthias Lehmann and Cornelia Manger-Nestler, ‘Einheitlicher Europäischer Aufsichtsmechanismus: Bankenaufsicht durch die EZB‘, ZBB (2014), 2; Gianni Lo Schiavo, ‘From National Banking Supervision to a Centralized Model of Prudential Supervision in Europe?’, MJ 21 (2014), 110; Francesco Martucci, L’Union bancaire (Bruylant, Bruxelles 2016); Franz C. Mayer and Daniel Kollmeyer, ‘Sinnlose Gesetzgebung? Die Europäische Bankenunion im Bundestag’, DVBl. (2013), 1158; Niamh Moloney, ‘European Banking Union: assessing its risks and resilience’, CMLRev 51 (2014), 1609; Kerstin Neumann, ‘The supervisory powers of national authorities and co-operation with the ECB – a new epoch of banking supervision’, EuZW-Beilage (2014), 9; Bodil S. Nielsen, ‘Main Features of the European Banking Union’, EBLR 26 (2015), 805; Christoph Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (C.H. Beck, Munich 2015); Christoph Ohler, ‘Das Bundesverfassungsgericht als europäisches Kompetenzgericht’, ZG (2020), 95; Matthias Ruffert, ‘The European debt crisis and European Union Law’, CMLRev 48 (2011), 1777; Garry J. Schinasi, ‘Understanding Financial Stability: Towards a practical framework’ in: IMF (ed), Current Developments of Monetary and Financial Law (Vol. 5, IMF, Washington D.C. 2008), 65; Dirk Schoenmaker, The Financial Trilemma, Tinbergen Institute Discussion Paper No. 11-019/2/DSF (2011); René Smits, The European Central Bank (Kluwer Law International, The Hague 1997); Gunnar Schuster, ‘The banking supervisory competences and powers of the ECB’, EuZW-Beilage (2014), 3; Tobias H. Tröger, ‘The Single Supervisory Mechanism – panacea or quack banking regulation?’, EBOR 15 (2014), 449; Tomi Tuominen, ‘The European Banking Union: A shift in the internal market paradigm?’ CMLRev 54 (2017), 1359; Rainer Wernsmann and Marcel Sandberg, ‘Parlamentarische Mitwirkung bei unionaler Sekundärrechtsetzung’, DÖV (2014), 49; Benedikt Wolfers and Thomas Voland, ‘Level the playing field: The new supervision of credit institutions by the European Central Bank’, CMLRev 51 (2014), 1463; Benedikt Wolfers and Thomas Voland, ‘Europäische Zentralbank und Bankenaufsicht – Rechtsgrundlagen und demokratische Kontrolle des Single Supervisory Mechanism’, BKR (2014), 177; Eddy Wymeersch, ‘The Single Supervisory Mechanism: Institutional Aspects’ in: Danny Busch and Guido Ferrarini (eds), European Banking Union (Oxford University Press, Oxford 2015), 93.

2

A. Origins of the SSM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Banking supervision in the internal market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Global financial crisis and European debt crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. European System of Financial Supervision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. The establishment of the SSM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 1 2 4 4 7

B. Legal basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. The scope of Art. 127(6) TFEU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Supplementary national legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11 11 18

C. Objectives of the SSM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Safety and soundness of credit institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Stability of the financial system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Equal treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Unity and integrity of the internal market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V. Supervision in the public interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19 19 21 24 29 30

D. Principle of conferral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Subject matter and scope

A. Origins of the SSM I. Introduction The Single Supervisory Mechanism (SSM) that was established by Regulation (EU) 1 No 1024/20131 (SSMR) is a result of a long process of reforms that were triggered by the Global Financial Crisis of 2007-2009 and the European Debt Crisis that followed thereon. It aims at overcoming the weakness of a decentralised banking supervision system administered exclusively by the national authorities that had been a characteristic of the internal market of financial services for more than twenty years. The conferral of pivotal competences to the ECB for the prudential supervision of credit institutions by the SSMR was also motivated by a new, more political assessment of how to handle systemic risks in financial markets. The severe crises that preceded this reform caused a need to develop more efficient instruments in order to prevent a disorderly breakdown of systemically important banks with all its negative effects on the financial system as a whole, the real economy and consequently the societal life. It is against this backdrop that an “EU Banking Union” (EBU) was established within which the SSM forms the first “column” while the second one is constituted by the Single Resolution Mechanism (SRM) under Regulation (EU) No 806/2014 (SRMR).2

II. Banking supervision in the internal market The SSM builds on and co-exists with former models of banking supervision in the 2 EU. They originate in the objective of creating an internal market for financial services in 1989, the EU legislator adopted the Second Banking Coordination Directive, which became effective on 1 January 1993, in order to open up the national markets for banking services on the basis of the principle of EU passporting.3 The approach was to achieve only the essential harmonisation necessary and sufficient to secure the mutual recognition of the authorisation and prudential supervision systems in all Member States.4 In effect, the Second Banking Coordination Directive made it possible to grant a single license recognised throughout the internal market and apply the principle of home Member State prudential supervision. While in the following years, the principle of minimum harmonisation was given up, the European passport5 still permits credit institutions to exercise the freedom of establishment and the freedom to provide services in all other Member States, without being subject to additional authorisation procedures or other forms of prudential supervision.6 As far as the effectiveness of supervision in the internal market was concerned, the 3 European Commission concluded in its Financial Services Action Plan of 1999 that the EU’s framework of prudential legislation “did not require radical surgery”. Rather, it pleaded for a more flexible legislative approach and added that “supervisory authorities can play their part by strengthening co-operation in order to ensure application 1 Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions, OJ L287, 19.10.2013, p. 63. 2 OJ L225, 30.7.2014, p. 1. 3 Art. 6 Directive 89/646/EEC, OJ L386, 30.12.1989, p. 1. 4 Cf. Recital 4 Directive 89/646/EEC. 5 Art. 33 Directive 2013/36/EU (CRD IV), OJ L176, 27.6.2013, p. 338. 6 Arts. 35 to 46 CRD IV.

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Subject matter and scope

of a uniform understanding of prudential rules”.7 In these years, shortly before the introduction of the single euro currency, when financial crises hit Russia and East Asia, but not Europe, the general focus was on furthering the internal market but not on strengthening the supervisory structures. Also, the Member States would not have accepted a centralisation of competences as they considered the power to supervise financial markets as a part of their national sovereignty. As a result, banking supervision remained confined within national borders, subject only to the obligation of mutual recognition and corresponding cooperation mechanisms. As of today, this model still applies to the non-participating Member States, i.e. those that have not introduced the euro currency.

III. Global financial crisis and European debt crisis 1. European System of Financial Supervision The Global Financial Crisis that started in the USA in 2007 and hit the European Member States in 2008-2009, revealed severe flaws of the decentralised system of banking supervision in the EU. First of all, as the de Larosière Report of 25 February 20098 underlined, it lacked a macro-prudential perspective, next to the traditional micro-prudential approach with its focus on the soundness and stability of individual banks. With a stronger macro-prudential focus, so the analysis was, supervisors would have paid more attention to shocks that can trigger contagion effects within the financial system as a whole. In the view of the de Larosière Report, the decentralised system of banking supervision also favoured distortions and regulatory arbitrage stemming from different supervisory practices that had the potential of undermining financial stability – inter alia by encouraging a shift of financial activity to countries with lax supervision.9 It was also stressed that the existing processes and practices for challenging the decisions of a national supervisor proved to be inadequate and that peer review arrangements were ineffective.10 5 In November 2010, on the basis of the proposals made in the de Larosière Report, the EU legislator established the European System of Financial Supervision (ESFS) as a network of supervisory authorities. In addition to the existing national supervisors, it comprises of three independent EU agencies responsible for the banking sector (European Banking Authority, EBA),11 the insurance and pension funds sector (European Insurance and Occupational Pensions Authority, EIOPA)12 and the securities markets (European Securities and Markets Authority, ESMA).13 The three European Supervi4

European Commission, Financial Services: Building a framework for action (1999), at p. 2. The High-Level Group on Financial Supervision in the EU, chaired by Jacques de Larosière, Report, Brussels, 25 February 2009, at pp. 38 et seq. See also Kohtamäki, Die Reform der Bankenaufsicht in der Europäischen Union (2012); Lastra, International Financial and Monetary Law (2 ndedn, 2015), para. 11.25 et seq. 9 The High-Level Group on Financial Supervision in the EU, chaired by Jacques de Larosière, Report, Brussels, 25 February 2009, at p. 39. 10 The High-Level Group on Financial Supervision in the EU, chaired by Jacques de Larosière, Report, Brussels, 25 February 2009, at p. 40. 11 Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), OJ L331, 15.12.2010, p. 12. 12 Regulation (EU) No 1094/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), OJ L331, 15.12.2010, p. 48. 13 Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority), OJ L331, 15.12.2010, p. 84. 7

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sory Authorities (ESAs) replaced the existing advisory committees, the so-called ‘level-3’ committees of the Lamfalussy process.14 A further element of the ESFS is the European Systemic Risk Board (ESRB) which is responsible for the macro-prudential oversight of the financial system in the EU. The main task of the ESAs is to contribute to the creation of a “European Single 6 Rulebook” in order to provide a single set of harmonised prudential rules for financial institutions throughout the internal market.15 For this purpose, the ESAs may submit proposals for regulations and decisions which are to be adopted by the European Commission under Arts. 290 and 291(2) TFEU. The authorities may also issue non-binding guidelines and recommendations to national authorities or financial institutions. Under certain circumstances, e.g. in the event of a crisis, they have the power to adopt binding decisions addressed to national authorities as well as financial institutions.

2. The establishment of the SSM The strong dynamics of the European sovereign debt crisis, that had started in early 7 2010 and continued throughout the following years, at least until 2015/2016, urged the Member States to agree on a reform of the supervisory system that went beyond the ESFS. The EU legislator found itself in a situation where it had become necessary to cut the vicious circle of rising sovereign indebtedness and continuous instability of banks and markets. The financial weakness of several governments in the EU, in particular, in Spain, Ireland, Portugal, Cyprus and Greece, exposed their countries not only to economic and social risks. It also revealed their inability to stabilise the financial system in their countries, in case that rescue measures for ailing banks should have become necessary again. The SSMR describes this adverse interference with the following words: “The stability 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 to the viability of some credit institutions and to 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.”16 Against this backdrop, the political consensus grew considerably to solve the so-called financial trilemma, i.e. the difficulty to achieve simultaneously a single financial market and financial stability while preserving a high degree of nationally based supervision.17 At the peak of the crisis, in mid 2012, the Euro Area Summit asked the Council to 8 consider proposals by the Commission for a single supervisory mechanism on the basis of Art. 127(6) TFEU. The decision to establish the Single Supervisory Mechanism (hereafter SSM) on this legal basis was a highly political step,18 in procedural as well as in substantive terms. Procedurally, it required a unanimous vote by the Council, thereby involving the participation of all Member States, including the Member States outside

14 On this procedure see Lastra, International Financial and Monetary Law (2 nd edn, 2015), para. 11.18 et seq. 15 See e.g. Colaert, CMLRev 42 (2015), 1579; Ferrarini and Recine, in: Busch and Ferrarini (eds), European Banking Union (2015), 118, para. 5.01. 16 Recital 6 SSMR. 17 Lastra, International Financial and Monetary Law (2nd edn, 2015), para. 10.11; Schoenmaker, The Financial Trilemma (2011). 18 Binder and Gortsos, The European Banking Union (2016), at p. 2.

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the euro area, in the legislative process.19 In substantive terms, the political price to be paid for the establishment of the SSM was high. It required a considerable conferral of competences from the national level upon the ECB by the euro area Member States. In contrast thereto, the Member States outside the euro area feared that the SSM would deepen the division between the ins and outs of the Economic and Monetary Union (EMU) and threaten the integrity of the internal market.20 9 The decision to confer supervisory powers upon the ECB and not upon the EBA, that had been established just two years ago, was also influenced by constitutional considerations and practical aspects. Firstly, the Meroni doctrine of the CJEU restrains the conferral of wide administrative powers by the EU legislator.21 It would have hindered a thorough reform of the EBA Regulation, but does not apply when powers are conferred upon an organ of the EU in accordance with the Treaties.22 Secondly, the ECB was seen as an institution particularly qualified for the task of banking supervision. Being the leading monetary authority of the euro area, it disposes off extensive professional knowledge on macroeconomic issues and is familiar with the structure of the euro area’s banking system.23 10 After hefty negotiations within the EU organs and between the Member States, the Council adopted Regulation (EU) No 1024/2013 of 15 October 2013. The SSM became operative on 4 November 2014 with the ECB assuming its tasks under the SSMR. 24

B. Legal basis I. The scope of Art. 127(6) TFEU The legal basis of the SSMR is Art. 127(6) TFEU. This particular provision does not form part of the exclusive competences of the EU in the area of monetary policy under Art. 3(1) (c) TFEU.25 It states that the Council may “[...] confer specific tasks upon the European Central Bank concerning policies relating to the prudential supervision of credit institutions and other financial institutions with the exception of insurance undertakings”. The wording was the result of a political compromise during the negotiations for the Treaty of Maastricht. It goes back to the divergent approaches of the Member States as to which role a central bank should play in the field of banking supervision. Accordingly, Art. 127(6) TFEU suffers from a considerable lack of clarity that concerns the legal concept as a whole, as well as particular terms used therein,26 which has a farreaching bearing on the interpretation of this provision. 12 As far as the notion “specific tasks” is concerned, it is generally assumed that the full spectrum of supervisory tasks and powers may not be conferred on the ECB. 27 11

19 On the political risks of this procedure see Wymeersch, in: Busch and Ferrarini (eds), European Banking Union (2015), 93, at p. 99, para. 4.16. 20 House of Lords, European Union Committee, European Banking Union: Key Issues and Challenges, (12 December 2012), at pp. 40 et seq. 21 Case C-9/56, Meroni v ECSC High Authority, ECLI:EU:C:1958:7. 22 Lackhoff, Single Supervisory Mechanism (2017), at pp. 20 et seq. 23 Recital 13 SSMR. 24 Art. 33(2) SSMR. 25 BVerfG, case 2 BvR 1685/14, paras. 166, 190. 26 Cf. BVerfG, case 2 BvR 1685/14, para. 192. 27 Lackhoff, Single Supervisory Mechanism (2017), at p. 16; Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), at p. 145; Wolfers and Voland, CMLRev 51 (2014), 1463, at p. 1486.

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Subject matter and scope

This implies that substantial tasks must remain with national authorities,28 provided, however, that they may be performed in cooperation with the ECB.29 Apart from this analysis ex negativo, the wording does not permit a positive finding on the substance of the ECB’s potential competences. The word “specific” does not only imply that the tasks conferred on the ECB must be spelled out in detail (in the meaning of “certain tasks”) and must be delineated from the supervisory competences that remain in the national sphere. It also means that these tasks must have a substantive quality that is commensurate to the tasks carried out by the ECB as the superordinate monetary authority within the Eurosystem. A systematic interpretation suggests that Art. 127(6) could be read in conjunction with Art. 127(5) TFEU.30 This provision relates the prudential supervision of credit institutions exercised by national authorities to the objective of the stability of the financial system. If one accepts this finding, then the legal basis of Art. 127(6) TFEU may be used to confer supervisory competences upon the ECB as long as their objective relates to issues of financial stability, including the supervision of systemically important banks. Insofar, the EU legislator is also competent to define which banks can be regarded as being systemically important, or, in the words of Art. 6(4) SSMR, as “significant”. With regard to Art. 132 TFEU, the “tasks” conferred upon the ECB also encompass “powers”, i.e. the right of the ECB to adopt measures that are legally binding on the addressees.31 Any other interpretation would render useless the legislative option of which the Council may make use under Art. 127(6) TFEU. The term “credit institutions” which is used in Art. 127(6) TFEU has the same meaning as in EU secondary law. Art. 4(1)(1) CRR,32 to which the SSMR refers, defines a credit institution as an undertaking the business of which is to take deposits or other repayable funds from the public and to grant credits for its own account. In contrast thereto, the term “financial institutions” as used in Art. 127 (6) TFEU is unclear. While a narrow definition exists in the secondary law (cf. Art. 4(1)(26) CRR), legal doctrine assumes that the term has a broader meaning.33 In any event, the parent undertakings of credit institutions, i.e. financial holding companies and mixed financial holding companies, fall within the scope of application of Art. 127(6) TFEU. The Council did not make use of the possibility to extend the competences of the ECB also to other financial institutions (e.g. specialised lending institutions or investment firms) as Art. 1(1) SSMR only refers to “credit institutions”.

13

14

15

16

17

II. Supplementary national legislation Prior to the adoption of the SSMR, the German Parliament adopted a federal law au- 18 thorising the German government representative in the Council to vote in favour of the proposed regulation. Both the federal government and the Parliament were of the opinion that such an authorising act was necessary under German constitutional law because a regulation according to Art. 127(6) TFEU would trigger the Parliament’s political reThis is stressed by BVerfG, case 2 BvR 1685/14, para. 162 passim. Smits, The European Central Bank (1997), at p. 356. 30 Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), at p. 145. 31 BVerfG, case 2 BvR 1685/14, para. 165. This had been disputed by parts of the German doctrine, e.g. Herdegen, WM 2012, 1889, at p. 1891; Kaufhold, Systemaufsicht (2016), at p. 286. 32 Regulation (EU) No 575/2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms OJ L176, 27.6.2013, p. 1. 33 Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), at p. 147; Smits, The European Central Bank (1997), at p. 359. 28

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sponsibility in matters of EU integration. The constitutional necessity of this law was vividly disputed.34 The solution, however, does not depend directly on German constitutional law35 but on the compatibility of the SSMR with its legal basis in the Treaties. In other words, the question was whether the legislative competence of the Council under Art. 127(6) TFEU had already been conferred upon the EU under the Treaty of Maastricht. Again, the wording of Art. 132(1) first indent TFEU with its reference to Art. 25.2 of the ESCB Statute – the parallel provision to Art. 127(6) TFEU – confirms that this was the case.36 To the extent, this Article can be used as a legal basis for the SSMR, the Council acted within its competences, so that any complementary national legislation would be meaningless. If the legal basis of Art. 127(6) TFEU had not sufficed for the adoption of the SSMR, the Council would have acted ultra vires. In this case, the unilateral approval of the Bundestag by adopting a federal law could not heal the violation of primary law.

C. Objectives of the SSM I. Safety and soundness of credit institutions As it lies traditionally at the heart of any supervisory system, 37 Art. 1(1) SSMR aims at the safety and soundness of individual credit institutions. The objective of prudential supervision is not only to safeguard the functions provided by banks,38 but also to ensure that customers, in particular depositors and investors, have confidence in the banks with whom they are doing business. The underlying concept is that, even if the information asymmetry in the business relationship between a bank and its customers cannot be overcome, it may be compensated by prudential regulation and supervision of banks. Insofar, by aiming at the safety and soundness of banks, so that they do not pose unreasonable risks for depositors and investors, the objective of prudential supervision is not to protect customers individually, but at maintaining a level of trust which is necessary for the functioning of the banking market. 20 This micro-prudential approach is performed by the enforcement of quantitative requirements with respect to own funds (capital) and liquidity of a bank and qualitative requirements that refer mainly to the adequacy of the bank’s risk management. The practical advantage of the micro-prudential task is that it is relatively easy to fulfil because its objectives and the prudential standards are clearly defined in EU secondary law. The objective of safety and soundness of credit institutions does not, however, mean that the SSM should prevent banks from failing. Rather, supervision should aim to reduce the probability and impact of a bank failure.39 19

34 Cf. Mayer and Kollmeyer, DVBl 2013, 1158; Wernsmann and Sandberg, DÖV 2014, 49; Wolfers and Voland, BKR 2014, 177. 35 In contrast thereto, BVerfG, case 2 BvR 1685/14, para. 312, stressed that the Bundestag intended to comply with the constitutional requirements of its “integration responsibility”. 36 See also Dragomir, European Prudential Banking Regulation and Supervision (2010), at p. 233. 37 Cf. Basel Committee on Banking Supervision, Core Principles for Effective Banking Supervision (September 2012), para. 16. 38 Lackhoff, Single Supervisory Mechanism (2017), at p. 27. 39 Basel Committee on Banking Supervision, Core Principles for Effective Banking Supervision (September 2012), para. 16.

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II. Stability of the financial system Pursuant to Art. 1(1) SSMR, a further objective of the SSM is to preserve the stability 21 of the financial system within the EU and each Member State. Financial stability became a key objective of financial market supervision when the financial crisis of 2007-2009 revealed the weakness of the micro-prudential approach that focused on the individual institutions but neglected the multiple interferences between financial institutions, markets and infrastructures. As of today, it is generally accepted that “supervisors and other authorities need to assess risk in a broader context than that of the balance sheet of individual banks.”40 Accordingly, the objective of financial stability is to be understood in a macro-prudential sense so that the risk correlations within the overall financial system and their effects on credit institutions form the object of supervision. A more precise definition of what exactly constitutes “financial stability” has not 22 been developed so far. In a negative sense, financial stability could be understood as the absence of financial crises. In a more sophisticated, positive understanding, financial stability exists when the elements of the financial system function properly and are able to withstand internal or external shocks.41 In this very broad context, the tasks of a supervisory authority are difficult to per- 23 form: First of all, credit institutions form only one element of the financial system, other ones being investment firms, insurance companies, pension funds and managers of various kinds of investment and hedge funds. The financial system also relies on markets and their infrastructures, including payment and settlement systems.42 Accordingly, financial stability requires the supervisory authority to take a holistic approach. A second challenge results from the fact that the functioning of a firm varies over time and depends primarily on its management and the outcome of competition on the relevant markets. These factors underline the need for a process-oriented approach to financial stability. Thirdly, financial stability is also a relative concept.43 The corrective forces of the market may repair some of the shortcomings of a bank and the insolvency of a (minor) bank does not threaten necessarily the financial system as a whole.44 Fourthly, depending on the territorial reach of markets, the purview of the supervisory task can be more or less limited. Even if Art. 1(1) SSMR limits the ECB’s task to the participating Member States, business relations of firms located in the euro area may extend to all other parts of the world so that the risks can originate from abroad but unfold at home (and vice versa). Fifthly, financial stability interrelates, positively as well as negatively, to decisions of public bodies, mainly monetary policy decisions of central banks, but also to regulatory and supervisory measures. Accordingly, these decisions may produce moral hazard or promote, often unintendedly, the occurrence of risk concentrations. 45

40 Basel Committee on Banking Supervision, Core Principles for Effective Banking Supervision (September 2012), para. 20. 41 Schinasi, in: IMF (ed), Current Developments of Monetary and Financial Law, (Vol. 5, 2008), 65, at p. 91; see also Gianviti, in: Giavanoli and Devos (eds), International Monetary and Financial Law (2010), 449, at p. 475; Lastra, International Financial and Monetary Law (2nd edn, 2015), para. 3.62. 42 Schinasi, in: IMF (ed), Current Developments of Monetary and Financial Law, (Vol. 5, 2008), 65, at p. 92; Gianviti, in: Giavanoli and Devos (eds), International Monetary and Financial Law (2010), 449, at p. 475. 43 Schinasi, in: IMF (ed), Current Developments of Monetary and Financial Law, (Vol. 5, 2008), 65, at p. 93: “occurring along a continuum”. 44 Schinasi, in: IMF (ed), Current Developments of Monetary and Financial Law, (Vol.5, 2008), 65, at p. 92. 45 Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), at p. 101.

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III. Equal treatment 24

25

26

27

28

The principle of equal treatment is one of the general principles of European Union law whose fundamental nature is affirmed in Art. 20 of the Charter of Fundamental Rights. It is directly applicable and must be observed in accordance with Art. 51(1) of the Charter also by the ECB when implementing the SSMR. This principle requires that comparable situations must not be treated differently and that different situations must not be treated in the same way. A difference in treatment is justified if it is based on an objective and reasonable criterion, that is, if the difference relates to a legally permitted aim pursued by the legislation in question, and it is proportionate to the aim pursued by the treatment concerned.46 According to the Court’s settled case-law, the comparable nature of different situations is assessed in the light of all the elements that characterise them. Those elements must, in particular, be determined and assessed in the light of the subject matter and purpose of the act making the distinction in question. In addition, the principles and objectives of the field to which the act relates must also be taken into consideration.47 In this regard, the General Court may exercise a full control of any supervisory measures taken by the ECB under the SSMR. In the context of banking supervision, the principle of equal treatment plays an important role as it guarantees a level playing field for all banks in the participating Member States. This concept is built on the idea that regulatory and supervisory requirements should be neutral as regards their effects on the competition between banks. With respect to the internal market, this competitive neutrality may be achieved to the extent that divergent prudential requirements in national law have been harmonised by secondary law. As a result, the concept of a level playing field propels the move towards a full harmonisation of EU banking law. In practice, however, secondary law leaves room for regulatory options and supervisory discretion which are legitimate as long as they exist in order to take into account the peculiarities of certain national markets or of the legal orders of the Member States. To the extent that the ECB is competent under Art. 4(3) SSMR to implement these options or to make use of this discretion, it is bound by the principle of equal treatment under Art. 20 of the Charter of Fundamental Rights. Insofar, Art. 1(3) SSMR clarifies that the ECB, “when carrying out its tasks according to this Regulation, and without prejudice to the objective to ensure the safety and soundness of credit institutions, [it] shall have full regard to the different types, business models and sizes of credit institutions.” This provision obliges the ECB to consider that banks that are comparable as regards relevant economic criteria must not be treated differently and that banks which are different with respect to such criteria must not be treated in the same way. The SSMR itself provides an important distinction as it differentiates between significant and less significant credit institutions. However, Art. 20 of the Charter of Fundamental Rights does not constitute an absolute prohibition of discrimination. Rather, it requires the ECB to apply the principle of proportionality when any of its measures discerns (or does not discern) between certain categories of credit institutions. The risk-based approach which the ECB pursues when performing its tasks under Art. 97 of the CRD IV,48 provides a useful orientation as to whether a differential treatment is necessary or not. In addition to the relative prohibition of discrimination in accordance with Art. 20 SSMR, the ECB must comply with the specific prohibitions of discrimination under 46 Cf. e.g. Case C-356/12, Glatzel, EU:C:2014:350, para. 43; Case C-555/19, Fussl Modestraße, ECLI:EU: C:2021:89, para. 95. 47 See Case C-555/19, Fussl Modestraße, ECLI:EU:C:2021:89, para. 99. 48 ECB, Guide to banking supervision (November 2014), at p. 6.

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Art. 21 of the Charter. In this respect, the prohibition of discrimination on grounds of nationality of a bank, i.e. the Member State where it has been established, is of particular relevance. Art. 1(4) SSMR specifies that “no action, proposal or policy of the ECB shall, directly or indirectly, discriminate against any Member State or group of Member States as a venue for the provision of banking or financial services in any currency.” The CJEU accepted, however, that a difference in treatment based on the criterion of nationality can be justified if it is based on objective considerations independent of the nationality of the persons concerned and is proportionate to the legitimate aim of the national provisions.49 In this context, the CJEU does not permit measures protecting the national economy (against competition), as this is an objective of a purely economic nature which cannot justify a difference in treatment.50

IV. Unity and integrity of the internal market The model of decentralised implementation of prudential requirements by national 29 authorities prior to the establishment of the SSM bore the risk of incoherent approaches to banking supervision. It resulted in inconsistencies between the standards applicable in individual Member States, thereby favouring insufficient supervision of cross-border operations by national authorities and regulatory arbitrage by banks. With the ECB as the superior authority of the SSM, administrative inefficiencies due to divergent prudential standards of national authorities within the internal market should be abolished.51 In addition, the SSM aims at eliminating the national bias in the supervision of cross-border banking operations, thereby safeguarding the unity and integrity of the internal market.52

V. Supervision in the public interest The SSMR qualifies the supervisory activities of the ECB as measures undertaken ex- 30 clusively in the public interest of the Union. This is explicitly provided by Art. 19(1) and Art. 26(1) SSMR saying that all members of the Supervisory Board shall act in the interest of the Union as a whole. Insofar, the SSMR makes it sufficiently clear that its objectives are not pursued in the interest of any of the Member States, the undertakings supervised, their competitors or their customers. This complies with substantive EU banking law which does not confer rights on individual persons, even if they are depositors, investors or consumers.53 Also the wording of Art. 1 SSMR does not permit the interpretation that individual depositors or investors may derive rights or claims against the ECB thereunder. The legal relevance of this concept is high since it excludes claims for damages by 31 individual depositors or investors against the ECB under Arts. 268 and 340 TFEU and against national supervisory authorities under national law in the event of defective supervision.54 The CJEU also accepted the finding that the rules of EU banking law 49 Case C-209/03, Bidar, ECLI:EU:C:2005:169, para. 54; Case C-628/11, International Jet Management GmbH, ECLI:EU:C:2014:171, para. 68. 50 Case C-628/11, International Jet Management GmbH, ECLI:EU:C:2014:171, para. 70. 51 Cf. Recital 12 SSMR. 52 Cf. Binder and Gortsos, The European Banking Union (2016), at p. 7. 53 Cf. Case C-222/02, Peter Paul, ECLI:EU:C:2004:606, paras. 40 seq.; see also Kaufhold, Die Verwaltung 2016, 339, at pp. 363 seq. 54 Lackhoff, Single Supervisory Mechanism (2017), at pp. 260 et seq.

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are based on considerations related to the complexity of banking supervision, in the context of which the authorities are under an obligation to protect a plurality of interests, including more specifically the stability of the financial system.55

D. Principle of conferral The fundamental principle of conferral as provided by Art. 5(2) TEU does not only apply to the relationship between the EU and the Member States, but also to the powers of the EU organs in accordance with Art. 13(2) TEU, including the ECB.56 Art. 4(1) TEU clarifies that competences not conferred upon the Union in the Treaties remain with the Member States. The SSMR reflects this fundamental principle in its Art. 1(5) by providing that this Regulation is without prejudice to the responsibilities and related powers of the competent authorities of the participating Member States to carry out supervisory tasks not conferred on the ECB by this Regulation. With respect to macro-prudential tools, this is reiterated by Art. 1(6) SSMR. 33 The principle of conferral has effects on (1) the territorial scope of application of the SSMR, (2) the competences ratione personae of the ECB, and (3) its tasks as a supervisory authority. With regard to the first aspect, even if the SSMR is binding in its entirety and directly applicable in all Member States of the EU (cf. Art. 288(2) TFEU), the powers (and competences) of the ECB thereunder are limited to the participating Member States in the meaning of Art. 2 (1) SSMR. Accordingly, the non-participating Member States are not affected by the conferral of supervisory powers to the ECB, so that neither their authorities nor banks and other financial institutions established in their territories are subject to prudential measures taken by the ECB. 34 As it is provided by Art. 1(2) SSMR, the ECB is only competent for the supervision of credit institutions in the meaning of Art. 4(1) of the CRR. Art. 4(2) SSMR clarifies that this competence applies also to the branches of credit institutions established in nonparticipating Member States. In addition, the ECB is competent to supervise the parent undertakings of credit institutions, i.e. financial holding companies and mixed financial holding companies, as Art. 6(4) of the SSMR pursues an approach of supervision on a consolidated basis. Due to the principle of conferral, banks that do not fulfil the criteria for credit institutions in the meaning of Art. 4(1) of the CRR do not fall within the purview of the SSMR. Art. 4 SSMR also clarifies that the institutions referred to in Art. 2(5) of Directive 2013/36/EU57 are excluded from the supervisory tasks conferred on the ECB. In addition, Art. 1(2) SSMR exempts central counterparties (cf. Art. 2(1) of Regulation EU No 648/201258) from supervision by the ECB.59 35 As concerns the competences ratione materiae of the ECB, its tasks are exhaustively listed by Art. 4(1) and (2) SSMR. Other areas of prudential supervision remain in the 32

Case C-222/02, Peter Paul, ECLI:EU:C:2004:606, paras. 44–45. Case C-62/14, Gauweiler, ECLI:EU:C:2015:400, para. 41. 57 Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and2006/49/EC, OJ L176, 27.6.2013, p. 338. 58 Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories, OJ L201, 27.7.2012, p. 1. 59 This was also confirmed by the General Court in Case T-476/11, UK v ECB, ECLI:EU:T:2015:133, with respect to the area of monetary policy. 55

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Definitions

competence of the Member States, in particular consumer protection, money laundering and terrorist financing.60 In its decision of 30 July 2019, the Federal Constitutional Court held that the distinc- 36 tion between significant and less significant credit institutions under Art. 6 (4) SSMR has a bearing on the legal nature of the competences conferred on the ECB. Contrary to the position of the General Court and the Court,61 the Federal Constitutional decided that the ECB’s competences in the area of indirect supervision vis-à-vis less significant institutions are non-exclusive.62 In this field, the national competent authorities do not operate on the basis of a re-delegation of powers, but, in accordance with the originals tasks attributed to them under national law.63

Art. 2 SSMR Definitions For the purposes of this Regulation, the following definitions shall apply: (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 7; (2) ‘national competent authority’ means a national competent authority designated by a participating Member State in accordance with Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and Directive 2013/36/EU; (3) ‘credit institution’ means a credit institution as defined in point 1 of Article 4(1) of Regulation (EU) No 575/2013; (4) ‘financial holding company’ means a financial holding company as defined in point 20 of Article 4(1) of Regulation (EU) No 575/2013; (5) ‘mixed financial holding company’ means a mixed financial holding company as defined in point 15 of Article 2 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; (6) ‘financial conglomerate’ means a financial conglomerate as defined in point 14 of Article 2 of Directive 2002/87/EC; (7) ‘national designated authority’ means a designated authority of a participating Member State, within the meaning of the relevant Union law; (8) ‘qualifying holding’ means a qualifying holding as defined in point 36 of Article 4(1) of Regulation (EU) No 575/2013; (9) ‘Single supervisory mechanism’ (SSM) means the system of financial supervision composed by the ECB and the national competent authorities of participating Member States as described in Article 6 of this Regulation. Article 2 SSM Framework Regulation Definitions For the purposes of this Regulation, the definitions contained in the SSM Regulation shall apply, unless otherwise provided for, together with the following definitions:

Cf. Recital 28 of the SSMR. Case T-122/15, L-Bank/ECB, ECLI:EU:T:2017:337, para. 53 and 63; case C-450/17 P, ECLI:EU:C: 2019:372, para. 38-41. 62 BVerfG, case 2 BvR 1685/14, para. 188 and 195; critical review by Karpenstein and Langner, EuZW (2020), 270, at p. 273. 63 BVerfG, case 2 BvR 1685/14, para. 187. 60

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(1) ‘authorisation’ means an authorisation as defined in point (42) of Article 4(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council; (2) ‘branch’ means a branch as defined in point (17) of Article 4(1) of Regulation (EU) No 575/2013; (3) ‘common procedures’ means the procedures provided for in Part V with respect to an authorisation to take up the business of a credit institution, withdrawal of an authorisation to pursue such business and decisions with regard to qualifying holdings; (4) ‘euro area Member State’ means a Member State whose currency is the euro; (5) ‘group’ means a group of undertakings of which at least one is a credit institution and which consists of a parent undertaking and its subsidiaries, or undertakings linked to each other by a relationship within the meaning of Article 22 of Directive 2013/34/EU of the European Parliament and of the Council, including any sub-group thereof; (6) ‘joint supervisory team’ means a team of supervisors in charge of the supervision of a significant supervised entity or a significant supervised group; (7) ‘less significant supervised entity’ means both (a) a less significant supervised entity in a euro area Member State; and (b) a less significant supervised entity in a non-euro area Member State that is a participating Member State; (8) ‘less significant supervised entity in a euro area Member State’ means a supervised entity established in a euro area Member State and which does not have the status of a significant supervised entity within the meaning of Article 6(4) of the SSM Regulation; (9) ‘national competent authority’ (NCA) means a national competent authority as defined in point (2) of Article 2 of the SSM Regulation. This definition is without prejudice to arrangements under national law which assign certain supervisory tasks to a national central bank (NCB) not designated as an NCA. In this case, the NCB shall carry out these tasks within the framework set out in national law and this Regulation. A reference to an NCA in this Regulation shall in this case apply as appropriate to the NCB for the tasks assigned to it by national law; (10) ‘NCA in close cooperation’ means an NCA designated by a participating Member State in close cooperation in accordance with Directive 2013/36/EU of the European Parliament and of the Council; (11) ‘national designated authority’ (NDA) means a national designated authority as defined in point (7) of Article 2 of the SSM Regulation; (12) ‘NDA in close cooperation’ means a non-euro area NDA designated by a participating Member State in close cooperation for the purposes of the tasks related to Article 5 of the SSM Regulation; (13) ‘non-euro area Member State’ means a Member State whose currency is not the euro; (14) ‘parent undertaking’ means a parent undertaking as defined in point (15) of Article 4(1) of Regulation (EU) No 575/2013; (15) ‘participating Member State in close cooperation’ means a non-euro area Member State that has entered into close cooperation with the ECB in accordance with Article 7 of the SSM Regulation; (16) ‘significant supervised entity’ means both (a) a significant supervised entity in a euro area Member State; and (b) a significant supervised entity in a participating non-euro area Member State; (17) ‘significant supervised entity in a euro area Member State’ means a supervised entity established in a euro area Member State which has the status of a significant supervised entity pursuant to an ECB decision based on Article 6(4) or Article 6(5)(b) of the SSM Regulation; (18) ‘significant supervised entity in a participating non-euro area Member State’ means a supervised entity established in a participating non-euro area Member State which has the status of a significant supervised entity pursuant to an ECB decision based on Article 6(4) or Article 6(5)(b) of the SSM Regulation; (19) ‘subsidiary’ means a subsidiary as defined in point (16) of Article 4(1) of Regulation (EU) No 575/2013; (20) ‘supervised entity’ means any of the following: (a) a credit institution established in a participating Member State; (b) a financial holding company established in a participating Member State; (c) a mixed financial holding company established in a participating Member State, provided that it fulfils the conditions laid down in point (21)(b); (d) a branch established in a participating Member State by a credit institution which is established in a non-participating Member State. A central counterparty (CCP), as defined in Article 2(1) of Regulation (EU) No 648/2012 of the European Parliament and of the Council, which qualifies as a credit institution within the meaning of Directive 2013/36/EU, shall be considered a supervised entity in accordance with the SSM Regulation, this Regulation and relevant Union law without prejudice to the supervision of CCPs by relevant NCAs as laid down under Regulation (EU) No 648/2012; (21) ‘supervised group’ means any of the following: (a) a group whose parent undertaking is a credit institution or financial holding company that has its head office in a participating Member State; (b) a group whose parent undertaking is a mixed financial holding company that has its head office in a participating Member State, provided that the coordinator of the financial conglomerate, within the

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meaning of Directive 2002/87/EC of the European Parliament and of the Council, is an authority competent for the supervision of credit institutions and is also the coordinator in its function as supervisor of credit institutions; (c) supervised entities each having their head office in the same participating Member State provided that they are permanently affiliated to a central body which supervises them under the conditions laid down in Article 10 of Regulation (EU) No 575/2013 and which is established in the same participating Member State; (22) ‘significant supervised group’ means a supervised group which has the status of significant supervised group pursuant to an ECB decision based on Article 6(4) or Article 6(5)(b) of the SSM Regulation; (23) ‘less significant supervised group’ means a supervised group which does not have the status of a significant supervised group within the meaning of Article 6(4) of the SSM Regulation; (24) ‘ECB supervisory procedure’ means any ECB activity directed towards preparing the issue of an ECB supervisory decision, including common procedures and the imposition of administrative pecuniary penalties. All ECB supervisory procedures are subject to Part III. Part III also applies to the imposition of administrative pecuniary penalties, unless Part X provides otherwise; (25) ‘NCA supervisory procedure’ means any NCA activity directed towards preparing the issue of a supervisory decision by the NCA, which is addressed to one or more supervised entities or supervised groups or one or more other persons, including the imposition of administrative penalties; (26) ‘ECB supervisory decision’ means a legal act adopted by the ECB in the exercise of the tasks and powers conferred on it by the SSM Regulation, which takes the form of an ECB decision, is addressed to one or more supervised entities or supervised groups or one or more other persons and is not a legal act of general application; (27) ‘third country’ means a country which is neither a Member State nor a European Economic Area Member State; (28) ‘working day’ means a day which is not a Saturday, Sunday or an ECB public holiday in accordance with the calendar applicable to the ECB.

A. Introductory remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1

B. Single Supervision Mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4

C. Member States – Third countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

D. Financial firms, groups of financial firms and related terms . . . . . . . . . . . . . . . . .

7

E. Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Authorities related to prudential supervision – teams of supervisory authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Designated authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18 18 21

F. Authorisation and prudential supervision-specific terms (SSM Framework Regulation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Supervised entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Supervised groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Supervisory procedures and decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23 23 26 32 35

A. Introductory remarks The definitions of terms in the SSMR and the SSM‑FR (Art. 2) are presented below, to 1 the extent that there is an overlapping, in a consolidated form with those of the SRMR. The definitions of terms only used in the SRMR are presented when analysing Art. 3 of the latter legislative act. The first sentence of Art. 2 of the SSM‑FR states that, unless otherwise provided for, 2 the definitions contained therein apply together with the definitions contained in the SSMR. Several of these definitions repeatedly refer to other EU legislative acts (of the European Parliament and of the Council) and in particular:

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First, three acts, which initially were all sources of both EU banking and EU capital markets law (since their rules equally applied to credit institutions1 and investment firms): Regulation (EU) No 575/2013, adopted on26 June 2013, “on prudential requirements for credit institutions and investment firms (…)”2 (CRR) and Directive 2013/36/EU of the same date “on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, (…)”3 (CRD IV), which constitute the single market element for the authorisation, the micro- and macro-prudential regulation and the micro-prudential supervision of credit institutions and hence form the basis for the operation of the SSM; Directive 2014/59/EU of 15 May 2014 “establishing a framework for the recovery and resolution of credit institutions and investment firms (...)”4 (BRRD), which constitutes the single market element for the preparation for resolution, the early intervention regime and the resolution of credit institutions (and hence forms the basis for the operation of the SRM).5 On 20 May 2019, these legislative acts were amended as follows: the CRR by Regulation (EU) 2019/876 (CRR II), the CRD IV by Directive (EU) 2019/878 (CRD V), and the BRDD by Directive (EU) 2019/879 (BRRD II). 6 The rules of the CRR II apply, in principle, from 28 June 2021, while Member States should have incorporated into national law the rules of the CRD V and the BRRD II, in principle again, from 28/29 December 2020. Furthermore, some of their Arts. (including on certain definitions) were amended by Regulation (EU) 2019/2033 “on the prudential requirements of investment firms” (IFR) and Directive (EU) 2019/2034 “on the prudential supervision of investment firms” (IFD) of 27 November 2019.7 It is by virtue of these legislative acts that the CRR and the CRD IV ceased to apply to investment firms and were renamed as follows: “on prudential requirements for credit institutions” and “on access to the activity of credit institutions and the prudential supervision of credit institutions”; on the other hand, the BRRD continues to apply to investment firms. The IFR and the national rules to be adopted for the implementation of the IFD apply from 26 June 2021.8 Second, Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 “establishing a European Supervisory Authority (EBA) (…)”9 (EBAR), as in force.

On the definition of this term, see infra, → para. 7. OJ L176, 27.6.2013, pp. 1-337. As of April 2020, this legislative act applied as repeatedly amended and mainly by the following Regulations of the European Parliament and of the Council: Regulation (EU) 2017/2395 of 12 December 2017, mainly as regards the mitigation of the impact of the introduction of IFRS 9 on own funds (OJ L345, 27.12.2017, pp. 27-33); Regulation (EU) 2017/2401 of 12 December 2017 as well, mainly on the treatment of securitisation positions (OJ L347, 28.12.2017, pp. 1-34), and Regulation (EU) 2019/630 of 17 April 2019, as regards minimum loss coverage for non-performing exposures (OJ L111, 25.4.2019, pp. 4-12). 3 OJ L176, 27.6.2013, pp. 338-436. 4 OJ L173, 12.6.2014, pp. 190-348. 5 This legislative act currently applies as repeatedly amended and most recently in December 2017 by Directive (EU) 2017/2399 (OJ L345, 27.1.2.2017, pp. 96-101). 6 OJ L150, 7.6.2019, pp. 1-225, 253-295 and 296-344, respectively. 7 OJ L 314, 5.12.2019, pp. 1-63 and 64-114, respectively. 8 IFR, Art. 66(2) and IFD, Article 67(1). 9 OJ L331, 15.12.2010, pp. 12-47. 1

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Third, with regard to EU capital markets law: Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 “on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS)” (UCITS IV Directive); 10 Regulation (EU) No 648/2012 of 4 July 2012 “on OTC derivatives, central counterparties and trade repositories”11 (EMIR); and Directive 2014/65/EU of 15 May 2014 “on markets in financial instruments (...)” (MiFID II),12 as in force. Finally, with regard to EU financial conglomerates law: Directive 2002/87/EC of 11 February 2003 “on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate (...)”13 (the “Financial Conglomerates Directive” or FICOD I), as in force.14 From a systematic point of view, the terms defined in the SSMR and the SSM‑FR are 3 classified into five categories (see infra, paras. 4-37).

B. Single Supervision Mechanism “Single Supervision Mechanism” (SSM) means15 the system of financial supervision 4 composed by the European Central Bank (ECB) and national competent authorities of participating Member States as described in Art. 6 SSMR.

C. Member States – Third countries 5 “Participating Member States” refers to16 two groups of Member States: First, those whose currency is the euro, which in the SSM‑FR are defined as “euro area Member States”.17 Second, those whose currency is not the euro (in the TFEU referred to as Member States with a derogation18 and in the SSM‑FR defined as “non-euro area Member States”19), which have established a close cooperation in accordance with Art. 7 SSMR. In the SSM‑FR these are defined as “participating Member States in close cooperation”20 (and in its Art. 115(5) referred to as “non-euro area participating Member States”). The group of Member States with a derogation also includes Denmark, which has an opt-out clause from the monetary union in accordance with Protocol (No 16) attached to the Treaties.21

OJ L302, 17.11.2009, pp. 32-96. OJ L201, 27.7.2012, pp. 1-59. 12 OJ L173, 12.6.2014, pp. 349-496. This Directive repealed with effect from 3 January 2018 Directive 2004/39/EC of the same institutions of 21 April 2004 “on markets in financial instruments (...)” (OJ L145, 30.4.2004, pp. 1-44) (MiFID I). 13 OJ L35, 11.2.2003, pp. 1-27. 14 Key amendments were introduced by Directive 2011/89/EU of 16 November 2011 (OJ L326, 8.12.2011, pp. 113-141) (FICOD II), which was adopted by virtue of Art. 31 FICOD I. 15 Art. 2(9) SSMR. 16 Art. 2(1) SSMR; see also Art. 4(1) SRMR. 17 Art. 2(4) SSM‑FR. 18 Arts. 139-144 TFEU and Arts. 42-47 ESCB Statute. 19 Art. 2(13) SSM‑FR. 20 Art. 2(15) SSM‑FR. 21 OJ C202, 7.6.2016, p. 287. 10 11

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Definitions

“Third country” means22 a country which is neither an EU Member State nor (another) Member State of the European Economic Area (i.e., Norway, Liechtenstein and Iceland).

D. Financial firms, groups of financial firms and related terms “Credit institution” means in principle23 an undertaking the business of which is to take deposits or other repayable funds from the public and to grant credits for its own account. This definition was firstly introduced in Council Directive 77/780/ΕEC of 12 December 1977 “on the coordination of the laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions”24 (known as the “First Banking Directive”) and then recurrently adopted unchanged in subsequent legal acts constituting the sources of European banking law. That term was selected as an overarching one, covering all types of financial firms which accept deposits and grant loans for their own account, even if they are not named “banks” (e.g., cajas in Spain, building societies in the UK, casse di risparmio in Italy, Ταχυδρομικό Ταμιευτήριο in Greece) in order to establish a uniform framework regarding their operation.25 8 Noteworthy is also the provision of Art. 9(1) CRD IV, according to which persons or undertakings that are not credit institutions are prohibited from carrying out the business of taking deposits or other repayable funds from the public,26 establishing thus a “legal monopoly” in this respect for credit institutions. 9 “Branch” means27 a place of business which forms a credit institution’s legally dependent part and carries out directly all or some of the transactions inherent in the business thereof. 10 “Parent undertaking” means, in principle, a parent undertaking within the meaning of Art. 22(1)-(5) of Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 “on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC”28 (also referred to as the ‘Accounting Directive’), as in 7

Art. 2(27) SSM‑FR. Art. 2(3) SSMR, with reference to Art. 4(1)(1)(a) CRR. Art. 62(3)(a) IFR amended this definition by inserting to that CRR Art. a new point (b), according to which credit institution also means an undertaking the business of which consists of carrying out the activities referred to in points (3)-(6) of Section A of Annex I to MIFID, albeit under specific conditions and provided that the undertaking is not a commodity and emission allowance dealer, a collective investment undertaking or an insurance undertaking. 24 OJ L322, 17.12.1977, pp. 30-37. 25 Due to divergences in the interpretation of elements of the notion of credit institution across the EU, and in particular with regard to the terms ‘the business of which’, ‘deposits’, ‘other repayable funds’ and ‘from the public’, the EBA issued on 18 September 2020 an Opinion “on elements of the definition of credit institution under Article 4(1), point 1, letter (a) [CRR] and on aspects of the scope of the authorisation” (). It is suggested that these terms should be further clarified by the Commission to enhance the single rulebook and ensure that prudential requirements contained in the CRR and the CRD IV are imposed appropriately in relation to entities presenting similar risks to customers and financial stability. 26 This prohibition does not apply to the taking of deposits or other funds repayable by a Member State, or by a Member State's regional or local authorities, by public international bodies of which one or more Member States are members, or to cases expressly covered by national or EU law, provided that those activities are subject to regulations and controls intended to protect depositors and investors (Art. 9(2) CRD IV). 27 Art. 2(2) SSM‑FR, with reference to Art. 4(1)(17) CRR; see also Art. 3(1)(22) SRMR. 28 OJ L 182, 29.6.2013, pp. 19-76. 22 23

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force. For the purposes of Sec. II of Ch. 3 and 4 of Title VII and Title VIII of the CRD IV29 and Part Five of the CRR30 it also means a parent undertaking within the meaning of Article 22(1) of the Accounting Directive and any undertaking which effectively exercises a dominant influence over another undertaking.31 According to Article 22(1) of the Accounting Directive, “parent undertaking” means an institution meeting any of the following requirements: First, it has a majority of the shareholders’ or members’ voting rights in another undertaking (a ‘subsidiary undertaking’); Second, it has the right to appoint or remove a majority of the members of the administrative, management or supervisory body of that subsidiary undertaking and is at the same time a shareholder in or member of that (subsidiary) undertaking; Third, it has the right to exercise a dominant influence over that subsidiary undertaking, pursuant to a contract entered into with that subsidiary undertaking or to a provision in its memorandum or articles of association, where the law governing that subsidiary undertaking permits its being subject to such contracts or provisions; or Finally, it is a shareholder in or member of a subsidiary undertaking, and (i) a majority of the members of the administrative, management or supervisory bodies of that (subsidiary) undertaking who have held office during the financial year, during the preceding financial year and up to the time when the consolidated accounts are drawn up, have been appointed solely as a result of the exercise of its voting rights, or (ii) it controls alone, pursuant to an agreement with other shareholders in or members of that subsidiary undertaking, a majority of shareholders’ or members’ voting rights in that (subsidiary) undertaking. “Subsidiary” means32 (in principle) a subsidiary undertaking within the meaning of Art. 22(1)-(5) of the (just above-mentioned) Accounting Directive. Subsidiaries of subsidiaries are also considered to be subsidiaries of their original parent undertaking. “Group” means33 a group of undertakings of which at least one is a credit institution, and which consists of a parent undertaking and its subsidiaries, or undertakings linked to each other by a relationship within the meaning of Art. 22 of the Accounting Directive, including any sub-group thereof. At national discretion, covered are also parent undertakings which have the power to exercise or actually exercise dominant influence or control over a subsidiary undertaking, as well as parent and subsidiary undertakings managed on a unified basis by the former.34 “Qualifying holding” means35 a direct or indirect holding in an undertaking which accounts for 10 % or more of the capital or voting rights or makes it possible to exert significant influence on the management of that undertaking.

29 Arts. 119-127 CRD IV, on the supervision on a consolidated basis of financial holding companies, mixed financial holding companies and mixed activity holding companies; Arts. 135-140 CRD IV, on setting and calculating countercyclical capital buffers; and Arts. 143-144 CRD IV, on disclosure by competent authorities, respectively. 30 Arts. 404-411 CRR, on exposures to transferred credit risk. 31 Art. 2(14) SSM‑FR, with reference to Art. 4(1)(15)(a) and 15(b) CRR, respectively (which still refer to Directive 83/349/EEC that was repealed by the Accounting Directive); see also Art. 3(1)(20) SRMR, which (apparently) only refers to Art. 4(1)(15)(a) CRR. 32 Art. 2(19) SSM‑FR, with reference to Art. 4(1)(16) CRR; see also Art. 3(1)(21) SRMR. 33 Art. 2(5) SSM‑FR. 34 Art. 22(1)-(2) of Directive 2013/34/EU. 35 Art. 2(8) SSMR, with reference to Art. 4(1)(36) CRR.

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11

12

13

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“Financial holding company” means36 a financial institution the subsidiaries of which are exclusively or “mainly” institutions, or financial institutions, and which is not a mixed financial holding company. These subsidiaries are “mainly” institutions or financial institutions where at least one of them is an institution and more than 50 % of the financial institution’s equity, consolidated assets, revenues, personnel or other indicator considered relevant by the competent authority are associated with subsidiaries that are institutions or financial institutions.37 In this respect, it is also noted that “institution” means: first, a credit institution authorised under Art. 8 CRD IV; and second, an undertaking as referred to in point (1)(b) of Art. 4(1) CRR (that is also covered by the new definition of credit institution as already noted), which by end-2019 was carrying out activities as investment firm, authorised under MiFID II, and should have applied for authorisation in accordance with Art. 8 CRD IV by 27 December 2020.38 16 “Mixed financial holding company” means39 a parent undertaking, other than a “regulated entity”,40 which, together with its subsidiaries – at least one of which is a regulated entity which has its registered office in the EU – and other entities, constitutes a financial conglomerate.41 17 “Financial conglomerate” means42 a group or subgroup, where a regulated entity is at the head of the group or subgroup, or where at least one of the subsidiaries in that group or subgroup is a regulated entity, and which meets specific conditions, which are (partially) differentiated depending on whether there is a regulated entity at the head of the group or subgroup.43 15

E. Authorities I. Authorities related to prudential supervision – teams of supervisory authorities 18

“National competent authority” (NCA) means44 a national competent authority designated by a participating Member State in accordance with the CRR and the CRD IV (Art. 4). For the purposes of the SSM‑FR this definition is without prejudice to arrangements under national law which assign certain supervisory tasks to a national central bank (NCB) not designated as an NCA, in which case the NCB must carry out these Art. 2(4) SSMR, with reference to Art. 4(1)(20) CRR; see also Art. 3(1)(16) SRMR. According to the EBA, in principle, a distinction should be made between holding companies whose “principal activity” is the acquisition of holdings for investment purposes (acting as a “financial investor”) and holding companies which pursue management tasks for their industrial or manufacturing subsidiaries or holdings and whose “principal activity” is the (operative) group management in the role of a “strategic investor” (see at: ). 38 Art. 3(1)(3) CRR with reference to Art. 8a(3) CRD IV, inserted by virtue of the IFD. 39 Art. 2(5) SSMR, with reference to Art. 2(15) FICOD I; see also Art. 3(1)(17) SRMR. 40 Pursuant to Art. 2(4) FICOD I, ‘regulated entity’ means a credit institution, an insurance and a reinsurance undertaking, an investment firm, an asset management company or an alternative investment fund manager. 41 It is noted in this respect that one of the main pillars of the amendments to the CRD IV by the CRD V was to establish rules on the authorisation and to enhance the framework governing the prudential supervision of financial holding companies and mixed financial holding companies. The new rules apply from 1 January 2021. 42 Art. 2(6) SSMR, with reference to Art. 2(14) FICOD I. 43 Art. 2(14)(a) and (14)(b) FICOD I, respectively. 44 Art. 2(2) SSMR, with reference to Art. 4(1)(40) CRR and Art. 2(9) sent. 1 SSM‑FR, see also Art. 3(1)(1) SRMR. 36

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tasks within the framework set out in national law and the SSMR and a reference to an NCA in the SSMR applies as appropriate to the NCB for the tasks assigned to it by national law.45 “NCA in close cooperation” means46 an NCA designated by a participating Member 19 State in close cooperation in accordance with the CRD IV. “Joint supervisory team” (JST) means47 a team of supervisors in charge of the super- 20 vision of a significant supervised entity or a significant supervised group.

II. Designated authorities “National designated authority” (NDA) means48 a designated authority of a partic- 21 ipating Member State, within the meaning of relevant EU law. As an example, in accordance with Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014 “on deposit guarantee schemes”49 (DGSD), “designated authority” means50 a body which administers a deposit guarantee scheme (DGS), or where a DGS’s operation is administered by a private entity, a public authority designated by the Member State concerned for supervising that scheme pursuant to that Directive. “NDA in close cooperation” means51 a non-euro area NDA designated by a partici- 22 pating Member State in close cooperation for the purposes of the tasks related to Art. 5 SSMR.

F. Authorisation and prudential supervision-specific terms (SSM Framework Regulation) I. General “Authorisation” means52 an instrument issued in any form by the authorities by which 23 the right to carry out the business is granted. “Common procedures” means53 the procedures provided for in Part V of the SSM‑FR 24 (Arts. 73-88 SSM‑FR) with respect to an authorisation to take up the business of a credit institution, withdrawal of an authorisation to pursue such business and decisions with regard to qualifying holdings. In these cases, the ECB is responsible for all credit institutions and other supervised entities established in participating Member States, irrespective of whether they are significant or less significant, by virtue of Art. 4(1)(a)(c) SSMR. “Working day” means54 a day which is not a Saturday, a Sunday or an ECB public 25 holiday under the calendar applicable to the ECB (as published on its website).

Art. 2(9) sent. 2 and 4 SSM‑FR. Art. 2(10) SSM‑FR. 47 Art. 2(6) SSM‑FR. 48 Art. 2(7) SSMR and Art. 2(11) SSM‑FR. 49 OJ L173, 12.6.2014, pp. 149-178. 50 Art. 2(1)(18) DGSD. 51 Art. 2(12) SSM‑FR. 52 Art. 2(1) SSM‑FR, with reference to Art. 4(1)(42) CRR. 53 Art. 2(3) SSM‑FR. 54 Art. 2(28) SSM‑FR. 45

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II. Supervised entities 26

27

28

29

30

31

(1) “Supervised entity” means:55 a credit institution established in a participating Member State; a financial holding company established in a participating Member State; a mixed financial holding company established in a participating Member State, provided that it fulfils the conditions laid down in point (21), point (b) of the SSM‑FR (on the definition of “supervised groups”); and/or a branch established in a participating Member State by a credit institution which is established in a non-participating Member State. In addition, a central counterparty (CCP), which qualifies as a credit institution within the meaning of the CRD IV, is considered a supervised entity in accordance with the SSMR, the SSM‑FR and relevant EU law, without prejudice to the supervision of CCPs by relevant NCAs as laid down in EMIR.56 CCP means a legal person that interposes itself between the counterparties to the contracts traded on one or more financial markets, becoming the buyer to every seller and the seller to every buyer. 57 (2) “Significant supervised entity” means58 both a significant supervised entity in a euro area Member State and a significant supervised entity in a participating non-euro area Member State. (3) “Significant supervised entity in a euro area Member State” means59 a supervised entity established in a euro area Member State, which has the status of a significant supervised entity pursuant to an ECB decision based on Arts. 6(4) or 6(5)(b) SSMR. (4) “Significant supervised entity in a participating non-euro area Member State” means60 a supervised entity established in a participating non-euro area Member State which has the status of a significant supervised entity pursuant to an ECB decision based on Arts. 6(4) or 6(5)(b) SSMR. (5) “Less significant supervised entity” means61 both a less significant supervised entity in a euro area Member State, and a less significant supervised entity in a non-euro area Member State that is a participating Member State. (6) “Less significant supervised entity in a euro area Member State” means 62 a supervised entity established in a euro area Member State, and which does not have the status of a significant supervised entity within the meaning of Art. 6(4) SSMR.

III. Supervised groups 32

(1) “Supervised group” means:63 a group whose parent undertaking is a credit institution or financial holding company that has its head office in a participating Member State; a group whose parent undertaking is a mixed financial holding company that has its head office in a participating Member State, provided that the coordinator of the financial conglomerate, within the meaning of FICOD I, is an authority competent for the supervision of credit institutions and is also the coordinator in its function as supervisor of credit institutions; or supervised entities each having their head office in the same participating Member State if they are permanently affiliated to a central body which suArt. 2(20)(1) SSM‑FR. Art. 2(20)(2) SSM‑FR. 57 Art. 2(1) EMIR. 58 Art. 2(16) SSM‑FR. 59 Art. 2(17) SSM‑FR. 60 Art. 2(18) SSM‑FR. 61 Art. 2(7) SSM‑FR. 62 Art. 2(8) SSM‑FR. 63 Art. 2(21) SSM‑FR. 55 56

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pervises them under the conditions laid down in Art. 10 CRR and which is established in the same participating Member State.64 (2) “Significant supervised group” means65 a supervised group which has the status 33 of a significant supervised group pursuant to an ECB decision based on Arts. 6(4) or 6(5)(b) SSMR. (3) “Less significant supervised group” means66 a supervised group not having the 34 status of a significant supervised group within the meaning of Art. 6(4) SSMR.

IV. Supervisory procedures and decisions (1) “ECB supervisory procedure” means67 any ECB activity directed towards prepar- 35 ing the issue of an ECB supervisory decision, including common procedures and the imposition of administrative pecuniary penalties. (2) “NCA supervisory procedure” means 68 any NCA activity directed towards prepar- 36 ing the issue of a supervisory decision by the NCA, which is addressed to one or more supervised entities or supervised groups or one or more other persons, including the imposition of administrative penalties. (3) “ECB supervisory decision” means 69 a legal act adopted by the ECB in the exercise 37 of the tasks and powers conferred on it by the SSMR, which takes the form of an ECB Decision, is addressed to one or more supervised entities or supervised groups or one or more other persons and is not a legal act of general application.

Art. 3 SSMR Cooperation 1. The ECB shall cooperate closely with EBA, ESMA, EIOPA, and the European Systemic Risk Board (ESRB) and the other authorities which form part of the ESFS, which ensure an adequate level of regulation and supervision in the Union. Where necessary, the ECB shall enter into memoranda of understanding with competent authorities of Member States responsible for markets in financial instruments. Such memoranda shall be made available to the European Parliament, to the Council and to competent authorities of all Member States. 2. For the purposes of this Regulation, the ECB shall participate in the Board of Supervisors of EBA under the conditions set out in Article 40 of Regulation (EU) No 1093/2010. 3. The ECB shall carry out its tasks in accordance with this Regulation and without prejudice to the competence and the tasks of EBA, ESMA, EIOPA and the ESRB. 4. The ECB shall cooperate closely with the authorities empowered to resolve credit institutions, including in the preparation of resolution plans. 5. Subject to Articles 1, 4 and 6, the ECB shall cooperate closely with any public financial assistance facility including the European Financial Stability Facility (EFSF) and the ESM, in particular where such a facility has granted or is likely to grant,

It is noted that Arts. 10(4), 10(9) and 10(11) CRR have been amended by Art. 1(4) CRR II. Art. 2(22) SSM‑FR. 66 Art. 2(23) SSM‑FR. 67 Art. 2(24) SSM‑FR. 68 Art. 2(25) SSM‑FR. 69 Art. 2(26) SSM‑FR. 64

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direct or indirect financial assistance to a credit institution which is subject to Article 4. 6. The ECB and the competent authorities of non-participating Member States shall 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 referred to in Article 2. The memorandum shall be reviewed on a regular basis. Without prejudice to the first subparagraph, the ECB shall conclude a memorandum of understanding with the competent authority of each non-participating Member State that is home to at least one global systemically important institution, as defined in Union law. Each memorandum shall be reviewed on a regular basis and shall be published subject to appropriate treatment of confidential information. Bibliography Luigi Chiarella, ‘The Single Supervisory Mechanism: the Building Pillar of the European Banking Union’ Bologna L. Rev.1 (2016), 34; Eilis Ferran, ‘European Banking Union and the EU single financial market: more differentiated integration or disintegration?’ in: Bruno de Witte, Andrea Ott and Ellen Vos (eds), Between Flexibility and Disintegration (Edward Elgar, Cheltenham 2017), 252; Eilis Ferran, ‘The Existential Search of the European Banking Authority’, EBOR 17 (2016), 285; Guido Ferrarini, ‘Single Supervision and the Governance of Banking Markets: Will the SSM Deliver the Expected Benefits?’, EBOR 16 (2015), 513; Guido Ferrarini, ‘Single Supervision and the Governance of Banking Markets’, ECGI Law Working Paper No. 294/2015 (University of Genoa and ECGI, 2015); Christos V. Gortsos, ‘The two main pillars of the European Banking Union: the legal framework in a ‘nutshell’’ in: Jens-Hinrich Binder and Christos V. Gortsos (eds), The European Banking Union (C.H. Beck/Hart/Nomos, Munich/Oxford/Baden-Baden 2016), 17; Elke Gurlit, ‘The ECB’s relationship to EBA’, EuZW-Beilage (2014), 14; Matthias Herdegen, Europäische Bankenunion: ‘Wege zu einer einheitlichen Bankenaufsicht’, WM (2012), 1889; Gerard Hertig and Joseph McCahery, ‘Optional EU Banking Supervision?’ ECL 6 (2009), 4; Rosa Maria Lastra, International Financial and Monetary Law (2nd edn, Oxford University Press, Oxford 2015); Giovanni Lo Schiavo, ‘From National Banking Supervision to a Centralized Model of Prudential Supervision in Europe? The Stability Function of the Single Supervisory Mechanism’, Maastricht Journal 21 (2014), 110; Cornelia Manger-Nestler, ‘European Banking Authority’ in: Simon Grieser and Manfred Heemann (eds), Europäisches Bankenaufsichtsrecht (Frankfurt School Verlag, Frankfurt 2016), 67; Cornelia Manger-Nestler, ‘Ménage à trois? – Zur gewandelten Rolle der EZB im Spannungsfeld zwischen Geldpolitik, Finanzaufsicht und Fiskalpolitik’, EuR (2014), 621; Katja Michel, Institutionelles Gleichgewicht und EU-Agenturen (Duncker & Humblot, Berlin 2015); Niamh Moloney, ‘European Banking Union: Assessing Its Risks and Resilience’, CMLR 51 (2014), 1609; Christoph Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (C. H. Beck, Munich 2015); Pierre Schammo, ‘Differentiated Integration and the Single Supervisory Mechanism: Which Way Forward for the European Banking Authority’ in: Patrick J. Birkinshaw and Andrea Biondi (eds), Britain Alone! The Implications and Consequences of United Kingdom Exit from the EU (Wolters Kluwer, Alphen aan den Rijn 2016), 311; Alexander Thiele, Finanzaufsicht (Mohr Siebeck, Tübingen 2014); Anne van Aaken, ‘Transnationales Kooperationsrecht nationaler Aufsichtsbehörden als Antwort auf die Herausforderung globalisierter Finanzmärkte’ in: Christoph Möllers, Andreas Voßkuhle and Christian Walter (eds), Internationales Verwaltungsrecht. Eine Analyse anhand von Rechtsgebieten (Mohr Siebeck, Tübingen 2007), 219; Eddy Wymeersch, ‘The Single Supervisory Mechanism or “SSM”, Part One of the Banking Union’ (Financial Law Institut, Universiteit Gent Working Paper Series, WP 2014-01, 2014).

24

A. General remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Background and purpose of the provision: Cooperation as a prerequisite for effective financial supervision and the functioning of the internal market . . . II. Structure of provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Obligation to “cooperate closely” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Consequences of a failure to comply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 2 4 8

B. Art. 3(1) SSMR: Duty to cooperate within the ESFS . . . . . . . . . . . . . . . . . . . . . . . . . . I. Art. 3(1)(1) SSMR: Close cooperation with the members of the ESFS . . . . . . . 1. Cooperation with EBA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Supervision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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2. Cooperation with ESMA and EIOPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Cooperation with ESRB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Cooperation with national competent or supervisory authorities . . . . . . . . . II. Art. 3(1)(2) SSMR: Duty to enter into MoU with national market authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14 16 18

C. Art. 3(2) SSMR: Participation in the EBA’s board of supervisors . . . . . . . . . . . . .

25

21

D. Art. 3(3) SSMR: Division of competences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28

E. Art. 3(4) SSMR: Cooperation with resolution authorities . . . . . . . . . . . . . . . . . . . .

29

F. Art. 3(5) SSMR: Coordination with public financial assistance facilities . . . . .

34

G. Art. 3(6) SSMR: Cooperation with authorities in non-participation Member States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Art. 3(6)(1) SSMR: MoU with competent authorities in non-participating Member States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Art. 3(6)(2) and (3) SSMR: MoU with competent authorities in Member States host to global systemically important institutions . . . . . . . . . . . . . . . . . . . . .

35 36 38

A. General remarks I. Background and purpose of the provision: Cooperation as a prerequisite for effective financial supervision and the functioning of the internal market In the European Union, just like in many other parts of the global financial system, 1 financial supervisory authorities were multiplied in reaction to the crisis of the years 2007-2008. The newly installed multi-institutional architecture of prudential regulation and supervision, as it is today, however, has not been designed from scratch nor from one cast. It was built upon pre-existing institutional structures and it is the result of a continuous, lengthy and oftentimes disputed process of reform and political compromise. As a consequence, tasks and competences of financial supervisory authorities are not always divided up clearly and strictly. Rather, they overlap and a single institution will oftentimes not be able to complete its tasks without regard to the supervisory measures taken by its fellow authorities. Inter-institutional cooperation and coordination are thus indispensable for providing effective and convergent supervision and, if necessary, resolution. This holds particularly true for the SSM and the ESFS, whose fields of activities overlap in large parts. As for financial supervision, one, if not the major challenge for the EU in the upcoming years will be the integration of the SSM, responsible for credit institutions in the Eurozone and the ESFS with its union wide responsibilities for banks and other financial institutions.1 The two regimes have to be coordinated in a way that both ensures the stability of the financial system and, at the same time, guarantees that the Banking Union does not impair the functioning of the internal market. Art. 3 SSMR therefore explicitly obliges the ECB to cooperate with other national and European financial supervisors and particularly with the authorities which form a part of the ESFS. This duty could also have been derived from Art. 4(3) TFEU.2 But the specific regulation in the SSMR underlines the importance of efficient coordination for effective supervision, it concretizes the partners and, in some cases, the means of coopera1 Cf. from the vast literature e.g. Moloney, CMLR 51 (2014), 1609, at pp. 1661 et seq.; Lastra, International Financial and Monetary Law (2nd edn, 2015), Chapter 11; Ferrarini, EBOR 16 (2015), 513, at pp. 514 et seq.; Ferran, in: de Witte, Ott and Vos (eds), Between Flexibility and Disintegration (2017), Chapter 10, at pp. 252 et seq., and COM(2012) 510 final, Roadmap towards a Banking Union, at pp. 4 et seq. 2 Cf. Art. 2(4) EBAR.

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tion and thus, as lex speciales, replaces the general provision of the Treaty within its scope of application. If the SSM and, more generally, the Banking Union can be linked to the ESFS successfully, financial supervision and its cooperation mechanisms might serve as templates for differentiated integration in other fields of integration within the European Union.

II. Structure of provision Art. 3 SSMR is subdivided into six paragraphs,3 which differ in the institutions, with whom the ECB is obliged to cooperate: with the members of the ESFS (paras. 1-3), with national and European resolution authorities (para. 4), with public financial assistance facilities, namely the EFSF and the ESM (para. 5) and with the competent authorities of the Member States that are not participating in the SSM (para. 6). 3 Two further cooperation partners that instantly come to mind are missing in this enumeration: supervisory authorities from third countries and international organisations with a mandate related to the financial sector.4 The cooperation of the ECB with international organisations, supervisory authorities and/or other administrative bodies of third countries is dealt with separately in the Art. 8 SSMR. The ECB may enter into informal administrative arrangements with the aforementioned institutions, but it is not allowed to create legal obligations in respect of the Union or the Member States.5 The EBAR contains an equivalent provision in its Art. 33(1). Formal international agreements on cooperation in financial supervision thus remain the sole responsibility of the Commission and the competent national authorities.6 2

III. Obligation to “cooperate closely” The duty to “cooperate closely” as such does not oblige the ECB to choose a specific form, object or time of cooperation. Unless a means is explicitly prescribed (as for example the conclusion of memoranda of understanding [MoUs] in Art. 3[6][1] and [3] SSMR), it may decide to coordinate supervisory activities on a case-to-case basis or to enter into general agreements. 5 Typically, informal international administrative cooperation is based on MoU.7 They are not legally binding, but nonetheless influential in practice.8 If they are to govern the cooperation of financial supervisors, they usually include at least provisions for the exchange of information and on the establishment of supervisory colleges (or similar 4

3 The Commissions original legislative proposal consisted of only one paragraph, which is today’s para. 1. 4 Cf. Wymeersch, The Single Supervisory Mechanism or "SSM", Part One of the Banking Union (2014), at p. 28. 5 Cf. Art. 16 EBAR. 6 Cf. Wymeersch, The Single Supervisory Mechanism or "SSM", Part One of the Banking Union (2014), at p. 28. 7 See for an analysis of the use of soft law as a means to internationally coordinate financial supervision e.g. van Aaken, in: Möllers, Voßkuhle and Walter (eds), Internationales Verwaltungsrecht (2007), 219, at pp. 221 et seq. 8 See Thiele, Finanzaufsicht (2014), at pp. 527 et seq.; van Aaken, in: Möllers, Voßkuhle and Walter (eds), Internationales Verwaltungsrecht (2007), 219, at pp. 230 et seq.; skeptical with a view to the effectiveness of a coordination via MoUs e.g. Hertig and McCahery, ECL 6 (2009), 4.

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coordination mechanisms) for the supervision of the cross-border or cross-sectional financial companies and/or activities.9 Art. 3 SSMR does not entitle the ECB to issue or enter into legally binding coopera- 6 tion mechanisms. This has to be concluded from the fact that Art. 3(6)(2) SSMR prescribes noncommittal MoU as the ultimate means, if no other coordination instrument can ensure convergent and effective supervisory practices. However, Art. 3 SSMR does not prohibit binding arrangements, if these are permitted by other provisions of Union law. The SSMR does not clarify, in how far a standard cooperation differs from a coopera- 7 tion qualified as “close”. Considering the background of the provision and the detailed rules of administrative procedure laid down in other articles of the regulation (see Art. 6[5]-[7]SSMR), the adjective is most likely used merely to underline the importance of coordinating supervisory activities without prescribing, for example, a minimum density of regulation within an MoU. In any case, it does not imply, that the ECB shall seek consent of other authorities before taking a supervisory measure. If mutual approval is to be a prerequisite for prudential action, this has to be spelled out explicitly in the regulation.

IV. Consequences of a failure to comply A breach of the obligation to cooperate closely does not have any legal consequences. 8 Therefore, some attest Art. 3 SSMR a “mainly theoretical function”.10 Indeed, no enforcement mechanism for the duty to cooperate is provided for in the SSMR. Nonetheless the significance of the provision seems to be underestimated with the cited assessment. Art. 3 SSMR does constitute a legal responsibility and the concretion of the various dimensions of this responsibility makes a political sanctioning of failures to comply easier and significantly more likely.

B. Art. 3(1) SSMR: Duty to cooperate within the ESFS I. Art. 3(1)(1) SSMR: Close cooperation with the members of the ESFS Amongst the supervisors, the ECB has to cooperate with, are first and foremost, the 9 authorities, which form part of the ESFS. The ESFS is “an integrated network of Union and national supervisory authorities” (see e.g. Recital 9 EBAR), that has been established by the founding regulations of the European Supervisory Authorities11. It comprises the ESRB, the EBA, the EIOPA, the ESMA and the national competent or supervisory authorities including the ECB itself with regard to its supervisory tasks.12 The Joint Committee of the European Supervisory Authorities is also part of the ESFS, but it does not

9 Cf. the analysis of Thiele, Finanzaufsicht (2014), at pp. 527 et seq.; Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 107. 10 Wymeersch, The Single Supervisory Mechanism or "SSM", Part One of the Banking Union (2014), at p. 27. 11 See Art. 2(2) EBAR, Art. 2(2) EIOPAR, Art. 2(2) ESMAR. 12 See supra, fn. 11.

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qualify as an authority in the sense of Art. 3 SSMR. The founding regulations of the three ESAs all contain cooperation duties similar to the one imposed by Art. 3 SSMR. 13

1. Cooperation with EBA 10

The most intricate of the relations that are subject to Art. 3 SSMR is the one between the ECB and the EBA, since their prudential activities mutually influence each other in various ways.14 Only at first sight the division of tasks and competences between these two bodies might appear simple and clear:15 The ECB supervises individual credit institutions, whereas the EBA has to further develop the Singe Rule Book for the European financial market. While the first applies the law, the second contributes to its making. This holds true as a very general principle. But numerous exceptions apply so that effectively the responsibilities and competencies of the two bodies overlap significantly in the key areas of their activities, i.e. in the fields of prudential regulation and of micro-prudential supervision. The amended EBAR partially eliminates the potential for conflict that results from this overlap. 16 In order to prevent the disintegration of the internal financial market, it does so by strengthening the position of the EBA.17 However, its formalized mechanisms alone do not guarantee for a seamless coordination of the two competing authorities. Thus, whenever further rebalancing is necessary to ensure a consistent and effective enforcement of substantial financial market regulation in the European Union, Art. 3 SSMR obliges the ECB and the EBA to cooperate informally. Accordingly and in order to conjointly effectuate their supervisory practices, the ECB, the EBA and other European banking supervisory authorities concluded “an MoU establishing a framework for an EU-wide exchange of bank-by-bank data on key risk indicators, which are collected by the EBA from competent authorities across the EU” on 13 March 2015.18 a) Regulation

11

In order to support supervisory convergence, the EBA issues guidelines and recommendations addressed to competent authorities or financial institutions, in which it interprets the applicable Union law, elucidates its legal concepts and defines best supervisory practices (see Arts. 8[1][a], 16 EBAR). EBA’s guidelines and recommendations are not legally binding, but its addressees have to make every effort to comply and if they do not comply, they shall inform EBA and state the reasons for their deviation (see Art. 16[3][1] and [2] EBAR). The ECB, as well, has the right and task to issue regulaArt. 2(3) and (4) EBAR, Art. 2(3) and (4) EIOPAR, Art. 2(3) and (4) ESMAR. From the vast literature on the relation between the ECB and the EBA see e.g. Moloney, CMLR 51 (2014), 1609, at pp. 1663 et seq.; Gurlit, EuZW-Beilage 2014, 14, at pp. 14 et seq.; Lo Schiavo, Maastricht Journal 21 (2014), 110, at pp. 132 et seq.; Wymeersch, The Single Supervisory Mechanism or "SSM", Part One of the Banking Union (2014), at pp. 70 et seq.; Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015) § 5 para. 97 et seq.; Manger-Nestler, in: Grieser and Heemann (eds), Europäisches Bankenaufsichtsrecht (2016), 67, at pp. 103 et seq.; Schammo, in: Birkinshaw and Biondi (eds), Britain Alone! (2016), § 16; Chiarella, Bologna L. Rev. 1 (2016), 34, at pp. 76 et seq. 15 See Gurlit, EuZW-Beilage 2014, 14; cf. Recital 32 SSMR: „[…] 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 those tasks by EBA, […].” 16 The SSMR and the amended EBAR both aim at integrating the SSM and the ESFS, see Gortsos, in: Binder and Gortsos (eds), The European Banking Union (2016), 17, at p. 24; for a detailed analysis of the cooperation mechanisms included in the EBAR see the literary references cited supra, fn. 14. 17 Cf. e.g. Wymeersch, The Single Supervisory Mechanism or "SSM", Part One of the Banking Union (2014) at p. 71; Ferrarini, EBOR 16 (2015), 513, at p. 533; Chiarella, Bologna L. Rev. 1 (2016), 34, at p. 78. 18 ECB, Annual Report on supervisory activities 2015, 2016, at p. 56. The MoU is not available to the public. 13

14

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tions, guidelines or general instructions according to which national authorities have to supervise less significant credit institutions (see Art. 6[5][a] SSMR). So as to prevent a contradiction between EBA’s and ECB’s legal acts addressed at national supervisors, the ECB is considered a “competent authority” within the meaning of the amended EBAR (see Art. 2[2][f]EBAR) and is consequently bound by EBA-guidelines in the same way as national authorities are.19 Yet, being subjected to EBA’s “regulatory products”20, as such, does not make it impossible for the ECB to prescribe different practices for the supervision of credit institutions. Pursuant to the Art. 16 EBAR it would only have to explain itself if it deviated from EBA’s provisions. Moreover, assuming there was no additional cooperation duty, the ECB would be free to use the leeway given in EBA’s acts to pursue its own objectives, which would not have to be in accordance with EBA’s.21 By obliging the ECB to cooperate closely with the EBA, Art. 3 SSMR enjoins both bodies from seeking open conflict and, instead, compels them to informally look for common solutions and shared prudential strategies. The ECB fulfils its cooperation duty by actively participating in the EBA Review Panel, which is responsible for conducting peer reviews to strengthen consistency in supervisory outcomes,22 by contributing to 35 of EBA’s committees and sub-groups working on the harmonization of prudential rules for financial institutions and by participating – as a non-voting member – in EBA’s Board of Supervisors, the main decision-making body of the Authority (see Art. 43 EBAR)23. b) Supervision The ECB is responsible for the supervision of all significant credit institutions estab- 12 lished in the Member States whose currency is Euro or where close cooperation in the sense of Art. 7(1) SSMR has been established between the ECB and the national competent authority. With regard to less significant banks, the ECB fulfils the direct supervisory tasks enumerated in Art. 4(1)(a) and (c) SSMR and apart from that it guides the activities of the national authorities by issuing regulations, guidelines or general instructions for the supervision of less significant institutions (Art. 6[5][a] SSMR). While EBA is contributing to an effective and consistent supervisory practice primarily by further developing the Single Rule Book, it may under certain conditions (breach of EU law, emergency situations, disagreement between competent authorities, see Art. 17-19 EBAR) also issue individual decisions addressed to financial institutions or competent authorities. Since the ECB is considered a competent authority in the sense of the EBAR, it can be the addressee of an EBA-instruction.24 However, openly conflicting risk assessments or interpretations of the applicable law by the two supervisors can compromise the effectiveness of both authorities. Thus, if the ECB and the EBA come to different conclusions as to which supervisory measures have to be taken, the ECB is called upon by Art. 3 SSMR to strive for a joint solution upfront. The same applies for the conduct of stress tests as a means to assess the resilience of 13 banks to adverse economic developments in preparation of supervisory activities. Both 19 See for plausible constitutional doubts regarding this construction e.g. Moloney, CMLR 51 (2014), 1609, at p. 1665: “This presents something of a constitutional conundrum in terms of the institutional balance set up under the Treaties in that it subjects the ECB, a Treaty institution, to EBA, an agency set up under secondary law.” 20 Ferran, EBOR 17 (2016), 285, at p. 289. 21 See for the resulting potential for conflict e.g. Gurlit, EuZW-Beilage 2014, 14, at p. 17. 22 ECB, Annual Report on supervisory activities 2016, 2017, at p. 46. 23 ECB, Annual Report on supervisory activities 2016, 2017, at p. 48. 24 Objections derived from the doctrine of institutional balance apart against this arrangement, see e.g. Gurlit, EuZW-Beilage 2014, 14, at p. 17; Herdegen, WM 2012, 1889, at p. 1893, 1896.

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the ECB and the EBA have been given the power to initiate stress tests (see Art. 4[1][f] SSMR; Art. 21[2][b] and Art. 32[3a] EBAR25). While the ECB shall be stress testing on individual banks only, the EBA shall conduct union-wide stress tests. No formal organizational precautions have been taken to prevent contradicting test results,26 although these would undermine the credibility of both tests significantly. Art. 3 SSMR thus applies. So far, the ECB meets its cooperation duty, by using the stress test methodology developed by the EBA27 and by supporting a collaborate design of ECB’s Comprehensive Assessment.28

2. Cooperation with ESMA and EIOPA Just like the EBA, the ESMA and the EIOPA are – within their respective mandates – entitled to issue guidelines and recommendations (Art. 16 ESMAR and Art. 16 EIOPAR) and to take supervisory actions addressed at individual financial institutions and competent authorities (Art. 17 to 19 ESMAR, Art. 17 to 19 EIOPAR). Since ESMA and EIOPA do not have any supervisory competences with regard to credit institutions, the potential for conflict with the ECB is significantly smaller. However, as the performance and the stability of the markets in financial instruments as well as of the insurance sector can affect the banking sector, the regulatory and supervisory measures taken by the ESMA and the EIOPA and their effectiveness are of relevance e.g. for the ECB’s risk assessments. Coordination is thus necessary also for micro-prudential oversight, though the primary importance of cross-sectoral cooperation certainly lies in the field of macroprudential supervision. 15 The ESMA and the ECB have concluded an MoU on 27 January 2016. So far, it has not been made available to the public. According to the press release published by the ESMA and to the ECBs annual report, it “describes in general terms how the authorities will cooperate with one another in the performance of their respective tasks and mandates under European Union law including in relation to financial institutions and markets. The framework proposed by the MoU covers cooperation in the field of statistics, risk management, supervision, market infrastructures and regulation”. 29 “In addition, both authorities acknowledged the importance of the links that exist between the safety and soundness of credit institutions and the stability and effectiveness of the financial system.”30 On the contrary, so far as is publicly known, the ECB has not yet concluded an MoU with the EIOPA. 14

3. Cooperation with ESRB 16

The primary responsibility for the macro-prudential oversight of the financial system within the Union lies with the ESRB. It has been set up and specially designed to analyse, 25 In contrast to the SSMR, the amended EBAR still does not include an explicit provision authorizing the EBA to conduct stress tests. However, the right to request information directly from market participants, which is now assigned to the EBA (see Art. 32 [3a] EBAR), implies that the Authority may not only “initiate and coordinate” stress test (Art. 21 [2][b] EBAR), but may also assess the resilience of financial institutions to adverse market developments, see Michel, Institutionelles Gleichgewicht und EU-Agenturen (2015), at p. 261. 26 Cf. Michel, Institutionelles Gleichgewicht und EU-Agenturen (2015), at p. 261 (“coordination is insufficiently governed by the SSMR”). 27 Moloney, CMLR 51 (2014), 1609, at p. 1667. 28 ECB, Annual Report on supervisory activities 2016, 2017, at p. 48. 29 See the ESMA press release of 8 February 2016, ; ECB, Annual Report on supervisory activities 2015, 2016, at p. 56. 30 See fn. 29.

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identify and prioritize systemic risks. However, the national supervisors and the ECB have been assigned macro-prudential tasks and powers, too. Pursuant to Art. 5(1) SSMR the national competent authorities shall apply requirements for additional capital buffers addressing systemic or other macro-prudential risks to be held by the credit institutions. According to Art. 5(2) SSMR, the ECB may, if deemed necessary, replace their decisions and request higher capital buffers. Whether and to what extend capital buffers are needed to prevent systemic risks, depends upon the developments within the financial system and its macroeconomic environment, which are continuously assessed by the ESRB. The ECB’s duty to cooperate is thus to be read as the obligation to take into account the ESRB’s systemic risk assessments when performing its macro-prudential tasks, thereby acting as “the strong arm of the ESRB”31, since the ESRB itself has no power to enforce its own warnings and recommendations.32 Not only does the ECB rely on the ESRB’s work. The second also hinges on the coop- 17 eration with the first. It can identify systemic risk only if it has at its disposal information both on the financial market participants and on the macroeconomic environment. Thus, the ESRBR also contains a cooperation duty that might, at first sight, appear to intersect with Art. 3 SSMR. Art. 15(2) – (7) ESRBR oblige amongst others the ECB to cooperate with the ESRB and to provide it with all the necessary information. But it thereby addresses the ECB as a member of the System of Central Banks, i.e. in its capacity as a central bank, not as a supervisor. Thus, the obligations to cooperate following from Art. 3 SSMR on the one hand, and from Art. 15(2)–(7) ESRBR on the other hand, differ in scope and there is no overlapping.

4. Cooperation with national competent or supervisory authorities The national competent or supervisory authorities of all financial sectors and all 18 Member States, i.e. banking, insurance and securities and market conduct authorities in participating and in non-participating Member States are participants of the ESFS (see Art. 2[2]EBAR). If national authorities are supervising the parent company and/or subsidiaries of a financial group or a financial conglomerate the rules on consolidated supervision and the provisions on supplementary supervision of financial conglomerates33 guide the cross-sectoral coordination of supervisory measures taken by the authorities involved. As lex specialis they take precedence over the general duty to cooperate established by Art. 3 SSMR. Hence, the ECB, within its supervisory mandate as defined by the SSMR, acts as the coordinator or as one of the coordinating supervisors

31 Wymeersch, The Single Supervisory Mechanism or “SSM”, Part One of the Banking Union (2014), at p. 69. 32 The cooperation between the ECB and the ESRB is facilitated by their close interinstitutional link. The ECB has to ensure the ESRB’s Secretariat and to provide analytical, statistical, logistical and administrative support, see Art. 2 Council Regulation (EU) No 1096/2010. Furthermore, for the first five years of office, the President of the ECB chairs the ESRB and the ESRB’s Vice-Chair is elected from the members of the General Council of the ECB. However, a close cooperation also has its downsides. Most of all, it might compromise the independence of the ECB in defining monetary policy and its strict and single focus on price stability, since financial and monetary stability are closely interrelated, see for further detail on this aspect Manger-Nestler, EuR 2014, 621, at pp. 628 et seq. 33 In so far, the provisions on supplementary supervision, namely the Directive 2002/87/EC of the European Parliament and of the Council and its national implementations, are applicable.

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within colleges of supervisors34 under the overall coordination of the Joint Committee of European Supervisory Authorities.35 19 Yet, as far as the micro-prudential supervision of financial institutions that are neither part of a financial conglomerate nor of a group is concerned, the obligation to coordinate prudential risk assessments and other supervisory measures and to strive for supervisory consistency across sectors follows from Art. 3(1)(1)SSMR. While establishing the Joint Committee of the European Supervisory Authorities (see Art. 54 et seq. EBAR) has institutionalized the cross-sectoral coordination of the primary regulatory work of the three ESAs, the collaboration on the level of individual oversight has to be shaped by the ECB and its fellow institutions. An exception only applies for the coordination of ECB’s supervisory work with national oversight of credit institutions in Member States participating in the SSM. It is comprehensively regulated in Art. 6 SSMR. 20 Only limited information on the cooperation mechanisms that are used in practice is available to the public. It hardly allows for a reliable assessment of the intensity and effectiveness of coordination. In its annual reports, the ECB stresses its efforts to conclude MoU with national market authorities and the supervisory authorities of non-euro area Member States and underlines its contribution to the work of supervisory colleges. In 2016, for example, “the ECB initiated overall 24 negotiations for the conclusion of cooperation agreements with banking supervisory authorities of the non-euro area EU countries, third countries and EU market supervisors. Four of those MoUs have already been concluded”, one of which is the MoU between the ECB and the ESMA.36 Furthermore, the participating national authorities have published the MoUs on prudential supervision of significant branches, which was concluded between the ECB and the financial supervisors of Sweden, Norway, Denmark and Finland in December 2016 and to which the financial oversight authorities of Estonia, Iceland, Latvia and Lithuania acceded in 2017.37 It contains provisions on the exchange of information, the establishment and functioning of colleges of supervisors for significant branches of credit institutions, common principles of consumer protection and of the supervision of information and communication technologies and payment services and systems.38

II. Art. 3(1)(2) SSMR: Duty to enter into MoU with national market authorities 21

Art. 3(1)(2)(1) SSMR obliges the ECB to conclude MoU with national authorities responsible for markets in financial instruments whenever necessary. Conduct authorities both of participating and non-participating Member States fall into the scope of the provision. This follows from a systematic interpretation of the article’s subparagraphs. If they are to refer only to a subgroup of the Member States, this is made explicit, as Art. 3(6)(1)(1) and Art. 3(6)(2) SSMR show. Furthermore, Art. 2(2) SSMR defines, that 34 The Joint Committee of the European Supervisory Authorities annually publishes a list of the financial groups supervised at conglomerate level, which also informs about the ECB participation in the supervisory colleges, see . 35 See Art. 18 FR. 36 Cf. supra, fn. 29. 37 See e.g. . 38 If the partner authority grants its consent, the ECB publishes the MoUs on its webpages, see https://w ww.bankingsupervision.europa.eu/legalframework/mous/html/index.en.html.

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the notion of “national competent authority” (in contrast to “competent authority”, emphasis by author) shall be used if only bodies of participating Member States are meant. Lastly, Art. 3(1)(2) SSMR specifies the general obligation to cooperate, which is established by Art. 3(1)(1) SSMR and which applies to competent authorities of all Member States. According to the Recital 33, the MoU to be concluded between the ECB and national 22 authorities responsible for markets in financial instruments shall describe, “how they will cooperate with one another in the performance of their supervisory tasks under Union law in relation to financial institutions referred to in this Regulation”. The relevance of Art. 3(1)(2)(1) SSMR is anything but obvious. The ECB and the 23 national supervisory authorities – as any other authority – are allowed to conclude MoU anyway, so there was no need for the legislator to explicitly stipulate this right and the obligation to cooperate and to consider whether an MoU is necessary or beneficial to the coordination of supervisory activities already follows from Art. 3(1)(1) SSMR. However, by picking out this one inter-institutional relationship, the provision underlines the particular significance of the coordination between banking and conduct authorities suggesting at the same time that this cooperation is especially important for a stable financial system because of the close interconnections between banking and securities markets.39 It is also because of this particular importance of an effective coordination between the supervision of credit institutions and of markets in financial instruments that Art. 3(1)(2)(2) SSMR obliges the ECB and its cooperation partners to make their MoU available to the European Parliament, to the Council and to all competent authorities that are not themselves part of the MoU. The duty to publish allows for control (by the European Parliament and the Council) and, where deemed appropriate, for imitation (by other authorities). In cooperation with the ESMA, the ECB has devised a template for the MoUs to 24 be concluded with national market authorities, which covers, inter alia, the topics of information exchange and cooperation on on-site inspections.40

C. Art. 3(2) SSMR: Participation in the EBA’s board of supervisors Art. 3(2) SSMR corresponds with Art. 40(1)(d) EBAR, according to which a represen- 25 tative of the ECB, nominated by its Supervisory Board41, participates in the Board of Supervisors of EBA as a non-voting member. Since the ECB’s right and obligation to be represented in EBA’s main steering body already follow from EBAR, the respective provision in Art. 3(2) SSMR has primarily declaratory value. Its (very limited) own substantive content consists in emphasizing the fact that the ECB’s participation in the Board of Supervisors is to be used as a means of coordinating supervisory activities (not only as a means to support the EBA by providing additional information) and in order to pursue the objectives of the SSM.42 The Commission had proposed to give the ECB a stronger position by conferring up- 26 on its representative the task “to coordinate and express a common position of representatives from competent authorities of the participating Member States”. 43 The provision 39 Cf. Wymeersch, The Single Supervisory Mechanism or "SSM", Part One of the Banking Union (2014), at p. 27. 40 ECB, Annual Report on supervisory activities 2015, 2016, at p. 56. 41 For details of the nomination procedure see Art 13 of the Rules of Procedure of the ECB. 42 See hereto Art. 1(1) SSMR (contribute to „the safety and soundness of credit institutions and the stability of the financial system”). 43 See Art. 4(1)(l) COM(2012) 511 final.

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was deleted in the final compromise in order to avoid too dominant a position of the ECB with respect to the other supervisory bodies, especially those from non-participating Member States.44 For the same reason the ECB – other than the representatives of the national supervisors – was not given the right to vote in the Board of Supervisors of EBA. While it is treated the same way as the national authorities throughout the rest of the EBAR, the voting arrangement differentiates. Additionally, Art. 44(1) EBAR requires a qualified majority for a number of particularly important decisions to be taken by the Board of Supervisors, so that Member States participating in the SSM cannot outvote the non-participating Member States.45 Nevertheless it can be expected that the ECB will significantly influence the deliberations and the decision-making process within the EBA.46 Though it is not explicitly assigned the task to devise a common position of all participating Member States, it is likely that its contributions will de facto be designed and understood as such. 27 It is noteworthy that, on the other hand, the EBA is not given any institutionalized position (e.g., as a permanent observer) within the bodies of the SSM.47 It may be invited by the Chair to participate in the meetings of the Supervisory Board as an observer, and the Chair shall issue such an invitation, if a request is submitted by at least three members of the Supervisory Board.48 However, the EBA cannot claim a right to participate and the possibility to be invited is guaranteed only in delegated rules, not in the SSMR itself, and hence less secured.49

D. Art. 3(3) SSMR: Division of competences 28

Paragraph 3 clarifies that the ECB has to cooperate with the other members of the ESFS, but must not take on the competencies or tasks of any one of those members. 50 In case of conflicting or overlapping tasks or competencies, the SSMR does not supersede. Rather, coinciding responsibilities have concurrent validity and are to be fulfilled by both institutions cooperatively.

E. Art. 3(4) SSMR: Cooperation with resolution authorities 29

Supervision and resolution cannot operate effectively one without the other. Rather, they are two complementary and mutually dependent instruments to ensure a safe and stable financial system. Supervisors can only sanction infringements of the law and ultimately withdraw authorisation, without risking to impair the functioning of the financial system, if resolution authorities guarantee for a bank resolution that does not affect the stability of the banking sector. Effective resolution, on the other hand, depends upon timely information on the possible failing of credit institutions and on their asset See Ferrarini, EBOR 16 (2015), 513, at p. 533. See for detailed analysis of the new voting arrangement and its background e.g. Wymeersch, The Single Supervisory Mechanism or "SSM", Part One of the Banking Union (2014), at pp. 73 et seq.; Lo Schiavo, Maastricht Journal 21 (2014), 110, at pp. 134 et seq.; Chiarella, Bologna L. Rev. 1 (2016), 34, at pp. 80 et seq. 46 For similar assessments see e.g. Gurlit, EuZW-Beilage 2014, 14, at p. 15; Manger-Nestler, in: Grieser and Heemann (eds), Europäisches Bankenaufsichtsrecht (2016), at p. 106; Ferran, in: de Witte, Ott and Vos (eds), Between Flexibility and Disintegration(2017), at pp. 286 et seq. 47 For a critique cf. Gurlit, EuZW-Beilage 2014, 14, at p. 15. 48 Art. 3.5 of the Rules of Procedure of the Supervisory Board of the ECB. 49 Cf. Moloney, CMLR 51 (2014), 1609, at p. 1668. 50 See Gortsos, in: Binder and Gortsos (eds), The European Banking Union (2016), 17, at p. 24. 44

45

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situations. It is thus essential for the functioning of the Banking Union and the stability of the financial system within the Union, that supervisory and resolution authorities cooperate closely. Art. 3(4) SSMR obliges the ECB to cooperate with “the authorities empowered to resolve credit institutions”, i.e. with the SRB (which has to decide on the resolution of banks within the Eurozone qualified as significant and supervised by the ECB), with the national resolution authorities of participating Member States (which are responsible for all less significant credit institutions within the Eurozone and the implementation of resolution schemes decided upon by the SRB) as well as with resolution authorities in non-participating Member States. The duty to cooperate applies to all aspects and stages of the supervisory and the resolution process. The cooperation of the ECB and the SRB in resolution planning, early intervention and the resolution phases is regulated in detail in the SRMR. When drawing up, adopting and updating resolution plans, for example, the SRB is obliged to consult the ECB by Art. 8(1) and (2) SRMR. The ECB in return has to promptly communicate any change relevant to resolution plans to the SRB (Art. 8[12] SRMR), which then again shall transmit any changes to resolution plans to the ECB (Art. 8[13] SRMR). These procedural obligations are supplemented by an institutional linkage between the ECB and the SRB (with the ECB being entitled to participate in the meetings and debates of the SRB 51) and a general cooperation duty for all institutions involved in the resolution process when exercising their responsibilities pursuant to the SRMR52. As lex specialis all of these provisions take precedence over Art. 3(4) SSMR within their scopes of application. Nonetheless, as the MoU concluded between the ECB and the SRB in December 201553 shows, Art. 3(4) SSMR as default provision continues to cover a relevant span of applications. In particular, it shall guide the way in which the cooperating partners implement the explicitly codified cooperation duties. The ECB and the SRB in their MoU agreed upon a common working language (MoU, 6.1.4), an alignment of their annual work cycles (MoU, 7.1) and a common format for any request for information (MoU, 7.2.2)54, and they decided to inform each other not only – as Art. 13(1) SRMR requests – about measures that they have required an institution to take, but also and beforehand about their mere intent to take measures in the early intervention phase (MoU, 7.1.2). As for the efficiency of the coordination in practice these operational arrangements, which can be read as implementations of Art. 3(4) SSMR, are typically just as important as the duty to cooperate itself. Other than as for the cooperation between the ECB and the SRB, there are only very few specific provisions guiding the interaction of the ECB with national resolution authorities.55 This is understandable in so far as the latter are responsible for the resolution of less significant credit institutions within the Eurozone and banks in the non-partici51 See Art. 43(3) SRMR, and for the implementation ECB, Annual Report on supervisory activities 2016, 2017, p. 45 (“An ECB representative participated in SRB meetings, while the SRB Chair was invited to several meetings of the Supervisory Board, promoting a high-level dialogue between the two boards”). 52 See Arts. 30 and 32 SRMR. 53 Memorandum of Understanding between the Single Resolution Board and the European Central Bank in Respect of Cooperation and Information Exchange, see ; see to this also ECB, Annual Report on supervisory activities 2015, 2016, at p. 57. 54 See for further technical improvements of the information exchange between the ECB and the SRB ECB, Annual Report on supervisory activities 2016, 2017, at p. 45 (SRB staff can now directly access the supervisory information IT system and the data stored in the supervisory platform). 55 See as an exception e.g. Section 140(2) No. 7 and Section 157 SAG (German Bank Recovery und Resolution Act).

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30

31

32

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pating Member States respectively, whose performance is not (directly) overseen by the ECB. However, if located within the Eurozone less significant banks are indirectly supervised by the ECB, so that the activities of the national resolution authorities need to be coordinated not only with the national supervisors, but also with the ECB in order to guarantee a stable bank sector. Besides, the resolvability and resolution of banks in nonparticipating Member States can, of course, influence the liquidity and/or solvability of credit institutions within the Eurozone. SSMR, Recital 27, thus demands cooperation between the ECB and national resolution authorities in the non-participating Member States in particular to ensure “a common understanding about the respective responsibilities in case of crises”, especially “in the context of cross-border crisis management groups and the future resolution colleges established for those purposes”. Art. 3(4) SSMR obliges the ECB to engage in such coordination.

F. Art. 3(5) SSMR: Coordination with public financial assistance facilities 34

Supervisory measures addressed at banks and public financial assistance given to credit institutions can mutually influence each other and thus need to be coordinated so as to not interfere and compromise their respective effectiveness. Art. 3(5) SSMR obliges the ECB as supervisor and within the area of its supervisory competences to engage in such coordination and, more generally, to cooperate with public financial assistance facilities.56 These include all facilities held by a public institution other than the ECB itself, e.g., the facilities set up by the IMF or other International Organizations, the payment facility for non-Member States outside the euro area (see Art. 143[2] TFEU and Regulation No. 332/2002) and, of course, namely the EFSF and its successor, the ESM. In particular, the ECB shall cooperate closely with those facilities that are directly or indirectly (via financial support for a host state) granting assistance to credit institutions in participating Member States. Since any bank requesting or receiving direct assistance from the ESM shall be considered as significant, the ECB will – if it has not already done so beforehand – assume direct supervision of such credit institutions, once it gets to know about the request or grant (Art. 6[4][4] SSMR; Art. 39[3][d], Art. 43[3] and Art. 61 FR). The cooperation with the ESM, to which the ECB is obliged both in view of significant and of less significant banks, but which is, of course, of particular importance with respect to credit institutions directly supervised by the ECB, has in significant parts been formalized by the ESM Treaty. For example, the ECB is represented as observer in the steering bodies of the ESM, and it has the duty to assess the existence of a risk to the financial stability of the euro area as a whole or of its Member States, which is a prerequisite for the granting of financial assistance by the ESM. The general obligation to cooperate that follows from Art. 3(5) SSMR supplements these specific provisions as default rule, and it defines the way the leges specialis have to be applied.

G. Art. 3(6) SSMR: Cooperation with authorities in non-participation Member States 35

The provisions of Art. 3(6) SSMR specify the general obligation to cooperate with the supervisory authorities in non-participating Member States, which already follows from Art. 3(1) SSMR. 56

36

Cf. also Recital 31 sent. 5 SSMR.

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I. Art. 3(6)(1) SSMR: MoU with competent authorities in non-participating Member States According to Art. 3(6)(1) SSMR the ECB has to enter into an MoU with the compe- 36 tent authority (or authorities respectively, depending on whether or not a State has chosen a single point of contact approach) in every non-participating Member State without reservation. The MoU to be concluded shall define the way in which the ECB and the national supervisors will cooperate in the performance of their supervisory tasks. The significance of this specification of the content does not lie in a limitation of the permissible scope. On the contrary, it stipulates a comprehensive cooperation agreement covering all aspects of the supervisory process. For example, the MoU that the ECB and the financial supervisors of Sweden, Norway, Denmark, Finland, Estonia, Iceland, Latvia and Lithuania agreed upon57 does consequently not fulfil the requirements of Art. 3(6) (1) SSMR on its own, since it only covers the supervision of significant branches. In its annual report for 2015 the ECB stated without further specification, that it 37 had joined in the MoUs already in place between national authorities in non-euro area and euro area States, so that the specific provisions of these MoUs also apply to the supervision of significant institutions.58 In 2017 it furthermore reported, that it had additionally initiated 24 negotiations for the conclusion of cooperation agreements with supervisory authorities from non-participating Member States and third countries and with EU market supervisors.

II. Art. 3(6)(2) and (3) SSMR: MoU with competent authorities in Member States host to global systemically important institutions In addition to the general cooperation agreements required for by Art. 3(6)(1) SSMR 38 the ECB shall enter into a separate MoU with each non-participating Member State that hosts at least one global systemically important institutions (GSII). GSIIs are submitted to enhanced supervision because of the specific threat they pose to the stability of the financial system. They have to maintain additional capital buffers (Art. 131 CRD IV) and meet higher loss absorbency requirements (see Commission delegated regulation EU No. 1222/2014). Under Art. 131 Directive No. 36/2013, the designated authorities of the Member States have to identify GSIIs by using a methodology, which has to comply with a number of requirements set up in the named provision.59 The agreements according to Art. 3(6)(2) SSMR shall also be reviewed on a regular basis. Additionally, they have to be published with confidential information being omitted whenever necessary, i.e. especially if other legal provisions prohibit the publication.

Art. 4 SSMR Tasks conferred on the ECB 1. Within the framework of Article 6, the ECB shall, in accordance with paragraph 3 of this Article, be exclusively competent to carry out, for prudential supervisory purposes, the following tasks in relation to all credit institutions established in the participating Member States: See supra, fn. 36. ECB, Annual Report on supervisory activities 2015, 2016, at p. 55. 59 A list of GSII is provided by the FSB and available at https://www.fsb.org/.

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(a) to authorise credit institutions and to withdraw authorisations of credit institutions subject to Article 14; (b) for credit institutions established in a participating Member State, which wish to establish a branch or provide cross-border services in a nonparticipating Member State, to carry out the tasks which the competent authority of the home Member State shall have under the relevant Union law; (c) to assess notifications of the acquisition and disposal of qualifying holdings in credit institutions, except in the case of a bank resolution, and subject to Article 15; (d) 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; (e) 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; (f) to carry out supervisory reviews, including where appropriate in coordination with 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, where specifically made available to competent authorities by relevant Union law; (g) 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 in those colleges as observers, in relation to parents not established in one of the participating Member State; (h) to participate in supplementary supervision of a financial conglomerate in relation to the credit institutions included in it and to 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; (i) 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. 2. For credit institutions established in a non-participating Member State, which establish a branch or provide cross-border services in a participating Member State, the ECB shall carry out, within the scope of paragraph 1, the tasks for which the

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national competent authorities are competent in accordance with relevant Union law. 3. For the purpose of carrying out the tasks conferred on it by this Regulation, and with the objective of ensuring high standards of supervision, the ECB shall apply all relevant Union law, and where this Union law is composed of Directives, the national legislation transposing those Directives. Where the relevant Union law is composed of Regulations and where currently those Regulations explicitly grant options for Member States, the ECB shall apply also the national legislation exercising those options. To that effect, the ECB shall adopt guidelines and recommendations, and take decisions subject to and in compliance with the relevant Union law and in particular any legislative and non-legislative act, including those referred to in Articles 290 and 291 TFEU. It shall in particular be subject to binding regulatory and implementing technical standards developed by EBA and adopted by the Commission in accordance with Article 10 to 15 of Regulation (EU) No 1093/2010, to Article 16 of that Regulation, and to the provisions of that Regulation on the European supervisory handbook developed by EBA in accordance with that Regulation. The ECB may also adopt regulations only to the extent necessary to organise or specify the arrangements for the carrying out of the tasks conferred on it by this Regulation. Before adopting a regulation, the ECB shall conduct open public consultations and analyse the potential related costs and benefits, unless such consultations and analyses are disproportionate in relation to the scope and impact of the regulations concerned or in relation to the particular urgency of the matter, in which case the ECB shall justify that urgency. Where necessary the ECB shall contribute in any participating role to the development of draft regulatory technical standards or implementing technical standards by EBA in accordance with Regulation (EU) No 1093/2010 or shall draw the attention of EBA to a potential need to submit to the Commission draft standards amending existing regulatory or implementing technical standards. Bibliography Duncan Alford, ‘The Lamfalussy Process and EU Bank Regulation’, Annual Review of Banking & Financial Law 25 (2006), 389; Raffaele D’Ambrosio, ‘Law and Practice of the Banking Union and of its governing Institutions’, Quaderni di Ricerca Giuridica della Consulenza Legale, Vol. 88, 2020; Giovanni Bassani, The Legal Framework Applicable to the Single Supervisory Mechanism (Wolters Kluwer, Alphen aan den Rijn 2019); Claus-Wilhelm Canaris, Mathias Habersack and Carsten Schäfer (eds), Staub, Großkommentar Handelsgesetzbuch, Band 10/1 – Bankvertragsrecht, Erster Teil, Kreditwesen und Organisation (5th edn, De Gruyter, Berlin 2016); Thomas Christiansen and Mathias Dobbels, ‘Non-Legislative Rule Making after the Lisbon Treaty: Implementing the New System of Comitology and Delegated Acts’, ELJ 19 (2012), 42; Deutsche Bundesbank, ‘European Single Supervisory Mechanism for banks – a first step on the road to a banking union’, Monthly Report (July 2013), 13; EBA, ‘2016 EU-Wide Stress Test – Methodological note’ (24 February 2016); Ulrich Forsthoff, ‘Bankenunion und Bundesverfassungsgericht – Von der politischen Erfolgsgeschichte zur politischen Verlustsaga?’ EuZW (2020) 977; Rudolf Geiger, Daniel-Erasmus Khan and Markus Kotzur (eds), European Union Treaties (C. H. Beck/Hart/Nomos, Munich/Oxford/Baden-Baden 2015); Alexander Glos and Markus Benzing, ‘§ 2 Institutioneller Rahmen: SSM, EZB und Aufsichtsbehörden’, in: Jens-Hinrich Binder, Alexander Glos and Markus Benzing (eds), Handbuch Bankaufsichtsrecht (2nd edn, RWS, Cologne 2020); Christos V. Gortsos, ‘The two main pillars of the European Banking Union: the legal framework in a ‘nutshell’’, in: Jens-Hinrich Binder and Christos V. Gortsos (eds), The European Banking Union (C.H. Beck/Hart/Nomos, Munich/Oxford/Baden-Baden 2016), 17; Christos V. Gortsos, The Single Supervisory Mechanism (Nomiki Bibliothiki SA, Athens 2015); Klaus Lackhoff, The Single Supervisory Mechanism – A Practitioner’s Guide (C.H. Beck/Hart/Nomos, Munich/Oxford/Baden-Baden 2017); Klaus Lackhoff and Janina Heinz, ‘§ 10 Großkredite’, in: Jens-Hinrich Binder, Alexander Glos and Markus Benzing (eds), Handbuch Bankaufsichtsrecht (2 nd edn, RWS, Cologne 2020); Mario Martini and Quirin Weinzierl, ‘Nationales Verfassungsrecht als Prüfungsmaßstab des EuGH?’ NVwZ (2017), 177; Christoph Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (C. H. Beck, Munich 2015); Miro Prek and Silvère Lefèvre, ‘The EU Courts as “national” courts: National law in

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the EU judicial process’, CMLR 54 (2017), 369; Antonio Luca Riso and Klaus Lackhoff, ‘C. Dividend Recommendation’, in: Klaus Lackhoff (ed), Banking supervision and COVID-19 (C.H. Beck/Hart/Nomos, Munich/Oxford/Baden-Baden 2021); Gunnar Schuster, ‘The banking supervisory competences and powers of the ECB’, Beilage EuZW (2014), 3; Tobias Tröger, ‘How not to do banking law in the 21st century’, SAFE Policy Letter No. 56 (21 June 2017), 1; Andreas Witte, ‘Standing and Judicial Review in the New EU Financial Markets Architecture’, JFR 1 (2015), 226; Andreas Witte, ‘The Application Of National Banking Supervision Law By The ECB – Three Parallel Modes Of Executing EU Law?’, MJ 21 (2014), 89; Andreas Witte, ‘When does national law transpose a directive?’, in: European Central Bank (ed), ESCB Legal Conference 2016 (2017), 247; Andreas Witte, ‘Die Europäische Bankenunion als mehrgleisiges Reformvorhaben’, Europarecht Beiheft 1 (2017), 29; Andreas Witte, ‘Die Architektur des einheitlichen Bankenaufsichtsmechanismus und die Bedeutung administrativer Widerspruchsverfahren im europäischen Prozessrecht‘, Europarecht (2017), 648; Andreas Witte, ‘The application of national law by the ECB, including options and discretions, and its impact on the judicial review’ in Chiara Zilioli and Karl-Philipp Wojcik (eds), Judicial Review in the European Banking Union (Edward Elgar, Cheltenham 2021); Eddy Wymeersch, ‘The Single Supervisory Mechanism: Institutional Aspects’, in: Denny Busch and Guido Ferrarini (eds), European Banking Union (2nd edn, Oxford University Press, Oxford 2020); Georgios Zagouras, ‘§ 109 EU-Bankenunion’, in: Jürgen Ellenberger and Herman-Josef Bunte (eds), Bankrechts-Handbuch (6 th edn, C.H. Beck, Munich 2021). A. Function and background of the provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1

B. Supervisory tasks of the ECB (Art. 4(1) SSMR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Differentiation between “tasks” and “powers” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Exclusive tasks in respect of all credit institutions? (“Within the framework of Art. 6 …”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. The catalogue of tasks in Art. 4(1) SSMR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Is the list of tasks in Art. 4(1) SSMR exhaustive? . . . . . . . . . . . . . . . . . . . . . . . . . 2. Art. 4(1)(a) SSMR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Art. 4(1)(b) SSMR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Art. 4(1)(c) SSMR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Art. 4(1)(d) SSMR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Art. 4(1)(e) SSMR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. Art. 4(1)(f) SSMR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. Art. 4(1)(g) SSMR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9. Art. 4(1)(h) SSMR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10. Art. 4(1)(i) SSMR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. The counter-exemptions in Recital 28 SSMR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V. Conferral of additional tasks on the ECB in other legal acts? . . . . . . . . . . . . . . . . .

3 3

C. Home/host relations (Art. 4(2)SSMR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. General features of the supervisory regime for branches and cross-border services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Intra-SSM relations (Art. 17(1) and (2) SSMR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Inward perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. From non-SSM EEA to SSM (Art. 4(2) SSM‑FR) . . . . . . . . . . . . . . . . . . . . . . . . . . 2. From non-EEA to SSM (Recital 28 SSMR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Outward perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. From SSM to non-SSM EEA (Art. 4(1)(b) SSMR) . . . . . . . . . . . . . . . . . . . . . . . . . 2. From SSM to non-EEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D. The law to be applied by the ECB (Art. 4(3)(1) and (2) SSMR) . . . . . . . . . . . . . . I. The term “relevant Union law” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Application of Union regulations (especially CRR) and the national exercise of options provided therein . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Application of national legislation transposing Union Directives . . . . . . . . . . . . 1. Conceptual matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. National legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Transposing Union Directives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Application of tertiary law (Art. 4(3)(2) SSMR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V. Conflicts between national prudential provisions and national constitutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4 14 14 21 34 35 39 50 52 56 60 62 66 75 82 82 87 88 88 95 98 98 99 101 101 104 109 109 110 112 123 133

E. Legal instruments for the exercise of the supervisory tasks of the ECB (Art. 4 (3)(2) and (3) SSMR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

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I. Decisions (Art. 4(3)(2) SSMR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Guidelines and recommendations (Art. 4(3)(2) SSMR) . . . . . . . . . . . . . . . . . . . . . . III. Regulations (Art. 4(3)(2) and (3) SSMR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Operational acts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

137 143 148 153

F. Administrative and judicial review of supervisory acts of the ECB . . . . . . . . . . . 155 G. Participation in the work of the EBA (Art. 4(3)(4) SSMR) . . . . . . . . . . . . . . . . . . . 156

A. Function and background of the provision1 Art. 4 SSMR is a pivotal provision in the system of the SSMR. Art. 4(1) SSMR de- 1 fines the microprudential supervisory tasks of the ECB (with Art. 5 SSMR defining the macroprudential tasks), a term which is frequently referred to in other provisions of the SSMR. Insofar, the question is whether the list of tasks in Art. 4(1) SSMR is a conclusive enumerative list (and if so how it has to be interpreted – more broadly or narrowly) or whether the list is in fact intended to assign – with certain limitations – the tasks relating to the prudential supervision of supervised entities generally to the ECB. Art. 4(2) SSMR sets out parts of the home/host regime (the other parts being defined in Art. 17 SSMR). Lastly, Art. 4(3) SSMR stipulates both the legal acts which the ECB may itself adopt to carry out its tasks, as well as the legal acts to which it is bound to and which it is supposed to apply. In this context and interconnected with the issue relating to Art. 4(1) SSMR, the issue is whether it is a task of the ECB to apply prudential provisions which are exclusively rooted in national law. Moreover, the relationship between Art. 4(1) SSMR and Art. 6 SSMR is decisive to de- 2 termine to which extent the supervision of less significant credit institutions is (a) an exclusive task of the ECB which is carried out by the national competent authorities (NCAs) acting under ECB supervision and subject to the right of the ECB to determine under which circumstances it may take over the supervision2 or (b) remained a task of the NCAs while the ECB has “only” an oversight task and may effectuate a transfer of the full task (i.e. in this regard a latent task of the ECB does exist) if it decides to take over the supervision of a less significant credit institution.3 As background to this question it is of particular importance that the Commission’s initial proposal4 suggested to confer supervisory tasks in relation to all credit institutions in the participating Member States upon the ECB.5 This proved too ambitious to be approved at the political level, which is why the scope of the ECB’s tasks was trimmed down in the legislative proposal, most importantly, by introducing the distinction between significant and less significant institutions which is now enshrined in Art. 6 SSMR. The wording of Art. 4 SSMR was, however, adjusted only to a limited extent, by adding a reference to Art. 6 SSMR which led to the question that the Court had to decide in Case T-122/15, Landeskreditbank Baden-Württemberg v ECB (see infra, → para. 4).

The views and opinions expressed in this contribution are strictly personal. In this manner CJEU, Case T-122/15, Landeskreditbank Baden-Württemberg v ECB, ECLI:EU:T: 2017:337, para. 63. 3 So for example Lackhoff, The Single Supervisory Mechanism (2017), para. 192 et seq. 4 Proposal for a Council Regulation conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (COM/2012/0511 final). 5 Art. 4 of the Commission proposal. 1

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B. Supervisory tasks of the ECB (Art. 4(1) SSMR) I. Differentiation between “tasks” and “powers” 3

The SSMR differentiates between “tasks” and “powers”. Art. 4(1) SSMR speaks of “tasks”, while Chapter III (Arts. 9 to 18 SSMR) uses the heading “Powers of the ECB” and certain provisions (most notably Arts. 16, 9(1) and (2) SSMR) speak of “powers”. This terminological distinction between “tasks” and “powers”, which is also enshrined in the SSM‑FR,6 can be found consistently in the different language versions.7 It is an intentional and meaningful distinction. Tasks give, with the view to pursue certain objectives, a mandate to the authority on which a task is bestowed by assigning certain areas of activity to it. Only if a task is conferred on the ECB, a power relating to this task may also be conferred on it. For the ECB, these tasks are listed in Art. 4(1) SSMR; the most important of them being lit. (d) and (e), which can be translated as the task to ensure that credit institutions comply with the substantive requirements of the CRR and the CRD (as transposed). But having a task does not yet answer the question of how the ECB may pursue its objectives: It needs tools which it can use to ensure that credit institutions comply with the prudential requirements. The most important tools for this purpose are powers. A power, in the supervisory sense, is the ability of the ECB to address a binding legal act to a credit institution which legally requires the credit institution to take (or refrain from) a particular course of action, to impose a permission requirement prior to pursing a course of action or to sanction the credit institution for certain actions. A task is never a sufficient legal basis for a legal act which imposes an obligation; only if the ECB has a power based on a task it has a sufficient basis to act by issuing a binding legal act. In case of a task attributed to it without a corresponding power being conferred on it and no national power being available that can be exercised by way of instruction (see Art. 9 (1) 3rd subparagraph SSMR), the ECB could only make use of non-binding instruments like recommendations.

II. Exclusive tasks in respect of all credit institutions? (“Within the framework of Art. 6 …”) Art. 4(1) SSMR makes reference to Art. 6 SSMR, which, in its para. 4, establishes the distinction between significant institutions (SIs) and less significant institutions (LSIs) and thereby also the criteria for their delineation. This distinction between SIs and LSIs is of central importance for the delineation of the competences of the ECB and the NCAs. Doctrinally, there are two different principles which could be used to conceptualise the nature of the ECB’s supervisory competences: 5 It could be argued that Art. 4(1) SSMR does, in fact, transfer the supervisory tasks listed in it (which, as will be shown below make up, in essence, the entirety prudential supervision, with the exception of those areas reserved for the NCAs in Recital 28 SSMR) to the ECB with respect to all credit institutions established in the participating Member States. As a second step and logically occurring after this transfer of competences, Art. 6 SSMR assigns the exercise of some of these tasks, with respect to LSIs, back 4

6 See in particular Art. 22 SSM‑FR, which deals with the situations where “the ECB has a supervisory task but no related power”. 7 E.g. German “Aufgaben” versus “Befugnisse”, French “missions” versus “pouvoirs”, Italian “compiti” versus “poteri”, Dutch “taken” versus “bevoegdheden”.

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to the NCAs. This view would therefore postulate a transfer of competences followed by an assignment of tasks in partially reverse directions: First, the supervisory competences are conferred from the NCAs to the ECB with respect to all credit institutions (Art. 4(1) SSMR); second, the actual carrying out of the supervision in respect of LSIs is assigned to the NCAs with respect to LSIs as a support activity of NCAs to the ECB within the SSM (Art. 6 SSMR).8 On the other side, it could be argued that the supervisory tasks with respect to LSIs are not transferred from the NCAs to the ECB to begin with; they remain with the NCAs (where these competencies were before the start of the SSM) because the SSMR carves them out of the transfer of supervisory competences to the ECB. In other words, there is only one process of transfer of competences, from the NCAs to the ECB in respect of the supervision of SIs and the establishment of a (“mere”) oversight function in respect of NCAs supervising LSIs. Consequently, NCAs carry out their own tasks with respect to LSIs and are not merely supporting the ECB in carrying out one of its tasks because these tasks were never transferred to the ECB in the first place. The NCAs carry out this task, therefore, on the basis of national law and in line with the oversight established by the SSMR have to comply with general instructions and guidelines which the ECB issues in exercising this oversight function. Consequently, the fact that the ECB may take over the supervision of LSIs creates a latent task of the ECB. If the ECB takes over the supervision of an LSI it, in fact effectuates the transfer of tasks and powers in respect of the relevant LSI. While the difference between these two views may be stricter in theoretical terms than in practice, it is well possible that it leads to divergent practical results in some situations since the first view would lead to the consequence that LSI supervision is already within the competences of the ECB. The view that the ECB is exclusively competent for the supervision of all credit institutions is supported by the wording of Art. 4(1) SSMR, mostly the formulations “in relation to all credit institutions” and “exclusively competent”. It is, furthermore, supported by the fact that Art. 6(6) SSMR speaks of the NCAs “carry[ing] out” and “be[ing] responsible for” tasks, which could arguably be read as something slightly different from “competences”, which Art. 4(1) SSMR allocates to the ECB. The view that the NCAs retained their national competence for the supervision of LSIs is supported by the fact that Art. 4(1) SSMR does not establish this allocation of competences in an unqualified manner but merely “[w]ithin the framework of Art. 6”. On this basis it can be argued that the tasks for which the NCAs remain competent in this framework are carved out from the transfer of competences effectuated in Art. 4(1) SSMR.9 At the end of the day, the ambiguous and intrinsically contradictory wording of Art. 4(1) SSMR is a relic of the negotiation process and a political statement. The Commission first envisaged a transfer of tasks (and powers) in respect of all credit institutions to the ECB. However, this was not so adopted. It can therefore be argued that with regard to the less significant credit institutions most (but not all) tasks of prudential supervision remained with the NCAs as per Art. 6(6) SSMR. An exclusive competence of the ECB with regard to the tasks envisaged by Art. 4(1) SSMR is, therefore, not in line with Art. 6(6) SSMR. Rather, the ECB can be said to have only a latent competence with regard to the direct supervision of less significant credit institutions. This latent competence can become effective in case of a takeover of direct supervision by means of Art. 6(5)(b) SSMR. 8 See CJEU, Case C-450/17 P, Landeskreditbank Baden-Württemberg, ECLI:EU:C:2019:372, paras. 38 to 41. 9 So for example Lackhoff, The Single Supervisory Mechanism (2017), paras. 192 et seq.

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In its first ruling relating to the supervision of the credit institutions by the ECB 10 – which was appealed 11– the General Court took the chance to make a more general statement in favour of the centralisation of supervisory tasks (and powers) than required for the specific case.12 It concluded that the national competent authorities when supervising less significant credit institutions are acting within the scope of a decentralised implementation of an exclusive competence of the Union and therefore do not exercise a national competence and act under the control of the ECB.13 The Court rests its position in particular on the following arguments:14 (a) the relationship between Arts. 4 (1) and 6 SSMR is not directed to the distribution of competences between the ECB and the NCAs but to ensure that the ECB can exercise its exclusive competence in a decentralised system; (b) the ECB has prerogatives (e.g. the power to provide guidelines, Art. 6(5)(a) SSMR) even with regard to the tasks not centralised at the ECB; and (c) Art. 6(5)(b) SSMR gives the ECB to a broad extent the possibility to take over the supervision of less significant credit institutions while a transfer of the supervision of a significant credit institution to an NCA requires particular circumstances. Further, it is argued that the Recitals of the SSMR support this understanding as (i) Recital 28 lists supervisory tasks that remain with the NCAs but does not include any of the tasks listed in Article 4(1) SSMR and (ii) as Recitals 38 to 40 of the SSMR (which discuss the responsibilities of NCAs) follow after Recital 37 on the responsibility of NCAs to assist the ECB. This can be seen as confirming that the role of the NCAs is rather that of assisting the ECB than exercising an autonomous competence. 11 This position of the General Court was confirmed by the Court of Justice upon appeal in this case15 and thereby this question for practical purposes was closed from the EU perspective. The Court of Justice stated that “it follows from the wording of Article 4(1) of Regulation No 1024/2013 that the ECB is exclusively competent to carry out the tasks stated in” Art. 4 SSMR “in relation to all … institutions” and concluded that “[t]he national competent authorities thus assist the ECB in carrying out the tasks conferred on it by Regulation No 1024/2013, by a decentralised implementation of some of those tasks in relation to” LSIs. Further it stated, that the SSMR “conferred on the ECB exclusive competence, the decentralised implementation of which by the national authorities is enabled by Article 6 of that regulation, under the SSM and under the control of the ECB, in relation to less significant credit institutions, …”.16 12 The German constitutional court (the BVerfG) took a different view in its judgement on the question whether, by establishing the SSM, the European Union exceeded the competences conferred on it by Germany’s entering into the TFEU.17 It ruled that a transfer of the supervisory competences in respect of all credit institutions would go beyond the competences conferred on the European Union in Art. 127 (6) TFEU. Therefore, such a transfer would be, in the view of the BVerfG, an ultra vires act of the Union 10

CJEU, Case T-122/15, Landeskreditbank Baden-Württemberg v ECB, ECLI:EU:T:2017:337. CJEU, Case C-450/17 P, Landeskreditbank Baden-Württemberg, ECLI:EU:C:2019:372. 12 Tröger, SAFE Policy Letter No. 56 (21 June 2017), 1. Tröger analyses the decision with a view to what incentive structure the law should (in his view) provide and evaluates is against this standard. See also Witte, Europarecht (2017), 648. 13 CJEU, Case T-122/15, Landeskreditbank Baden-Württemberg v ECB, ECLI:EU:T:2017:337, paras. 72 and 63. 14 CJEU, Case T-122/15, Landeskreditbank Baden-Württemberg v ECB, ECLI:EU:T:2017:337, paras. 50 to 64. 15 CJEU, Case C-450/17 P, Landeskreditbank Baden-Württemberg, ECLI:EU:C:2019:372, paras. 36 to 49. 16 CJEU, Case C-450/17 P, Landeskreditbank Baden-Württemberg, ECLI:EU:C:2019:372, para. 38, 41, 49. 17 BVerfG, cases 2 BvR 1685/14 and 2 BvR 2631/14, E 151, 202, para 194. See Ulrich Fortsthoff, EuZW (2020) 977. 10

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in relation to Germany as Germany, according to the BVerfG’s interpretation, has not consented to and opened up its legal order by entering into the TFEU for an act with this scope. However, in its judgement on the SSM, the BVerfG did not come to an ultra vires verdict. The BVerfG avoided the ultra vires verdict as it concludes that the statement of the Court of Justice was made in connection with a case on the issue whether “exceptional circumstances” exist that would allow for qualifying an institution exceptionally as LSI although it fulfils the criteria for being an SI. The BVerfG argued that the exclusive competence to define the meaning of exceptional circumstances requires the exclusive supervisory competence in respect of a credit institution fulfilling a significance criterion but not a comprehensive supervisory competence in respect of LSIs (unless the supervision of an LSI is taken over by the ECB). In short, the BVerfG argues that it was not necessary with regard to the specific case that the Court of Justice made a statement on the ECB’s competence in respect of LSIs and, therefore, what the Court of Justice stated should not be read as such a statement, although its wording directs in a different direction. It seems that the BVerfG in the SSM case wanted to avoid the conflict it accepted to enter into in the case on the public sector purchase programme.18 Another issue – which goes beyond the question whether the ECB is competent for 13 the prudential supervision of all credit institutions – is the question whether the ECB has supervisory tasks (and powers) only vis-à-vis credit institutions or also in respect of financial holding companies, mixed financial holding companies and central bodies of cooperative groups which are not credit institutions. This is of even more interest after changes introduced by CRR2, since these entities are/can be the addressees of prudential requirements, see for example Art. 11(2), (5) CRR and Art. 3(3) CRD. The mere wording of Art. 4(1) SSMR (“… tasks in relation to credit institutions …”) including the wording of the different letters of Art. 4(1) SSMR point into the direction that this is not the case. Art. 6(4) SSMR, which distributes the “responsibilities” between the ECB and NCAs according to significance, is broader as it refers also to (mixed) financial holding companies and branches. Art. 10 SSMR and the other investigatory powers enlarge the scope of the addressees of such supervisory measures to those persons determined in Art. 10(1) SSMR. Art. 16 SSMR, the main supervisory power established in the SSMR, 19 stipulates that the ECB shall have the powers set out in Art. 16(2) SSMR to require credit institutions, financial holding companies and mixed financial holding companies in participating Member States to take the necessary measures at an early stage if certain conditions that are described in Art. 16(1) SSMR are met. The different letters of Art. 16(2) SSMR refer, if at all, to ‘institutions’, a term not defined in the SSMR. As the SSMR text is inconsistent, more weight can be attributed to the SSM‑FR which establishes a framework to organise and implement the supervision, Art. 6(7) SSMR. Art. 2 (20) and (21) 18 An (alleged) ultra vires action was, however, found later by the BVerfG in its decision on the public sector purchase programme of the ECB (PSPP). According to this ruling, the decisions of the ECB on the PSPP are ultra vires as they do not assess the principle of proportionality. The BVerfG was of the view that it was not possible to determine whether proportionality of the ECB measures was given; following from this, the BVerfG concluded that ‘unless the ECB Governing Council adopts a new decision that demonstrates in a comprehensible and substantiated manner that the monetary policy objectives pursued by the ECB are not disproportionate to the economic and fiscal policy effects resulting from the programme’ (which the ECB thereafter did), the Bundesbank could not participate in the PSPP (BVerfG, cases 2 BvR 859/15, 2 BvR 1651/15, 2 BvR 2006/15, and 2 BvR 980/16, E 154, 17, paras 116 et seq., 235). It is particularly intricate in this context that the BVerfG qualifies the ruling of the European Court of Justice (CJEU, Case C-493/17, Weiss, ECLI:EU:C:2018:1000), where the latter had determined that the PSPP was not going beyond the powers conferred on the ECB, as an ultra vires act and therefore without binding effect for the BVerfG. The BVerfG is of the view that this conclusion is justified as the CJEU in its ruling (allegedly) disregarded the principle of proportionality (Art. 5(4) TEU) in a fundamental manner. 19 Lackhoff, The Single Supervisory Mechanism (2017), paras. 876 et seq.

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SSM‑FR support an understanding of the SSMR according to which (mixed) financial holding companies and central bodies (even if they are not credit institutions themselves) and central counterparties qualifying as credit institutions can be subject to the prudential supervision of the ECB. A different view would (with the exception of the cases where the SSMR itself provides clearly competences in respect of (mixed) financial holding companies) result in the fragmentation of prudential supervision contrary to the aims of the SSMR20 since the supervised group would be subject to supervision by the ECB on consolidated basis but certain non-bank members of the supervised group would be on individual basis subject to supervision by NCAs and only NCAs could address supervisory measures to them.21

III. The catalogue of tasks in Art. 4(1) SSMR 1. Is the list of tasks in Art. 4(1) SSMR exhaustive? The first issue relating to the list of tasks of the ECB is (a) whether this list is exhaustive (i.e. only tasks enumerated explicitly in this list and tasks that can be understood to be mentioned therein are conferred on the ECB) or (b) whether the list expresses that the prudential supervision of significant credit institutions in its entirety (i.e. only with the exceptions envisaged in the SSMR) is assigned to the ECB.22 15 In fact, Art. 4(1) and (2) SSMR do not contain a definitive and conclusive list of the tasks conferred to the ECB. The tasks listed in Art. 4(1) and (2) SSMR express rather as a whole that the entire prudential supervision of significant credit institutions is assigned to the ECB unless specific exceptions apply. This can be derived from the fact that the SSMR intended to establish a functioning centralised system of banking supervision in respect of significant credit institutions and in more detail from the following:23 16 The pure wording of the introductory phrase of Art. 4(1) SSMR (“the following tasks”) and Art. 4(3) SSMR (“relevant Union law”) point to the narrow interpretation that only tasks mentioned in the list are conferred on the ECB.24 The SSMR stipulates that the ECB shall apply all relevant Union law and where this Union law is composed of directives, the national legislation transposing those directives, Art. 4(3)(1) SSMR. Where the relevant Union law is composed of regulations and where currently those regulations explicitly grant options for Member States, the ECB shall apply also the national legislation exercising those options, Art. 4(3)(1) SSMR. 17 However, the context of Art. 4(1) SSMR suggests that the intention of the legislator was to centralise comprehensively the supervision of significant credit institutions with the ECB. Art. 1(1)(2) SSMR points in this direction. It stipulates that the scope of the ECB’s supervisory tasks is limited to the prudential supervision of credit institutions 14

20 See in this context also CJEU, Case T‑52/16, Crédit Mutuel Arkéa v ECB, ECLI:EU:T:2017:902, para. 88. 21 This seems to be the position of the court in CJEU, Case T‑52/16, Crédit Mutuel Arkéa v ECB, ECLI: EU:T:2017:902, paras. 45, 47 to 108 as it confirms that a central body that is not a credit institution can be subject to prudential supervision by the ECB and states at the same time (in an obiter dictum) (para. 92) that it cannot be the addressee of the exercise of supervisory powers by the ECB. 22 Lackhoff, The Single Supervisory Mechanism (2017), paras. 845, 95 et seq. 23 This is disputed. An enumerative character of the list in Art. 4(1) SSMR is postulated, on the basis of the principal of conferral, by (among others) Glos and Benzing, ‘§ 2 Institutioneller Rahmen: SSM, EZB und nationale Aufsichtsbehörden’, in: Jens-Hinrich Binder, Alexander Glos and Markus Benzing (eds), Handbuch Bankaufsichtsrecht (2nd edn, RWS, Cologne 2020), paras. 16, 59 et seq.; Gurlit, ‘Die Entwicklung des Banken- und Kapitalmarktaufsichtsrechts seit 2017 (Teil I)’, WM (2020), 57 at 65. 24 See Grundmann, in: Canaris, Habersack and Schäfer (eds), Staub, Großkommentar Handelsgesetzbuch, Band 10/1 – Bankvertragsrecht, Erster Teil, Kreditwesen und Organisation (5 th edn, 2016), para. 55.

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pursuant to the SSMR. This delineates the tasks conferred to the ECB against other tasks and by implication supports that the prudential supervision is comprehensively conferred on the ECB. That the intention of the legislator was to centralise prudential supervision to the largest extent is further supported by Recital 12 SSMR. 25 Another supporting aspect results from the first sentence of Recital 34 SSMR according to which the ECB shall apply the material rules relating to the prudential supervision of credit institutions.26 The fact that the universe of prudential provisions is then identified with the rules in Union law and national law implementing directives or making use of legislative options may result from the misleading idea that this creates the single rulebook and that the single rulebook is comprehensive.27 In reality the universe of rules of prudential supervision is rather more diverse. Moreover, the teleological interpretation is in line with the purpose of the SSM to 18 centralise the prudential supervision28 and the aim to establish a functioning system of centralised banking supervision29 so that a fragmentation of prudential supervision between the ECB and NCAs would be contrary to the aims of the SSMR30. If this interpretation were to be rejected, a split of competences would arise with regard to prudential tasks in addition to the split that already results from the exclusion of certain areas from the ECB’s tasks.31 Take, as an example, the German provisions on decisions on large exposures. By these 19 provisions the German legislator establishes certain governance-related provisions in connection with large exposures by requiring that certain resolutions are taken by the management board of the credit institutions.32 Under the teleological interpretation the ECB is, in respect of a significant supervised entity, competent to supervise the large exposure rules of the CRR (Art. 387 et seq. CRR) and the autonomous national prudential rules on corporate resolutions required for large exposures. Under a broad interpre25 Recital 12 SSMR: “In a context where banking supervision is effectively moved to a single supervisory mechanism”. 26 Recital 34 sent. 1 and 2 SSMR: “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 credit institutions and on financial conglomerates …”. 27 See also European Commission, A Roadmap towards a Banking Union, COM(2012) 510 final, at p. 7, . 28 For the fragmentation of supervision between the ECB and NCAs being not in line with the objective of the SSMR see CJEU, Case T‑52/16, Crédit Mutuel Arkéa v ECB, ECLI:EU:T:2017:902, para. 88. 29 It cannot be assumed that the legislator intended to set up a system (see Art. 1(9) SSMR) whose ability to function effectively and efficiently is jeopardised by system breaks like split competences. In this regard, the issue whether all areas of prudential supervision (other than specifically excluded ones) and in the same vein the application of national prudential rules not transposing the CRD (“national powers”) are conferred on the ECB is likely of higher importance for the effective and efficient functioning of the supervision by the ECB than the issue whether the ECB is also exclusively competent for LSIs. CJEU, Case T‑52/16, Crédit Mutuel Arkéa v ECB, ECLI:EU:T:2017:902, para. 63 can be read as accepting the notion that the SSMR should establish a functioning system, based on the legislator’s intention to enable the ECB to have an overall picture of the risks likely to affect a credit institution and to avoid the fragmentation of prudential supervision between the ECB and national authorities. 30 See in this context also CJEU, Case T‑52/16, Crédit Mutuel Arkéa v ECB, ECLI:EU:T:2017:902, para. 88, where the Court draws attention to the consequences for the prudential supervision of cooperative credit institutions affiliated with a central body (that is not a credit institution) if no consolidated prudential supervision could be carried out by the ECB because the central body is not a credit institution. 31 Areas of supervision that are excluded from ECB’s supervision are e.g. the supervision of payment services, the supervision of financial market regulation, and the supervision of insurances. Thereby, the supervisory approach is a sectoral approach. 32 Section 13(2) and (3) KWG (German Banking Act). See Lackhoff and Heinz, ‘§ 10 Großkredite’, in: Binder, Glos and Benzing (eds), Handbuch Bankaufsichtsrecht (2nd edn, RWS, Cologne 2020), paras. 94 and 95.

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tation of national law implementing the CRD (the broader interpretation), the ECB would only be competent if one accepts that the CRD also covers such provisions on decisions on large exposures as a part of governance rules – a rather extensive interpretation of the CRD. According to the narrow interpretation, the ECB would not be competent. Accordingly, the narrow interpretation and likely the broader interpretation would result in a split of competences according to which the ECB reviews the large exposure rules of the CRR and BaFin, the German NCA, in respect of the same significant credit institution reviews whether the rules on resolutions on large exposures were complied with. With a view to the objective of the SSM this is not a convincing result. In contrast, the teleological interpretation would ensure that the concentration of the supervision is effective. 20 Finally, this approach is not contradicting Art. 1(1) SSMR and Recital 28 SSMR. From these provisions it follows that tasks not conferred on the ECB remain with the national competent authorities.33 Which tasks are (not) conferred has to be determined by interpreting the SSMR. It is also in line with Art. 127(6) TFEU as still only specific tasks of prudential supervision are conferred on the ECB and certain tasks in respect of certain institutions are explicitly excluded from such transfer (see infra, → para. 66). Further, with the exception of the common procedures, the direct supervisory tasks of the ECB are limited to the significant credit institutions. Resulting from the foregoing, in so far as national powers fall within the scope of the ECB’s tasks, they may be also conferred on the ECB. See to this end also Recital 3 of Decision (EU) 2019/322 of the European Central Bank of 31 January 2019 on the delegation of the power to adopt decisions regarding supervisory powers granted under national law which states that “[t]he ECB's competence extends to the exercise of supervisory powers granted under national law that are not explicitly provided for in Union law as long as such powers fall within the ECB's tasks under Article 4 of Regulation (EU) No 1024/2013 and underpin a supervisory function. The ECB, as the competent authority, is required to adopt a substantial number of decisions regarding supervisory powers granted under national law each year.”34

2. Art. 4(1)(a) SSMR Lit. (a) bestows upon the ECB the task to grant and withdraw the authorisation as a credit institution. The exercise of these tasks is not assigned to the NCAs under Art. 6(4) SSMR, meaning the ECB exercises them in relation to all credit institutions. That the task to authorise credit institutions extends to all applications for authorisation irrespective whether the credit institution will be significant or less significant is also supported by Art. 6(5)(a) SSMR and Article 14 SSMR, the corresponding power. Article 14(1) SSMR stipulates that the procedure described therein applies to “[a]ny application”. Art. 14 SSMR spells out procedural specificities together with Arts. 73-84, 88 SSM‑FR; for details see the annotations to Art. 14 SSMR. 22 As the task of granting an authorisation is conferred exclusively on the ECB and as an authorisation is dependent on the compliance by the applicant with certain requirements, national laws providing for the automatic transfer of an authorisation (e.g. in case of a merger) to another legal entity are not deemed to be compliant with Art. 4(1)(a) SSMR and Art. 14 SSMR. 21

Gortsos, in: Binder and Gortsos (eds), The European Banking Union (2016), 17, at p. 26. See Recital 3 of Decision (EU) 2019/322 of the European Central Bank of 31 January 2019 on delegation of the power to adopt decisions regarding supervisory powers granted under national law (ECB/2019/4), OJ L 55/7 of 25.2.2019. 33

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The task pursuant to Art. 4(1)(a) SSMR (and the power granted by Art. 14 SSMR to the ECB) include the task (and power) to grant or reject the application but neither the task nor the power to take actions if the business as a credit institution is carried out without the relevant authorisation. This is a task that remains with the NCAs. The substantive law to be applied by the ECB when deciding upon an application for authorisation is the national law transposing Arts. 8-21 CRD. The national law transposing the CRD provides the substantive criteria under which authorisations are granted, denied or withdrawn; however, in addition also autonomous national law or national law based on other EU law may be the basis for not granting/withdrawing the authorisation. Approvals of (mixed) financial holding companies as envisaged by Art. 21a CRD and decisions in connection with intermediate EU parent undertakings pursuant to Art. 21b CRD are not “authorisations” within the present meaning. This is already apparent from the wording of the provisions (compare Art. 8, 15 CRD and Arts. 21a and 21b CRD). This understanding is also in line with the definition of authorisation (Art. 3(1)(38) CRD, Art. 4(1)(42) CRR) as an instrument issued in any form by the authorities by which the right to carry out the business is granted. While acting as holding company is a business activity, it is not a business in the meaning of this provision as it is not a business activity vis-à-vis clients. This is also supported by Art. 14 SSMR which is only focussed on the authorisation to take up the business as a credit institution. While granting approvals envisaged in Art. 21a CRD and taking decisions envisaged in Art. 21b CRD (as transposed in national law) does not fall within the scope of Art. 4(1)(a) SSMR, it falls within the scope of Art. 4(1)(e) SSMR, so that the ECB may be competent (in case of holdings in significant groups) but not based on the tasks (and powers) in respect of authorisations as enshrined in Art. 4(1)(a) (and Art. 14) SSMR. The procedural law that is applied in an authorisation procedure includes national procedural law for the part of the procedure that has to be carried out by the NCA and the ECB procedural law for the ECB supervisory procedure; the ECB procedural provisions are established in particular in the SSM‑FR and the general principles of European administrative law, as developed in case law and include national law transposing procedural rules of the CRD. This reflects the fact that the authorisation procedure is a hybrid procedure consisting of two parts: a national part and an ECB part. The NCA carries out a first stage of the procedure in which the authorisation requirements under national law (including national law implementing CRD) are assessed. Such procedure may result in either a rejection of the application or in a proposal of the NCA to the ECB to grant the authorisation. By this proposal the procedure passes from the national stage to the ECB stage. The procedure in case of a withdrawal does not consist of two procedures (with a national and an ECB procedure) but is in its entirety an ECB supervisory procedure. An NCA may, however, in its supporting function propose a draft withdrawal decision to the ECB but may itself – in contrast to the authorisation procedure – not adopt a withdrawal decision even if the withdrawal should be based exclusively on provisions for whose on-going supervision the NCA (or even another specialised authority) and not the ECB is competent. This results from the fact that only the ECB may withdraw an authorisation. In line with assigning the exclusive task to grant and withdraw the authorisation as credit institution in respect of all credit institutions to the ECB, the SSMR deems all existing authorisations as being granted by the ECB, Art. 33(5) SSMR. The purpose of this legal fiction is to clarify that the ECB is competent to withdraw the authorisation (actus contrarius) that was issued by another authority before the creation of the SSM. That the ECB must be able to withdraw, revoke or amend – provided a sufficient legal basis does Klaus Lackhoff and Andreas Witte

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exist – all types of supervisory decisions adopted by NCAs is an issue not limited to authorisations.35 28 Art. 4(1)(a) SSMR assigns to the ECB the tasks to grant/withdraw the authorisation as a credit institution. Credit institutions are, leaving aside the extension of the definition by the Investment Firm Regulation (Art. 62(3) Regulation (EU) 2019/2033), undertakings the business of which is to take deposits or other repayable funds from the public and to grant credits for its own accounts, Art. 4(1)(1) CRR. Depending on the scope of the authorisation according to national law, credit institutions may carry out further activities in addition to accepting repayable funds and granting loans. According to the law of some Member States the authorisation as a credit institution encompasses all activities which are, according to the CRD, subject to mutual recognition36 while in certain Member States (e.g. Germany) a permission is required for each specific activity (listed in Annex I to the CRD). With regard to the latter jurisdictions the question arises whether in case of credit institutions the ECB is competent to grant/withdraw such additional authorisations covered by the CRD. 29 A narrow view based on the wording would argue that the competence of the ECB to authorise credit institutions only covers (i) granting the authorisation for taking repayable funds and granting credits cumulatively or (ii) granting the authorisation to carry out the business of a credit institution if an undertaking holds already a permission for one of these two activities and applies for the other. The application for an authorisation to carry out only one of these two activities (i.e. either taking repayable funds or granting credit, but not both) as well as the application to carry out any other activities would according to this position not fall within the tasks of the ECB. 30 However, it should be taken into account that according to Art. 33(1) CRD the Member States shall provide that the activities listed in Annex I to the CRD may be carried out within their territories in accordance with the provisions on the “European passport”. In a number of participating Member States the authorisation to take repayable funds and to grant credits encompasses the authorisation to carry out the activities listed in Annex I of the CRD. A further aspect complicating the situation for determining the scope of the ‘authorisation task’ of the ECB is that the activities listed in Annex I CRD overlap to a certain extent with the activities covered by the provisions on markets in financial instruments in so far as they are carried out in respect of financial instruments. The MiFID II requires that investment firms that want to carry out such activities in respect of financial instruments need an authorisation. However, Recital 38 clarifies that “[c]redit institutions that are authorised under Directive 2013/36/EU should not need another authorisation under this Directive in order to provide investment services or perform investment activities. When a credit institution decides to provide investment services or perform investment activities the competent authorities, before granting an authorisation under Directive 2013/36/EU, should verify that it complies with the relevant provisions of this Directive.”37 And finally under national law certain activities like issuing covered bonds or acting as home saving bank require a specific extension of the authorisation to carry out the business as credit institution or an additional authorisation.

35 On the revocation of lawful and unlawful ECB supervisory decisions see Lackhoff, The Single Supervisory Mechanism (2017), para. 558 et seq. 36 See Art. 33 CRD and Annex I CRD. 37 Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU, OJ L 173/349 of 12.6.2014.

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In order to determine in which cases the ECB is competent for the authorisation 31 procedure, it is helpful to determine first for which cases the ECB is not competent. If only the authorisation for taking repayable funds or granting credit is applied for, the ECB is not competent for the authorisation procedure. If an undertaking that is not a credit institution applies for an authorisation of activities other than taking repayable funds and granting credits the ECB is – irrespective of the activities – not competent. If, however, a credit institution applies for an authorisation of an activity listed 32 in Annex 1 CRD or an activity requiring a permission under the MiFID, and this authorisation requirement is established (also) for prudential purposes, then one could argue that the ECB is competent for granting such an authorisation. Accordingly, the question would be whether the authorisation requirement under which the credit institution applies for authorisation, exists only or at least also for prudential purposes. If the authorisation requirement pursues only non-prudential purposes, then the ECB is not competent. Accordingly, if for example the German authorisation requirement for issuing covered bonds (see Section 1(1)(1a) German Banking Act – KWG) pursues product related objectives, the ECB is not competent to grant this authorisation. The most problematic cases are those in which an authorisation requirement pursues 33 both prudential and other purposes. This was most likely irrelevant before the establishment of the SSM as national law usually entrusted the same authority with pursuing both. With the establishment of the ECB as centralised supervisor for pursuing prudential tasks (and only prudential tasks), this twofold purpose of authorisation requirements raises a competence issue as the ECB is (only) competent to assess the prudential aspects but not other aspects (like cooperative elements in connection with cooperative banks). In these cases one could base the allocation of the competence on the main purpose pursued by the authorisation requirement and have consequently only one authorisation (in this case the authorities would have to cooperate with regard to their respective field of competence), or alternatively conclude that two authorisations are required: one from the ECB in so far the authorisation requirement pursues prudential purposes and one from the relevant national authority in so far the authorisation requirement was established for other purposes. Most likely the existing law assigns the decision to one authority (e.g. the competent authority which is now for SIs the ECB). In such a case the ECB would need to work together with the authority competent for the assessment of the other aspects pursued by the provision. Ultimately this issue should be solved by the European legislator in a revision of the CRD. However, for the time being the current legal framework does not provide for a clear solution to this competence conflict.

3. Art. 4(1)(b) SSMR Lit. (b) is a part of the regime of home/host relations, especially the passporting of 34 branches and cross-border provision of services. For details see the annotations to Art. 4(2) SSMR infra, → para. 82 et seq.

4. Art. 4(1)(c) SSMR Lit. (c) confers on the ECB the task to assess notifications to acquire or dispose of 35 qualifying holdings. The corresponding power of the ECB and procedural provisions are established in Art. 15 SSMR and Arts. 85-88 SSM‑FR. The relevant substantive law, including the substantive criteria for the assessment, is codified in Arts. 22-27 CRD and the national transposing legislations thereto. This is also a “common procedure”, involving the ECB and the NCA irrespective of the significant status of the bank in question and assigning the adoption of the final decision to the ECB. The provision relates only to

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the assessment of the notification to acquire or dispose of qualifying holdings; it does not include supervisory powers over the acquirer by virtue of being an acquirer. Consequently, the ECB is only competent for supervisory measures in respect of holders of a qualifying holding in an SI, should the holder no longer comply with the statutory requirements. As far as disposals of existing qualifying holdings are concerned, it is to be noted that Art. 25 CRD requires a notification of the competent authority supervising the institution in which the holding is held prior to such disposal, but does not give that authority an opportunity to oppose (as is the case for acquisitions of qualifying holdings, Art. 22(5) and (6) CRD). In the case of disposals, the assessment is therefore not aimed at a possible intervention by the supervisor. 36 The task and power conferred on the ECB relates to the “acquisition or disposal” of a qualifying holding or such increase/decrease of a qualifying holding that certain thresholds are exceeded or undercut. The change from an indirect to a direct holding may be understood as an acquisition of a qualifying holding but with a view to proportionality considerations simplifications in the procedure are justified. 37 Further, the task to assess notifications on the acquisition and disposal of qualifying holdings is conferred on the ECB only “except in the case of a bank resolution”. This limits the scope of the ECB’s task and consequently its powers. As neither the CRD nor the BRRD/SRMR provide for an exemption from the qualifying holding rules, such an assessment has to be carried out also with respect to the acquisition of a qualifying holding (Art. 3(1)(33) CRD, Art. 4(1)(36) CRR) in connection with a bank resolution. Article 4(1)(c) SSMR only exempts the acquisition of a qualifying holding in case of a bank resolution from the tasks conferred to the ECB so that in these cases the NCA remains competent. The purpose originally pursued by this limitation seems to be to ensure the swift execution of the qualifying holding procedure by ensuring that the authority competent for the qualifying holding assessment is located in the same country as the resolution authority carrying out the resolution or is even the same authority; since the establishment of the SRM it is only ensured that the authority implementing the resolution scheme and the NCA competent for the qualifying holding procedure are located in the same country. 38 Consequently, the relevant NCA is only competent to carry out the assessment of a qualifying holding if (i) the acquisition occurs because of the application of a resolution tool like the bridge institution tool or the bail-in tool and (ii) relates to a credit institution established in the participating Member State in which the resolution authority is located. If for example a conversion of capital instruments of the credit institution CI (which is located in the participating Member State MS) leads to its former creditor C acquiring a direct holding in CI and an indirect holding in CI’s subsidiary S which is established in another participating Member State, then the NCA of MS is competent for the assessment of the qualifying holding in CI while the ECB remains competent for the assessment of the qualifying holding in S. Further, if after the application of a resolution tool the share-holding in a bridge institution is sold, then the ECB is competent for assessing the acquirer as the exception does not refer to this case since this is not a transfer of a qualifying holding because of the application of a resolution tool.

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5. Art. 4(1)(d) SSMR Art. 4(1)(d) SSMR entrusts the ECB with the supervision of the requirements relating 39 to own funds requirements,38 securitisation,39 large exposure limits,40 liquidity,41 leverage,42 reporting and disclosure.43 These areas are mostly governed by the CRR. In addition, the implementing technical standards (ITS) and the regulatory technical standards (RTS) which are adopted by the Commission in the form of regulations and are prepared by the EBA complement the applicable prudential supervisory law (tertiary law). Additional guidance follows from EBA Guidelines if the ECB decided to comply with them. Although not legally binding, EBA answers to Q&As44 have often also a factually binding force.45 The capital requirements (or own funds requirements) are intended to ensure that 40 the supervised entities hold sufficient levels of own funds against risks inherent to the business of credit institutions. The objective is to make the credit institutions more resistant to losses in order to avoid their failure and, thereby, to foster financial stability. 46 To this end the CRR requires that own funds comply with certain standards in order to ensure their loss absorbing capacity.47 Further, it requires that the amount of own funds held by credit institutions is calculated in relation to their total risk exposure amount (which includes the risk weighted assets (RWA)) for the CET 1 ratio, tier 1 ratio and total capital ratio and in case of the leverage ratio in relation to the exposure measure, which is not risk-weighted).48 For example, according to Art. 107(1) CRR the riskweighted exposure amounts for determining the capital requirements for credit risk can be based on either the standardised approach49 or the internal ratings-based approach (IRBA).50 Accordingly this task covers also the assessment of applications for internal models.51 In addition, the credit risk mitigation (Arts. 192 et seq. CRR), the treatment of securitisations for own funds purposes (Arts. 242 et seq. CRR), the rules on counterparty credit risk (Arts. 271 et seq. CRR), and the requirements for operational risk (Arts. 312 et seq. CRR), for market risk (Arts. 325 et seq. CRR), for settlement risk (Arts. 378 et seq.

Arts. 25 to 386 CRR. Arts. 242 to 270e CRR and the Regulations cited in fn. 60. 40 Arts. 387 to 403 CRR. 41 Arts. 411 to 428az CRR. 42 Arts. 429 to 429g CRR. The unweighted leverage ratio is now a fully-fledged and binding own funds requirement, on par with the weighted own funds requirements (see Art. 92(1)(d) CRR). At the time of adoption of the SSMR, it was a distinct monitoring parameter, hence its separate listing in Art. 4(1)(d). See infra, → para. 40. 43 Arts. 430 to 430c and 431 to 455 CRR. The disclosure rules are the so called “Pillar 3” of the current supervisory framework. 44 For the Q&A tool of the EBA see . 45 In light of the quality of certain questions and answers this is not without concern. On the factually binding force of non-binding instruments like recommendations, see Riso and Lackhoff, ‘C. Dividend Recommendation’, in: Lackhoff (ed), Banking supervision and COVID-19 (C.H. Beck/Hart/Nomos, Munich/Oxford/Baden-Baden 2021), part 2, C, para. 33. – As for EBA guidelines, it has been held in case law that they are not contestable via Art. 263 TFEU, but their validity can be scrutinised by means of a preliminary reference from a national court: CJEU, Case C-911/19 FBF v ACPR, ECLI:EU:C:2021:599. 46 Gortsos, The Single Supervisory Mechanism (2015), at p. 143 fn. 523. 47 Arts. 25 to 91 CRR. 48 See in particular Art. 92 CRR and for the leverage ratio Art. 429 CRR. The minimum capital requirements for credit, market and operational risk form the core of the so called “Pillar 1” of the current supervisory framework. 49 Arts. 111 to 141 CRR. 50 Arts. 142 to 191 CRR. 51 See Arts. 143(1), 151(4), (9), 283, 312(2), 363 CRR. 38

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CRR) and for credit valuation adjustment risk (Arts. 381 et seq. CRR) are enclosed in the task to supervise own funds requirements. 41 In order to ensure compliance with the capital requirements52 the ECB has “the task of ensuring compliance with those rules, including in particular by granting approvals, permissions, derogations, or exemptions foreseen for the purposes of those rules”. 53 Accordingly, the ECB is for example competent to decide on applications for the reduction/ repayment or redemption of own funds instruments under Arts. 77, 78 CRR. The permission needs to be adopted in the form of an ECB supervisory decision in a non-objection procedure.54 In this context the ECB has to choose between a point-in-time assessment and a forward-looking one for the assessment of the sufficiency of own funds after the reduction/repayment or redemption without replacement.55. The latter position is supported by a systematic interpretation taking also into account Art. 30(1)(b) of Commission Delegated Regulation (EU) No 241/2014 which requires that information for a three-year period is provided.56 42 The prudential rules on securitisation cover two dimensions.57 The first dimension relates to the credit institutions making use of securitisations in order to reduce the own funds to be held for the securitised exposures. In this regard, the core question is whether a significant risk transfer is achieved.58 The other dimension relates to the role of credit institutions as an investor. Insofar, the credit institution needs to determine the amount of own funds to be held for the acquired position in a securitisation.59 Further, the legislator stipulated that credit institutions may only invest in securitisation Arts. 92 to 386 CRR. Recital 23 SSMR. 54 For the delegation of decision-making powers from the Supervisory Board and the Governing Council to employees of the ECB, the ECB has established a system in which three legal acts need to work together: First, a decision establishing the general framework for delegation (see Decision (EU) 2017/933 of the ECB of 16 November 2016 on a general framework for delegating decision-making powers for legal instruments related to supervisory tasks (ECB/2016/40), OJ L141, 1.6.2017, p. 14); second a decision delegating the decision making powers relating to specified areas like, for example, the decision on delegation of the power to adopt own funds decisions (Decision (EU) 2018/546 of the ECB of 15 March 2018 (ECB/2018/10), OJ L 90/105, 6.4.2018), the decisions delegating certain significance decisions and fit and proper decisions (Decision (EU) 2017/934 of the ECB of 16 November 2016 on the delegation of decisions on the significance of supervised entities (ECB/2016/41), OJ L 141, 1.6.2017, p. 18; Decision (EU) 2017/935 of the ECB of 16 November 2016 on delegation of the power to adopt fit and proper decisions and the assessment of fit and proper requirements (ECB/2016/42), OJ L141, 1.6.2017, p. 21); and third, a decision nominating the delegates (see for example Decision (EU) 2017/936 of the ECB of 23 May 2017 nominating heads of work units to adopt delegated fit and proper decisions (ECB/2017/16), OJ L141, 1.6.2017, p. 26, and Decision (EU) 2017/937 of the ECB of 23 May 2017 nominating heads of work units to adopt delegated decisions on the significance of supervised entities (ECB/2017/17), OJ L141, 1.6.2017, p. 28). On delegation see Lackhoff, The Single Supervisory Mechanism (2017), paras. 363 to 385. 55 Art. 78(1)(b) CRR. 56 Commission delegated Regulation (EU) No 241/2014 of 7 January 2014 supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards for Own Funds requirements for institutions, OJ L74, 14.3.2014, p. 8. 57 The securitisation regime was recently reviewed with the aim to revive the securitisation market, see (a) Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation, and amending Directives 2009/65/EC, 2009/138/EC and 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012, OJ L347, 28.12.2017, p. 35 and (b) Regulation (EU) 2017/2401 of the European Parliament and of the Council of 12 December 2017 amending Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms, OJ L347, 28.12.2017, p. 1. 58 See Art. 244 CRR for traditional securitisations and Art. 245 CRR for synthetic securitisations. 59 Arts. 112(m), 113(4), 130, 242 et seq. CRR. Also, for retained securitisation positions it is necessary to calculate the own funds requirements, if the institution achieved a significant risk transfer and for example excluded in case of a traditional securitisation the underlying exposures, Art. 247 (1), (2) CRR. 52

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positions if certain standards are met.60 The ECB is competent to supervise compliance with these requirements among others by exercising investigatory powers. With regard to the securitisation framework this led to the key question whether the requirements for risk retention, transparency and re-securitisation, which are set out under Arts. 6 to 8 of the Securitisation Regulation,61 are of a prudential character and therefore fall within the scope of the tasks of the ECB. The final regulation of 31 March 2021 amending the Securitisation Regulation62 continued (as did the regulation which it amended) to qualify the requirements for risk retention, transparency and re-securitisation, which are set out under Articles 6 to 8 of the Securitisation Regulation63, as prudential so that they fall within the scope of the tasks assigned to the ECB. With its press release of 14 May 202164 the ECB accepted this qualification as prudential and the tasks resulting from this. These events raise concerns. The term “prudential supervision” and its content result from Art. 127(6) TFEU and must be interpreted consistently. Primary law is silent on the exact meaning of the words “prudential supervision” as used in this provision, which gives the legislators leeway to provide a specification by means of secondary law; but this leeway is not unrestricted and reaches its limits where tasks that secondary law purports to confer on the ECB cannot reasonably be subsumed under the meaning of the term “prudential supervision” as developed from an autonomous interpretation of primary law. The ECB supervises also whether the credit institutions comply with large exposure requirements. The purpose of the large exposure regime is to avoid excessive risk concentration and to foster the steering of risks. To this end, with regard to the banking book, a large exposure limit of (in principle) 25 % of the Tier 1 capital is established. The ECB as competent supervisor of significant credit institutions may, in case of a breach of the large exposure limits, make use of Art. 396 CRR and provide time to the significant institution to comply again with the large exposure limits.65 60 Former Arts. 404 to 410 CRR; see now Arts. 5 to 9 of Regulation (EU) 2017/2402 of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation, and amending Directives 2009/65/EC, 2009/138/EC and 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012, OJ L 347, 28.12.2017, p. 35 (the Securitisation Regulation) (based on Art. 1 (11) of Regulation (EU) 2017/2401 of 12 December 2017 amending Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms, OJ L 347, 28.12.2017, p. 1). 61 Regulation (EU) 2017/2402, see preceding fn. See in this context Opinion of the European Central Bank of 11 March 2016 on (a) a proposal for a regulation laying down common rules on securitisation and creating a European framework for simple, transparent and standardised securitisation; and (b) a proposal for a regulation amending Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms (CON/2016/11), OJ C 219, 17.6.2016, p. 2 (p. 3, 4) and Opinion of the European Central Bank of 23 September 2020 on proposals for regulations amending the Union securitisation framework in response to the COVID-19 pandemic (CON/2020/22), OJ C 377, 9.11.2020, p. 1 (2). 62 Regulation (EU) 2021/557 of the European Parliament and of the Council of 31 March 2021 amending Regulation (EU) 2017/2402 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation to help the recovery from the COVID-19 crisis, OJ L 116, 6.4.2021, p. 1. 63 Regulation (EU) 2017/2402 see fn. 60. 64 Press Release – ECB Banking supervision to supervise securitisation requirements for banks, 14 May 2021, https://www.bankingsupervision.europa.eu/press/pr/date/2021/html/ssm.pr210514~3ee1e3e4a8.en. html. See fn. 61 for statements of the ECB in its Opinions on this issue. 65 On the large exposure limits see EBA Guideline specifying the criteria to assess the exceptional cases when institutions exceed the large exposure limits of Article 395(1) of Regulation (EU) No 575/2013 and the time and measures to return to compliance pursuant to Article 396(3) of Regulation (EU) No 575/2013 (EBA/GL/2021/09); on the large exposure rules see also Lackhoff and Heinz, ‘§ 10 Großkredite’, in: Binder, Glos and Benzing (eds), Handbuch Bankaufsichtsrecht (2nd ed., RWS, Cologne 2020).

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The task to ensure compliance with liquidity requirements relates to the two liquidity metrics envisaged in the CRR. These are the Liquidity Coverage Requirement which is intended to ensure that institutions have a sufficient liquidity buffer for 30 days under stressed conditions,66 and the Net Stable Funding Ratio (NSFR). The NSFR aims at ensuring the long-term stable funding over a horizon of one year. It was originally a mere monitoring metric subject to reporting but became a binding requirement in June 2021.67 48 The leverage ratio is a novel instrument to limit the overall, unweighted exposure values of assets and off-balance sheet items of credit institutions compared to their Tier 1 capital.68 Originally the ECB would have had to decide in this context (for SIs) for example about exempting certain assets from the calculation of the exposure measure pursuant to the former Art. 429(14) CRR. This provision provided for discretion (“may”) of the competent authority which it may exercise in line with the objective pursued by the leverage ratio. After the court cases on the French Livret A, the legislator changed the structure of the norm and envisages now exceptions of which the credit institution can make use without requiring a prior permission (Art 429a(1)(j) CRR). 69 49 Further, the ECB has the task to review whether the credit institutions comply with the reporting70 and public disclosure requirements71. The disclosure requirements, which form the “Pillar 3” of the current supervisory framework, intend to enhance transparency and to provide investors with information for investment decisions. By this the legislator intended to expose credit institutions to market reactions based on a broader information basis (market discipline), thereby allowing them to factor the institution’s risk into their pricing so that the costs of an institution’s risk appetite are internalised. The ECB is tasked with reviewing compliance with these requirements. 47

6. Art. 4(1)(e) SSMR 50

Lit (e) mandates the ECB to ensure that significant credit institutions comply with requirements mostly provided for in the CRD and the related tertiary law acts (e.g. EBA binding technical standards, see annotations to Art. 4(3) SSMR infra, → para. 123 et seq.). This task of the ECB includes ensuring compliance by the supervised entities with governance and risk management requirements72 as part of the supervisory review process which forms the “Pillar 2” of the current supervisory framework. The task covers in particular the supervision of fit and proper requirements for the persons responsible for

66 Arts. 411 et seq. CRR and in particular Commission delegated Regulation (EU) 2015/61 of 10 October 2014 to supplement Regulation (EU) No 575/2013 of the European Parliament and the Council with regard to liquidity coverage requirement for Credit Institutions, OJ L 11, 17.1.2015, p. 1. The Liquidity Coverage Requirement looks in so far to the asset side of the balance sheet in order to determine whether sufficient highly liquid assets are available. The NSFR has a focus on the liabilities side. 67 Arts. 427, 428 CRR on the reporting on stable funding, Arts. 413(1) and 428a to 428az on the calculation of the Net Stable Funding Ratio, and Art. 510 CRR. 68 Arts. 429 to 429g CRR. 69 See Press release No 110/18 of the General Court of the European Union Luxembourg, 13 July 2018 and CJEU, Case T-733/16, La Banque Postale v ECB, ECLI:EU:T:2018:477. 70 See Arts. 430 to 430c CRR and Commission Implementing Regulation (EU) 2021/451 of 17 December 2020 laying down implementing technical standards for the application of Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to supervisory reporting of institutions and repealing Implementing Regulation (EU) No 680/2014, OJ L 97, 19.03.2021, p. 3. 71 See Arts. 431 to 455 CRR. Disclosure requirements are addressed to another audience than the reporting obligations as they are directed to the public while reporting requirements are directed to the supervisors. 72 See also Recital 25 SSMR.

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the management of credit institutions,73 risk management processes,74 internal control mechanisms,75 remuneration policies and practices76 and effective internal capital adequacy assessment processes,77 including internal ratings-based approaches. As these requirements are established in the CRD, the ECB has to apply the national 51 law implementing them. The mere existence of 19 (21 including the currently two Member States in close cooperation) diverging implementations can impose a substantial burden on the ECB. Moreover, it is not necessarily clear whether a national provision is transposing the directive (see infra, → para. 112 et seq.). This problem may in particular arise where a directive provides only for general principles and Member States implement then a detailed framework. In order to minimise this problem, Member States, when implementing the directive, are obliged by the principle of sincere cooperation to show consideration for the effectiveness of the SSM.78 Moreover, insofar as the different national laws provide room for interpretation, the ECB would interpret the laws in the same manner in order to comply with the equal treatment principle;79 this would also support the harmonisation goal pursued by the directive.

7. Art. 4(1)(f) SSMR Lit. (f) envisages different types of supervisory reviews which the ECB may under- 52 take, either in its own responsibility or in cooperation with the other authorities. The most important of these supervisory reviews is the Supervisory Review and Evaluation Process (SREP)80 mandated by Art. 97 CRD. This is a periodical exercise – the ECB’s policy is to perform the SREP annually for the significant banks under its direct supervision, but this interval is not mandated by law for all institutions – in which supervisors conduct a thorough and comprehensive assessment of the risk profile of credit institutions to determine whether the risks to which they are exposed are adequately covered. The SREP focusses on four key elements: (a) the business model assessment, (b) the governance and risk management assessment, (c) the assessment of risks to capital and (d) the assessment of risks to liquidity. In its first element the ECB reviews the viability and sustainability of the current business model of the supervised entity. The aim is to determine whether risks for the viability of the credit institution result from it. The second element encompasses the assessment of the adequacy of the governance and risk management. Element three looks at the different categories of risk relating to the capital and their treatment (credit risk, market risk, operational risk, and interest rate risk in the banking book (IRRBB)). The last element focusses on the assessment of the short-term liquidity risk and funding sustainability. The overall SREP assessment is based on the result of the assessment of each of the four elements. These results are expressed in scores. The scores are based on an automated quantitative assessment which can be modified by supervisory judgement. The overall SREP assessment serves as a basis for the supervisory measures expressed in the SREP decision. These measures are based on a comprehensive view of the results of the assessments. In the 2022 SREP decisions, a certain part of the pillar 2 capital add-on was for the first time attributed to a specific risk (coverage of See Art. 91 CRD. See Arts. 74, 76 to 87 CRD. 75 See Arts. 4(5) CRD. 76 See Arts. 74(1), 75, 92 to 96 CRD. 77 Arts. 73, 108 CRD. 78 See CJEU, Case C-617/10, Aklagaren v Hans Akerberg Fransson, ECLI:EU:C:2013:105, para. 29. 79 See Lackhoff, Single Supervisory Mechanism (2017), para. 710. 80 See on the SREP on the webpage of the ECB – Banking Supervision: https://www.bankingsupervision .europa.eu/banking/srep/html/index.en.html 73

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NPEs). The SREP process is carried out annually and consists of three phases (a) the preparation of the process, normally during the first quarter of the calendar year; (b) the assessment, normally during the second and third quarter and (c) the decision-making phase including the hearing normally during the third and fourth quarter. As a consequence, from the SREP, the ECB can – and typically does – impose supervisory measures on banks intended to ensure a sound coverage of risks; the powers which the ECB uses for this purpose stem mostly from Art. 16 SSMR (see annotations thereto), thereby fulfilling the mandate of Arts. 102 and 104 CRD. 53 The meaning of supervisory reviews (as that term is used in lit. (f)) is not limited to the (annual) SREP process. Rather, any other review carried out with the same objective (assessing the risk to which an institution is exposed as a result of its particular circumstances) is also a supervisory review. Supervisory reviews are therefore all reviews carried out in order to determine whether the arrangements, strategies, processes and mechanism put in place by credit institutions and the own funds held by them ensure a sound management and coverage of their risk. This includes reviews based on the investigatory powers of the ECB. 54 This broad understanding of supervisory reviews is important as the micro-prudential powers of the ECB pursuant to Art. 16 SSMR require either a breach or likely breach or that a “supervisory review” has revealed that the arrangements, strategies, processes and mechanism put in place by credit institutions and the own funds and liquidity held by them do not ensure a sound management and coverage of their risk. The conclusion that supervisory reviews include not only the annual SREP but also other reviews follows from the wording of Art. 4(1)(f) SSMR as the term “including” does not exclude further reviews. A teleological view provides further support to this understanding as a limitation of the tasks and powers only to the annual SREP would substantially devalue the relevance of such other reviews. 55 A supervisory review can also come in the form of a stress test whereby the impact of a predefined scenario of external shocks on the financial situation of a credit institution is simulated. A stress test may be initiated and coordinated by the EBA81 or be carried out by the ECB in its own responsibility. The EBA describes the process of a stress test initiated by it as follows: “The EBA coordinates the exercise, defines the common methodology as well as the minimum quality assurance guidance for competent authorities […]. The EBA acts as a data hub for the final dissemination of the common exercise. […] Competent authorities are responsible for conveying to banks the instructions on how to complete the exercise and for receiving information directly from banks. Competent authorities are also responsible for the quality assurance process – e.g. for validating banks’ data and stress test results based on bottom‐up calculations, as well as for reviewing the models applied by banks for this purpose. […] They are also responsible for the supervisory reaction function and for the incorporation of the findings from the EU‐wide exercise into the SREP.”82 The normal practice for the ECB is to participate in EBA-initiated stress tests and to use the resulting data as one of the many inputs which feed into its annual SREP exercise.83

Arts. 22(1a), 32 EBAR. EBA, ‘2016 EU-Wide Stress Test – Methodological note’ (24 February 2016), at p. 14. 83 See on the website of the ECB – Banking supervision: https://www.bankingsupervision.europa.eu/ba nking/tasks/stresstests/html/index.en.html. 81

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8. Art. 4(1)(g) SSMR Banking supervision complements entity-level supervision (supervision of each credit institution as a separate legal entity) with consolidated supervision (supervision over an entire group, consisting of a parent and its subsidiaries as if those entities form one single entity). In the pre-SSM era (and still today with respect to non-SSM EEA), where no centralised supervisor existed, the CRD established supervisory colleges and joint decisions as means to coordinate the supervision of a group with entities established in different Member States by the relevant competent authorities. They are led by the “consolidating supervisor” (see Art. 111 CRD) which, in simplified terms, can be said to be typically the competent authority supervising the parent credit institution or largest credit institution of the group. The SSMR entrusts the ECB with carrying out the supervision on a consolidated basis if the ECB is the consolidating supervisor.84 If the ECB is the consolidating supervisor, it is also the authority appointed to establish the college of supervisors (supervisory college). If the ECB is not the consolidating supervisor but a credit institution supervised by it is part of a group for which the consolidating supervisor has established a supervisory college, then it is part of the tasks of the ECB to participate in this supervisory college. If, in a peculiar situation in addition to a significant supervised entity supervised by the ECB, also one or more LSIs supervised by NCAs are part of the group,85 then the respective NCA(s) is/are also members of the college; otherwise, NCAs in whose territory significant banks of the group are located are participating in the supervisory college as observers. Art. 17(2) SSMR clarifies that for groups established only in participating Member States no college is established; this is reasonable from a policy perspective, since the more intense level of cooperation within the SSM makes the lower degree of integration by means of supervisory colleges dispensable. While colleges have no powers vis-à-vis the supervised entities forming the group which is subject to consolidated supervision, they are mandated to adopt joint decisions to determine the adequacy of the consolidated level of own funds, liquidity and the capital guidance, Art. 113(1) CRD. Such joint decision must be implemented by supervisory decisions of the relevant supervisory authorities in order to create legal effects vis-à-vis the supervised entities, Art. 113(4) CRD, which stipulates that the joint decision shall be “... applied by the competent authorities in the Member States concerned”. For decisions relating to internal models and on the level of application of liquidity requirements, Arts. 20 and 21 CRR provide for joint decisions. Arts. 20(1)(a) and (4) CRR provide insofar for a peculiar regime as they seem to imply that the consolidating supervisor can under certain conditions adopt a decision directly binding for all entities of the group, including those in other jurisdictions (transnational decisions).

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9. Art. 4(1)(h) SSMR The Financial Conglomerates Directive (FICOD)86 provides that conglomerates 60 (i.e., groups which conduct, above defined minimum levels, both banking and insurance Art. 8 SSM‑FR. An example would be a group consisting of a parent credit institution established in Sweden with a subsidiary credit institution in France that is significant, and another subsidiary established in Germany that is less significant. 86 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 and amending Council Directives 73/239/EEC, 79/267/EEC, 92/49/EEC, 92/96/ EEC, 93/6/EEC and 93/22/EEC, and Directives 98/78/EC and 2000/12/EC of the European Parliament and of the Council, OJ L35, 11.2.2003, p. 1. 84

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activities) are, in addition to the sectoral supervision by banking and insurance supervisors, subject to “supplementary supervision” as conglomerates. This supplementary supervision is led and coordinated by the “coordinator” determined in accordance with Art. 10 FICOD. This is typically the sectoral supervisor of the regulated entity (credit institution, insurance or investment firm) heading the conglomerate in accordance with the provisions of the FICOD. The ECB can thus be a coordinator (for conglomerates whose lead entity is a significant credit institution established in the SSM87), or it can be an entity-level supervisor in a conglomerate led by another authority as coordinator (e.g. a non-SSM banking supervisory authority or an SSM insurance supervisory authority). 61 When participating in the supplementary supervision the ECB may, among others, be involved in determining whether certain undertakings may be excluded from the calculation of the capital adequacy requirements and in reassessing waivers from the application of supplementary supervision.

10. Art. 4(1)(i) SSMR Lit. (i) bestows upon the ECB the tasks carry out supervision in relation to recovery planning and early intervention as provided for in the relevant Union law. It is not in itself a legal basis for action vis-à-vis institutions. 63 Entrusting the ECB with supervisory tasks in respect of recovery plans results in the ECB being competent to assess the recovery plans of significant supervised entities. As a result of such assessment it may for example require the institution to submit a revised plan by making use of the power of Art. 6(5) BRRD as implemented in national law.88 64 Further it is an ECB task to adopt early intervention measures. Early intervention measures are those measures provided for in Arts. 27 to 30 BRRD. They are only “early” in relation to a resolution. From a supervisory perspective they are “late” as they are at least in part more severe measures (Arts. 28, 29 BRRD) requiring a more severe situation (“significant deterioration in the financial situation or … serious infringements”) than supervisory measures. Moreover, certain early intervention measures cannot be differentiated from supervisory measures. This is evident from the fact that the legislator itself is not able to differentiate them (see Art. 13 SRMR) and that early intervention measures pursuant to Art. 27 BRRD overlap with supervisory measures pursuant to Art. 16 SSMR.89 This shows that early intervention measures are supervisory measures. This casts doubt on the usefulness of the category “early intervention measures” as a category of powers distinct from ordinary supervisory measures, as even the mere fact that a measure is adopted as an “early intervention measure” is a relevant factual information that alone may result in qualifying it as insider information when assessing whether an insider information exists that has to be published.90 65 Art. 4(1)(i) SSMR finally envisages that the ECB is, in the cases explicitly stipulated by relevant Union law, competent to decide upon structural changes required from credit institutions to prevent financial stress or failure. It ensures that in a (future) regulation 62

Art. 18 SSM‑FR. If the revised plan does not remedy the deficits the powers under Art. 6(6) BRRD as implemented are available. 89 See Art. 27(1)(b) BRRD / Art. 16(2)(c) SSMR and Art. 27(1)(d) BRRD / Art. 16(2)(m) SSMR. 90 See Arts. 17, 7 of Regulation (EU) No 596/2014 of the European Parliament and the Council of 16 April 2014 on market abuse (Market Abuse Regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC, OJ L173, 12.6.2014, p. 1. If a measure had to be published just because it is an early intervention measure which is understood to express the view that the situation of the credit institution might deteriorate, then this could impede the supervisory efforts and result in a self-fulfilling prophecy. 87 88

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on the separation of certain business activities91 supervisory tasks can be assigned to the ECB. Supervisory tasks can only be conferred on the ECB in a Regulation pursuant to Art. 127(6) TFEU, which is why it demonstrates foresight to include such an allocation of competences in the SSMR already. The separation of activities (in particular investment banking activities from deposit taking) which require structural changes was not an existing prudential task when the SSMR was adopted. Art. 4(1)(i) SSMR assigns this task already now to the ECB but only if the EU legislator should create such provisions in the future and wants to entrust the ECB with this task.92

IV. The counter-exemptions in Recital 28 SSMR Union law is premised upon the principle of conferral,93 i.e. the fundamental rule that competences remain, by default, with the Member States. Consequently, a transfer of competences to the European level cannot be assumed but must be provided for in Union law. The list in Recital 28 SSMR of supervisory tasks which remain (in addition to those excluded in the conferral of specific tasks; see e.g. supra, → para. 21) in their entirety with the NCAs is, therefore, not binding in a strictly legal sense, for two reasons: First, it is a Recital rather than an operative Article; second, it reiterates something which already follows from the principle of conferral and can consequently be neither exhaustive nor constitutive. Nonetheless the list is of great practical use, as it provides guidance for the delineation of NCA and ECB tasks. Some annotations on the individual items in the list: On the power to receive passporting notifications: See the annotations on Art. 4(2) for more detail. On the supervision of entities which are credit institutions under national law but not Union law: The background to this item is the fact that Union law relies on a definition of “credit institution” based solely on accepting repayable funds and lending, leaving aside the extension by the investment firm regulation (Art. 62(3) Regulation (EU) 2019/2033).94 Some national legal systems employ a much wider definition of the term “credit institution”,95 resulting in the possibility of entities being “credit institutions” under national law but not Union law. Such entities will continue to be supervised by the NCAs and do not fall within the remit of the SSM. On the supervision of branches established by credit institutions from third-countries (i.e., non-EEA): For details see the annotations to Art. 4(2) SSMR infra, → para. 95 et seq. On the supervision of payment services or legislation governing markets in financial instruments: Even where such services are provided by credit institutions within the meaning of Union law (including significant credit institutions), ensuring compliance

91 See proposal for a regulation of the European Parliament and of the Council on structural measures improving the resilience of EU credit institutions, COM(2014) 43 final, 29.1.2014, . In 2017 this proposal was withdrawn (https://ec.europa.eu/info/sites/default/files/cwp_2018_annex_iv_en.pdf), COM(2017) 650 final, Annex 4, 24.10.2017. 92 This does not contradict the position pursued herein with regard to the national powers debate (see B.III.); rather it shows that the legislator excludes the prudential task with regard to structural changes under national laws from the transfer of powers and makes it in case of an EU regulation dependent on the effectuation of the transfer in the relevant regulation. 93 Art. 5(1) and (2) TEU; reiterated in the SSMR (with declaratory effect) in Art. 1(5). 94 Art. 4(1)(1) CRR, to which Art. 2(1)(3) SSMR refers. 95 E.g. Section 1(1) KWG (German Banking Act).

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with the relevant legislation is a task of the NCAs, in accordance with their national legislation. On the supervision of AML and CFT rules: Ensuring compliance with anti-money laundering (“AML”) legislation, legislation against the use of the financial system for the financing of terrorism (combating financing of terrorism, “CFT”), and consumer protection legislation is not a task conferred on the ECB even for significant credit institutions within the meaning of Union law. Day-to-day verifications of credit institutions: This provision should be read in conjunction with Art. 6(6)(2) SSMR (see annotations thereto), according to which NCAs retain investigatory and information retrieval powers even with respect to significant credit institutions. Insofar as tasks (like the task to ensure compliance with AML legislation) are not conferred on the ECB, these tasks remain with the national authorities determined by the relevant national law. This might (and in the vast majority of cases will) assign the task to the NCA. The relevant national authority may also exercise corresponding powers vis-à-vis the credit institutions, including significant credit institutions, to ensure compliance with the relevant law (e.g. AML legislation). However, even if breaches of such law (e.g. AML legislation) would justify the withdrawal of the authorisation to take up the business as credit institution, such withdrawal can only be adopted by the ECB. The NCA96 may suggest such withdrawal. The ECB, as it is exclusively responsible for such withdrawal, needs to assess whether the withdrawal is justified from a prudential perspective. It may build upon the assessment provided to it by the NCA but should not blindly rely on it. In this context, the ECB needs to be able to assess also legal provisions for whose supervision it is not competent. This assessment may even result in the conclusion that a withdrawal is not justified. The fact that certain tasks relating to prudential matters are not assigned to the ECB (like ensuring compliance with AML legislation, supervision of payments services or legislation governing markets in financial instruments) requires the cooperation between the authorities competent for the prudential supervision of these activities and the ECB as prudential supervisor. The authorities competent for these areas may take action vis-à-vis the (significant) credit institutions (except for the withdrawal of the authorisation) insofar as the national law provides such powers to them in their function as supervisor of the relevant subject matter. In addition, the ECB may want to impose measures on the credit institutions with a view to prudential risks (e.g. operational risks) resulting from non-compliance with such provision (e.g. AML legislation). If, for example, the securities supervisor of a credit institution finds out that the credit institution did not provide its clients in connection with security transactions with the necessary information, this poses also a prudential risk (in the form of liability risks, for instance) to the credit institution that may justify a capital add-on. If the securities supervisor has no power to impose a capital add-on with regard to significant credit institutions, then only the ECB may impose such capital add-on for such operational risk. Or to generalise this issue, the fact that the SSM centralised certain areas of prudential supervision for credit institutions requires that it is clarified in national law which powers relate to the tasks of prudential supervision not assigned to the ECB.

96 If the national authority competent to supervise e.g. AML legislation is not the NCA, such national (e.g. AML) authority may ask the NCA to propose the withdrawal to the ECB. The legal basis for such cooperation must be found in national law.

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V. Conferral of additional tasks on the ECB in other legal acts? A question which is subject to some ambiguities concerns the question whether other legal acts outside the SSMR can add new supervisory tasks for the ECB. In the light of this there are doubts with respect to the SRM Regulation, in so far as it appears to stipulate that the failing-or-likely-to-fail determination for all banks under the direct remit of the SRB (see Art. 7(2) SRMR), even in so far as they are not SIs, falls within the competences of the ECB (Art. 18(1) SRMR).97 This scope ratione personæ would include some LSIs (i.e. cross border groups, Art. 7(2)(b) SRMR). It is doubtful whether the SRM Regulation can add tasks for the ECB which would, under the SSMR, be presumed to be assigned to the NCAs. The starting point of this analysis is the fact that the SSMR and the SRMR were based on different legal bases in primary law: The SRMR was adopted under the general harmonisation power of Art. 114 TFEU, whereas the SSMR was adopted under Art. 127(6) TFEU. Union law does not recognise a difference in rank among the various acts of secondary law; it is not as if the SSMR is hierarchically superior to the SRMR. Nonetheless, the fact that the TFEU provides for a special legal basis – with a specific majority requirement and legislative procedure for the conferral of tasks of prudential supervision upon the ECB – makes it necessary to argue that the use of Art. 114 TFEU for such a conferral is excluded by the existence of Art. 127(6) TFEU as a lex specialis. Otherwise the unanimity requirement under the special legislative procedure of this provision would be undermined.98 Consequently, while it is certainly possible to add supervisory tasks for the ECB by virtue of new legal acts of Union law, such acts would have to utilise Art. 127(6) TFEU as a legal basis (and comply with its procedural requirements). From the above one has to differentiate cases in which legislative acts (e.g. the Regulation (EU) No 648/2012 (EMIR)99 or the Securitisation Regulation, supra, → para. 42 et seq.) provides for supervisory requirements whose supervision is already assigned by the SSMR to the ECB. Art. 4 EMIR stipulates clearing obligations and provides for the possibility to exempt intra-group transactions from these clearing obligations. Is this in respect of significant credit institutions a task of the ECB or the relevant NCA? The obligation of financial counterparties – including significant credit institutions – to clear certain OTC derivatives contracts can be set aside for intragroup transactions if such OTC derivatives contracts are concluded between a credit institution and another counterparty which is included in the same consolidation on a full basis and which is, together with the credit institution, subject to appropriate centralised risk evaluation, measurement and control procedures. The counterparties must notify the relevant competent authorities of their intention to use such intra-group exemption, whereas these competent authorities have 30 days to object to the use of this exemption. Pursuant to Art. 11 EMIR, financial counterparties that enter into OTC derivatives contracts which are not cleared are subject to certain risk mitigation requirements. Under one of these requirements, financial counterparties are required to have “risk-management procedures that require the timely, accurate and appropriately segregated exchange of collateral” (Art. 11(3) EMIR). This obligation relates purely to the risk management of OTC derivatives transaction and does not touch upon the operation of cen97 The tasks to carry out the FOLTF assessment in respect of SIs is with the ECB based on Art. 4(1)(f) SSMR. 98 For this argument see CJEU, Case C-300/89, Commission v Council, ECLI:EU:C:1991:244. 99 Regulation (EU) No 648/2012 of the European Parliament and the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories, OJ L201, 27.7.2012, p. 1.

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tral counterparties (CCPs) or effectiveness of clearing. There is, however, also an intragroup exemption possible from this obligation if certain conditions are met. 80 The rationale for these exemptions is to allow for privileged intragroup transactions when necessary for aggregating risks within a (banking) group structure and managing these risks on a consolidated basis (e.g. interest rate risk or foreign exchange risk is incurred in banking subsidiaries, but aggregated and managed by a centralised group treasury). Submission of such transactions to the clearing obligation or an obligation to exchange collateral may limit the effectiveness of those intragroup risk-management processes. 81 Consequently, these provisions could be seen as relating to prudential supervision, which would mean that their supervision is a task of the ECB for significant credit institutions. Nevertheless, a competence of the ECB would be excluded if these provisions were part of carrying “out the function of competent authorities over credit institutions in relation to markets in financial instruments”, see Recital 28 SSMR. This would be the case if EMIR as a whole were to be interpreted as a product and market related regulation so that consequently the ECB cannot be competent to apply even certain parts of it. However, EMIR includes certain provisions which rather relate to monitoring and mitigating operational risk and counterparty credit risk, risk management procedures or holding of sufficient capital and relate therefore to prudential aspects for which the task to supervise them was already conferred on the ECB. As EMIR confers such competences on prudential authorities100 and not to authorities responsible for the supervision of the markets in financial instruments one may even conclude that EMIR itself differentiates. And as prudential tasks, granting the above exemptions is a task assigned to the ECB.

C. Home/host relations (Art. 4(2)SSMR) I. General features of the supervisory regime for branches and cross-border services 82

Primary law guarantees the freedom of establishment, i.e., the right of credit institutions to set up branches in other Member States from which to conduct their business in the territory of that Member State (Art. 49 TFEU). Primary law also guarantees the free movement of services, which includes the right of credit institutions to conduct business across borders without a physical presence in the territory of the target Member State (Art. 56 TFEU). This principle entails the removal of barriers, such as licensing requirements. For this purpose, Union law has, since 1990,101 embraced the concept of the “European passport”: Credit institutions authorised in one Member State may carry out their business in all other Member States, both by means of branches and through cross-border provision of services, relying solely on their home Member State authorisation without the need for additional local authorisations; those local authorities only need to be informed (see infra, → para. 84). The principle has been included also in the CRD, making use of the legal basis provided by Art. 53 TFEU.

100 See Art. 2(13) EMIR in combination with Art. 2(8) EMIR which refers to the CRD when defining competent authorities in respect of credit institutions. 101 The principle was introduced by the Second Council Directive 89/646/EEC of 15 December 1989 on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions and amending Directive 77/780/EEC, OJ L386, 30.12.1989, p. 13.

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This principle extends to the entire European Economic Area (not just the Union) and covers, both via the establishment of branches and via cross-border provision of services, a broad range of activities, which Union law summarises under the heading of mutual recognition.102 It does not extend to the setting up of subsidiaries, which – owing to their legal personality, which is distinct from the parent company – need to be licenced by the competent authority of the Member State in which they are set up which is for the euro area now the ECB. It does not extend to representative offices either: The CRD requires neither a permission nor a notification for the opening of representative offices. Some national laws do, however; where such a permission requirements is established; the ECB would be competent to grant the permission to open a representative office (assuming that such permission requirement is in line with the freedom of establishment under Art. 49 TFEU, which may be doubtful). The delineation between branch and representative offices follows the principle that a branch conducts, in itself, banking business (i.e., engages in activities requiring authorisation as a credit institution), whereas the representative office engages only in preparatory activities ahead of actual banking business (e.g. establishment and maintenance of client contacts, public relations and research). The precise line may be blurry at times. The supervisory powers of host Member State supervisors over the activities of branches of EEA credit institutions in their territory or the cross-border activities carried out by EEA credit institutions in their territory, are severely limited. 103 Nevertheless, host supervisors still have a legitimate interest in being aware of such activities in order to assess the potential effects on the financial stability of their economies. For this reason, the European passport replaces the need for a local authorisation in the target Member State with a notification procedure: Credit institutions which wish to avail themselves of the European passport are still required to notify (indirectly) the host supervisors of their intention to open a branch or provide cross-border services in a formalised procedure. The legal regime thus strikes a balance between freedom of establishment and services on the one hand and the need for (reduced) host authority involvement on the other hand. Moreover, the national authorities may enforce provisions based on the general good (other than rules of prudential supervision), Art. 36(1) CRD. The interpretation of this provision is best informed by the case law on the considerations which Union law accepts as restrictions on the fundamental freedoms under primary law. This passporting regime is spread over a variety of legal acts and provisions which follow the same logic but govern different scenarios which should not be confused:

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II. Intra-SSM relations (Art. 17(1) and (2) SSMR) Art. 17(1) SSMR, further elaborated upon by Arts. 11 and 12 of the SSM‑FR, provides 87 for the intra-SSM passporting regime, i.e. for situations where a bank from one SSM participating Member State wishes to set up a branch or to provide cross-border services in another SSM participating Member State. In such situations, the credit institution is required to notify its home NCA. The home NCA will inform the ECB. In the case of cross-border provision of services (Art. 12 SSM‑FR), the NCA will also inform the NCA of the target Member State of this notification. In the case of branches, the ECB (in case of significant institutions, Art. 11(3) SSM‑FR) or the NCA of the home Member State (in case of LSIs, Art. 11(4) SSM‑FR) has an opportunity to oppose the establishment of the 102 103

See Arts. 33, 36, 39, Recital 19 and Annex I CRD. Art. 49 CRD.

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branch within two months from the notification. If no such objection is raised, the ECB (in case of significant credit institutions) shall communicate this information to the NCA of the participating Member State where the branch will be established (Art. 11(3) SSM‑FR). Such oppositions are, owing to their character as interferences with the principles of the internal market, rare. The criteria which would allow such an opposition have to be developed from the material supervisory law and would be reserved for exceptional cases where the business of the branch would, in the judgment of the home supervisor (ECB for SIs and NCA for LSIs) endanger the sound management of the bank or create severe risks that would justify the objection. If the ECB were to object, it would have to adopt a supervisory decision in a non-objection procedure.

III. Inward perspectives 1. From non-SSM EEA to SSM (Art. 4(2) SSM‑FR) 88

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Art. 4(2) SSM‑FR deals with the perspective of banks from non-SSM EEA countries which wish to provide cross-border services or open a branch in an SSM participating Member State. It refers to “relevant Union law”, the sedes materiæ of which is, in this case, Arts. 33-39 CRD. The details and necessary adjustments to take account of the structure of the SSM are provided by Arts. 13, 14 and 15 SSM‑FR. The procedure runs as follows: The non-SSM bank submits a notification of its intention to its home competent authority. This authority forwards the notification to the NCA of the target Member State (Arts. 13(1) and 15 SSM‑FR). This NCA informs the ECB (Arts. 13(1) and 15 SSM‑FR). The future competent authority within the SSM shall then prepare to supervise the branch, Art. 13(2) SSM‑FR; this will be the ECB for branches which meet a significance criterion (see → Art. 6 SSMR) and the NCA for branches which do not. This interaction is exemplary for a basic feature of the SSM: It was grafted upon pre-existing European banking law but has a more restrictive geographic scope (participating Member States as opposed to the entire EEA). As a consequence, the rules of non-SSM banking legislation continue to apply in the relation between the SSM and the non-SSM EEA in much the same way as they did before the start of the SSM in between all EEA countries. A separate passporting procedure is necessary for each SSM participating Member State in which the non-SSM bank wishes to commence activities; there is no unified passporting into the entire SSM at once. A relevant issue that, because of Brexit, received increased attention is whether a credit institution located in a Member State can use a branch established in a third country in order to provide cross border services to another Member State to which the institution has passported cross-border services. Can, for example, a credit institution established in Germany (which may be the newly established subsidiary of a credit institution established in the UK) use its UK branch (third country branch) to provide services to clients in France to which it has “passported” its services (cross-border services)? The fact that the branch in the third country is an integral part of the credit institution that has “passported” its services could be an argument in favour of allowing the provision of services from a third country under the EU passport. On the other hand, a number of arguments support that such services are not covered by the passport. The freedom to provide services (Art. 56 TFEU) prohibits restrictions for cross-border services within the Union. The passporting regime of the CRD implements this specifically 66

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for the banking sector. Interpreting the passporting regime in light of this Art. 56 TFEU may lead to the conclusion that services from a branch in a third country to clients in a Member State to which the credit institution has “passported” its activities are not within the scope of this regime. The purpose of Art. 56 TFEU is to create a privilege for cross-border services provid- 94 ed within the Union. Only services provided from within the Union and by a national of a Member State104 may claim the privilege of unrestricted access to EU markets. While a branch is not a separate legal entity but part of the entity that established it, it nevertheless is subject to the supervision of and has to comply with the prudential provisions in a third country. In some countries the branch is therefore also for supervisory purposes deemed to be a separate credit institution by means of a legal fiction. Consequently, it can be argued that services provided from a branch in a third country are not such services within the Union.

2. From non-EEA to SSM (Recital 28 SSMR) According to Recital 28, the supervision of branches or cross-border provision of 95 services of non-EEA credit institutions in the SSM remains a competence of the NCAs. “Supervision” in this sense also includes authorisation of the host Member State, where required. Substantive Union law is silent about branches of third country credit institutions – 96 likely as their treatment was seen as an element related to foreign affairs of the relevant Member State. In particular, it does not stipulate an authorisation requirement for them. The only clear provision in Union law on the matter is Art. 47 CRD; according to its first paragraph branches of credit institutions having their head office in a third country (branches from third countries) must not receive treatment which is more favourable than that applied to banks from other EEA countries. It follows that national legislation must require at least a passporting procedure before third country banks may establish a branch or provide cross-border provision of services in the territory of an EEA Member State. In practice, national legislation typically provides for an authorisation requirement.105 Such authorisations are granted (or revoked) by the NCAs in accordance with their relevant national law. Since end-2020, the CRD requires Member States to establish certain reporting requirements for branches from third countries and obliges competent authorities to provide certain information about these branches to the EBA in order to avoid that branches from third countries remain a black box. These principles apply only to branches and cross-border provision of services. 97 Subsidiaries of non-EEA institutions in the SSM are themselves credit institutions established in the participating Member States and require an authorisation granted by the ECB in accordance with Arts. 4(1)(a) and 14 SSMR.

104 Or a third country to which the freedom to provide services was extended pursuant to Art. 56(2) TFEU. 105 E.g. Section 53 KWG (German Banking Act), which provides for an authorisation requirement for branches of foreign banks in Germany; section 53b of the KWG, which constitutes the German transposition of the CRD passporting regime, reduces this requirement to a mere passporting (notification) requirement for EEA banks.

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IV. Outward perspectives 1. From SSM to non-SSM EEA (Art. 4(1)(b) SSMR) 98

Art. 4(1)(b) SSMR deals with the mirror image of Art. 4(2) SSMR. In this scenario, a bank from an SSM participating Member State wishes to establish a branch or to provide cross-border services in a non-SSM EEA country. Arts. 33-39 CRD apply, with the necessary SSM-specific adjustments made by Art. 17 SSM‑FR: The notification to the home authority is sent to the NCA as an entry point, irrespective of the significance of the credit institution. In case of LSIs, the NCA exercises the role of home competent authority as provided for in the CRD (and interacts in this capacity with the competent authority of the target Member State); for significant institutions, this role is exercised by the ECB, which is informed by the NCA about the receipt of the notification.

2. From SSM to non-EEA Credit institutions established in a participating Member State which wish to establish branches or provide cross-border services into non-EEA countries will have to abide by the local legislation in place in the target jurisdiction. The European passport can and does not extend outside the EEA. If the local legislation of the host State requires an authorisation, then it is the credit institution’s own responsibility to obtain the necessary authorisation from the supervisory authority of this jurisdiction. 100 From the perspective of Union law, a European bank does not require an authorisation of its home Member State to conduct such activities in third countries. However, some national laws provide for such a requirement. In such cases, these national provisions will be honoured in the SSM: LSIs will, thus, have to obtain such an authorisation from their respective NCA and significant institutions from the ECB, which will apply the national legislation in question (see annotations to Art. 4(3) SSMR infra, → para. 109 et seq.). The same applies to the national legislation of SSM participating Member States, which (as is neither required nor prohibited by the CRD) require credit institutions to obtain supervisory permission for the opening of representative offices in third countries. 99

D. The law to be applied by the ECB (Art. 4(3)(1) and (2) SSMR) I. The term “relevant Union law” 101

The SSMR uses the term “relevant Union law” to describe the legal acts which the ECB shall apply (in contrast with the legal acts which the ECB itself adopts in the application of this “relevant Union law”). The term is neither defined in the SSMR nor the SSM‑FR but it covers regulations as well as directives. This provides flexibility for future legislators, who may decide to adopt new acts in the area of prudential supervision currently not foreseen or envisaged. One may draw from Recital 34 to interpret the term “relevant Union law” as “the material rules relating to the prudential supervision of credit institutions”. They are, most importantly, laid down in the CRR, the CRD, the BRRD, the SRMR, and the tertiary law acts adopted on their basis (such as Commission delegated acts, etc.). However, other acts which deal primarily with matters beyond prudential supervision may also, peripherally, include rules relating to the prudential supervision of credit institutions and thereby relevant Union law (see supra, → para. 77 et seq. on EMIR). A good indicator for the status of “relevant Union law” is if the act in 68

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question provides for a role of the “competent authority” as defined in Art. 4(1)(4) CRR; this role is assigned to the ECB, for significant institutions, by Art. 6(4) SSMR. 106 Applying this relevant Union law is only a task of the ECB if this is covered by one of the tasks conferred upon it in the SSMR. This leads to a somewhat circular reasoning, since several of the tasks listed in 102 Art. 4(1) SSMR refer to “the acts referred to in the first subparagraph of Article 4(3)” and thus back to “relevant Union law”, or directly to “relevant Union law”. This tautology can be resolved if one considers the wide scope of the catalogue of Art. 4(1) SSMR and the wording of Recital 34 SSMR: If an act of Union law relates to the prudential supervision of credit institutions (which would have to be determined by means of statutory interpretation107), then it is “relevant Union law” and applied by the ECB for significant institutions, unless otherwise provided for, especially in Recital 28 SSMR. The provision in Art. 4(3)(1) SSMR according to which the ECB is mandated to apply 103 the relevant Union law should be read in conjunction with Art. 9(1) SSMR. According to this provision, the ECB shall be considered to be the competent or designated (this term is of relevance in macro-prudential matters, see Art. 5 SSMR) authority in the participating Member States as established by the relevant Union law and have all the powers and obligations assigned to these authorities by the relevant Union law; this covers consequently powers provided for in regulations like the CRR and powers envisaged by directives like the CRD. The conjunction between Arts. 4(3) and 9(1) SSMR is therefore a regime of allocating a role to the ECB: Where relevant Union law uses the term “competent authority” or “designated authority” for the purposes of banking supervision, that term should be read as, and replaced with, “the ECB” as far as the ECB’s tasks under Arts. 4 and 5 SSMR are concerned.

II. Application of Union regulations (especially CRR) and the national exercise of options provided therein In situations where the relevant Union law consists of regulations, this mandate for 104 the ECB to apply the relevant Union law does not pose further questions. Regulations are directly applicable within the Member States and their legal systems,108 and partake in the supremacy of Union over national law. The CRR introduced a special feature on the use of regulations in Union law: options 105 for national legislators to deviate from the regulation (regulations with options).109 A number of provisions in the CRR provide Member States with (a) the possibility to choose between several available options, or (b) the discretion to prescribe a particular supervisory treatment deviating from the treatment envisaged in the CRR. In these

106 This rule of thumb has to be applied with caution, however, as the terminology in Union law is somewhat confusing: A number of other acts also use the term “competent authority” without intending to refer to the banking supervisor; examples include Arts 4(1)(26) and 67 MIFID II (where it means the securities supervisor). 107 For the substantive content of the term see Lackhoff, The Single Supervisory Mechanism (2017), paras. 106-130. 108 Art. 288(2) TFEU. 109 The CRR knows two types of options: (a) options for national legislators and (b) options for supervisory authorities. In the context of Art. 4(3) SSMR only the options provided for national legislators are relevant. If the CRR provides an option or discretion for the competent authority, the ECB may exercise it if it is competent. There is, however, no meaningful distinction between an “option” and a “discretion” in the present sense; see Giovanni Bassani, The Legal Framework Applicable to the Single Supervisory Mechanism (2019), pp. 137-138.

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cases, the exercise of this option or discretion by the national legislator becomes binding on and applicable by the ECB. 106 This applies, however, only to options and discretions granted by the Union regulation to the legislators in the Member States. A number of other provisions attribute this option or discretion to the competent authority. National competent authorities may exercise them case by case or in a general manner within their administrative powers. In these cases, it is within the remit of the ECB’s tasks under Art. 4(1) SSMR to exercise these options for significant credit institutions. The ECB has done so by means of a regulation adopted by itself under its power to adopt Regulations (Art. 4(3)(2) and (3) SSMR) for some of the options assigned to competent authorities.110 This regulation is a Union law regulation within the meaning of Art. 288(2) TFEU111 and is thus of direct applicability to significant credit institutions. If the Member State had adopted a national statute which purports to exercise the CRR option envisaged for competent authorities, this statute would be incompatible with Union law (because it exercises an option not attributed to the Member State’s legislators and therefore contradicts the CRR) and would become inapplicable by virtue of the primacy of Union law. The ECB would not be bound to apply it; in light of the principle of supremacy of Union law also NCAs should – like national courts112 – not to be obliged to follow national law contradicting directly applicable Union law.113 107 As far as less significant credit institutions are concerned, the NCAs carry out the supervision. Nonetheless, the ECB can exercise its power under Art. 6(5)(a) SSMR to issue regulations, guidelines or general (but not individual, i.e. case-specific) instructions to NCAs governing the supervision of LSIs. It has made use of this power.114 108 The duty of the ECB to apply Union regulations extends also to the SSM‑FR (SSM‑FR; see the annotations to Art. 6(7)); this regulation may cover content wise the scope determined in the SSMR. The bindingness of the SSM‑FR on the ECB follows from its status as a Union regulation, i.e., an act of direct and general applicability. The legally binding effect is thus not the result of a mere indirectly binding self-commitment on the basis of the principle of legitimate expectations, which can be overcome if cir-

110 Regulation (EU) 2016/445 of the ECB of 14 March 2016 on the exercise of options and discretions available in Union law (ECB/2016/4), OJ L78, 24.3.2016, p. 60. Currently (June 2021) the ECB is in the process of reviewing this regulation because of the changes made to the CRR by CRR2. For options and discretions not exercised in this regulation, the ECB has provided its stance in a guide (which is currently also under review), see ECB Guide on options and discretions available in Union law – Consolidated version, November 2016, https://www.bankingsupervision.europa.eu/ecb/pub/pdf/ond_guide_consolidat ed.en.pdf?b25f5581d5a00743a99da8af78899056 (last accessed 30.06.2021). 111 And, with identical content, Art. 132(1), first indent, TFEU and Art. 34(1), first indent, ESCB Statute. 112 CJEU, Case C-555/07, Kücükdeveci, ECLI:EU:C:2010:21; CJEU, Joined Cases C-188, 189/10, Aziz Melki and Sélim Abdeli, ECLI:EU:C:2010:363. 113 See CJEU, Case C-5/89, Commission v Federal Republic of Germany, ECLI:EU:C:1990:320, paras. 18 et seq. requiring non-application of a Member State’s law that is not in line with the state aid regime of the Treaty as it makes the recovery of unlawful state aid “practically impossible”. 114 Examples are the Guideline (EU) 2017/697 of the ECB of 4 April 2017 on the exercise of options and discretions available in Union law by national competent authorities in relation to less significant institutions (ECB/2017/9), OJ L101, 13.4.2017, p. 156; the Recommendation of the ECB of 4 April 2017 on common specifications for the exercise of some options and discretions available in Union law by national competent authorities in relation to less significant institution (ECB/2017/10), OJ C120, 13.4.2017, p. 2. Such ECB Guidelines are legally binding on the NCAs; this constitutes, in spite of the similarity in terminology used, an important difference to the “guidelines and recommendations” adopted by the EBA on the basis of Art. 16 EBAR, which carries only a comply-or-explain effect.

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cumstances justify.115 It would be incompatible with the rule of law to allow the ECB to deviate from its own SSM‑FR on a case-by-case basis. However, in case of need the ECB may amend the SSM‑FR.

III. Application of national legislation transposing Union Directives 1. Conceptual matters Art. 4(3) SSMR also mandates the ECB to apply, for the purposes of carrying out its 109 tasks under the SSMR, the national legislation transposing Union directives where the relevant Union law consists of directives. The background for this provision lies in the fact that prudential law is only to a limited extend unified by means of regulations while a substantial part is (only) harmonised by the CRD, which requires national transposition. Insofar no “single rulebook” in the meaning of a uniform codification exists. Consequently, the ECB as single supervisor cannot apply a single prudential law but has to apply (a) the CRR (and other regulations containing prudential provisions falling within the tasks conferred to the ECB) and (b) the national laws transposing the CRD (and other directives containing prudential provisions falling within the tasks conferred to the ECB).116 This is a peculiar situation in Union law: A European institution needs to adopt binding legal acts (ECB decisions) on the basis of, and applying, national rather than European law.117 Nonetheless, the decisions which the ECB adopts on the basis of national legislation are Union law decisions within the meaning of Art. 288(4) TFEU.118 They are binding on their addressees, the limits on the exercise of discretion follow Union rather than national administrative law,119 and judicial review lies with the CJEU exclusively,120 from whose perspective the question whether the national law was cor-

115 CJEU, Case T-149/95, Etablissements J. Richard Ducros v Commission, ECLI:EU:T:1997:165, para. 61; CJEU, Case T-380/94, AIUFASS and AKT v Commission, ECLI:EU:T:1996:195, para. 57; CJEU, Case T-214/95, Het Vlaamse Gewest v Commission, ECLI:EU:T:1998:77, para. 89. This approach is not unknown to the ECB either; see, as a notable example, the “ECB Guide on options and discretions available in Union law” cited in fn. 110. This “Guide” is not legally binding in a strict sense, but it may lead, as described in the text, to a self-commitment about the future exercise of the ECB’s discretion under the Union law provisions on which the Guide elaborates. It is thus of a legal nature which is distinct from the ECB “Guidelines” addressed to NCAs and EBA “Guidelines” addressed to competent authorities (and the latter two also differ from each other, as mentioned supra, → para. 144 et seq.). The confusing terminology can only be called unfortunate in this regard. 116 Case law of the Court of Justice acknowledges a direct applicability of Directives (as opposed to Regulations) only to a limited extent; they can typically not be relied on to derive obligations for private parties, as is objective of banking supervision. As a consequence, the national transposing legislation is the only reliable way to make the Directive applicable by the ECB. 117 For a doctrinal explanation of the phenomenon see Witte, MJ 21 (2014), 89. See also Lackhoff, The Single Supervisory Mechanism (2017), para. 423 et seq., 425, 426, 429, and 1086. 118 And, with identical content, Arts. 132(1), second indent, TFEU and 34.1, second indent, ESCB Statute. See also Lackhoff, The Single Supervisory Mechanism (2017), para. 430 et seq. and 448 to 455. 119 On the issue which procedural law the ECB has to apply see in more detail Lackhoff, The Single Supervisory Mechanism (2017), para. 462 et seq. 120 Witte, in: European Central Bank (ed), ESCB Legal Conference 2016 (2017), 247, at pp. 250-251; Witte, Europarecht Beiheft 1 (2017), 29, at pp. 37-38; Witte, in Zilioli and Wojcik (eds), Judicial Review in the European Banking Union (2021), at paras. 15.02-15.05. See also Lackhoff, The Single Supervisory Mechanism (2017), para. 1086.

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rectly applied constitutes a question of law, not a question of fact.121 A specific issue arises if national law transposing a prudential directive (like CRD) does transpose the directive incorrectly. For national law that contradicts directly applicable Union law (e.g. CRR), it can be argued – following the principle of supremacy of the Union law and the obligation to comply with Union law – that the ECB may not apply such provisions. The issue is more complex in case of directives. If the conditions for a direct applicability of directives are met and no negative effect is resulting from such application for private parties, then it may be argued that the same as in case of a regulation applies, i.e., the national provision becomes inapplicable. Otherwise the ECB may consider whether a harmonious interpretation of the national transposition in line with the directive is possible. If this is not the case, the ECB should consider not to apply national law that aims to transpose a directive but is not in line with that directive, provided that the application of such national law would negatively effect the rights of a credit institution.122

2. National legislation The term “national legislation” is broad; it comprises any act of general (as opposed to case-specific) application, provided it is legally binding. The latter criterion excludes non-binding pronouncements made by national authorities. Such documents are frequently used in banking supervision; practical examples include the “circulaires” issued by the CSSF in Luxembourg, or the Mindestanforderungen an das Risikomanagement (MaRisk) issued by BaFin in Germany. Even though such documents are, as a matter of practice, often adhered to in a way similar to laws by both supervisors and credit institutions alike, they are not binding legal acts (although they have a self-binding effect on the issuing authority) and can therefore not constitute a transposition of a Directive.123 The ECB is not bound to apply them. Whether a particular document possesses the legal bindingness required for being considered as transposing a directive has to be determined by reference to the effect given to it by the national legal system. 124 111 The hierarchical rank of the act within the national legal system is irrelevant. The Member States can transpose directives by means of acts of Parliament or secondary legislation which are based on acts of Parliament (“regulations”, “decrees” or whatever the term in the national legal terminology). In exceptional cases, even a constitutional provi110

121 Prek and Lefèvre, CMLR54 (2017), 369, at pp. 380-381. This would also mean that where (as is normally the case for actions of annulment) the case is heard by the General Court at first instance, the correct interpretation of national law is reviewable by the Court of Justice upon appeal, unlike questions of fact. Nonetheless, Prek and Lefèvre argue, owing to the lack of familiarity of CJEU judges with national (as opposed to Union) law, for an increased level of party involvement in the determination of national law, implying a degree of modification of the iura novit curia principle. As to the interpretation of national law, it would appear that the General Court and Court of Justice are bound by the interpretation given to the national statute by the national courts: Prek and Lefèvre, ibid. at fn. 94 and accompanying text. It is further remarkable that this article assumes that the Court can review the application of national law by the ECB, see at p. 381 subject to an obligation of the Court to take into account the interpretation of the relevant national law by the national courts, at p. 388. 122 CJEU, Case C-384/17, Link Logistics, ECLI:EU:C:2018:810, para. 61 which refers to national courts. 123 This is well-established in the case law of the Court of Justice to determine whether a Member State has complied with its obligation to transpose a Directive; see e.g. CJEU, Case C-361/88, Commission v Germany, ECLI:EU:C:1991:224. See on the quasi binding effect of non-binding legal acts also Riso and Lackhoff, ‘C. Dividend Recommendation’, in: Lackhoff (ed), Banking supervision and COVID-19 (C.H. Beck/Hart/Nomos, Munich/Oxford/Baden-Baden 2021), part 2, C, para. 33. 124 This has the consequence of precluding purely formalistic approaches. For instance, the designation of a document as a “circular” will typically indicate a lack of bindingness, because this is the meaning within which that term is normally used. Exceptions exist, however; in Spain, for instance, Banco de España possesses the ability to issue “circulares” with binding legal effect which qualify as Directive transpositions for the purposes of Art. 4(3) SSMR.

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sion may qualify as a directive transposition. It does not matter either whether the national law establishing a supervisory task and granting a supervisory power speaks, when assigning the task and power, of the “competent authority” in the abstract or rather lists the authority by name (as is typically the case for statutes which were adopted before the establishment of the SSM and have not been amended since). Such statutes often explicitly refer to the then (national) competent authority by name, when determining the competent authority. If the national statute meets the conditions for direct application by the ECB (see infra, → para. 112 et seq.), it will be applied by it as commanded by the SSMR, i.e. by virtue of Union law, and the ECB will read references to the national competent authority in the statute as references to itself, Art. 9(1) SSMR.

3. Transposing Union Directives Under Art. 4(3) SSMR, the ECB is not supposed to apply national legislation in gen- 112 eral, but only those provisions of national legislation falling in the scope of its tasks which transpose a directive of relevant Union law – most importantly the CRD; to a lesser extent also the BRRD and other directives establishing prudential rules 125. This creates the need to identify whether and to what extent a particular national provision which the ECB is thinking of applying can actually be said to constitute a transposition of a directive that establishes prudential rules (directive transposition) falling within the scope of tasks conferred (by Art. 4(1) SSMR) on the ECB. 126 Whether a national provision is the transposition of a provision of a directive is 113 not always obvious. In many cases, national legislators do not transpose a directive by adopting a new statute which, in wording and structure, closely mirrors the directive, but rather integrate or incorporate it into existing national statutes, which in turn exist within the context of the broader environment of a country’s laws, unwritten legal traditions and interpretative approaches.127 In principle it is well within the Member State’s discretion to choose the form and method of transposition.128 In some cases Member States already have legislation in place which, in substance, conforms to the directive, and consequently adopt no new measures even though the wording in national law may differ from the directive text; such legislation is nevertheless a transposition of the directive as it achieves the purpose pursued by the directive.129 Apart from these rather formal aspects, also substantive aspects may raise the 114 question whether a national provision is the transposition of a directive. Are for example provisions of national law which transpose provisions of a prudential directive (like the CRD) but go beyond what is required by the directive (gold-plating) part of the law to 125 On the issue what is prudential supervision see Lackhoff, The Single Supervisory Mechanism (2017), para. 106 et seq. 126 Such a need to determine whether a national prudential provision is the transposition of a directive does not exist if one concludes that a comprehensive view of the SSMR supports the interpretation of Art. 4 SSMR that the entire prudential supervision of significant credit institutions is conferred on the ECB, see Lackhoff, The Single Supervisory Mechanism (2017), para. 95 et seq. 127 See Witte, in: European Central Bank (ed), ESCB Legal Conference 2016 (2017), 247 for the conceptual and practical difficulties which can complicate the determination whether a particular national provision transposes a directive, and also for an explanation why existing case law is of only limited usefulness for the clarification of this issue. Likewise, the problem is not entirely solved by the practice of many Union directives to require Member States to include references to the directive in their national statutes transposing it. 128 Art. 288(3) TFEU. See also Kotzur, in: Geiger, Khan and Kotzur (eds), European Union Treaties (2015), TFEU Art. 288 para. 11 for the – well-established – case law on the limits to the discretion of Member States in choosing their respective transpositions. 129 This has been confirmed as lawful in CJEU, Case C-248/83, Commission v Germany, ECLI:EU:C: 1985:214, para. 49.

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be applied by the ECB? If this were not the case, national competent authorities would remain competent to supervise the compliance of significant credit institutions in respect of the “gold-plated” rules. That such “gold-plated” rules are part of the substantive law which the ECB has to apply is in line with Art. 4(3) SSMR. This provision provides also that national rules making use of the options under the CRR shall be applied by the ECB. The same should apply with regard to gold-plating in respect of the directives like the CRD. While gold-plated rules go beyond the mere transposition of the directive, they still transpose the directive, as within the gold-plated rules the (minimum) requirements of the Directive are also transposed. 115 Even more pressing is the question whether national provisions are transposing a directive with regard to national provisions that pursue a prudential purpose but are not explicitly envisaged in (for example) the CRD.130 The issue is here even more relevant as one could argue that national provisions that are not transposing directives shall not be applied and accordingly also do not fall within the scope of the tasks (and powers) conferred on the ECB (see also infra, → para. 116 et seq.). Examples for national provisions that pursue a prudential purpose but are not explicitly envisaged in the CRD or another directive setting prudential standards include a wide range of pre-approval requirements according to which activities or transactions conducted by credit institutions which are considered to have potentially a severe impact on its prudential requirements must be approved ex ante. This may, for instance, be the case for mergers with another bank or de-mergers whereby some activities are split off into a separate legal entity,131 for the establishment of branches in third countries or for changes to a bank’s articles of association.132 Such pre-approval requirements are not mandatory under Union law, and, consequently, not all Member States have them. They are an example for national powers, i.e. prudential powers based on national law not predetermined by Union directives. 116 In essence, two extreme approaches are conceivable to determine whether such provisions constitute a directive transposition: 117 a) A narrow approach, according to which only supervisory instruments explicitly foreseen in the text of the Union directive in question are transpositions of Union law. Under this interpretation, the pre-approval requirements given as examples above would not be directly applied by the ECB (in the sense of adopting an ECB supervisory decision based on the national statute) since they are not mentioned in the text of the CRD.133 In this context it is partially argued that provisions on prudential powers not explicitly envisaged in a prudential directive do not qualify for direct application by the ECB but would be subject to the power of the ECB to issue instructions to the NCA concerning the granting or refusal of such approval, to the extent such instructions are necessary for carrying out the ECB’s tasks under the SSMR.134 Such instructions would be legally 130 This is the so called national powers discussion in respect of which the ECB has sent to each significant credit institution two letters (dated 31.3.2017 and summer 2016) clarifying which powers granted under national law that are not explicitly mentioned in Union law are exercised by the ECB in respect of significant credit institutions. 131 E.g. Art. 57 decreto legislativo 385/1993 (Italian Banking Act) or Art. 77(3) Loi relative au statut et au contrôle des établissements de credit (Belgian Banking Act). 132 E.g. Art. 56 decreto legislativo 385/1993 (Italian Banking Act). 133 One could attempt to argue that such pre-approval powers are transpositions of Art. 104(1)(b) CRD, aimed to reinforce the governance arrangements of the bank. However, the wording “require the reinforcement” is more reminiscent of an ex post intervention power rather than an ex ante pre-approval power. 134 Art. 9(1)(3) SSMR and Art. 22 SSM‑FR.

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binding on the NCA and can limit the discretion of the NCA potentially available under national law, up to the point of leaving the NCA no discretion but to issue or deny approval as instructed;135 they would thus amount to a type of indirect application of the national law by the ECB. However, another position would be to conclude that such national provisions would not at all be within the tasks conferred on the ECB as they are not transposing a relevant directive and Art. 4 SSMR (in particular (e) thereof) refers to the relevant Union law for determining what tasks are assigned. Consequently, the ECB would, according to this view, not be competent to apply them, not even by instruction. b) A wider approach, according to which any provision relating to the subject matters of the prudential directives is considered to be a transposition of relevant Union law and thus falling within the scope of the tasks assigned to the ECB by Art 4 SSMR and consequently directly applicable by the ECB for significant banks. This would mean, for the examples cited above, that applying the pre-approval provisions of national law would be within the tasks conferred on the ECB if they relate to an area covered by the CRD (and based on Art. 9 SSMR one may also conclude that this power is also conferred on the ECB). Both positions have shortcomings.136 The wide approach takes a very extensive reading of the concept of “transposition of a (prudential) directive” that goes beyond the actual wording of that directive. The narrow approach is difficult to reconcile with the telos of Arts. 104(1) and 64(1) CRD, which indicate that the powers explicitly listed in the CRD are not exhaustive and that the Member States are free to add additional supervisory powers they deem necessary for the exercise of the supervisory function; this would not be a case of gold-plating as that term is often derogatorily used, as the CRD explicitly foresees this freedom to add supervisory powers, but rather a case of the CRD’s appeal to national legislators to equip competent authorities with the powers necessary to achieve the objectives of prudential supervision. In order to determine which national provisions can be seen as transposition of prudential rules of a directive although not explicitly pre-formed by the directive, the objectives pursued by the SSMR may provide guidance (a teleological interpretation). The context of Art. 4(1) SSMR suggests that the intention of the legislator was to centralise comprehensively the supervision of significant credit institutions with the ECB. Also Art. 1(2) SSMR and Recitals 12 and 34 SSMR point in this direction and delineate the tasks conferred on the ECB against other tasks and by implication support the argument that the prudential supervision is comprehensively conferred on the ECB (supra, → para. 17). The fact that the universe of prudential provisions is then identified with the rules in Union law and national law implementing directives or making use of legislative options may result from the misleading idea that this creates the single rulebook and that the single rulebook is comprehensive. In reality in addition to these rules of prudential supervision further purely national rules of prudential supervision exist. Another consideration to keep in mind is the need to avoid a split of competences which would arise in addition to the split that already results from the exclusion of certain areas from the ECB’s tasks. Take as an example the German provisions on resolutions on large exposures by which the German legislator, going beyond the CRR, requires in respect of large exposures that certain resolutions are adopted by the management board of the credit institutions (see supra, → para. 19). 135 In practice, this would amount to a two-step procedure for the application of substantive law: An ECB instruction to the NCA under Union law, followed by an administrative act of the NCA under national law in fulfilment of the instruction. See Witte, MJ 21 (2014), 89, at p. 98. 136 For a discussion of the two positions, see Witte, in: European Central Bank (ed), ESCB Legal Conference 2016 (2017), 247.

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This teleological approach would result in a three-pronged test as a set of cumulative criteria to determine whether a national prudential provision is to be applied by the ECB. A particular national provision (e.g. giving a power to the competent authority) would have, firstly, to fall within the remit of the ECB’s tasks. This means that it must be a prudential task.137 This requires that the provision in question must have a sufficiently close link to prudential banking supervision. Not every legal provision existing in national law which concerns credit institutions is to be applied by the ECB, but only those tasks which can be said to be prudential in nature. This is a qualitative test; reference would have to be made to the particular objectives of the national provision in question (i.e., whether it is aimed at ensuring that credit institutions manage their risks in a sound manner and that the risks to which credit institutions are exposed are sufficiently covered; this excludes, for instance, provisions which have a market conduct angle). Secondly, the provision may not relate to a task not conferred on the ECB, especially not one listed in Recital 28 SSMR as excluded from the conferral of competences. Thirdly, the credit institution in question must be a significant one, since the supervision of LSIs, including the adoption of supervisory decisions, is reserved for the NCAs as far as LSIs are concerned, with the exception of qualifying holding and authorisation/withdrawal procedures.138

IV. Application of tertiary law (Art. 4(3)(2) SSMR) Many of the secondary law acts of relevant Union law (especially CRR and CRD) provide for legal bases for the adoption of tertiary law acts. Such acts may spell out the details which are deemed to be too technical for stipulation in secondary law itself (regulatory technical standards, RTS) or determine the details of the implementation (implementing technical standards, ITS). Since the Treaty of Lisbon, primary law explicitly allows for such empowerments, in Arts. 290-291 TFEU.139 124 Both regulatory technical standards (Art. 290 TFEU) as well as implementing technical standards (Art. 291 TFEU) are prepared by the EBA and adopted by the Commission. 125 Regulatory technical standards (Art. 290 TFEU), are quasi-legislative acts delimited by the legislative acts on which they are based and which contain substantive provisions spelling out the details of the act which provides for their legal bases.140 126 Implementing technical standards (Art. 291 TFEU) determine the conditions of applications of the acts that provide for their adoption and consequently focus often on 123

137 On the issue what is prudential supervision see Lackhoff, The Single Supervisory Mechanism (2017), para. 106 et seq. 138 Art. 6(6) SSMR. 139 These provisions can be seen as a primary law attempt to organise and structure the system of delegations of tertiary law acts which existed before Lisbon and which had developed in a rather confusing manner (“comitology”). For a general account from the Union law perspective, see Christiansen and Dobbels, ELJ 19 (2012), 42. In the area of financial supervision, this hierarchical system of several layers of financial legislation and regulation can be seen as a transposition of the recommendations of the “Lamfalussy report” (Final Report of the Committee of Wise Men on the Regulation of European Securities Markets) of 2001. On this see Alford, Annual Review of Banking & Financial Law 25 (2006), 389. 140 Art. 10 EBAR.

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formal matters such as procedures for supervisory co-operation among authorities and templates.141 Both types of standards are developed by the EBA (typically within the framework of a working group chaired by the EBA which brings together experts from the supervisory authorities) and submitted as a draft to the Commission,142 which enacts them as a binding act of tertiary law.143 They can be enacted in the form of regulations or decisions,144 but the common practice is to use the form of a regulation. Commission delegated acts are also enacted by the Commission. Unlike in the case of binding technical standards, there is no formalised procedure for the presentation of a draft by the EBA to the Commission, even though the Commission’s standard practice is to obtain the EBA’s expert advice nonetheless. The procedure to adopt Commission delegated acts is specified in Art. 462 CRR. They are also typically adopted as a regulation. An example of particular practical importance is the delegated act pursuant to Art. 460 CRR defining the Liquidity Coverage Requirement.145 Both binding technical standards (after adoption by the Commission) and the Commission delegated acts form, insofar as they concern prudential banking supervision, part of relevant Union law and are therefore binding on and applicable by the ECB. The particular reference to the EBA standards in Art. 4(3)(2) sent. 2 SSMR is therefore only declaratory, but it emphasises the intention of the legislator of the SSMR to avoid a rift within the EEA by binding the ECB, within the framework of the SSM, to the same substantive law as the other competent authorities of the EEA under the harmonising umbrella of the EBA and the Commission. Where such acts provide for prudential powers of the “competent authority”, the ECB can adopt supervisory decisions on their basis in respect of significant credit institutions. Owing to the nature of these acts as regulations, they are directly applicable. The reference in Art. 4(3)(2) SSMR to Art. 16 EBAR means that the ECB can also be an addressee of EBA guidelines and recommendations. These are not legally binding stricto sensu; competent authorities can choose to deviate from them, but then they need to state the reasons for this to the EBA. A formal notification of compliance or reasons for non-compliance to the EBA is mandatory (“comply-or-explain”). Owing to the lack of legal force, EBA guidelines and recommendations cannot themselves be the legal basis for supervisory legal acts vis-à-vis supervised entities, but they can provide guidance on the interpretation and application of other binding acts. A special case is the single supervisory handbook (SSH). This is developed by the EBA for the purposes of building a common supervisory culture, i.e. to ensure that the many competent authorities in the EEA, including the ECB, are not only bound by the

141 Art. 15 EBAR. The distinction laid out in the text cannot be found in the text of the EBAR but can be observed in the actual regulatory practice of the EBA. In many cases, both a regulatory and an implementing technical standard exist alongside each other on the same matter. 142 The reason for this technique is the long-standing Meroni case law, according to which new agencies established by secondary law (such as the EBA) cannot be given their own discretionary powers (CJEU, Case C-9/56 Meroni & Co., Industrie Metallurgiche, SpA v High Authority, ECLI:EU:C:1958:7). More recent case law, most notably the “short selling case” (CJEU, C-270/12, United Kingdom v Parliament and Council, ECLI:EU:C:2014:18) ostensibly affirms the Meroni precedent but, substantially, applies it in a more liberal manner. 143 For the adoption process and the rights of the Council and European Parliament see Arts. 10 to 14 and 15 EBAR. 144 Arts. 10(4) and 15(4) EBAR. 145 Commission Delegated Regulation (EU) 2015/61 of 10 October 2014 to supplement Regulation (EU) No 575/2013 of the European Parliament and the Council with regard to liquidity coverage requirement for Credit Institutions Text. OJ L11, 17.1.2015, p. 1.

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same letter of the law but also apply this letter in a coherent manner.146 The handbook is not a legal act, but rather sets out supervisory best practices as a “how-to” guide for the staff of the competent authorities in applying prudential legislation. The handbook, which is not publicly available, is still in development; among others chapters on the assessment of recovery plans147 and the business model analysis148 exist, but the EBA’s intention was to further develop the handbook by adding more chapters in the future.149 132 In this context, it should be noted that the SSMR (Art. 4(3), second subpara., SSMR) stipulates that the ECB is only subject to the provisions of the EBAR on the SSH developed by the EBA in accordance with the EBAR (Arts. 8(1)(aa) and 29(2)), but not to the SSH itself.

V. Conflicts between national prudential provisions and national constitutions A very specific problem arises if there are doubts as to the compatibility of a national statute that includes prudential provisions which the ECB should apply with higherranking national law (especially constitutional law). Judicial review of ECB decisions adopted on the basis of such national law will typically take the form of actions for annulment (Art. 263 TFEU) before the Court of Justice of the EU.150 Consequently, the CJEU might be put into a situation where it is called upon to decide the incidental question whether the national provision is in line with national constitutional law and, if not, whether it should not be applied.151 134 This may create a quandary: If there are doubts concerning the constitutionality of the national statute, some national jurisdictions provide for a constitutional review that may result in the law being declared inapplicable by the national constitutional court. If the CJEU simply ignored these doubts, it could be seen as acting against fundamental principles of the rule of law, according to which even legislation is bound and constrained by higher-ranking constitutional norms152 and against the autonomy of the national legal systems and the binding effects of national constitutional law on national legislators which these systems impose. If, on the other hand, the CJEU undertook an assessment of the national statute against national constitutional law, it would assume for itself the jurisdiction over the interpretation and validity of national law with a 133

Even though it is not a legal act, the EBAR provides a legal basis for it in Art. 29(2) EBAR. A supervisory task under Arts. 5 and 8 BRRD, and assigned to the ECB under Art. 4(1)(i) SSMR. 148 Which is, most notably, part of the assessment under the SREP (Art. 98(1)(i) CRD). 149 EBAR on the Convergence of Supervisory Practices, EBA-Op-2016-11, July 2016, , paras. 227-229 and EBA Work Programme 2021, EBA/REP/2020/26, p. 20, https://www.eba.europa.eu/sites/default/documents/files/document_library/Ab out%20Us/Work%20Programme/2021/932669/EBA%202021%20Annual%20Work%20Programme.pdf. 150 An example is provided by CJEU, Joined Cases T-133/16 to T-136/16, Caisse régionale de Crédit Agricole Mutuel Alpes Provence v ECB, ECLI:EU:T:2018:219, concerning actions for annulment brought by various French banks against ECB supervisory decisions. 151 The problem is discussed by Martini and Weinzierl, NVwZ (2017), 177. 152 The situation might be different in legal systems which acknowledge no substantive constraints on the powers of legislators, as exemplified by the British doctrine of sovereignty of Parliament or by Art. 190 of the Swiss Federal Constitution. Among the participating Member States of the SSM, however, a supremacy of the constitution over legislation, enforced by some kind of constitutional jurisdiction, typically exists. 146

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view to national constitutional law which it does not possess and has never claimed for itself.153 A solution to this issue would be a system by which, in case of doubt whether a 135 national law provision which the ECB has applied is in line with the national constitution, the CJEU may refer this question to the national constitutional court in those jurisdictions where national law provides for a constitutional court with the power to declare national law as non-applicable because of constitutional concerns.154 On the first sight, this could be seen as a surprising result but it is rather the consequence of the fact (a) that the ECB has to apply national supervisory law as no single rulebook in the form of directly applicable Union law exists yet and (b) that national constitutions may provide for limitations in national law implementing directives going beyond the limitations resulting from higher ranking EU law. However, in order to clearly establish such a solution, amendments to the Treaties and, presumably, also the national legal systems may be required. However, the cases in which this issue may arise will be scarce: First, not all jurisdic- 136 tions provide for the possibility of a constitutional review of national law. Second, as the national law (in particular when implementing directives) is subject to compliance with the higher-ranking Union law including the provisions of the CFREU, the cases where national constitutional limitations go beyond such limitations may not occur too often. Third, the Court may interpret the national provision in light of the national constitution and rely on existing judgements of the national constitutional court.155

E. Legal instruments for the exercise of the supervisory tasks of the ECB (Art. 4 (3)(2) and (3) SSMR) I. Decisions (Art. 4(3)(2) SSMR) The typical act adopted by the ECB in carrying out its supervisory tasks156 based 137 on a power conferred on it is the decision (with specific addressees). It is a legal act capable of imposing binding and enforceable obligations, foreseen in Arts. 288(4) TFEU, 132(1), second indent, TFEU.157 Unlike the regulation, it is not of general applicability but rather is binding only on those addressees which are explicitly specified in it. This is what makes it the instrument of choice for issuing supervisory measure in individual cases in the course of ongoing supervision. It thus finds its functional equivalent in the case-specific legal instruments available under national law (e.g. the Verwaltungsakt of 153 One might presume that this applies only to Member States where (as in Germany or Italy), under national law, the power to strike down national statutes for unconstitutionality is reserved to a dedicated highest court, whereas the problem does not arise in other Member States where any court is entitled to scrutinise the constitutionality of national statutes and to strike them down. But even in the latter case, strong doubts exist as to whether the Court of Justice possesses jurisdiction to rule on the interpretation and application of national (as opposed to Union) law; see Martini and Weinzierl, NVwZ (2017), 177, at pp. 180-181. 154 This is the solution suggested by Martini and Weinzierl, NVwZ (2017), 177. 155 This is one of the reasons why it goes too far to conclude (as is done by Martini and Weinzierl, NVwZ (2017), 177, at pp. 181 et seq.) that the architecture of the SSM is unsustainable without a kind of “preliminary reference procedure” from the CJEU to national constitutional courts: The usual tools of statutory interpretation, including most importantly the principle of harmonious interpretation, should be sufficient to avoid or mitigate the risk of unacceptable lacunae in judicial review. 156 See on the legal instruments available to the ECB also Lackhoff, The Single Supervisory Mechanism (2017), para. 430 et seq. 157 See also Art. 34(1), second indent ESCB Statute for the monetary policy side.

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German law or the acte administratif of French law), but, being an act of Union law, the interpretation, legal effects, validity and judicial review of a decision have to be derived from Union law. This is also true in cases in which the ECB acts in accordance with the national law transposing a directive (see supra, → para. 109 et seq.): Even in such cases, the resulting decision is an act of Union, not national, law. Union law also offers the possibility of decisions without addressees. A decision without addressees is a binding instrument that applies after its publication in the Official Journal158 directly to all persons in all participating Member States that now or in the future fall in its scope of applicability and fulfil the conditions provided for in the decision. An example of a decision without addressee is the decision of the ECB on close cooperation determining the procedure for the establishment of a close cooperation and the suspension or termination of a close cooperation.159 Another example was the decision of the ECB regarding the collection of data regarding fee factors.160 Further examples are the decisions of the ECB by which it amends its Rules of Procedure. Decisions without addressees can determine the rights of supervised entities and NCAs as the example show. Decisions without addressees are used among others for organisational measures or in order to establish provisions with normative character which are functionally comparable to the regulations. It is not clear which criteria determine whether the latter type of a decision without addressees may be used instead of a regulation, unless the SSMR determines explicitly the available legal act. This issue is of relevance as for the adoption of a regulation in principle a public consultation and a cost/benefit assessment is required while the SSMR does not provide explicitly for these requirements in case of a decision without addressees. Taking into account that the procedural provisions intend to enhance transparency, provide for a potential influence of the affected parties on the content and intend to avoid unreasonable burdens for the affected parties, it may be assumed that only a regulation is available if material obligations are established.161 Decisions without addressees may be adopted within a non-objection procedure and only within the scope of tasks conferred on the ECB and must comply with higher-ranking law. A hearing is not required as the circle of addressees is open.162 An open public consultation and a cost/benefit analysis are not provided for in case of a decision without addressee. But in case of normative character of such a decision without addressee, it should be carried out. A consultation with NCAs should take place based on the same reasoning applying for regulations if the ECB intends to adopt a decision without addressee that can be relevant only for NCAs in respect of less significant institutions. The relevant criterion to differentiate decisions without addressees and decisions with addressees is the scope of affected parties. The circle of affected parties of a decision without addressees is open while the circle of affected parties of a decision with addressees is limited to the named addressees. The term “decision” as that term is used in Art. 26(8) SSMR is not synonymous with the meaning with which the term is used presently. The Art. 26(8) SSMR meaning is wider; it comprises all legal acts concerning the exercise of banking supervision tasks, so Art. 297 (2) TFEU. Decision of the ECB of 31 January 2014 on the close cooperation with the national competent authorities of participating Member States whose currency is not the euro, OJ L198, 5.7.2014, pp. 7. 160 Decision of the ECB of 11 February 2015 on the methodology and procedures for the determination and collection of data regarding fee factors used to calculate annual supervisory fees, OJ L84, 28.3.2015, pp. 67. 161 Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 188 suggests to allow decisions without addressees only in cases referring to specific, well defined circumstances. 162 See Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 188. 158 159

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that the adoption of a regulation (as discussed infra, → para. 148) would also be a “supervisory decision” within the meaning of Art. 26(8) SSMR. This confusion surrounding the use of the word “decision” is deplorable.163

II. Guidelines and recommendations (Art. 4(3)(2) SSMR) The word “guidelines” is subject to a similar deplorable terminological confusion. Three different kinds of guidelines have to be distinguished in banking supervision: Guidelines issued by the EBA on the basis of Art. 16 EBAR. They are not strictly binding in the legal sense and are subject only to a comply-or-explain the mechanism.164 Based on a ruling of the Court confirming the possibility to review the validity of a recommendation in a preliminary ruling (see infra, → para. 147), it can be concluded that this also applies to EBA guidelines and guidelines issued by the ECB to supervised entities. Guidelines issued by the ECB to supervised entities. These are neither binding nor subject to a comply-or-explain mechanism, because no legal basis providing for such a comply-or-explain character in this case exists. They can, however, create the indirect self-committing effect described supra, → para. 108. Guidelines issued by the ECB to NCAs on matters of LSI supervision.165 These are binding upon the NCAs. A binding effect on third parties does not exist in a legal sense, but their binding effect upon the NCAs means the NCAs will have to use their powers under national law in accordance with the guidelines, meaning that an indirect effect on LSIs exist. The guidelines issued by the ECB are, however, not in themselves legal bases for supervisory action by the NCAs vis-à-vis supervised entities; the powers used by the NCAs in the fulfilment of the guidelines must be provided in a legally binding act (typically either the CRR or a national statute). As the guidelines issued by the ECB to NCAs are binding legal acts, they could, in principle, be contested by an NCA by an action for annulment. With recommendations, the situation is less confused. They have no binding force, irrespective of their addressees; nonetheless, they are categorised as legal acts. 166 They 163 There are, in fact, at least four different meanings with which the word “decision” is used within the SSM. One is the use discussed in the present annotations, that of a type of legal act as defined in Art. 288(4) TFEU. The second is the meaning within which it is used in Art. 26(8) SSMR, i.e., that of an act which must be adopted in the non-objection procedure. The third is that of an institutional act, i.e., that of a decision-making item approved by a body competent to make such an approval. “Decisions” in this last sense can also be of a purely internal matter, recorded in the minutes of a meeting, without the external effect that characterises “decisions” in the first sense; e.g. the Supervisory Board might “decide”, in the third sense, to approve a template for supervisory acts that would be used by ECB staff when drafting such acts. Such templates are not in themselves “decisions” in the sense of a legal act with external effect (even though the drafts that will be developed using them may well be); nonetheless, by virtue of the Supervisory Board’s competence to plan the exercise of supervisory tasks (Art. 26(1) SSMR), they may be submitted to the Supervisory Board for approval before ECB staff is encouraged to use them. Fourth, there is the meaning of “decision” in the sense of an act which can be challenged in the Administrative Board of Review (Art. 24 SSMR). Since the Administrative Board of Review procedure was modelled after the action for annulment under Art. 263 TFEU, it appears preferable to interpret the word “decision” in the same sense in which case law has elaborated upon the concept of contestable acts (which would include any act with legally binding effect and thus also, for instance, ECB Regulations). See Witte, JFR 1 (2015), 226, at pp. 234-235. 164 See Witte, JFR 1 (2015), 226, at p. 240 and fn. 79 for the question whether they are contestable acts subject to judicial review. 165 They find their legal basis in Art. 6(5)(a) SSMR and are authorised, under primary law, by Art. 14.3 ESCB Statute. See Lackhoff, The Single Supervisory Mechanism (2017), para. 443 et seq. 166 Art. 288(5) TFEU.

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are not contestable by an action for annulment, Art. 263 TFEU. For recommendations issued by the EBA the CJEU, however, determined that their validity can be reviewed as part of a preliminary ruling as “it follows from Article 19(3)(b) TEU and the first paragraph of Article 267(b) TFEU that the Court has jurisdiction to give preliminary rulings on the interpretation and validity of acts of the institutions of the Union, without any exception”.167

III. Regulations (Art. 4(3)(2) and (3) SSMR) Art. 4(3) SSMR also provides for the adoption of regulations by the ECB. The resulting acts are Union regulations within the meaning of Art. 288(2) TFEU, 168 which means they have a direct effect in the legal systems of the Member States169 and supremacy over contravening national law. The ECB’s regulatory powers are, however, constrained in several ways and limited in scope. That is why the ECB is a supervisor (supervisory authority) but not a regulator. 149 Firstly, Art. 4(3) SSMR does not in itself provide a sufficient power to adopt a regulation that imposes obligations on third parties. Any interference with third-party rights must be based on a specific legal basis allowing for such interference; the effect of Art. 4(3) SSMR is only to state that such specific legal basis – where they exist – may be exercised in the form of any legal act suitable for the matter, unless the choice of type of legal act is constrained by the legal basis in question itself. Thus, the ECB could, for instance, use Art. 10 SSMR, to impose reporting obligations on all credit institutions (even LSIs) (if no conclusive reporting requirements exist in Union legislation),170 without prejudice to the possibility to use Art. 10 SSMR for decisions (in the Art. 288(4) TFEU sense) for ad hoc information requests in individual cases. The only type of regulation which the ECB could adopt on the basis of Art. 4(3) SSMR alone, without additional reference to a subject-specific legal basis, is a regulation which does not encroach upon third-party rights, i.e. one which for example only affects the organisation of its own tasks. 150 Secondly, the SSMR allows the adoption of regulations by the ECB “only to the extent necessary to organise or specify the arrangements for the carrying out of the tasks conferred on it” by the SSMR. As this provides discretion (“necessary”) to the ECB, judicial review would appear to be limited in the sense that the Court may not substitute its assessment of the facts for the assessment made by the ECB. It is restricted to examining the accuracy of the findings of fact and law made by the ECB and to verifying, in particular, that the action taken by the ECB is not vitiated by a manifest error or misuse of powers and that it clearly did not exceed the bounds of its discretion.171 Such a clear exceedance of the bounds of discretion would, for instance, occur where the matter governed by the ECB regulation cannot reasonably be subsumed under the concept of 148

167 CJEU, Case C-501/18 BT v Balgarska Narodna Banka, ECLI:EU:C:2021:249, para. 82, see also para. 83. See also CJEU, Case C-911/19 FBF v ACPR, ECLI:EU:C:2021:599 for the scrutiny of the (equally non-binding) EBA guidelines via Art. 267 TFEU. 168 And, with identical content, Art. 132(1), first indent, TFEU and Art. 34.1, first indent, ESCB Statute. 169 But only in the Member States of the euro area: Art. 42.1 ESCB Statute. As a consequence, Art. 7 SSMR (see annotations thereto) had to provide for a different mechanism for giving effect to ECB legal acts in the non-euro area Member States who voluntarily opt into the banking union. 170 Regulation (EU) 2015/534 of the ECB of 17 March 2015 on reporting of supervisory financial information (ECB/2015/13), OJ L86, 26.3.2015, p. 13. 171 See, in lieu of many others, CJEU, Case T-187/06, Ralf Schräder v CPVO, ECLI:EU:T:2008:511, para. 59.

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organising or specifying the arrangements for the carrying out of ECB tasks under the SSMR. The ECB thus has a wide (though not unlimited) choice of the type of legal act, depending on how it assesses this criterion. In any case, the provision from the SSMR may be read as implying a degree of subsidiarity of ECB regulations relative to other types of legal acts less intrusive into existing legislation. Thirdly, the procedural requirements for the adoption of a regulation are more 151 cumbersome. In particular, an open public consultation and cost-benefit analysis are normally necessary, unless proportionality considerations or particular urgencies justify a deviation from this172 – a clause which, in the light of its character as an exception to a rule, should be narrowly construed. These additional procedural steps serve as a substitute for the hearing of the addressee of a decision provided for in Arts. 22 SSMR, 31 SSM‑FR and 41(2)(a) CFREU, since regulations have no addressees which could be heard. Lastly, even though the ECB is itself a Union institution on par with Parliament, 152 Council or Commission,173 it is not free to deviate from the acts of relevant Union law adopted by these institutions. Art. 4(3) SSMR makes it unambiguous that these acts of Union law are binding and to be applied by the ECB, meaning that the ECB cannot, for instance, invoke its status as a Union institution to argue that its acts are hierarchically equivalent to the CRR and can therefore deviate from the CRR on the basis of a lex posterior or lex specialis line of argument. Both the SSMR and the EBAR also make it clear that the ECB is also subject to the harmonising work of the EBA, in spite of the fact that the EBA’s character as a Union agency established by secondary law give it an institutionally less exalted status. The ECB is thus not a regulator but a supervisor; as such it has to apply the applicable prudential law. It has no general regulatory powers but is limited to adopting regulations only to the extent necessary to organise and specify the arrangements for the carrying out of the tasks conferred on it by the SSMR. An example is the Regulation on Options and Discretions (see supra, → para. 106) as with this regulation the ECB consistently exercises, within the scope of its administrative tasks, the options and discretions assigned by the legislator of the CRR to the competent authorities.

IV. Operational acts In line with common practice among supervisory authorities, the ECB is not preclud- 153 ed from interacting with supervised entities in a format other than legal acts. Since banking supervision is supposed to take place in the context of an ongoing dialogue between credit institutions and supervisor, this informal communication actually makes up the bulk of supervisory interaction. In the context of this dialogue, the ECB can transmit in any form whatsoever – verbally, electronically or in writing – questions, information and suggestions to the credit institution. Such communication is legally non-binding, since the imposition of obligations can only occur by means of a legal act (such as a decision) adopted in the decision-making process envisaged by the SSMR; nonetheless, in the interest of good cooperation between supervisor and supervised entities, credit institutions are often willing to comply with the content of such communication even in the absence of an obligation to do so. The terminology used for such vast variety of informal, non-binding communication by the ECB to the supervised entity is “operational act”.174 Such acts are indispensable for the efficient exercise of supervision, since ECB leArt. 4(3)(3) SSMR. Art. 13(1) TEU. 174 See Lackhoff, The Single Supervisory Mechanism (2017), paras. 457 et seq. 172 173

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gal acts (including but not limited to decisions in the sense of Art. 288(4) TFEU) in supervision require approval in an non-objection procedure stipulated in Art. 26(8) SSMR, which is too cumbersome a process to be conducted for every communication. The operational act is thus the ordinary format of ECB-credit institution interactions at working level. 154 In accordance with the case law of the CJEU, the delineation between supervisory legal acts (especially decisions) and operational acts is one of substance, not form. The decisive question is whether the act in question is capable of having legal effects, which depends on how, in the light of the wording and the context of the act in question, it could reasonably have been perceived by its addressee(s).175 The test is thus one of a reasonable recipient. If, in the light of this interpretation, the act has to be interpreted as imposing a legal obligation, then it constitutes, in substance, a legal rather than an operational act. It is immaterial whether the act carries the usual form of a supervisory act (official ECB letterhead, signature, etc.), even though such formalities can serve as an indicator to the addressee, affecting how the act may reasonably be perceived by them. If the act is, by these standards, a legal act but does not conform to the substantive or procedural requirements for the adoption of a legal act, then an action for annulment against it will be successful even if the ECB, subjectively, did not intend the act to be of a legal nature. It is thus of essence that the ECB refrains, in the communication of operational acts, from ambiguous wording; it must remain evident from a communication by the ECB to a bank whether the act is supposed to impose legal obligations or not.

F. Administrative and judicial review of supervisory acts of the ECB 155

Supervisory decisions of the ECB can be the subject matter of an administrative and/or judicial review by the ABoR and/or judicial review.176 See the annotations to Art. 24 SSMR.

G. Participation in the work of the EBA (Art. 4(3)(4) SSMR) 156

The European Banking Authority (EBA), post-Brexit headquartered in Paris, is one of the sectoral “European Supervisory Authorities” (ESAs), together with the European Securities and Markets Authority (ESMA) (for securities markets) in Paris and the European Insurance and Occupational Pensions Authority (EIOPA) (for insurances and occupational pension schemes) in Frankfurt. In spite of its name, it does not actually supervise banks itself, but rather develops supervisory standards and promotes the convergence of supervisory practices by the actual supervisory (“competent”) authorities.177 It was established by means of Regulation (EU) No 1093/2010 (cited here as EBAR) and exercises this task e.g. by means of drafting binding technical standards or the single supervisory handbook (see supra, → para. 123 et seq.), but also by means of participating in, and monitoring the work of, supervisory colleges. Further, the EBA coordinates the Questions & Answers process by which the EBA provides answers to ques-

CJEU, Case T-496/11, United Kingdom v ECB, ECLI:EU:T:2015:133, paras. 31-76. See Lackhoff, The Single Supervisory (2017), paras. 1009 et seq. and 1072 et seq. General on the possibilities of a legal review of act of the ECB in it function as supervisor see Chiara Zilioli and Karl-Philipp Wojcik (eds), Judicial Review in the European Banking Union (2021). 177 For the background of the establishment of the EBA, the ESMA and the EIOPA, the tools they use, and the (limited) direct supervisory powers they have, see Witte, JFR 1 (2015), 226, at pp. 234-239. 175

176

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tions of interpretation of the existing prudential rules.178 In addition the EBA could exercise limited supervisory powers if the envisaged proceeding would be used (see for example Art. 17(6) EBAR). This task has a geographic scope which covers the entire EEA and thus extends 157 beyond the SSM. From the perspective of the EBA, the ECB is – in the exercise of its supervisory tasks under the SSMR – one of the many competent authorities within the EEA,179 consistency among which the EBA is tasked to ensure. This supervisory convergence mandate of the EBA existed before the establishment of the SSM based on the concept of a harmonisation of supervisory laws and practices. The ECB as single supervisor for participating Member States, however, unifies in respect of these Member States the supervisory practices as the SSM is going a step further in integration by centralising the supervision for significant credit institutions; likewise, in its oversight role it may foster the unification also in respect of the supervision of LSIs. This may raise the question whether the mandate of the EBA that is conceptually addressed to a harmonisation environment needs to be adjusted. However, with the establishment of the SSM, a risk of a rift, within the EEA, occurred between the SSM on the one hand and the non-SSM competent authorities on the other.180 One could argue that the EBA in its current form is needed to prevent this rift and keep supervisory practices between the SSM and the non-SSM EEA aligned. Art. 4(3)(3) SSMR gives the ECB a mandate to contribute in a participating role in 158 the development of draft binding technical standards. It is thus encouraged to become a member of, and active contributor to, the working groups of experts from the competent authorities which, under the leadership of the EBA, conduct the actual drafting work for such standards. These working groups are not decision-making bodies and operate, as a matter of practice, by consensus rather than voting; the lack of voting power of the ECB in the EBA Board of Supervisors is therefore not as relevant as it seems on first sight.

Art. 5 SSMR Macro-prudential tasks and tools 1. Whenever appropriate or deemed required, and without prejudice to paragraph 2 of this Article, the national competent authorities or national designated authorities of the participating Member States shall apply requirements for capital buffers to be held by credit institutions at the relevant level in accordance with relevant Union law in addition to own funds requirements referred to in point (d) of Article 4(1) of this Regulation, including countercyclical buffer rates, and any other measures aimed at addressing systemic or macro-prudential risks provided for, and subject to the 178 In this context the disadvantage that the EBA is not a supervisor becomes apparent. The answers often seem to be prepared from the perspective of a body preparing legislation than from a supervisor, which is evidenced by the often limited focus on the facts of specific cases in the EBA Q&A. 179 In one important aspect, however, the ECB differs from the other competent authorities vis-à-vis the EBA: The ECB has only observer status in the EBA’s supreme decision-making body, the Board of Supervisors (Art. 40(1)(d) EBAR). The SSM is thus represented, in the Board of Supervisors, primarily by representatives of the NCAs. This does not, of course, prevent intra-SSM coordination of positions ahead of meetings of the Board of Supervisors. 180 There is thus a certain potential for the emergence of the SSM as a powerful, monolithic block within the wider EEA. This was used as an argument by non-SSM Member States to insist on a questionable “double majority” modification of EBA voting arrangements which gives them undue weight in the Board of Supervisors; see Witte, Europarecht Beiheft 1 (2017), 29, at fn. 19 and Deutsche Bundesbank, Monthly Report (July 2013), 13, at p. 25.

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procedures set out, in the Regulation (EU) No 575/2013 and Directive 2013/36/EU in the cases specifically set out in relevant Union law. Ten working days prior to taking such a decision, the concerned authority shall duly notify its intention to the ECB. Where the ECB objects, it shall state its reasons in writing within five working days. The concerned authority shall duly consider the ECB’s reasons prior to proceeding with the decision as appropriate. 2. The ECB may, if deemed necessary, instead of the national competent authorities or national designated authorities of the participating Member State, apply higher requirements for capital buffers than applied by the national competent authorities or national designated authorities of participating Member States to be held by credit institutions at the relevant level in accordance with relevant Union law in addition to own funds requirements referred to in point (d) of Article 4(1) of this Regulation, including countercyclical buffer rates, subject to the conditions set out in paragraphs 4 and 5 of this Article, and apply more stringent measures aimed at addressing systemic or macro-prudential risks at the level of credit institutions subject to the procedures set out in the Regulation (EU) No 575/2013 and Directive 2013/36/EU in the cases specifically set out in relevant Union law. 3. Any national competent authority or a national designated authority may propose to the ECB to act under paragraph 2, in order to address the specific situation of the financial system and the economy in its Member State. 4. Where the ECB intends to act in accordance with paragraph 2, it shall cooperate closely with the national designated authorities in the Member States concerned. It shall in particular notify its intention to the concerned national competent authorities or national designated authorities ten working days prior to taking such a decision. Where any of the concerned authorities objects, it shall state its reasons in writing within five working days. The ECB shall duly consider those reasons prior to proceeding with the decision as appropriate. 5. When carrying out the tasks referred to in paragraph 2, the ECB shall take into account the specific situation of the financial system, economic situation and the economic cycle in individual Member States or parts thereof. Bibliography Christos V. Gortsos, European Central Banking Law, The Role of the European Central Bank and National Central Banks under European Law (Palgrave Macmillan, 2020); Eddy Wymeersch, ‘The Single Supervisory Mechanism for Banking Supervision: Institutional Aspects’ in: Danny Bush and Guido Ferrarini (eds), European Banking Union (2nd edn, Oxford University Press, Oxford 2020); Bank of England, Financial Policy Committee, Financial Stability Report (March 2012); European Commission, Report of the High-level Expert Group on financial supervision in the EU (Chaired by Jacques de Larosière, 25 February 2009); FSB, IMF and BIS, Macroprudential Policy Tools and Frameworks; Progress Report to G20 (October 2011); Petra Senkovic, European Central Bank, ECB advisory letter to banks (SSM/ 2017/0140, 31 March 2017); UK Financial Services Authority, The Turner Review—a regulatory response to the global banking crisis (March 2009).

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A. Limited macro-prudential supervisory competence of ECB (Art. 5(1) SSMR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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B. Specific Competence of ECB (Art. 5(2)-(5) SSMR) . . . . . . . . . . . . . . . . . . . . . . . . . . .

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C. National designated authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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D. Conflict between NDAs and ECB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Macro-prudential tasks and tools

A. Limited macro-prudential supervisory competence of ECB (Art. 5(1) SSMR) As analysed elsewhere in this commentary, the SSMR allocates broad competencies 1 and powers to the ECB in the field of prudential supervision for individual credit institutions and certain investment firms, but the scope of those competencies is limited by Art. 127(6) TFEU and the enumerated powers set forth in Art. 4 SSMR. 1 In contrast, Art. 5 SSMR confers on the ECB a limited number of macro-prudential tasks and tools. Under the heading in Art. 5, entitled “Macro-prudential tasks and tools”, the ECB is allocated powers to impose stricter prudential requirements, including higher capital buffers, on individual banks based on macro-prudential factors in the country where the bank is based.2 However, Art. 5(1) SSMR states that the decision to utilize macro-prudential tools rests primarily with the NCAs.3 The ECB has recognized this limitation on its supervisory competence in a 2017 Advisory Letter that states: “national authorities remain exclusively competent to exercise powers which do not fall within the scope of the ECB’s tasks or which do not underpin the ECB’s supervisory function. This applies in particular to (i) macro-prudential supervisory tasks, (ii) the approval of mergers from competition law, (iii) the ‘supervision’ of external auditors, (iv) the imposition or enforcement of conditions attached by regulation to banking activities such as product rules; and (v) the imposition of penalties to absorb the economic advantage gained from the breach of prudential requirements (which primarily serve competition law purposes).4”

The areas of supervision identified by the ECB as not its own, because neither falling 2 within the scope of the ECB’s tasks nor underpinning the ECB’s supervisory function, is a recognition of the limits of its supervisory competencies and the barrier beyond which its efforts to promote harmonized standards are unlikely to go. However, it should be noted, as discussed below, that the ECB itself does have an explicit macro-prudential function pursuant to Art. 5(2) SSMR, so that the “exclusivity” of macro oversight for NCAs is debatable.

B. Specific Competence of ECB (Art. 5(2)-(5) SSMR) Despite this limitation on its supervisory competence, Art. 5(2) SSMR authorizes the 3 ECB to intervene and utilize these tools “if deemed necessary” to apply stricter requirements than those set out by the national competent authorities.5 In particular, Art. 5(4) SSMR authorizes the ECB to adopt specific measures if neces- 4 sary by taking into account the specific circumstances of the Member State’s financial and economic situation 6 as well as “duly consider” any objection of a national competent 1 Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (OJ L287, 29.10.2013, p. 63), Art. 4(1)(3), especially Art. 4(1)(d) and (e) SSMR; see discussion in Wymeersch, ‘The Single Supervisory Mechanism for Banking Supervision: Institutional Aspects’ in: Busch and Ferrarini (eds), European Banking Union, 145, at 157, 163. 2 Art. 5 SSMR; The ECB’s macro-prudential tasks and tools can be contrasted with those recommended by international standard setting bodies. See FSB, IMF and BIS, Macroprudential policy Tools and Frameworks; Progress Report to G20 (October 2011). 3 Art. 5(1) SSMR. 4 See Senkovic, ECB advisory letter to banks (European Central Bank, 31 March 2017), on file with author. 5 Art. 5(2) SSMR. 6 Art. 5(5) SSMR.

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authority that seeks to address a macro-prudential risk on its own.7 Moreover, the CRR permits the ECB as the competent supervisory authority to take macro-prudential tools, other than increased capital buffers, only in limited circumstances for banks based in a participating SSM Member State where the ECB has identified macro-prudential or systemic risks.8 Specifically, Art. 458 CRR, entitled “Macro-prudential or systemic risk identified at the level of a Member State”, provides in relevant part that “[w]here the authority determined in accordance with paragraph 1 identifies changes in the intensity of macro-prudential or systemic risk in the financial system with the potential to have serious negative consequences to the financial system and the real economy in a specific Member State and which that authority considers would better be addressed by means of stricter national measures, it shall notify the European Parliament, the Council, the Commission, the ESRB and EBA of that fact and submit relevant quantitative or qualitative evidence.”9

C. National designated authorities 5

Although the ECB has specific powers to impose stricter prudential requirements and additional capital buffers have been carved out in Art. 5 SSMR10, the use of these tools now rests primarily with the national designated authorities. Under the SSMR, the term used for national macro-prudential authorities is “national designated authorities” (NDAs). The NDA can, but does not have to, be identical to the NCA. As discussed above, the ECB may take over the task “if deemed necessary”,11 and is then required to take the specific circumstances of the Member State’s financial and economic situation into account12 as well as “duly consider” any objection of an NDA or NCA proposing to address the local situation on its own.13 However, if the NDA is not the same body as the NCA, the NDAs (not the NCAs) will be responsible for macro-prudential tasks and tools, such as imposing “countercyclical buffer rates”.14 Furthermore, NDAs are empowered to propose draft national legislation if they identify changes in the intensity of systemic or macro-prudential risks in the financial system.15 The draft national legislation can be rejected within one month period by the Council, but only upon a proposal by the Commission.16 As discussed above, the ECB may decide (instead of the NDA) to exercise a macro-prudential task regarding a credit institution based in a participating Member State “if deemed necessary”,17 but is then required to take the specific circumstances of the Member State’s financial and economic situation into account18 as well as “duly consider” any objection of an NDA or NCA proposing to address the local situation on its own.19 Art. 5(4) SSMR. Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, p. 1), Art. 458 CRR. 9 Art. 458 CRR. 10 Art. 5(2) SSMR. 11 Art. 5(2) SSMR. 12 Art. 5(5) SSMR. 13 Art. 5(4) SSMR. 14 Art. 136(1) CRD. 15 Art. 458(1)-(2) CRR. 16 Art. 458(4) CRR. 17 Art. 458(4) CRR. 18 Art. 5(5) CRR. 19 Art. 5(4) CRR. 7 8

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Arts. 103–105 SSM‑FR

D. Conflict between NDAs and ECB The division of macro-prudential supervisory competencies within Art. 5 SSMR has 6 created some legal and institutional uncertainty over the issue of whether the ECB has primary competence to exercise macro-prudential tools, and there has been tension between the ECB and national competent/designated authorities over the timing and use of macro-prudential tools. Macro-prudential regulatory tools generally involve a broader array of prudential supervisory tools that include both, some ex ante supervisory powers and ex post crisis management measures, such as liquidity and resolution tools, deposit insurance, and lender of last resort.20 In EU Member States, either central banks or other nationally-designated macro-prudential supervisory authorities have the authority to utilize macro-prudential levers or tools (i.e. counter-cyclical capital requirements and loan-to-income ratios) to address the build-up of systemic risks.21 For example, the use of counter-cyclical capital requirements can be varied depending on the riskiness of assets at points in the economic cycle. Since the creation of SSM, Denmark and the Netherlands have used counter-cyclical capital buffers to dampen credit booms in their respective housing markets by imposing higher capital requirements on home mortgage loans as opposed to other types of loans. Regarding the Dutch Central Bank’s use of macro-prudential tools, there have been some concerns raised by the SSM Supervisory Board. Other macro-prudential measures include liquidity tools that require financial institutions to hold a certain ratio of liquid assets, i.e. assets that can be easily turned into cash, relative to total assets.22

Arts. 103–105 SSM Framework Regulation Procedural provisions for the use of macro-prudential tools Art. 103 SSM Framework Regulation List of NCAs and NDAs responsible for macro-prudential tools The ECB shall collect from NCAs and NDAs of participating Member States information regarding the identity of the authorities designated for the respective macro-prudential tools referred to in Article 101 and the macro-prudential tools that these authorities can use. Art. 104 SSM Framework Regulation Exchange of information and cooperation in respect of the use of macro-prudential tools by an NCA or an NDA 1. In accordance with Article 5(1) of the SSM Regulation, the relevant NCA or NDA, when it intends to apply such tools, shall notify its intention to the ECB ten working days prior to taking such a decision. This notwithstanding, if an NCA or NDA intends to make use of a macro-prudential tool, it shall inform the ECB as early as possible of its identification of a macro-prudential or systemic risk for the financial

20 See European Commission, Report of the High-level Expert Group on financial supervision in the EU (25 February 2009), available at: ; see also UK Financial Services Authority, The Turner Review – a regulatory response to the global banking crisis (March 2009), available at: . 21 See Financial Policy Committee Bank of England, Financial Stability Report – June 2012 (2012). 22 Financial Policy Committee Bank of England, ‘Financial Stability Report – June 2012’ (2012). Other macro-prudential tools include leverage ratios could be used to limit the amount of leverage relative to the value of the bank’s assets. Forward-looking loss provisions: Financial institutions can be required to set aside provisions against potential future losses on their lending. Collateral requirements: Lending could be limited by imposing higher collateral restrictions, for example if growth in lending appears to be unsustainable. An example is a loan to value requirement, which would limit the size of a loan relative to the value of the asset. Similarly, “haircuts” on repurchase agreements would limit the amount of cash that can be lent as a proportion of the market value of a set of securities. Information disclosure: Greater transparency could help markets work better. For example, in times of crisis, more information about different institutions’ risk exposure could increase the flow of credit as uncertainty is reduced.

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system and, where possible, of the details of the intended tool. Such information shall as far as possible include specificities of the intended measure, including the intended date of application. 2. The notification of intent shall be provided by the NCA or NDA to the ECB. 3. If the ECB objects to the intended measure of an NCA or NDA, the ECB shall state its reasons for doing so within five working days after the day of receipt of the notification of intent. Such objection shall be in writing and state the reasons for the objection. The NCA or NDA shall duly consider the ECB’s reasons prior to proceeding with the decision as appropriate. Art. 105 SSM Framework Regulation Exchange of information and cooperation in respect of the ECB’s use of macro-prudential tools 1. In accordance with Article 5(2) of the SSM Regulation, when the ECB intends on its own initiative, or on the proposal of an NCA or NDA, to apply higher requirements for capital buffers or to apply more stringent measures aimed at addressing systemic or macro-prudential risks it shall cooperate closely with the NDAs in the Member States concerned and, in particular, notify its intention to the NDA or NCA 10 working days prior to taking such a decision. This notwithstanding, if the ECB intends to apply higher requirements for capital buffers or to apply more stringent measures aimed at addressing systemic or macro-prudential risks at the level of credit institutions subject to the procedures set out in Regulation (EU) No 575/2013 and Directive 2013/36/EU in the cases specifically set out in Union law, it shall inform the relevant NCA or NDA as early as possible of its identification of a macro-prudential or systemic risk to the financial system and, where possible, of the details of the intended tool. Such information shall, as far as possible, include the specificities of the intended measure, including the intended date of application. 2. If any of the concerned NCAs or NDAs objects to the intended measure of the ECB, it shall state its reasons to the ECB within five working days after the day of receipt of the ECB’s notification of intent. Such objection shall be in writing and state the reasons for the objection. The ECB shall duly consider those reasons prior to proceeding with the decision as appropriate.

Bibliography European Commission, Report of the High-level Expert Group on financial supervision in the EU (Chaired by Jacques de Larosière,25 February 2009); Financial Services Authority, The Turner Review – a regulatory response to the global banking crisis (March 2009); Christoph Ohler, ‘Banking Supervision’ in: Fabian Amtenbrink and Christoph Herrmann (eds), The EU Law of Economic and Monetary Union (Oxford University Press, Oxford 2020). A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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B. Art. 103 SSM Framework Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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C. Art. 104 SSM Framework Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Art. 104(1) SSM Framework Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Art. 104(2) SSM Framework Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Art. 104(3) SSM Framework Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3 3 4 5

D. Art. 105 SSM Framework Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Art. 105(1) SSM Framework Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Art. 105(2) SSM Framework Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6 6 7

E. ECB’s scope of authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8

A. Introduction 1

The SSM‑FR contains procedural provisions for the use of macro-prudential tools by the ECB and participating Member State authorities with competence under national law to exercise macro-prudential tools (so-called national designated authorities). 1

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Arts. 103–105 SSM‑FR

B. Art. 103 SSM Framework Regulation Art. 103 SSM‑FR provides that the ECB shall compile a list of the NDAs and NCAs of 2 the participating Member States that have authority under Member State law to utilize macro-prudential tools. As macro-prudential tools are a limited and a shared competence for the ECB, Member State NDAs and NCAs have retained a wider competence to exercise an array of macro-prudential tools. Macro-prudential tools include, but are not limited to, counter-cyclical capital buffers, loan-to-income limits, and other measures set forth under EU law.

C. Art. 104 SSM Framework Regulation I. Art. 104(1) SSM Framework Regulation Under the SSM‑FR, the NDAs and NCAs are required to inform the ECB both of 3 their intention to use macro-prudential tools, the systemic risks they are designed to address, and the actual decision to use such measures.2

II. Art. 104(2) SSM Framework Regulation The decision to use macro-prudential tools must be notified to the ECB in advance 4 not less than 10 days before the decision is actually taken, and the identification of systemic risks by NDAs or NCAs must be notified to the ECB as soon as possible after the risks are identified.

III. Art. 104(3) SSM Framework Regulation The ECB can object to the use of macro-prudential tools but must put its objections 5 in writing and convey them to the relevant NDA/NCA. Before deciding to use (or not) the macro-prudential tools, the relevant NDA must duly consider the ECB’s objections before proceeding with the decision.3

D. Art. 105 SSM Framework Regulation I. Art. 105(1) SSM Framework Regulation Where the ECB has the competence to apply macro-prudential tools that impose 6 stricter requirements on banking institutions, it shall cooperate closely with the competent NDAs/NCAs and inform them of the intended decision. If the ECB decides to apply more stringent macro-prudential tools to credit institutions that are subject to

2 3

Art. 104(1) SSM‑FR. Art. 104(3) SSM‑FR.

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Regulation (EU) No 575/20134 and Directive 2013/36/2013,5 the ECB is required to inform the relevant NDAs/NCAs as early as possible of identification of systemic or macro-prudential risks and the details of its use of specific macro-prudential tools. 6

II. Art. 105(2) SSM Framework Regulation 7

NDAs and NCAs may object to the ECB’s decision to use macro-prudential tools by stating their reasons in writing which shall be duly considered by the ECB7. Regarding the role of host State authorities where the local operations (i.e., branch) of a credit institution based in a participating Member State, the principle of cooperation applies as to the decision of whether to take macro-prudential tools. Host country authorities are also subject to the notification obligation regarding their decision to impose macroprudential tools on the local operations of a credit institution based in a participating Member State.

E. ECB’s scope of authority 8

Macro-prudential regulatory measures are wider in the scope of coverage and application and necessarily involve a broader array of prudential supervisory tools that include both ex ante supervisory powers, such as licensing, authorisation and compliance with regulatory standards, and ex post crisis management measures, such as liquidity and resolution tools, deposit insurance and lender of last resort.8 Indeed, the objectives of macro-prudential regulation – to monitor and control systemic risks and related risks across the financial system – will require greater regulatory and supervisory intensity that will necessitate increased intervention in the operations of cross-border banking and financial groups and a wider assessment of the risks they pose.9 Under the SSM, the question arises does the ECB have the necessary scope of authority to be an effective macro-prudential supervisor?

Art. 6 SSMR Cooperation within the SSM 1. The ECB shall carry out its tasks within a single supervisory mechanism composed of the ECB and national competent authorities. The ECB shall be responsible for the effective and consistent functioning of the SSM.

4 Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 OJ L176, 27.6.2013, p. 1. 5 Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC OJ L176, 27.6.2013, p. 338. 6 Art. 105(1) SSM‑FR. 7 Art. 105(2) SSM‑FR. 8 See European Commission, ‘De Larosière report’; see also Financial Services Authority, ‘The Turner Review – a regulatory response to the global banking crisis’, available at: . 9 See discussion in Ohler, ‘Banking Supervision’ in: Amtenbrink and Herrmann (eds), The EU Law of Economic and Monetary Union, 1102, at 1119-1120.

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Cooperation within the SSM

2. Both the ECB and national competent authorities shall be subject to a duty of cooperation in good faith, and an obligation to exchange information. Without prejudice to the ECB’s power to receive directly, or have direct access to information reported, on an ongoing basis, by credit institutions, the national competent authorities shall in particular provide the ECB with all information necessary for the purposes of carrying out the tasks conferred on the ECB by this Regulation. 3. Where appropriate and without prejudice to the responsibility and accountability of the ECB for the tasks conferred on it by this Regulation, national competent authorities shall be responsible for assisting the ECB, under the conditions set out in the framework mentioned in paragraph 7 of this Article, with the preparation and implementation of any acts relating to the tasks referred to in Article 4 related to all credit institutions, including assistance in verification activities. They shall follow the instructions given by the ECB when performing the tasks mentioned in Article 4. 4. In relation to the tasks defined in Article 4 except for points (a) and (c) of paragraph 1 thereof, the ECB shall have the responsibilities set out in paragraph 5 of this Article and the national competent authorities shall have the responsibilities set out in paragraph 6 of this Article, within the framework and subject to the procedures referred to in paragraph 7 of this Article, for the supervision of the following credit institutions, financial holding companies or mixed financial holding companies, or branches, which are established in participating Member States, of credit institutions established in non-participating Member States: — 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) (ii) (iii)

size, importance for the economy of the Union or any participating Member State, significance of cross-border activities.

With respect to the first subparagraph above, a credit institution or financial holding company or mixed financial holding company shall not be considered less significant, unless justified by particular circumstances to be specified in the methodology, if any of the following conditions is met: (i) (ii) (iii)

the total value of its assets exceeds EUR 30 billion; 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 EUR 5 billion; 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.

The ECB may also, on its own initiative, consider an institution to be of significant relevance where it has established banking subsidiaries in more than one participating Member States and its cross-border assets or liabilities represent a significant part of its total assets or liabilities subject to the conditions laid down in the methodology.

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Those for which public financial assistance has been requested or received directly from the EFSF or the ESM shall not be considered less significant. Notwithstanding the previous subparagraphs, the ECB shall carry out the tasks conferred on it by this Regulation in respect of the three most significant credit institutions in each of the participating Member States, unless justified by particular circumstances. 5. With regard to the credit institutions referred to in paragraph 4, and within the framework defined in paragraph 7: (a) the ECB shall issue regulations, guidelines or general instructions to national competent authorities, according to which the tasks defined in Article 4 excluding points (a) and (c) of paragraph 1 thereof are performed and supervisory decisions are adopted by national competent authorities. Such instructions may refer to the specific powers in Article 16(2) for groups or categories of credit institutions for the purposes of ensuring the consistency of supervisory outcomes within the SSM; (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 competent 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 4, 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 point (c) of paragraph 7; (d) the ECB may at any time make use of the powers referred to in Articles 10 to 13; (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. 6. Without prejudice to paragraph 5 of this Article, national competent authorities shall carry out and be responsible for the tasks referred to in points (b), (d) to (g) and (i) of Article 4(1) and adopting all relevant supervisory decisions with regard to the credit institutions referred to in the first subparagraph of paragraph 4 of this Article, within the framework and subject to the procedures referred to in paragraph 7 of this Article. Without prejudice to Articles 10 to 13, the national competent authorities and national designated authorities shall maintain the powers, in accordance with national law, to obtain information from credit institutions, holding companies, mixed holding companies and undertakings included in the consolidated financial situation of a credit institution and to perform on site inspections at those credit institutions, holding companies, mixed holding companies and undertakings. The national competent authorities shall inform the ECB, in accordance with the framework set out in paragraph 7 of this Article, of the measures taken pursuant to this paragraph and closely coordinate those measures with the ECB. The national competent authorities shall report to the ECB on a regular basis on the performance of the activities performed under this Article. 7. The ECB shall, in consultation with national competent authorities, and on the basis of a proposal from the Supervisory Board, adopt and make public a framework to organise the practical arrangements for the implementation of this Article. The framework shall include, at least, the following: 94

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(a) the specific methodology for the assessment of the criteria referred to in the first, second and third subparagraph of paragraph 4 and the criteria under which the fourth subparagraph of paragraph 4 ceases to apply to a specific credit institution and the resulting arrangements for the purposes of implementing paragraphs 5 and 6. Those arrangements and the methodology for the assessment of the criteria referred to in the first, second and third subparagraph of paragraph 4 shall be reviewed to reflect any relevant changes, and shall ensure that where a credit institution 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 credit institution 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 paragraph 4; (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 paragraph 4. Such procedures shall in particular require national competent authorities, depending on the cases defined in the framework, to: (i) notify the ECB of any material supervisory procedure; (ii) further assess, on the request of the ECB, specific aspects of the procedure; (iii) transmit to the ECB material draft supervisory decisions on which the ECB may express its views. 8. Wherever the ECB is assisted by national competent authorities or national designated authorities for the purpose of exercising the tasks conferred on it by this Regulation, the ECB and the national competent authorities shall comply with the provisions set out in the relevant Union acts in relation to the allocation of responsibilities and cooperation between competent authorities from different Member States. Bibliography Kern Alexander, ‘European Banking Union: A Legal and Institutional Analysis of the Single Supervisory Mechanism and the Single Resolution Mechanism’, ELR, Issue 2 (2015), 154; Filippo Annunziata, ‘Fostering Centralization of EU Banking Supervision Through Case-Law: The European Court of Justice and the Role of the European Central Bank’, Bocconi Legal Studies Research Papers, No. 3372346 (2019); Filippo Annunziata, ‘European Banking Supervision in the Age of the ECB: Landeskreditbank Baden-Württemberg ‒ Förderbank v. ECB’, Bocconi Legal Studies Research Paper No. 3139567(2018); Tomas Arons, ‘Judicial Protection of Supervised Credit Institutions in the European Banking Union’ in: Danny Busch and Guido Ferrarini (eds), European Banking Union (2nd edn, Oxford University Press, Oxford 2020), 93; Jens-Hinrich Binder, ‘The European Banking Union – Rationale and Key Policy Issues’ in: Jens-Hinrich Binder and Christos V. Gortsos (eds), The European Banking Union. A Compendium (C.H. Beck/Hart/Nomos, Munich/Oxford/Baden-Baden 2016); Concetta Brescia Morra, ‘From the Single Supervisory Mechanism to the Banking Union. The role of the ECB and the EBA’, Working paper No 2, Luiss Guido Carli School of European Political Economy, Luiss University Press, Italy (2014); Danny Busch and Annick Teubner, ‘Fit and Proper Assessments within the Single Supervisory Mechanism’, European Banking Institute Working Paper Series 2019 – no. 34 (2019); Claus-Wilhelm Canaris, Mathias Habersack and Carsten Schäfer (eds), Staub, Großkommentar Handelsgesetzbuch, Band 10/1 – Bankvertragsrecht, Erster Teil, Kreditwesen und Organisation (5 th edn, De Gruyter, Berlin 2016); Elena Carlettiand Giovanni Dell’Ariccia, ‘Supervisory incentives in a Banking Union’, mimeo (2015); Mario Pilade Chiti, ‘The European Banking Union in the Case Law of the Court of Justice of the European Union’ in: Mario Pilade Chitiand Vittorio Santoro (eds), The Palgrave Handbook of European Banking Union Law (Palgrave Macmillan, Cham (Switzerland) 2019), 105; Raffaele D’Ambrosio, ‘The SSM: Allocation of Tasks and Powers between the ECB and the NCAs and Organisational Issues’ in: Raffaele

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D’Ambrosio (ed), Law and Practice of the Banking Union and of its governing Institutions (Cases and Materials), Quaderni di Ricerca Giuridica, Banca d’Italia, Numero 88 (April 2020), 25; Raffaele D’Ambrosio, ‘The Involvement of the NCAs in the ECB’s Supervisory Proceedings’ in: Raffaele D’Ambrosio (ed), Law and Practice of the Banking Union and of its governing Institutions (Cases and Materials), Quaderni di Ricerca Giuridica, Banca d’Italia, Numero 88, (April 2020), 163; Raffaele D’Ambrosio and Stefano Montemaggi, ‘Supervision of Less Significant Credit Institutions’ in: Raffaele D’Ambrosio (ed), Law and Practice of the Banking Union and of its governing Institutions (Cases and Materials), Quaderni di Ricerca Giuridica, Banca d’Italia, Numero 88 (April 2020), 203; European Court of Auditors, ‘Single Supervisory Mechanism – Good start but further improvements needed’, No. 29, Publications Office of the EU (Luxembourg 2016); Eilís Ferran and Valia Babis, ‘The European Single Supervisory Mechanism’, Legal Studies Research Paper Series, University of Cambridge, Faculty of Law, Paper No. 10/2013 (March 2013); Guido Ferrarini and Luigi Chiarella, ‘Common Banking Supervision in the Eurozone: Strengths and Weaknesses’, European Corporate Governance Institute, Working Paper Series in Law No 223/2013 (August 2013); Alexander Glοs and Markus Benzing, ‘Institutioneller Rahmen: SSM, EZB und nationale Aufsichtsbehőrde – Zuständigkeitsverteilung im SSM’ in: Jens-Hinrich Binder, Alexander Glos and Jan Riepe (eds), Handbuch Bankenaufsichtsrecht (RWS Verlag GmbH, Cologne 2020), 31; Christos V. Gortsos, European Central Banking Law – The Role of the European Central Bank and National Central Banks under European Law (Palgrave Macmillan, Cham – Switzerland 2020); Christos V. Gortsos, ‘The application of the EU banking resolution framework amidst the pandemic crisis’ in: Christos V. Gortsos and Wolf-Georg Ringe (eds), Pandemic Crisis and Financial Stability (European Banking Institute, 2020), 361; Christos V. Gortsos, ‘Identifying Groups as ‘Financial Conglomerates’ under European Financial Law (Directive 2002/87/EC): A not so straightforward exercise’ in: Liber Amicorum of Emeritus Professor Thanassis Papachristou (Nomiki Bibliothiki SA, Athens 2019); Christos V. Gortsos, The Single Supervisory Mechanism (SSM): Legal aspects of the first pillar of the European Banking Union (Nomiki Bibliothiki SA, Athens 2015); Christos V. Gortsos, ‘Competence Sharing Between the ECB and the National Competent Supervisory Authorities Within the Single Supervisory Mechanism (SSM)’ EBOR 16 (2015), 401; Christos V. Gortsos, The new EU Directive (2014/49/EU) on deposit guarantee schemes: an element of the European Banking Union (Nomiki Bibliothiki SA, Athens 2014); Christos Hadjiemmanuil, ‘Economic and Monetary Union’ in: Damian Chalmers et al. (eds), European Union Law (Cambridge University Press, Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paolo 2006), 506; Klaus Lackhoff, Single Supervisory Mechanism: A Practitioner’s Guide (C.H. Beck/Hart/Nomos, Munich/Oxford/Baden-Baden 2017); Rosa María Lastra, Banking Union and Single Market: Conflict or Companionship?, Fordham International Law Journal Volume 36 (2013), 1189; Rosa María Lastra, Legal foundations of international monetary stability (OUP, Oxford 2006); Jean-Victor Louis, ‘L’Union européenne et sa monnaie’, in: Commentaire J. Megret (3rd edn, Institut d’Etudes Européennes, Editions de l’ Université de Bruxelles, Bruxelles 2009); Francesco Martucci, ‘The Crédit Mutuel Arkéa case: central bodies and the SSM and the interpretation of national law by the ECJ’, in: Chiara Zilioli and Karl-Philipp Wojcik (eds), Judicial Review in the European Banking Union (Edward Elgar, 2021), Chapter 30, 504; Stefano Montemaggi, ‘Judgements of the General Court and of the ECJ on the Landeskreditbank (General Court, T-122/15 and ECJ, C-450/17 P)’ in: Raffaele D’Ambrosio (ed), Law and Practice of the Banking Union and of its governing Institutions (Cases and Materials), Quaderni di Ricerca Giuridica, Banca d’Italia, Numero 88, (April 2020), 217; Peter Mülbert and Alexander Wilhelm, ‘CRD IV Framework for Bank’s Corporate Governance’ in: Danny Busch and Guido Ferrarini (eds), European Banking Union (2nd edn, Oxford University Press, Oxford 2020), 22; Christoph Ohler, ‘Banking Supervision’ in: Fabian Amtenbrink and Christoph Hermann (eds), The EU Law of Economic and Monetary Union (Oxford University Press, Oxford 2020), 1103; Francisco-Javier Priego and Fernando Conlledo, ‘The role of the decentralisation principle in the legal construction of the European System of Central Banks’ in: Legal Aspects of the European System of Central Banks: Liber Amicorum Paolo Zamboni Garavelli (European Central Bank, 2005), 189; Antonio Luca Riso, ‘A Prime for the SSM before the Court: the L-Bank case’, in: Chiara Zilioli and Karl-Philipp Wojcik (eds), Judicial Review in the European Banking Union (Edward Elgar, 2021), Chapter 29, 494; Dirk Schoenmaker and Nicolas Véron, ‘European Overview’, in: Dirk Schoenmaker and Nicolas Véron (eds), European Banking Supervision: The first eighteen months (Bruegel Blueprint Series, Volume XXV, 2016); René Smits, Short note on the Arkéa judgments (2018); René Smits, The European Central Bank – Institutional Aspects (Kluwer Law International, The Hague 1997); Alexander Thiele, Finanzaufsicht (Mohr Siebeck, Tübingen 2014); Tobias Tröger, ‘The Single Supervisory Mechanism (SRM)’ in: Frederico Fabbrini and Marco Ventoruzzo (eds), Research Handbook of EU Economic Law (Edward Elgar, Cheltenham/Northampton 2019), 287; Tobias Tröger, ‘How Not To Do Banking Law in the 21st Century – The Judgement of the European General Court (EGC) in the Case T-122/15 Landeskreditbank Baden-Württemberg ‒ Förderbank v European Central Bank (ECB)’, Oxford Business Law Blog (16 June 2017); Tobias Tröger, ‘The Single Supervisory Mechanism – Panacea or Quack Banking Regulation?’, SAFE Working Paper Series No. 27, (19.10.2013); Rosalind Wiggins, Michael Wedow and Andrew Metrick, ‘European Banking Union A: The Single Supervisory Mechanism’, Yale Program on Financial Stability, Case Study 2014-5A-V1 (2014);

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Laura Wissink, Ton Duijkersloot and Rob Widdershoven, ‘Shifts in Competences between Member States and the EU in the New Supervisory System for Credit Institutions and their Consequences for Judicial Protection’, Utrecht Law Review Vol. 10 (2014), 92; Eddy Wymeersch, ‘The Single Supervisory Mechanism for Banking Supervision: Institutional Aspects’, in: Danny Busch and Guido Ferrarini (eds), European Banking Union (2nd edn, Oxford University Press, Oxford 2020), 145; Eddy Wymeersch, ‘The single supervisory mechanism or “SSM”, part one of the Banking Union’, ECGI Working Paper Series in Law, Working Paper N°. 240 (February 2014); Chiara Zilioli and Phoebus Athanassiou, ‘The European Central Bank’ in: Robert Schütze and Takis Tridimas (eds), Oxford Principles European Union Law – Volume I: The European Union Legal Order (Oxford University Press, Oxford 2018), 610. A. General provisions applying to the operation of the SSM: principles and obligations – legal basis of the “SSM Framework Regulation” . . . . . . . . . . . . . . . . I. Definition, composition and legal nature of the SSM (Art. 6(1) SSMR) . . . . . . II. The legal basis and structure of the SSM Framework Regulation . . . . . . . . . . . . 1. The provisions of the SSMR (Art. 6(7) SSMR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. The provisions of the SSM Framework Regulation: An overview . . . . . . . . . III. Main principles and obligations imposed on the ECB and NCAs (Art. 6(2) SSMR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. The interaction between the ECB and NCAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Provisions of the SSMR (Art. 6(3) and 6(8) SSMR) . . . . . . . . . . . . . . . . . . . . . . . 2. Provisions of the SSM Framework Regulation (Arts. 22-24 SSM Framework Regulation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Right of the ECB to instruct NCAs or NDAs to make use of their powers and take action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Language regimes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B. Classification of supervised entities and groups as significant or less significant (Article 6(4) SSMR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Introductory remarks and general provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. From the Commission’s proposal to the SSM Regulation and the SSM Framework Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. General provisions relating to the classification of a supervised entity or group as significant or less significant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Classification on an individual basis – implications for direct supervision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Classification on a group basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) Specific provisions for branches and subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 3. Classification of supervised entities and groups as significant . . . . . . . . . . . . a) Review of the status of a supervised entity or group: regular and ad hoc classification processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Procedure applicable in determining the significance of a supervised entity or group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. List of supervised entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. The individual criteria for significance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Significance on the basis of the size criterion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) General provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Basis of determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (i) The rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (ii) Basis of determination in specific or exceptional circumstances . . . . (iii) Groups of consolidated undertakings – methods of consolidation . . 2. Significance on the basis of the economic importance criterion . . . . . . . . . . 3. Significance on the basis of the cross-border activities criterion . . . . . . . . . . 4. Significance on the basis of the direct public financial assistance criterion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Significance on the basis of the fact that the supervised entity is one of the three most significant credit institutions in a participating Member State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. The term “particular circumstances” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. Quantitative vs. qualitative criteria for determining significance . . . . . . . . . III. The Landeskreditbank Baden-Württemberg ‒ Förderbank v ECB case . . . . . . 1. The facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. The decision of the Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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C. Micro-prudential supervision of significant supervised entities and groups I. General provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. JSTs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Establishment and composition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Tasks of JSTs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Supervision on a consolidated basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Supplementary supervision of credit institutions participating in financial conglomerates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Procedures for micro-prudential supervision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Micro-prudential supervision of significant supervised entities and assistance by NCAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. In particular: compliance with fit and proper requirements for managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Other procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Beginning and end of direct supervision by the ECB . . . . . . . . . . . . . . . . . . . . . . . . . 1. Beginning of direct supervision by the ECB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. End of direct supervision by the ECB – reclassification of a significant supervised entity or group as less significant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Pending procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D. Micro-prudential supervision of less significant supervised entities and groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Powers of the ECB (Art. 6(5) SSMR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. The provisions of Art. 6(5)(a) and (c)-(d) SSMR . . . . . . . . . . . . . . . . . . . . . . . . . . a) Introductory remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) The individual powers of the ECB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Direct supervision of less significant supervised entities by the ECB in accordance with Art. 6(5)(b) SSMR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Procedure for preparing ECB Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (i) Activation of Art. 6(5)(b) SSMR on the ECB’s initiative . . . . . . . . . . . . (ii) Activation of Art. 6(5)(b) SSMR at the request of an NCA . . . . . . . . . c) Supervised entities classified as significant on the basis of Art. 6(5)(b) SSMR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Responsibilities of NCAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. The provisions of Art. 6(6) SSMR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. The provisions of Arts. 96-100 SSM Framework Regulation on the procedures for micro-prudential supervision of less significant supervised entities (and groups) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Notification and information requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (i) Rapid and significant deterioration of a less significant supervised entity’s financial situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (ii) Information requirements relating to “material” supervisory procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (iii) Requirements relating to “material” draft supervisory Decisions . . . b) Ex-post reporting to the ECB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

64 64 64 64 65 66 71 72 72 74 77 78 78 81 85 89 89 89 89 90 93 93 95 95 96 97 98 98 101 101 101 102 104 105

A. General provisions applying to the operation of the SSM: principles and obligations – legal basis of the “SSM Framework Regulation” I. Definition, composition and legal nature of the SSM (Art. 6(1) SSMR) 1

The specific (micro- and macro-prudential) supervisory tasks conferred upon the ECB by virtue of Arts. 4(1)-(2) and 5 SSMR are carried out within the SSM, which

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consists of the ECB and the NCAs of the participating Member States.1 According to the ECB “Guide to banking supervision” of November 2014, “[t]he SSM combines the strengths of the ECB and the NCAs. It builds on the ECB’s macroeconomic and financial stability expertise and on the NCAs’ important and long-established knowledge and expertise in the supervision of credit institutions within their jurisdictions, taking into account their economic, organisational and cultural specificities.”2 In this respect, the ECB has been assigned the responsibility for the “effective and consistent functioning of the SSM”,3 including the prudential supervision of all credit institutions, financial holding companies or mixed financial holding companies (the “supervised entities”) established in participating Member States. The SSM is neither an authority nor an agency and has no legal personality. It is de- 2 fined as meaning the “system of financial supervision” composed, as prescribed in Art. 6 SSMR, of the ECB and the NCAs of participating Member States, including those of Member States with derogation, if the latter have established a “close cooperation” pursuant to Art. 7 SSMR.4 The division of competencies between the ECB and the NCAs of Member States participating in the SSM reflects the decision to create a “hub” (i.e., the ECB) without doing away with the “spokes” (i.e., the NCAs).5 It is evident that the SSM has a different institutional architecture from the Eurosys- 3 tem, whose members are the ECB and (exclusively) the NCBs of Member States whose currency is euro6 operating under the principle of decentralisation, which, nevertheless, does not apply to the SSM in the way it is applied within the Eurosystem (Art. 6 SSMR

1 Art. 6(1) sent. 1 SSMR. On the case for and against centralising micro-prudential supervision at EU level, focusing particularly on cross-border banking groups and the risks created by fragmented supervision, see Ferrarini and Chiarella, Corporate Governance Institute, Working Papier Series in Law No 223/2013 (2013), at p. 6-13. 2 ECB, Guide to banking supervision (2014), para. 8, sent. 1 and 2; this Guide, of November 2014, is available at: . In the same vein, also Tröger, SAFE Working Paper Series No. 27(2013), at p. 20: “It is at least comprehensible that the novel supervisory architecture seeks to integrate NCAs in order to capitalize on their knowledge of national, regional and local banking markets, their longstanding expertise particularly with regard to the interpretation and application of (harmonized) national banking regulation, and their advantages with regard to location and language-skills. As a consequence, the ECB is tasked with devising a general “framework to organise the practical modalities” of the interplay between itself and the NCAs not only with regard to the supervision of less significant institutions (…) but also with regard to that of the euro area’s biggest banks that fall under its direct oversight.” 3 Art. 6(1) sent. 2 SSMR. 4 Art. 2(9) SSMR. According to the German doctrine, the SSM is described as a progressive form of a “Verwaltungsverbund”, namely a product of administrative federalism within the EU; see on this Grundmann, in: Canaris, Habersack and Schäfer (eds), Staub, Großkommentar Handelsgesetzbuch, Band 10/1 – Bankvertragsrecht, Erster Teil, Kreditwesen und Organisation (5th edn, 2016) at p. 54 (para. 57) and Ohler, in: Amtenbrink and Hermann (eds), The EU Law of Economic and Monetary Union (2020), at p. 1124. 5 On this terminology, see Carletti and Dell’ Ariccia, Supervisory incentives in a Banking Union (2015) and Tröger, in: Fabbrini and Ventoruzzo (eds), Research Handbook of EU Economic Law (2019), at p. 297. 6 Art. 282(1) sent. 2 TFEU. NCAs, other than NCBs, are not members of the Eurosystem. The same holds for central banks of Member States with a derogation, which nevertheless are members of the European System of Central Banks (ESCB), unlike NCAs. For an overview of the ESCB and the Eurosystem, see by means of mere indication Gortsos, European Central Banking Law – The Role of the European Central Bank and National Central Banks under European Law (2020), at p. 185, with extensive further references.

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being entitled and governing “cooperation within the SSM”).7 In addition, the ECB’s objective within the SSM (in accordance with Art. 1(1) SSMR, analysed above) is as well different from the primary objective of the ESCB under the TFEU, i.e., maintaining price stability.8 4 A participating Member State’s NCA may be the NCB, i.e., its former monetary authority if it is a euro area Member State, or its monetary authority if it is a Member State with derogation and has established a close cooperation with the ECB by virtue of Art. 7 SSMR. This is the case in 11 participating Member States, as well as in the two participating Member States in close cooperation (Bulgaria and Croatia), which joined the SSM in October 2020,9 while in another three micro-prudential banking supervision has been assigned to autonomous national (administrative) authorities, albeit under the auspices of the NCB. Nevertheless, with a view to fully separating monetary policy from banking supervisory tasks,10 in four participating Member States the NCB is not designated as an NCA (even though it is called upon to contribute to micro-prudential supervision).11 In such cases, NCBs of participating Member States must carry out these specific supervisory tasks within the framework set out in national law and the SSM‑FR. In addition, a reference to an NCA therein applies, as appropriate, also to the NCB for the tasks assigned to it by national law.12

II. The legal basis and structure of the SSM Framework Regulation 1. The provisions of the SSMR (Art. 6(7) SSMR) 5

In consultation with participating Member States’ NCAs and based on a proposal from the Supervisory Board, the ECB was required to adopt and make public a framework to organise the practical modalities of implementation of Art. 6 SSMR. In particular, pursuant to Art. 6(7) SSMR, this framework should include, at least, the following: First, the specific methodology for assessing the criteria on the classification of a credit institution (or any other supervised entity) as significant or less significant (according to Art. 6(4)(1)-(3) SSMR the criteria under which Art. 6(4)(4) SSMR ceases to apply to a specific credit institution (or any other supervised entity), and the resulting arrangements for the purposes of implementing Art. 6(5)-(6) SSMR.

7 On this aspect, see infra, → paras. 56-63, when discussing the judgement of the CJEU on the Landeskreditbank Baden-Württemberg ‒ Förderbank v European Central Bank (ECB) case. On the decentralised structure of the Eurosystem and the operations therein, see Smits, The European Central Bank – Institutional Aspects (1997), at p. 92; Priego and Conlledo, in: Legal Aspects of the European System of Central Banks: Liber Amicorum Paolo Zamboni Garavelli (2005), Hadjiemmanuil in: Chalmers et al. (eds), European Union Law (2006), at p. 551; Lastra, Legal foundations of international monetary stability (2006), at p. 208; Louis, in: Commentaire J. Megret (2009), at p. 135 and Zilioli and Athanassiou, in: Schütze and Tridimas (eds), Oxford Principles European Union Law – Volume I: The European Union Legal Order (2018), at p. 625. 8 Art. 127(1) sent. 1 TFEU, inter alia; see indicatively Smits, The European Central Bank - Institutional Aspects (1997), at p. 184, Louis, in: Commentaire J. Megret (2009), at p. 150, and Zilioli and Athanassiou, in: Schütze and Tridimas (eds), Oxford Principles European Union Law – Volume I: The European Union Legal Order (2018), at p. 612. 9 See at: and . 10 This aspect is discussed in more detail in the analysis of Art. 25 SSMR. 11 See Zilioli and Athanassiou, in: Schütze and Tridimas (eds), Oxford Principles European Union Law – Volume I: The European Union Legal Order (2018), at p. 648. 12 Art. 2(9) sent. 3 and 4 SSM‑FR.

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This methodology and these arrangements should be reviewed in order to reflect any relevant changes, and ensure that, if any supervised entity has been classified as significant or less significant, that assessment will only be modified in case of substantial and non-transitory changes of circumstances. Second, the definition of the procedures, including time limits, and the possibility to prepare draft decisions to be sent to the ECB for consideration concerning the relationship between the ECB and NCAs with regard to the micro-prudential supervision of credit institutions and other supervised entities not considered less significant (thus considered significant) in Art. 6(4) SSMR. Finally, the definition of the procedures, including time limits, for the relationship between the ECB and NCAs regarding the micro-prudential supervision of supervised entities is considered less significant under Art. 6(4) SSMR. Such procedures should, in particular, require that NCAs, depending on the cases defined in the SSMR, notify the ECB of any “material supervisory procedure”, further assess, on the ECB’s request, specific aspects of the procedure, and transmit to the ECB “material draft supervisory Decisions” on which the ECB may express its views.

2. The provisions of the SSM Framework Regulation: An overview On the basis of (the just above-mentioned) Art. 6(7) SSMR, the ECB adopted on 16 6 April 2014 its Regulation (EU) No 468/2014 “establishing the framework for cooperation within the SSM between the ECB and NCAs and with national designated authorities (NDAs) (SSM‑FR)” (ECB/2014/17).13 The subject matter and purpose of that Regulation, which entered into force on 15 May 201414 and contains 153 Articles structured in 12 Parts, is to lay down rules on the following aspects:15 First, the framework referred to in that SSMR Article, namely a framework to organise the practical arrangements for implementing Art. 6 SSMR concerning cooperation within the SSM, covering all aspects mentioned above; Second, cooperation and exchange of information between the ECB and NCAs within the SSM with regard to the procedures relating to significant supervised entities and less significant supervised entities, including common procedures applying to authorisations to take up the business of credit institutions, withdrawals of such authorisations, and the assessment of acquisitions and disposals of qualifying holdings; Third, the procedures relating to the following aspects: cooperation between the ECB and NCAs or NDAs regarding macro-prudential tasks and tools within the meaning of Art. 5 SSMR; the operation of close cooperation within the meaning of Art. 7 SSMR and applicable between the ECB, the NCAs and the NDAs; cooperation between the ECB and the NCAs with regard to Arts. 10-13 SSMR, inter alia, on certain aspects relating to supervisory reporting; the adoption of supervisory Decisions addressed to supervised entities and other persons; and the ECB’s and NCA’ sanctioning powers within the SSM in relation to the tasks conferred on the ECB by the SSMR;16 Fourth, the linguistic arrangements between the ECB and the NCAs, as well as between the ECB and supervised entities and other persons (infra, → para. 14); Finally, transitional provisions. OJ L141, 14.5.2014, pp. 1-50. Art. 153 SSM‑FR. 15 Art. 1(1)(a)-(i) SSM‑FR. 16 These aspects are discussed in the analysis of the respective SSMR Articles. 13 14

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The provisions of the SSM‑FR do not affect the supervisory tasks that have not been conferred on the ECB by the SSMR and hence, remain with NCAs.17 In addition, the Regulation must be read in conjunction with: first, the ECB Decision 2004/257/EC “adopting the rules of procedure of the ECB” (ECB/2004/2)18 and the Rules of Procedure of the Supervisory Board of the ECB19 (which supplement the ECB Rules of Procedure and entered into force on 1 April 2014), in particular with regard to the decision-making within the SSM, including the procedure applying between the Supervisory Board and the Governing Council as regards the non-objection procedure referred to in Art. 26(8) SSMR; and second, other relevant ECB legal acts, including Decision 2014/360/EU “concerning the Administrative Board of Review [ABOR] and its Operating Rules” (ECB/ 2014/16),20 which entered into force on 15 June 2014.21

III. Main principles and obligations imposed on the ECB and NCAs (Art. 6(2) SSMR) The ECB and NCAs are subject to two fundamental obligations: a “duty of cooperation in good faith” and an obligation to exchange information.22 These obligations introduced a new qualitative element in the relations of NCAs, traditionally reluctant to cooperate and exchange information about their domestic credit institutions.23 9 In this respect, NCAs must provide the ECB, in a timely and accurate manner, with all information necessary for carrying out its tasks under Arts. 4-5 SSMR; this is without prejudice to the ECB’s power to receive directly, or to have direct access to, information reported, on an ongoing basis, by supervised entities, including information arising from the NCAs’ verification and on-site activities.24 The procedures concerning the submission to the ECB of data reported to NCAs by the supervised authorities on the basis of Commission Implementing Regulation (EU) No 680/2014 of 16 April 2014 “laying down implementing technical standards with regard to supervisory reporting of institutions according to [the CRR]”25 (remittance dates, data quality checks, qualitative information and specification of the transmission format) are laid down in ECB Decision 2014/477/EU of 2 July 2014 “on the provision to the ECB of supervisory data reported to the NCAs by the supervised entities pursuant to Commission Implementing Regulation (EU) No 680/2014” (ECB/2014/29),26 which was adopted on the basis of Article 21 (and 140(4)) SSM‑FR. This Decision applies as amended by ECB Decision (EU) 2017/1493 of 3 August 2017 (ECB/2017/23). 27 8

Art. 1(2) SSM‑FR. OJ L80, 18.3.2004, pp. 33-41, as in force. 19 OJ L182, 21.6.2014, pp. 56-60, as in force. 20 OJ L175, 14.6.2014, pp. 47-53. 21 Art. 1(3) SSM‑FR. 22 Art. 6(2)(1) SSMR, and Art. 20 SSM‑FR. See Grundmann, in: Canaris, Habersack and Schäfer (eds), Staub, Großkommentar Handelsgesetzbuch, Band 10/1 – Bankvertragsrecht, Erster Teil, Kreditwesen und Organisation (5th edn, 2016), at p. 54 para. 57; on the value-added of these obligations, see also Thiele, Finanzaufsicht (2014), at p. 525 (under Section C II, discussing therein the SSM as an effective supervisory structure). 23 See Gortsos, EBOR 16(2015), at p. 417. According to Wymeersch, in: Busch and Ferrarini (eds), European Banking Union (2nd edn, 2020), at p. 176, with extensive further references, this pattern of cooperation is comparable to the one also found, inter alia, in the fields of competition, medicines, airplane safety, notwithstanding the differences between them. 24 Art. 6(2)(2) SSMR and Art. 21(1) SSM‑FR. 25 OJ L191, 28.6.2014, pp. 1-1861. 26 OJ L214, 19.7.2014, pp. 34-37. 27 OJ L216, 22.8.2017, pp. 23-26. 17

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Vice versa, when the ECB obtains information directly from the legal or natural per- 10 sons referred to in Art. 10(1) SSMR, it must further provide it to the NCAs concerned, in a timely and accurate manner as well, including, in particular, information necessary for the NCAs to carry out their role in assisting it. Without prejudice to this, the ECB must ensure that NCAs have regular access to the updated information necessary for them to carry out their tasks related to micro-prudential supervision.28

IV. The interaction between the ECB and NCAs 1. Provisions of the SSMR (Art. 6(3) and 6(8) SSMR) Recital (37) SSMR makes the following consideration: “National supervisors have im- 11 portant 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 those purposes. Therefore, in order to ensure high-quality, Union-wide supervision, national competent authorities 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 credit institution’s situation and related on-site verifications.” On this basis, Art. 6(3) SSMR provides that, if deemed appropriate, NCAs are responsible for assisting the ECB, under the conditions laid down in the SSM‑FR, with the preparation and implementation of any acts relating to its tasks under Art. 4 SSMR with regard to all supervised entities. This includes assistance in verification activities and is without prejudice to the ECB’s responsibility and accountability in relation to its tasks under the SSMR.29 In addition, in the performance of the tasks laid down in Art. 4 SSMR, NCAs must follow the instructions given by the ECB.30 To the extent that the ECB is assisted by NCAs or NDAs for exercising its tasks 12 under the SSMR, the ECB and NCAs must comply with the relevant provisions set out in European banking law (notably the CRD IV) as far as the allocation of responsibilities and cooperation between competent authorities from different Member States is concerned.31

2. Provisions of the SSM Framework Regulation (Arts. 22-24 SSM Framework Regulation) a) Right of the ECB to instruct NCAs or NDAs to make use of their powers and take action To the extent necessary to carry out its tasks under the SSMR and where the SSMR 13 does not confer respective powers on the ECB, the latter may require, by way of instructions, the NCAs and/or, in respect of Art. 5 SSMR, the NDAs to make use of their powers, under and in accordance with the conditions set out in national law and as provided Art. 21(2)-(3) SSM‑FR. Art. 6(3) sent. (1) SSMR. It is noteworthy that, by virtue of Recital (28) SSMR, the task of carrying out day-to-day verifications remains with NCAs; nevertheless, with regard to significant supervised entities it is carried out through JSTs (see infra, → paras. 64-65). The ECB accountability in relation to its tasks under Arts. 4-5 SSMR is governed by Arts. 20-21 SSMR; see the analysis of these Articles below. 30 Art. 6(3) sent. 2 SSMR. On Art. 6(3) SSMR, see also Glοs und Benzing, in: Binder, Glos and Riepe (eds), Handbuch Bankenaufsichtsrecht (2020), at p. 49-50 paras. 72-75 and D’Ambrosio, in: D’Ambrosio (ed), Law and Practice of the Banking Union and of its governing Institutions (Cases and Materials) (2020), at p. 173. 31 Art. 6(8) SSMR. 28

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for in Art. 9 SSMR. NCAs and/or NDAs must inform the ECB about the exercise of these powers without undue delay.32 b) Language regimes 14

The ECB and NCAs must adopt arrangements for their communications within the SSM, including the language(s) to be used.33 Any document sent by a supervised entity or any other legal or natural person individually subject to ECB supervisory procedures to the ECB may be drafted in any one of the EU official languages, chosen by the supervised entity or person. The ECB, the supervised entities and any other legal or natural person individually subject to ECB supervisory procedures may agree to exclusively use one EU official language in their written communication (including for ECB supervisory Decisions). The revocation of such an agreement affects only the aspects of the ECB supervisory procedure which have not yet been carried out. If participants in an oral hearing request to be heard in an EU official language other than the language of the ECB supervisory procedure, they must give to the ECB sufficient advance notice in order for the necessary arrangements to be made.34

B. Classification of supervised entities and groups as significant or less significant (Article 6(4) SSMR) I. Introductory remarks and general provisions 1. From the Commission’s proposal to the SSM Regulation and the SSM Framework Regulation 15

According to Recital (4.6) and Art. 27 of the Commission’s Proposal for a Council Regulation “conferring specific tasks on the ECB concerning policies relating to the prudential supervision of credit institutions”, all credit institutions incorporated in participating Member States should, on a gradual basis, be submitted to the regime of the ECB’s specific tasks. The proposed timeframe for the ECB’s supervisory competence over such credit institutions was the following: as of 1 January 2013, over those credit institutions which had received or requested State aid; as of 1 July 2013, over “systemically important” credit institutions; and as of 1 January 2014, over all other credit institutions. Nevertheless, certain Member States, led by Germany, the Netherlands and Finland, voiced their opposition to the eventuality of all credit institutions incorporated within their jurisdiction being subjected to the ECB’s micro-prudential supervision, arguing that the micro-prudential supervision of smaller credit institutions, mainly those without cross-border business, exercising activity exclusively at local level, should remain with NCAs.35 It is noteworthy that even the then ECB President (Mario Draghi) subscribed to this argument, stating in the ECB press conference of 6 December 2012: 36 Art. 22(1)-(2) SSM‑FR. Art. 23 SSM‑FR. 34 Art. 24(1)-(2) SSM‑FR. 35 For a brief overview of the inter-institutional discussions on this aspect, which lead to the adoption of Art. 6(4) SSMR in its final form, see Ferran and Babis, Legal Studies Research Paper Series, University of Cambridge, Faculty of Law, Paper No. 10/2013 (2013), at p. 4 (which analytically discuss the Commission’s proposal for the SSMR), Alexander, ELR, Issue 2(2015), at p. 168-169 and Glοs und Benzing, in: Binder, Glos and Riepe (eds), Handbuch Bankenaufsichtsrecht (2020), at p. 35. 36 This is available at: . 32

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“One should aim to have this mechanism covering all euro area banks from a legal, jurisdictional viewpoint, because you want to avoid fragmentation in the banking market, you want to keep a level playing field, and you want to avoid stigma for some categories of banks. However, in practice, I do not think that there is going to be much difference between this position and that which has been advocated by others. It is quite obvious that the ECB supervisor will not be able to supervise 6,000 banks, and that, as the size of the bank and as its systemic significance decreases, so the intensity of the supervision that is carried out at the central level will decrease and the intensity of the supervision carried out at the national level will increase.” Considering the above, Art. 6(4) SSMR established, in principle, a “two-tier system” 37 16 on the distribution of powers within the SSM, distinguishing between “significant” and “less significant” supervised entities.38 This distinction took, in particular, under consideration of the substantive restrictions (conferral of specific tasks) laid down in Art. 127(6) TFEU, i.e., the legal basis of the SSMR.39 The SSMR provisions are further specified by Arts. 39-72 SSM‑FR (Part IV) “on determining the status of a supervised entity as significant or less significant”.40 Recital (39) SSMR considers in this respect the following: “The criteria laid down in this Regulation defining 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 those 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 EU and national law.”

2. General provisions relating to the classification of a supervised entity or group as significant or less significant a) Classification on an individual basis – implications for direct supervision All supervised entities within participating Member States are assessed, on the basis 17 of a regular review, to determine whether they fulfil the criteria (conditions) for significance of Art. 6(4) SSMR. A supervised entity is classified as significant upon notification of a reasoned ECB Decision to this effect, according to Arts. 43-49 SSM‑FR (the “signifi-

37 On this aspect, see also infra, → paras. 58-61, when discussing the ECJ’s judgement on the Landeskreditbank Baden-Württemberg ‒ Förderbank v European Central Bank (ECB) case. 38 As correctly pointed out by Brescia Morra (Working paper No 2, Luiss Guido Carli School of European Political Economy (2014), at pp. 8-10), on the basis of this distinction, more than one authority will be responsible to carry out the same prudential tasks on a different perimeter of financial firms in the single market for financial services, taking also into account that credit institutions in non-participating Member States continue to be supervised by NCAs solely; she also notes that this situation is “not dissimilar” with the one in the United States. On the link between the Banking Union and the single market, see Lastra, Fordham International Law Journal Volume 36 (2013), Binder, in: Binder and Gortsos (eds), The European Banking Union. A Compendium (2016), at p. 13 and Alexander, ELR, Issue 2(2015), at pp. 160-162. 39 See Glοs und Benzing, in: Jens-Hinrich Binder, Alexander Glos and Jan Riepe (eds), Handbuch Bankenaufsichtsrecht (2020), at p. 36 (para. 23, in finem). 40 The (vast) majority of these Articles are analysed in this Section below. Exceptionally, Arts. 45-48 SSM‑FR concerning the beginning and end of direct supervision by the ECB are presented in paras. 78-88 and Arts. 67-69 SSM‑FR on the direct supervision of less significant supervised entities by the ECB in accordance with Art. 6(5)(b) SSMR are discussed in → paras. 93-97.

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cance Decision”).41 In turn, it ceases to be classified as significant, if the ECB determines, also in a reasoned Decision notified to the entity, that it is either a less significant supervised entity or no longer a supervised entity.42 18 A supervised entity is classified as significant upon meeting any of the following criteria: its size (the “size criterion”, see below, under II 1); its importance for the EU economy or the economy of a participating Member State (the “economic importance criterion”, under II 2); its significance with regard to cross-border activities (the “cross-border activities criterion”, under II 3); a request for or receipt of direct public financial assistance (the “direct public financial assistance criterion”, under II 4); and the fact that it is one of the three most significant credit institutions (or groups) in each participating Member State (under II 5).43 Supervised entities and groups not meeting these criteria are considered “less significant” and are classified as such.44 It is noteworthy that the ECB may also, on its own initiative or upon a request by an NCA, directly supervise a less significant supervised entity or group under a Decision adopted pursuant to Art. 6(5)(b) SSMR to the effect that it will itself exercise directly all relevant powers referred to in Article 6(4) SSMR. Such an entity or group is thus reclassified as significant.45 19 With regard to the specific (supervisory) tasks conferred upon it by virtue of Arts. 4(1)-(2) and 5 SSMR, significant supervised entities are directly supervised by the ECB, unless “particular circumstances” justify their supervision by NCAs (infra, under II 6).46 On the other hand, with regard to these specific tasks, less significant entities are directly supervised by NCAs within the SSM under the overall oversight of the ECB in accordance with the provisions of Art. 6(5)-(6) SSMR and Arts. 96-100 SSM‑FR. 47 In areas of financial supervision not covered by Arts. 4(1)-(2) and 5 SSMR, NCAs retained their competences for both significant and less significant supervised entities. 48 20 In all the above-mentioned cases, the ECB must consult with the relevant NCAs prior to taking decisions and notify them to the latter.49 41 Art. 39(1) SSM‑FR; on Arts. 43-49 SSM‑FR, see infra, → paras. 26-33. Lackhoff, Single Supervisory Mechanism: A Practitioner’s Guide (2017), at p. 145, para. 635, notes in this respect that a supervised entity or group becomes legally significant only upon adoption of this Decision and, hence, the significance status depends on it. 42 Art. 39(2) SSM‑FR; on the end of direct supervision by the ECB, see infra, → paras. 81-84. 43 Art. 6(4) SSMR and Art. 39(3) SSM‑FR. 44 Art. 6(4)(1) SSMR. 45 Art. 39(5) SSM‑FR. 46 Art. 6(4) SSMR and Art. 39(4) SSM‑FR. 47 Art. 6(4)(1) SSMR and Art. 6(5)(a) SSMR. For a schematic overview of the division of competences between the ECB and NCA with regard to significant and less significant supervised entities (further analysed in detail below), see Wiggins, Wedow and Metrick, ‘European Banking Union A: The Single Supervisory Mechanism’, Yale Program on Financial Stability, Case Study 2014-5A-V1 (2014), Table 4 at p. 7. For a critical evaluation, see Ferran and Babis, ‘Legal Studies Research Paper Series’, University of Cambridge, Faculty of Law, Paper No. 10/2013 (2013), at pp. 10-12. They note in particular (p. 11): “Although the ECB has had a longstanding interest in prudential supervision born of its established statutory responsibility to contribute to the smooth conduct of policies pursued by national authorities relating to prudential supervision and financial stability, it has no track record as a direct supervisor and must build capacities and resources in the area. Since it is untested, there is absolutely no guarantee that the ECB will do a better job in supervision than many national supervisors, but it must at least be given a fair chance to prove its worth. It would have been suicidal to have overwhelmed it from the start. But the approach is certainly not risk-free. A major concern is that the allocation of supervision of less significant banks to national authorities or the outsourcing of labour from the ECB to national authorities may not afford the ECB with sufficient visibility of emerging problems quickly enough for timely intervention.” 48 See D’Ambrosio, in: D’Ambrosio (ed), Law and Practice of the Banking Union and of its governing Institutions (Cases and Materials) (2020), at pp. 31-32. 49 Art. 39(6) SSM‑FR.

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b) Classification on a group basis The criteria for significance of supervised entities which form a part of a supervised 21 group are set at the highest level of consolidation within participating Member States in accordance with the provisions of Arts. 50-66 SSM‑FR.50 This is based on the consideration made in Recital (38) SSMR: “The criteria laid down in this Regulation defining 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 on 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.” Each such supervised entity is deemed to be significant in any of the following cases: First, the supervised group at its highest level of consolidation within participating Member States fulfils the size criterion, the economic importance criterion or the cross-border activities criterion; and Second, one of the supervised entities either fulfils the direct public financial assistance criterion or is one of the three most significant credit institutions in the participating Member State.51 On the basis of these provisions, all members of a supervised group are either 22 significant or less significant.52 If a supervised group is classified as significant or is deemed as no longer significant, 23 the ECB must adopt a decision to this effect and notify the start and end dates of direct ECB supervision to each supervised entity forming part thereof in accordance with the criteria and procedures laid down in Art. 39 SSM‑FR.53 c) Specific provisions for branches and subsidiaries The branches opened by a credit institution from a participating Member State in an- 24 other participating Member State are supervised by the ECB as the home supervisor; the same applies, by virtue of Art. 4(1)(b) SSMR, to the branches of such a credit institution in a non-participating Member State. Furthermore, the branches opened in a participating Member State by a credit institution incorporated (and thus authorised) in a nonparticipating Member State are supervised by the ECB according to the provisions of Art. 4(2) SSMR.54 In relation to the latter case, the SSM‑FR provides that all these branches are deemed to be a single supervised entity but, and without prejudice to this provision, when determining whether any of the criteria for significance is fulfilled, they must be assessed individually as separate supervised entities and separately from subsidiaries of the relevant credit institution. On the other hand, branches opened in different participating Member States by a credit institution incorporated in a non-participating Member State are treated individually as separate supervised entities.55

Art. 40(1) SSM‑FR; on Arts. 50-66 SSM‑FR, see infra, → paras. 35-50. Art. 40(2)(a) and (b)-(c) SSM‑FR, respectively. 52 See Lackhoff, Single Supervisory Mechanism: A Practitioner’s Guide (2017), at p. 144 paras. 627-629. 53 Art. 40(3) SSM‑FR; on Art. 39 SSM‑FR, see supra, → paras. 17-20. 54 With respect to both cases, see Art. 4 SSMR; it is also noted that by virtue of Recital (28) SSMR, the supervision of the branches opened in the EU by third-country credit institutions is not a competence of the ECB but of the NCAs of the Member State of their establishment. 55 Art. 41(1)-(3) SSM‑FR. 50

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When determining whether any of the criteria for significance is fulfilled, subsidiaries established in (one or more) participating Member States by a credit institution incorporated in a non-participating Member State or in a third country are assessed separately from its branches. For the same purpose, the subsidiaries incorporated in a participating Member State, those belonging to a group whose parent undertaking has its head office in a non-participating Member State or in a third country and those not belonging to a supervised group within participating Member States are assessed separately as well. 56

3. Classification of supervised entities and groups as significant a) Review of the status of a supervised entity or group: regular and ad hoc classification processes The status of supervised entities and groups may change for several reasons, including normal business activity or structural changes (e.g., mergers and acquisitions). Taking this into account, Recital 40 considers that, “[w]here a credit institution has been considered as 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.” Accordingly, the SSM‑FR sets out a “regular classification process” with regard to the significance status, according to which (and unless otherwise provided for therein) the ECB must review, at least on an annual basis, whether a significant supervised entity or group continues to fulfil any of the criteria for significance.57 For the same reasons and under the same constraint, each NCA must also review, at least on an annual basis as well, whether a less significant supervised entity fulfils any of the criteria for significance; in the case of a less significant supervised group, this review must be carried out by the relevant NCA of the participating Member State in which the parent undertaking, determined at the highest level of consolidation within participating Member States, is incorporated. If it assesses that any of these criteria is fulfilled, it must, without undue delay, inform the ECB.58 27 The SSM‑FR also provides for an “ad hoc classification process”, in accordance with which, at any time following receipt of relevant information (in particular under the circumstances specified in Art. 52 SSM‑FR concerning the basis for the determining significance on the basis of the size criterion in specific or exceptional circumstances 59), the ECB may review whether a supervised entity or group fulfils any of the criteria for significance and whether it no longer fulfils any of them.60 28 At the request of the ECB or an NCA, the ECB and the relevant NCA must cooperate in determining whether any of the criteria for significance are fulfilled in respect of a supervised entity or group. The ECB must also cooperate with the relevant NCA if it decides either to assume the direct supervision of a supervised entity or group or that its direct supervision over a supervised entity or group must end, in order to ensure the smooth transition of supervisory competencies.61 26

56 Art. 42(1)-(2) SSM‑FR. For a detailed analysis of the rules governing the supervision of foreign branches and subsidiaries under the SSMR and their effect, see Wymeersch, ‘ECGI Working Paper Series in Law’, Working Paper No. 240 (2014), at pp. 32-37. 57 Art. 43(1) SSM‑FR. 58 Art. 43(2) and (4) SSM‑FR. 59 On Art. 52 SSM‑FR, see infra, → paras. 39-40. 60 Art. 43(3) SSM‑FR. 61 In particular, a report setting out the supervisory history and risk profile of the supervised entity must be prepared by the relevant NCA when the ECB assumes the direct supervision of a supervised entity and by the ECB when the relevant NCA becomes competent to supervise the entity concerned (Arts. 43(5)-(6) SSM‑FR).

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The determination whether a supervised entity or group is significant is made by an 29 ECB Decision and must be based on the criteria for significance in the order set out in Art. 6(4) SSMR.62 In this respect, the ECB’s “SSM Supervisory Manual – European banking supervision: functioning of the SSM and supervisory approach” of March 2018,63 distinguishes between the “quantitative criteria” that must be taken into account and various “qualitative criteria”, which may determine its decision.64 b) Procedure applicable in determining the significance of a supervised entity or group When taking a Decision on the classification of a supervised entity or group as sig- 30 nificant, and unless otherwise provided, the ECB must apply the procedural rules set out in Arts. 25-35 SSM‑FR (on the general provisions relating to due process for adopting ECB supervisory Decisions).65 In this case, a new JST must be set up for the ECB to take over its supervisory responsibilities.66 For supervised entities that are not notified by the ECB, the list referred to in Art. 49(2) SSM‑FR (infra, → para. 33) serves as notification of their classification as less significant.67 Within the timeframe laid down in Art. 45 SSM‑FR (on the beginning of its direct 31 supervision; infra, → paras. 78-80), a Decision on the classification of a supervised entity or group as significant (“the status Decision”) must be notified in writing by the ECB to each supervised entity concerned and should be communicated to the relevant NCA. For supervised entities that are part of a significant supervised group, the Decision must be notified to the supervised entity at the highest level of consolidation within the participating Member States and ensure that all supervised entities within that group are duly informed.68 The ECB must allow each relevant entity to make submissions in writing prior to the adoption of such a Decision and the relevant NCAs (in accordance with Art. 39(6) SSM Framework regulation; supra, → para. 20) an opportunity to submit observations and comments in writing and duly consider them.69 A supervised entity or group is classified as significant from the date of notification of the ECB Decision to this effect.70 By virtue of Art. 2 of the ECB Decision (EU) 2017/934 of 16 November 2016 “on the 32 delegation of decisions on the significance of supervised entities (ECB/2016/41)”, 71 the ECB Governing Council has delegated, in accordance with Art. 4 of Decision (EU) 2017/933 (ECB/2016/40), 72 the adoption of amendments to Decisions on significance to the heads of work units nominated by the Executive Board in accordance with Art. 5 of the latter. Such an amendment can only be adopted by means of a delegated Decision upon fulfilment of the criteria for the adoption of such Decisions, as set out in Art. 3 of ECB Decision (EU) 2017/934.

Art. 44(7) SSM‑FR. This manual sets out the processes, procedures and methodologies for the supervision of all supervised entities and groups, significant and less significant, following a formally defined supervisory cycle; it is available at: . 64 SSM Supervisory Manual (2018), p. 58-59; this aspect is further discussed infra, → paras. 53-55. 65 Art. 44(1) SSM‑FR. 66 SSM Supervisory Manual (2018), p. 59. 67 Art. 44(3) SSM‑FR. 68 Art. 44(2) SSM‑FR. 69 Art. 44(4)-(5) SSM‑FR. 70 Art. 44(6) SSM‑FR. 71 OJ L141, 1.6.2017, pp. 18-20. 72 OJ L141, 1.6.2017, pp. 14-17. 62 63

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4. List of supervised entities In accordance with Art. 49 SSM‑FR, the ECB must publish the following: First, a list containing the name of each supervised entity and supervised group which it directly supervises, indicating (if relevant) the supervised group to which it belongs and the specific legal basis for such direct supervision; in the case of a classification as significant based on the size criterion, the list must include the total value of the supervised entity’s or group’s assets; Second, the name of supervised entities which, despite meeting one of the criteria referred to in Art. 6(4) SSMR, are considered less significant because of particular circumstances; Third, a list containing the name of each supervised entity which is supervised by an NCA and the name of that authority. These lists must be published electronically, be accessible on the ECB’s website and be regularly updated.73 34 On the basis of the list of supervised entities and groups set up by the ECB, which is updated on a monthly basis, on 1 November 2021, 115 credit institutions, other types of supervised entities and groups were classified as significant, which accounted for 82 % of the total assets held by the banking industry in participating Member States.74 The (vast) majority met the size criterion (infra, → para. 35), while some have been classified as such by virtue of Art. 6(5)(b) SSMR (infra, → para. 97). 33

II. The individual criteria for significance75 1. Significance on the basis of the size criterion a) General provisions 35

According to the size criterion, supervised entities and groups are deemed to be significant if the total value of their assets exceeds thirty billion euros (the “size threshold”), unless otherwise justified by “particular circumstances”.76 The “total value of assets” is derived from the line “total assets” on a balance sheet prepared for prudential purposes, in accordance with EU law.77 b) Basis of determination (i) The rule

36

If the supervised entity is part of a supervised group, the total value of its assets is determined, in principle, on the basis of the year-end prudential consolidated reporting for

73 Art. 49(1)-(4) SSM‑FR. For the purposes of this Article, a supervisory procedure means an ECB or NCA supervisory procedure (Art. 48(1), last sent. SSM‑FR). 74 The list is available at: ; see also Wymeersch, in: Busch and Ferrarini (eds), European Banking Union (2 nd edn, 2020), at p. 174. 75 For a schematic overview of these criteria, see Tröger, in: Fabbrini and Ventoruzzo (eds), Research Handbook of EU Economic Law (2019), Table 11.1 at p. 297 and Gortsos, European Central Banking Law – The Role of the European Central Bank and National Central Banks under European Law (2020), Table 8.4 at p. 350. On their application, see by means of mere indication Wymeersch, ECGI Working Paper Series in Law, Working Paper N°. 240(2014), at pp. 29-31 and (in more detail) Lackhoff, Single Supervisory Mechanism: A Practitioner’s Guide (2017), at p. 146 paras. 637-664. 76 Art. 6(4)(2)(i) SSMR and Art. 50 SSM‑FR. 77 Art. 55 SSM‑FR.

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the supervised group in accordance with applicable law. 78 If the determination cannot be made on that basis, the assets must be determined either on the basis of the most recent audited consolidated annual accounts prepared in accordance with the International Financial Reporting Standards (IFRS) as applicable within the EU in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 “on the application of international accounting standards”79 or, if those annual accounts are not available, on the basis of the consolidated annual accounts prepared in accordance with applicable national accounting laws.80 If the supervised entity is not part of a supervised group, the determination of the total 37 value of assets is made, in principle as well, on the basis of the year-end prudential individual reporting in accordance with applicable law. If total assets cannot be determined on the basis of such data, they must be determined either on the basis of the most recent audited annual accounts prepared in accordance with the IFRSs (as mentioned above) or, if those annual accounts are not available, on the basis of the annual accounts prepared in accordance with applicable national accounting laws.81 Finally, if the supervised entity is a branch of a credit institution established in a 38 non-participating Member State, the total value of its assets is determined on the basis of the statistical data reported pursuant to ECB Regulation (EU) No 1071/2013 of 24 September 2013 “concerning the balance sheet of the monetary financial institutions’ sector (recast)”82 (ECB/2013/33).83 (ii) Basis of determination in specific or exceptional circumstances If in respect of a less significant supervised entity, there is an “exceptional substantial 39 change in circumstances” relevant for determining significance on the basis of the size criterion, the relevant NCA must review whether the size threshold continues to be met. If such a change occurs in respect of a significant supervised entity, the review must be made by the ECB.84 A less significant supervised entity, and, in the case of a less significant supervised group, the less significant supervised entity at the highest level of consolidation within the participating Member States must inform the relevant NCA of any such change. On the other hand, a significant supervised entity and, in the case of a significant supervised group, the supervised entity at the highest level of consolidation within the participating Member States must notify the ECB of any such change.85 By way of derogation from the three-years rule laid down in Art. 47(1)-(3) SSM‑FR 40 (infra, → paras. 82-83), in case of such exceptional circumstances, the ECB must decide, in consultation with NCAs, whether the affected supervised entities are significant or Art. 51(1) SSM‑FR. OJ L243, 11.9.2002, pp. 1-4; the consolidated text of this legislative act, as in force, is available at: . 80 Art. 51(2) SSM‑FR. 81 Art. 51(3)-(4) SSM‑FR. 82 OJ L297, 7.11.2013, pp. 1-50; this legislative act repealed on 1 January 2015 ECB Regulation (EC) No 25/2009 of 19 December 2008 (OJ L15, 20.1.2009, pp. 14-62), reference to which is made in the SSM‑FR. The consolidated text of this Regulation, as in force, is available at: . 83 Art. 51(5) SSM‑FR. 84 An “exceptional substantial change in circumstances” includes: first, the merger of credit institutions; second, the sale or transfer of a substantial business division; third, the transfer of shares in a credit institution such that it no longer belongs to a supervised group to which it belonged prior to the sale; fourth, the final decision to carry out an orderly winding up of the supervised entity (or group); or finally, any comparable factual situations (Art. 52(1) SSM‑FR). 85 Art. 52(2) SSM‑FR. 78 79

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less significant and the date from which supervision will be carried out by the ECB or an NCA.86 (iii) Groups of consolidated undertakings – methods of consolidation 41

For determining significance on the basis of the size criterion, the supervised group of consolidated undertakings consists of the undertakings which have to be consolidated for prudential purposes in accordance with EU law and includes its subsidiaries and branches in the non-participating Member States and third countries. The method of consolidation is the one applicable in accordance with EU law for prudential purposes.87

2. Significance on the basis of the economic importance criterion According to Art. 6(4) SSMR, a supervised entity is also considered significant, if any of the following conditions apply (yet again unless otherwise justified by “particular circumstances”): First, 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 five billion euros. Second, following a notification by the NCA that it considers such an entity of significant relevance with regard to the domestic economy, the ECB takes a Decision confirming such significance, following a Comprehensive Assessment of that entity, including a balance sheet assessment.88 In relation to this condition, Recital 41 provides that in its Decision the ECB should take into account all relevant circumstances, including level-playing field considerations. 43 The SSM‑FR further specifies this criterion by providing the following: First, a supervised entity established in a participating Member State or a supervised group whose parent undertaking is established in a participating Member State is classified as significant based on its importance for the domestic economy if two conditions are met: the total value of assets over the gross domestic product at market prices (as defined in point 8.89 of Annex A to Regulation (EU) No 549/2013 of the European Parliament and of the Council of 21 May 2013 “on the European system of national and regional accounts in the European Union” (ESA 2010)89 and published by Eurostat for the given calendar year) is higher than or equal to 20 % (“the national economic importance threshold”); and the total value of assets is higher than five billion euros.90 Second, when assessing whether or not a supervised entity or group is significant for the EU economy or the economy of a participating Member State for reasons other than the above, the ECB must take into account, in particular, four criteria: the supervised entity’s or group’s significance for specific economic sectors in the EU or a participating Member State; its interconnectedness with the EU economy or the economy of such a Member State; its substitutability as both a market participant and client service provider; and its business, structural and operational complexity.91 42

Art. 52(3) SSM‑FR. Arts. 53-54 SSM‑FR. 88 Art. 6(4)(2)(ii) and (iii) SSMR. 89 OJ L174, 26.6.2013, pp. 1-727; the consolidated text of this legislative act, as in force, is available at: . 90 Art. 56 SSM‑FR. 91 Art. 57(1) SSM‑FR; Art. 52(3) SSM‑FR on the derogation from the three-year rule laid down in Art. 47(1)-(3) SSM‑FR (see supra, → para. 40) applies accordingly (Art. 57(2) SSM‑FR). 86 87

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Finally, an NCA may also notify the ECB that it considers a supervised entity to be significant for its domestic economy. In such a case, the ECB must assess this notification on the basis of the (just above-mentioned) criteria laid down in Art. 57(1) SSM‑FR.92

3. Significance on the basis of the cross-border activities criterion The ECB may also, on its own initiative, consider a supervised entity or group 44 to be of significant relevance, if it has established banking subsidiaries in more than one participating Member States and its cross-border assets or liabilities represent a significant part of its total assets or liabilities.93 In that respect, a supervised group may be considered significant by the ECB on the basis of its cross-border activities, if two conditions are met: First, its parent undertaking has established subsidiaries, which are themselves credit institutions, in more than one other participating Member State; and Second, the following additional conditions are met: the total value of its assets exceeds five billion euros, and the ratio of its cross-border assets to its total assets is above 20 %, or the ratio of its cross-border liabilities to its total liabilities is above 20 %.94

4. Significance on the basis of the direct public financial assistance criterion Significant are also considered to be supervised entities for which public financial as- 45 sistance has been requested or received directly from the EFSF or (now) the ESM. 95 In that respect, Art. 61 SSM‑FR makes the following distinction: On the one hand, direct public financial assistance to a supervised entity is considered 46 to have been requested, if a request is made by an ESM member for financial assistance to be granted by the ESM to that entity in accordance with a Decision taken by the Board of Governors of the ESM in accordance with Art. 19 of the ESM Treaty 96 regarding the direct recapitalisation of a credit institution and the instruments adopted under that Decision. The direct recapitalisation instrument (DRI) of the ESM is operational since 8 December 2014, is governed by the Guideline of the ESM Board of Directors “on Financial Assistance for the Direct Recapitalisation of Institutions” (DRI Guideline) 97 and is available to euro area credit institutions, which are of “systemic relevance”. In view of the strict conditions attached and in particular of the fact that bail-in is a prerequisite, no use has been made of this instrument since its introduction.98 Art. 58(1) SSM‑FR; Art. 52(3) SSM‑FR applies accordingly as well (Art. 58(2) SSM‑FR). Art. 6(4)(3) SSMR. 94 Art. 59(1)-(2) SSM‑FR; Art. 52(3) SSM‑FR applies in this case accordingly as well (Art. 58(3) SSM‑FR). In terms of definitions (Art. 60 SSM‑FR): “cross-border assets” means the part of the total assets in respect of which the counterparty is a credit institution or other legal or natural person located in a participating Member State other than the Member State in which the parent undertaking of the relevant supervised group has its head office; “cross-border liabilities” means the part of the total liabilities in respect of which the counterparty is a credit institution or other legal or natural person located in a participating Member State other than the Member State in which the parent undertaking of the relevant supervised group has its head office. 95 Art. 6(4)(4) SSMR. It is noted that the EFSF never provided any direct public financial assistance. 96 The consolidated version of this Treaty, signed on 2 February 2012, is available at . 97 Available at: . 98 See at: ; on this instrument, see Gortsos, in: Gortsos and Ringe (eds), Pandemic Crisis and Financial Stability (2020), at p. 371, with further references. 92 93

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On the other hand, direct public financial assistance is considered to have been received by a supervised entity, if it has been received according to the above Decision and instruments. 48 Without prejudice to the obligation set out in Art. 96 SSM‑FR to inform the ECB of the deterioration of the financial situation of a less significant supervised entity (infra, → para. 101), as soon as the relevant NCA becomes aware of the possible need for public financial assistance for such an entity to be granted at national level indirectly from the ESM, it must inform the ECB. Its assessment of the financial situation must be submitted to the ECB, for consideration, before submitting it to the ESM, except in duly justified cases of urgency.99 49 A supervised entity in respect of which direct public financial assistance is requested from the ESM or which has received such assistance is classified as significant from the date on which direct public financial assistance was requested on its behalf. The date on which the ECB assumes the direct supervision is specified in its Decision. If such assistance is requested in respect of a supervised entity which is part of a supervised group, all supervised entities which are part of that supervised group are classified as significant.100 47

5. Significance on the basis of the fact that the supervised entity is one of the three most significant credit institutions in a participating Member State 50

The three most significant credit institutions or supervised groups in each participating Member State are covered in any case, irrespective of whether they meet other criteria, unless otherwise justified by “particular circumstances”.101 For this purpose, the ECB and the relevant NCA must take into account the size of the supervised entity and supervised group respectively, as determined in accordance with Arts. 50-55 SSM‑FR. 102 In this respect, the following review process is laid down:103 First, with regard to each participating Member State, the ECB must establish by 1 October of each calendar year whether or not three credit institutions or supervised groups with a parent undertaking established therein should be classified as significant supervised entities; Second, at the request of the ECB, the NCAs must inform it of the three most significant credit institutions or supervised groups established in their respective participating Member States by 1 October of the calendar year in question; the determination by the NCA is made on the basis of the criteria laid down in Arts. 50-55 SSM‑FR; Third, for each of the three most significant credit institutions or supervised groups in the participating Member States, the relevant NCA must provide the ECB with a Report setting out the supervisory history and risk profile in each case, unless this is already classified as significant; on receipt of the above-mentioned information, the ECB must carry out its own assessment, requesting the relevant NCA to provide any relevant information;

Art. 62 SSM‑FR. Arts. 63-64 SSM‑FR. 101 Art. 6(4)(5) SSMR, and Art. 65(1) SSM‑FR. According to Wymeersch, in: Busch and Ferrarini (eds), European Banking Union (2nd edn, 2020), at p. 173 (para. 4.80), this provision “addresses banks in mainly smaller Member States, where the ECB wants to have a direct view on the local banking system. It may include subsidiaries of – even smaller – non-euro area banks”. 102 Art. 65(2) SSM‑FR; on Arts. 50-55 SSM‑FR, see supra, → paras. 35-41. 103 Arts. 66(1)-(5) SSM‑FR, respectively. 99

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Fourth, if, on 1 October of a given year, one or more of the three most significant credit institutions or supervised groups in a participating Member State are not classified as significant supervised entities, the ECB must adopt a Decision in respect of any of them not classified as significant; and Finally, in case of exceptional circumstances, Art. 52(3) SSM‑FR on the derogation from the three-year rule laid down in Art. 47(1)-(3) SSM‑FR (supra, → paras. 82-83) applies accordingly.

6. The term “particular circumstances” “Particular circumstances”, as referred to in Art. 6(4)(2) and (5) SSMR, exist if there 51 are “specific and factual circumstances” leading to the classification of a significant supervised entity as less significant, in which case its supervision should remain with the relevant NCA. Account must be taken of the objectives and principles of the SSMR and, in particular, the need to ensure the consistent application of high supervisory standards.104 The interpretation of this term must be strict,105 while the assessment (and determination) of the existence of such circumstances must be made on a case-by-case basis and specifically for the supervised entity or group concerned, but not for categories of supervised entities. The relevant ECB Decision must state the reasons supporting its conclusion.106 According to the review clause laid down in Art. 72 SSM‑FR, the ECB must, with the 52 support of the relevant NCAs, review at least once a year whether particular circumstances continue to exist with respect to a supervised entity or group that is classified as less significant because of particular circumstances. The supervised entity concerned must provide any information and documents requested by the ECB to carry out such a review. If the ECB considers that particular circumstance no longer exists, it must adopt a Decision addressed to the relevant supervised entity determining that it is classified as significant and that particular circumstances no longer exist.107

7. Quantitative vs. qualitative criteria for determining significance As already noted,108 the determination of whether a supervised entity or group is sig- 53 nificant must be made by the ECB on the basis of the (just) above-analysed criteria for significance in the order set out in Art. 6(4) SSMR. In this respect, the SSM Supervisory Manual distinguishes between “quantitative criteria” and “qualitative criteria”:109 On the one hand, the quantitative criteria, which must be taken into account, encom- 54 pass the size in terms of total assets and the ratio of total assets over the GDP of the participating Member State of establishment; the number of participating Member States where a credit institution has subsidiaries (one of the inputs for the cross-border significance criterion); and cross-border assets and cross-border liabilities (if necessary for assessing cross-border activity). Art. 70(1) SSM‑FR. Art. 70(2) SSM‑FR. 106 Applicable accordingly in this case are Arts. 40, 44-46 and 48-49 SSM‑FR (Art. 71(1)-(3) SSM‑FR). On the basis of the initial list set up by the ECB on 4 September 2014, five credit institutions were classified as less significant under such particular circumstances (see Gortsos, EBOR 16(2015), at p. 117). On this aspect, see Lackhoff, Single Supervisory Mechanism: A Practitioner’s Guide (2017), at p. 151 paras. 665-668; see also infra, → paras. 58-62, where the ECJ’s judgement on the Landeskreditbank Baden-Württemberg ‒ Förderbank v European Central Bank (ECB) case is discussed. 107 Applicable accordingly in this case are Arts. 43-49 SSM‑FR (Art. 72(1)-(4) SSM‑FR). 108 See supra, → para. 29 discussing Art. 44(7) SSM‑FR. 109 SSM Supervisory Manual (2018), pp. 58-59. 104 105

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On the other hand, qualitative criteria may determine that a supervised entity should be classified as significant; they cover the following: First, the transfer of supervision is mandatory when public financial assistance has been requested or received directly from the ESM by a supervised entity; Second, the NCA may propose to the ECB to declare a supervised group to be significant to its domestic economy even if no quantitative threshold is met, in which case the ECB must conduct its own assessment to determine whether it can take the Decision confirming such significance; Third, the ECB may, at the request of the NCA or based on the significance of the entity’s cross-border activities, reclassify a supervised entity in the event of an exceptional and substantial change in circumstances that is relevant for determining significance on the basis of size or importance for the economy of the EU or any participating Member State; an institution may also exceed some of the quantitative thresholds and still be considered to be a less significant supervised entity based on specific factual circumstances under the SSM‑FR; and Finally, the ECB may, on its own initiative or at the request of the NCA, decide to take over supervisory responsibilities and decision-making powers from the NCA for any less significant entity by virtue of Art. 6(5)(b) SSMR (infra, → para. 39).

III. The Landeskreditbank Baden-Württemberg ‒ Förderbank v ECB case 1. The facts Of significant importance in this context is the judgment of the General Court of 16 May 2017 in Case T-122/15 Landeskreditbank Baden-Württemberg ‒ Förderbank v European Central Bank (ECB)110 (also referred to as the “L-Bank Case”). This German credit institution, which is an investment and development bank and a legal person governed by public law and wholly owned by the German State (Land) of Baden-Württemberg, was classified by the ECB as significant on the basis of the size criterion, since the value of its assets exceeded 30 billion euros by virtue of Art. 6(4) SSMR. 111 Accordingly, it became subject to direct supervision by the ECB. 57 The Landeskreditbank brought before the General Court an action for the annulment of the contested ECB Decision, putting forward five pleas in law: First, infringement of Art. 6(4) SSMR and Art. 70 SSM‑FR in the choice of criteria applied by the ECB; Second, manifest errors of assessment of the facts; Third, infringement of the obligation to state reasons; Fourth, misuse of powers arising from the ECB’s failure to exercise its discretion; and Fifth, an infringement by the ECB of its obligation to take into consideration all the relevant circumstances of the case. 56

110 Case T-122/15, Landeskreditbank Baden-Württemberg – Förderbank v European Central Bank ECLI: EU:T:2017:337. 111 The initial ECB Decision was taken on 1 September 2014. In its Opinion of 20 November 2014, the ABOR found this Decision lawful and on 5 January 2015 the ECB adopted Decision ECB/SSM/15/1 (which is “the contested decision”), which repealed and replaced the decision of 1 September 2014, whilst maintaining the applicant’s classification as a significant entity; see ECJ Decision, paras. 4-7.

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2. The decision of the Court In its judgement, the General Court rejected all five pleas (the fifth as unfounded) 58 and, accordingly, dismissed the action brought by the Landeskreditbank in its entirety.112 The first plea was rejected, inter alia, on the basis that, under the relevant provisions of the SSMR and the SSM‑FR, a credit institution must be classified as a “significant entity” and therefore become subject to the direct supervision of the ECB, inter alia, where the value of its assets exceeds 30 billion euros. Its classification as significant may be avoided only if there are “particular circumstances” entailing that the direct prudential supervision by NCA is better able to attain the objective of financial stability protection and to ensure the consistent application of high supervisory standards. In this context, the Court highlighted, in particular, that the exercise by NCAs of direct prudential supervision of LSIs “is overseen by the ECB, which, under Article 6(5)(a) and (b) [SSMR], has the competence to communicate to those authorities ‘regulations, guidelines or general instructions to national competent authorities, according to which the tasks defined in Article 4 (…) … are performed’ and, moreover, to remove authority from a national authority and to ‘decide to exercise directly itself all the relevant powers for one or more credit institutions’.”113 Most importantly, when discussing the first plea, the General Court pointed out that, 59 from the examination of the interaction between Art. 4(1) and Art. 6 SSMR, it is apparent that “the logic of the relationship between them consists in allowing the exclusive competences delegated to the ECB to be implemented within a “decentralised framework”,114 rather than having a distribution of competences between the ECB and the NCAs in the performance of the tasks referred to in Article 4(1)”. Similarly, under Art. 6(4)(2) the ECB has exclusive competence for determining the “particular circumstances” in which direct supervision of an entity that should fall solely under its supervision might instead be under the supervision of an NCA.115 According to the Court, this finding is supported by the reading of Recitals (15), (28) and (38)-(40), noting in particular that the arrangement of the latter suggests that direct prudential supervision by the NCAs under the SSM was envisaged by the Council “as a mechanism of assistance to the ECB rather than the exercise of autonomous competence”.116 It also noted that the ECB retains important prerogatives even when NCAs perform 60 the supervisory tasks laid down in Art. 4(1)(b) and (d)-(i) SSMR, the existence of which is indicative of the subordinate nature of the intervention by the national authorities in the performance of those tasks (with further analysis of the provisions of Art. 6(5) SSMR). Furthermore, it considers that the competencies conferred on the ECB are also evident from the comparison of the provisions allowing for adjustments to the criterion for distribution of the roles between the ECB and the NCAs relating to the size of the supervised entity (comparing Art. 6(5)(b) SSMR to Art. 6(4)(2) SSMR). 117 112 ECJ Decision, paras. 100, 112, 136, 142 and 150, respectively. On this judgement, critically as well, see Tröger, Oxford Business Law Blog (2017), Annunziata, Bocconi Legal Studies Research Paper No. 3139567 (2018) and Annunziata, Bocconi Legal Studies Research Papers, No. 3372346 (2019), at pp. 3-13, Chiti, in: Chiti and Santoro (eds), The Palgrave Handbook of European Banking Union Law (2019), at p. 129; Montemaggi, in: D’Ambrosio (ed), Law and Practice of the Banking Union and of its governing Institutions (Cases and Materials) (2020); and Riso, in: Zilioli and Wojcik (eds), Judicial Review in the European Banking Union (2021), at pp. 494-503. For its interpretation by the German Constitutional Court (Bundesverfassungsgericht), see BVerfGE 151, 202. 113 ECJ Decision, para. 24. 114 Emphasis added. 115 ECJ Decision, para. 54. 116 ECJ Decision, paras. 55-58. 117 ECJ Decision, paras. 59-61 and 62, respectively.

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On the basis of the above, the Court concluded that the Council has delegated to the ECB exclusive competence in respect of the tasks laid down in Art. 4(1) SSMR and that “the sole purpose of Article 6 (…)is to enable decentralised implementation under the SSM of that competence by the [NCAs], under the control of the ECB, in respect of the less significant entities and in respect of the tasks listed in Article 4(1)(b) and (d) to (i) (…), whilst conferring on the ECB exclusive competence for determining the content of the concept of “particular circumstances” within the meaning of Article 6(4), second subparagraph, which was implemented through the adoption of Articles 70 and 71 of the SSM‑FR”.118 62 The General Court also rejected the second plea, in which the Landeskreditbank claimed that it should, inter alia, have been classified as a “less significant” entity, because the objectives of the SSMR (namely ensuring financial stability, the safety and solidity of credit institutions and the protection of depositors) would be sufficiently achieved by being supervised by the German NCA (Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), Federal Financial Supervisory Authority), given its low-risk profile by virtue of the practical impossibility of its finding itself in a situation of insolvency. In this respect, the Court noted that the applicant credit institution did not argue that the German authorities would be better able to attain these objectives than the ECB. 119 63 It is finally noted that the appeal on this judgement was also dismissed by the Judgment of the Court (First Chamber) of 8 May 2019 in Case C-450/17.120 61

C. Micro-prudential supervision of significant supervised entities and groups I. General provisions 1. JSTs a) Establishment and composition 64

As already mentioned, the ECB is responsible for the direct micro-prudential supervision of significant supervised entities and groups in participating Member States.121 For the supervision of each of them a JST is established, which is composed of staff members from the ECB and the NCAs appointed in accordance with Art. 4 SSM‑FR and working under the coordination of a designated ECB staff member (“JST coordinator”) and one or more NCA sub-coordinators, as laid down in Art. 6 SSMR.122 In particular: First, the responsibility for the establishment and composition of JSTs has been assigned to the ECB. On the other, it is the NCAs that appoint one or more persons from their staff as a member or members of a JST in accordance with the principles laid down in Art. 6(8) SSMR and without prejudice to Art. 31 SSMR thereof. An NCA staff member may be appointed as a member of more than one JST. NevertheECJ Decision, para. 63. ECJ Decision, paras. 101-111. 120 Case C-450/17, Landeskreditbank Baden-Württemberg v ECB, ECLI:EU:C:2019:372. 121 Art. 39(4) SSM‑FR; see also supra, → para. 19. 122 Art. 3(1) SSM‑FR. Even though the (ECB) Guide to banking supervision (2014) (Box 3 at p. 17) prescribes that the coordinator should not generally be a national of the Member State where the supervised entity is established, the Report of the European Court of Auditors (2016), at p. 58, para. 123, notes that at that time 18 coordinators of 123 did not meet this requirement. Schoenmaker and Véron, in: Schoenmaker and Véron (eds), European Banking Supervision: The first eighteen months (2016), at p. 10, footnote 12, note in this respect that, by contrast, in the United States each bank’s supervisory team is led, on a decentralised basis, by one of the Federal Reserve System’s 12 regional Federal Reserve Banks. 118

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less, the ECB may require the NCA to modify the appointments they have made if appropriate for the purpose of the composition of a JST.123 If either more than one NCA exercises supervisory tasks in a participating Member State or a participating Member State’s national law confers on an NCA specific supervisory tasks and the latter is not an NCA, the relevant authorities must coordinate their participation within the JSTs.124 The ECB and the NCAs must consult with one another and agree on the use of the latter’s resources with regard to the JSTs.125 Second, since the JST coordinator must ensure the coordination of the work within the JST, its members must follow the coordinator’s instructions as regards their tasks in the JST, without prejudice to their tasks and duties with their respective NCA. Each NCA appointing more than one staff member to the JST must designate an NCA sub-coordinator assisting the coordinator as regards the organisation and coordination of the tasks in the JST and may give instructions to the JST members appointed by the same NCA, provided that these do not conflict with the coordinator’s instructions.126 b) Tasks of JSTs The ongoing supervision of significant supervised entities and groups is conducted 65 by the JSTs,127 which are considered as the “true operational core of the SSM”.128 Without prejudice to other provisions of the SSM‑FR, the tasks of a JST include, mainly (but indicatively), the following:129 First, it must perform the “supervisory review and evaluation process” (SREP) 130 for significant supervised entities or groups, a process governed by Arts. 97-101 CRD IV. On this basis, NCAs must review the arrangements, strategies, processes and mechanisms implemented by credit institutions to comply with the CRD IV and the CRR. They must also evaluate several risk aspects, taking into account the identification and measurement of systemic risk under Art. 23 EBAR, ESRB RecommenArt. 4(1)-(3) SSM‑FR. Art. 4(4) SSM‑FR. 125 Art. 4(5) SSM‑FR. NCBs of participating Member States involved in the micro-prudential supervision of a significant supervised entity or group under national law, which are not NCAs, may also appoint members of their staff to a JST, informing the ECB, accordingly; in such a case, Art. 4 SSM‑FR applies accordingly. If staff members of such NCBs are appointed to a JST, references to NCAs in relation to JSTs must be read as including a reference to those NCBs (Art. 5(1)-(3) SSM‑FR). 126 Art. 6(1)-(2) SSM‑FR. 127 As a matter of fact, the term “JST” is defined to mean a team of supervisors in charge of the supervision of a significant supervised entity or group (Art. 2(6) SSM‑FR). 128 See Ohler, in: Amtenbrink and Hermann (eds), The EU Law of Economic and Monetary Union (2020), at p. 1131 para. 37.71. According to Tröger, in: Fabbrini and Ventoruzzo (eds), Research Handbook of EU Economic Law (2019), at p. 304 (with further references), the “self-organizational” forces shaping the ECB-led JSTs is not sufficient to overcome the countervailing incentives of bureaucrats at NCAs whose rational self-interest may preclude them from engaging optimally. A legitimate counterargument to this remark (which in principle is robust) is that in such a case NCAs would violate the duty of cooperation in good faith and the obligation to exchange information, as laid down in Art. 6(2) SSMR (see supra, → paras. 8-9). See, nevertheless, also European Court of Auditors (2016), at pp. 59-63 paras. 126-137 raising concerns about the efficiency of NCAs’ role in JSTs (at least during the first years of the SSM’s operation), noting particularly that (at that time) the ECB had little control over NCA resources (paras. 126-128). 129 Art. 3(2) SSM‑FR. 130 Since 1 January 2019, the SPEP is performed in accordance with the EBA Guidelines of 19 July 2018 (EBA/GL/2018/03), which were adopted on the basis of Art. 107(3) CRD IV; these Guidelines, which also cover supervisory stress testing (adopted on the basis of Art. 100(2) CRD IV), are available at: . See also SSM Supervisory Manual (2018), pp. 80-87. 123 124

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dations, as well as the nature, scale and complexity of an institution’s activities.131In this context, of particular importance are the internal capital adequacy assessment process (ICAAP) and the internal liquidity adequacy assessment process (the ILAAP), since their insights feed into SREP assessments and supervisors’ decisions about capital and liquidity requirements. The aim of these processes is to encourage credit institutions to identify, effectively manage and cover their capital and liquidity risks at all times, taking into account their business models, size, complexity and risk exposure. The ECB Guides to the ICAAP and ILAAP were published in November 2018.132 Second, taking into account the SREP, it is responsible for drafting and organising the “supervisory examination program” (SEP), which covers, for each significant supervised entity or group, the main supervisory tasks and activities for the next 12 months, including an “on-site inspection plan” (in accordance with Art. 99 CRD IV133), and is then submitted to the Supervisory Board.134 Finally, it must implement the SEP, as approved by the ECB, and any ECB supervisory Decisions with respect to the significant supervised entity or group it supervises, ensure coordination with the on-site inspection team referred to in Arts. 138-146 SSM‑FR on the implementation of the (above-mentioned) on-site inspection plan and liaise with NCAs, where relevant.135

2. Supervision on a consolidated basis 66

By virtue of its specific (supervisory) task laid down in Art. 4(1)(g) SSMR, the ECB conducts supervision on a consolidated basis as provided for by Art. 111 CRD IV (on the determination of the consolidating supervisor) in respect of significant supervised entities, where the parent undertaking is either a “parent institution in a participating Member State” or an “EU parent institution” established in a participating Member

131 Art. 97(1) CRD IV; when making the above reviews and evaluations, NCAs must take into account the technical criteria set out in Art. 98 CRD IV. 132 Available, respectively, at: and . 133 Art. 99(1) CRD IV provides that NCAs must, at least annually, adopt a SEP for the institutions they supervise, containing: an indication of how they intend to carry out their tasks and allocate their resources (point (a)); an identification of which institutions are intended to be subject to enhanced supervision and the measures taken for such supervision (point (b)); and a plan for inspections at the premises used by an institution, including its branches and subsidiaries established in other Member States (pursuant to Arts. 52, 119 and 122(c) CRD IV). 134 For more details on the SEP, see SSM Supervisory Manual (2018), pp. 54-55. 135 On the role of JSTs, see more details in the SSM Supervisory Manual (2018), pp. 11-13; see also Laura Wissink, Ton Duijkersloot and Rob Widdershoven, Utrecht Law Review Vol. 10 (2014), at pp. 95-96. It is noted in this respect that, according to Principle 9 (essential criterion 1) of the 2012 “Core Principles for Effective Banking Supervision” of the Basel Committee on Banking Supervision, supervisors should employ an appropriate mix of “on-site” and “off-site” supervision to evaluate the condition of banks and banking groups, their risk profile, internal control environment and the corrective measures necessary to address supervisory concerns. The specific mix may be determined by the particular conditions and circumstances of the country and the bank and supervisors should regularly assesses the quality, effectiveness and integration of its on-site and off-site functions, and amend their approach, as necessary. These Principles, of September 2012, are available at: .

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State.136 On the other hand, the relevant NCA must perform the task of the supervisor on a consolidated basis in respect of less significant supervised entities.137 Art. 116 CRD IV requires the establishment of College of Supervisors (supervisory colleges) for cooperation and coordination among the NCAs responsible for, and involved in, the supervision of the different components of cross-border banking groups. In this respect, the SSM‑FR provides that, within the SSM, the role of the ECB varies as follows:138 When the ECB is the consolidating (home) supervisor for colleges that include NCAs from non-participating Member States (European colleges) and/or from third countries (international colleges), it acts as its chair. The NCAs of the participating Member States where the parent, the subsidiaries and the significant branches within the meaning of Art. 51 CRD IV, if any, are established, participate as observers. If there is no such college and a significant supervised entity has branches in non-participating Member States considered as significant, the ECB must establish a supervisory college with the competent authorities of the host Member States.139 When the ECB is a host supervisor, since the consolidating (home) supervisor is from a non-participating Member State or from a third country, the ECB and NCAs participate in the supervisory college pursuant to the following rules and to relevant EU law:140 First, if the supervised entities in participating Member States are all significant, the ECB participates therein as a member and the NCAs as observers; Second, if the supervised entities in participating Member States are all less significant, the NCAs participate therein as members; and Third, if the supervised entities in participating Member States are less significant and significant, the ECB and the NCAs participate therein as members and the

136 Art. 111 CRD IV applies as amended by Art. 1(37) CRD V. In terms of definitions (Art. 4(1)(28) and (29) CRR, respectively): “parent institution in a Member State” means an institution in a Member State which has an institution, a financial institution or an ancillary services undertaking as a subsidiary or which holds a participation therein, and which is not itself a subsidiary of another institution authorised in the same Member State, or of a financial holding company or mixed financial holding company set up in the same Member State; ”EU parent institution” means a parent institution in a Member State which is not a subsidiary of another institution authorised in any Member State, or of a financial holding company or mixed financial holding company set up in any Member State. 137 The supervision on a consolidated basis allows the ECB to assess comprehensively the risks resulting from the group as such and prevents that parent and subsidiary undertakings are subject to the supervisory competences of different authorities; see Ohler, in: Amtenbrink and Hermann (eds), The EU Law of Economic and Monetary Union (2020), at p. 1129 para. 37.67, with reference to the CJEU, Case T-712/15, 8 May 2019, Crédit Mutuel Arkéa v ECB, ECLI:EU:T:2017:900, paras. 58-61. On this case, see Smits, Short note on the Arkéa judgments (2018) and (within the context of the decisions taken by the General Court); Chiti, in: Chiti and Santoro (eds), The Palgrave Handbook of European Banking Union Law (2019), at p. 130; Arons, in: Busch and Ferrarini (eds), European Banking Union (2nd edn, 2020), at p. 104; and Martucci, in: Zilioli and Wojcik (eds), Judicial Review in the European Banking Union (2021), at pp. 504-509. Art. 8(1) and (2) SSM‑FR, respectively. 138 For a schematic overview, see Gortsos, European Central Banking Law – The Role of the European Central Bank and National Central Banks under European Law (2020), Table 8.3 at p. 342. 139 Art. 9(1)-(2) SSM‑FR. 140 Art. 10(a)-(c) SSM‑FR, respectively.

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NCAs of the participating Member States where the significant supervised entities are established participate as observers.141

3. Supplementary supervision of credit institutions participating in financial conglomerates 71

By virtue of its specific (supervisory) task laid down in Art. 4(1)(h) SSMR, the ECB also participates in the supplementary supervision of financial conglomerates (which is not exercised on a consolidated basis, but on a “solo plus basis”) 142in relation to the credit institutions included therein and assumes the responsibilities of a coordinator, where EU law (namely the Financial Conglomerates Directive, FICOD) provides that it should be appointed as the coordinator for such conglomerates. In this case, the JST assumes the related tasks in accordance with Art. 11 FICOD.143 According to the most updated version of the “List of Identified Financial Conglomerates”, published by the ESAs’ Joint Committee144 in accordance with Art. 2(14) FICOD, of 17 December 2019, there were 77 financial conglomerates with their head of group located in an EU/EEA country and 3 with the head group located in a third country (Switzerland, USA and Bermuda); the ECB was the coordinator in 26 cases.145

II. Procedures for micro-prudential supervision 1. Micro-prudential supervision of significant supervised entities and assistance by NCAs 72

The ECB must perform the direct supervision of significant supervised entities pursuant to the procedures set out in Arts. 3-18 SSM‑FR, in particular in relation to the composition and the tasks of the JSTs.146 It is assisted by NCAs, which must, in particular, perform the following activities: First, they must submit draft Decisions to the ECB in respect of significant supervised entities established in their Member State, in accordance with Art. 91 SSM‑FR. This provides that, pursuant to Art. 6(3) and 6(7)(b) SSMR (supra, → paras. 11 and 5), the ECB may request an NCA to prepare a draft Decision regarding the exercise 141 See also ECB, Guide to banking supervision (2014), Box 2. On the operational functioning of colleges, see also the EBA Report of 16 March 2018 “on the functioning of supervisory colleges” (available at: ). Of relevance are also the Commission Delegated Regulation (EU) 2016/98 of 16 October 2015 “supplementing [the CRD IV] with regard to regulatory technical standards for specifying the general conditions for the functioning of colleges of supervisors”, adopted on the basis of Art. 51(4) (OJ L21, 28.1.2016, pp. 2-20) and the Commission Implementing Regulation (EU) 2016/99 of the same date “laying down implementing technical standards with regard to determining the operational functioning of the colleges of supervisors (…)”, adopted on the basis of Art. 51(5) (OJ L21, 28.1.2016, pp. 21-44). 142 The difference between supervision on a consolidated basis and supervision on a “solo plus” basis lies on the fact that, in the latter case, the point of reference used are the financial statements of each individual undertaking, which are then corrected to take into account the impact at group level. 143 See also SSM Supervisory Manual (2018), p. 34. 144 The Joint Committee is a joint body of the ESAs, governed by Arts. 54-57 of their founding Regulations, as in force. 145 This list is available at: . For an analysis of that Directive (2002/87/EC), as in force, see Gortsos, in: Liber Amicorum of Emeritus Professor Thanassis Papachristou (2019). 146 Art. 89 SSM‑FR. The planning of supervisory activities (“supervisory planning”) contains two steps: strategic and operational planning (for details, see ECB, Guide to banking supervision (2014), paras. 56-58; and SSM Supervisory Manual (2018), pp. 61-65).

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of its tasks under Art. 4 SSMR for its consideration, specifying the time limit for sending this draft Decision. An NCA may also, on its own initiative, submit such a draft Decision to the ECB for its consideration through the JST. Second, they must assist the ECB in preparing and implementing any acts relating to the exercise of its tasks (including in verification activities and the day-to-day assessment of the supervised entities’ situation) and in enforcing its Decisions, using, if necessary, the powers referred to in Arts. 9(1)(3) and 11(2) SSMR; in both cases, they must follow the ECB instructions.147 The ECB and the NCAs must, without undue delay, exchange information relating to 73 a significant supervised entity in two cases: if there is a serious indication that it can no longer be relied on to fulfil its obligations towards its creditors and, in particular, provide security for the assets entrusted to it by its depositors; or if there is a serious indication of circumstances that could lead to a determination that its deposits are unavailable according to Art. 2(1)(8) DGSD; the exchange of information must take place prior to a Decision relating to such a determination.148

2. In particular: compliance with fit and proper requirements for managers In order to ensure the existence of robust governance arrangements, and in particular 74 the existence of members of the management body that are of sufficiently good repute and possess sufficient knowledge, skills and experience to perform their duties, a significant supervised entity must notify, without undue delay, the relevant NCA of any change in the membership of its management bodies as far as managerial and supervisory functions are concerned (the “managers”), within the meaning of Arts. 3(1)(7) and 3(2) CRD IV, including the renewal of their terms of office.149 This is without prejudice to relevant EU and national law and Arts. 73-88 SSM‑FR, which further specify the provisions of Arts. 14-15 SSMR on the granting and withdrawal of credit institutions’ authorisations and the assessment of notifications of the acquisition and disposal of qualifying holdings therein (the so-called “common procedures”; infra, → Arts. 14 and 15 SSMR). The ECB must be notified by the relevant NCA without undue delay of the timeframe within which a Decision has to be taken, in accordance with relevant national law.150 For the purposes of assessing the suitability of significant supervised entities’ man- 75 agers, the ECB has the supervisory powers that competent authorities have under the relevant EU and national law.151 This “fit and proper assessment” of the members of the management body of significant and less significant institutions is a key part of su-

Art. 90(1)-(2) SSM‑FR. Art. 92 SSM‑FR. On the definition of the term “unavailable deposit”, see Gortsos, The new EU Directive (2014/49/EU) on deposit guarantee schemes: an element of the European Banking Union (2014), at p. 125. 149 According to Art. 3(1)(7) CRD IV, “management body” means a credit institution’s (or investment firm’s) body or bodies (depending on the corporate model or model of governance existing in each Member State), which meet the following conditions: are appointed in accordance with national law, are empowered to set the institution’s strategy, objectives and overall direction, and oversee and monitor management decision-making, and include the persons who effectively direct the business of the institution. Art. 3(2) CRD IV provides that, where the CRD IV refers to the management body and, pursuant to national law, its managerial and supervisory functions are assigned to different bodies or different members within one body, the bodies or members of the management body responsible in accordance with national law must be identified, unless otherwise specified therein, by Member States. 150 Art. 93(1) SSM‑FR. 151 Art. 93(2) SSM‑FR. 147 148

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pervisory activities concerning both the initial authorisation, as well as any membership change.152 76 A significant supervised entity must, without undue delay, inform the relevant NCA of any new facts that may affect an initial assessment of the suitability or any other issue which could impact the suitability of a manager, once these are known to the supervised entity or the relevant manager. The NCA must notify the ECB of such new facts or issues without undue delay. The ECB may initiate a new assessment, either based on new facts or issues, or if it becomes aware of any new facts that may have an impact on the initial assessment of the relevant manager or any other issue which could impact the suitability of a manager. It must then decide on the appropriate action in accordance with the relevant EU and national law and inform the relevant NCA of such action without undue delay.153

3. Other procedures 77

Without prejudice to the common procedures set out in Arts. 73-88 SSM‑FR and to its ordinary interaction with its NCA, a significant supervised entity must address all its requests, ad hoc notifications and/or applications relating to the exercise of its supervisory tasks to the ECB, which must make them available to the relevant NCA and may request it to prepare a draft Decision in accordance with Art 91 SSM‑FR.154 If there are any substantial changes to the authorisation given for the initial request, notification or application, the significant supervised entity must address a new one to the ECB following the same procedure.155

III. Beginning and end of direct supervision by the ECB 1. Beginning of direct supervision by the ECB 78

The date on which the ECB will assume direct supervision of a supervised entity or group that has been classified as significant must be specified in an ECB Decision. This “take-over Decision” may (but does not have to) be the same as the status Decision in 152 See ECB, Guide to Banking Supervision (2014), para. 67. As regards the process and criteria used for this assessment, initially, applicable were the Joint ESMA and EBA Guidelines of 26 September 2017 “on the assessment of the suitability of members of the management body and key function holders” (ESMA 71-99-598, EBA/GL/2017/12, available at: ); the ECB “Guide to fit and proper assessments” of 29 May 2018 (at: ); and para. 89 of the EBA Guidelines on the SREP (EBA/GL/2018/03); see also SSM Supervisory Manual (2018), pp. 72-77. The above 2017 ESMA/EBA Guidelines were repealed with effect from 31 December 2021 by new ones of 2 July 2021 (ESMA35-36-2319, EBA/GL/2021/06, available at: ); a new version of the 2018 ECB Guide was, accordingly, published in December 2021 (available at: ). By means of mere indication, see also from the literature Busch and Teubner, European Banking Institute Working Paper Series 2019 – no. 34 (2019), as well as Mülbert and Wilhelm, in: Busch and Ferrarini (eds), European Banking Union (2nd edn, 2020), at p. 231. 153 Art. 94(1)-(2) SSM‑FR. 154 On Art. 91 SSM‑FR, see supra, → para. 72. On the general process governing such requests, notifications and applications, see ECB, Guide to banking supervision (2014), para. 59 and, in more details, SSM Supervisory Manual (2018), pp. 89-95. 155 Art. 95(1)-(3) SSM‑FR.

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accordance with Art. 44(2) SSM‑FR.156 In principle, the ECB must notify that Decision to each supervised entity concerned, at least one month prior to the date on which it will assume direct supervision and provide copies thereof to the relevant NCAs; by way of exception, if the ECB assumes direct supervision of a supervised entity or group either on the basis of a request for or receipt of direct public financial assistance from the ESM, the Decision must be notified to each supervised entity concerned in due time, at least one week prior to the date on which it will assume direct supervision.157 The ECB assumes this direct supervision, at the latest, twelve months after the date 79 on which it notifies to that entity or group its Decision pursuant to Art. 44(2) SSM‑FR.158 For the above purposes, in the case of a supervised group, the ECB must notify 80 its Decision to the supervised entity at the highest level of consolidation within the participating Member States and ensure that all supervised entities within that group are duly informed by the relevant deadline.159

2. End of direct supervision by the ECB – reclassification of a significant supervised entity or group as less significant When the ECB determines that direct supervision of a supervised entity or group will 81 end, it must issue a Decision to each supervised entity concerned, which must specify the date and reasons for this. This Decision may be adopted together with the Decision classifying it as less significant and must be adopted at least one month prior to the date on which direct supervision will end and a copy thereof must be provided to the relevant NCA (the just above-mentioned Article 45(5) SSM‑FR pertaining to supervised groups applies accordingly). Each relevant supervised entity should also be allowed to make submissions in writing prior to its adoption.160 Art. 47 SSM‑FR distinguishes four cases of ending direct ECB supervision (by an ECB 82 Decision):161 First, in the case that a significant supervised entity is classified as such on the basis of the size criterion, the economic importance criterion, the cross-border activities criterion or because it is part of a supervised group fulfilling at least one of these criteria, if, for three consecutive calendar years, none of the above criteria has been met either on an individual basis or by the supervised group to which the supervised entity belongs; Second, in the case that a supervised entity is classified as significant on the basis that direct public financial assistance from the ESM has been requested in respect of itself, the supervised group to which it belongs or any supervised entity belonging to that group and which is not significant on other grounds, if this assistance has been denied or fully returned or is terminated; in case of return or termination of the assistance, the ECB Decision may only be taken three calendar years after the complete return or termination; Third, in the case that a supervised entity is classified as significant on the basis that it is one of the three most significant credit institutions in a participating Member 156 Art. 45(1), sent. 1 and 2 SSM‑FR; on this Article, see Lackhoff, Single Supervisory Mechanism: A Practitioner’s Guide (2017), at p. 146 para. 636. On Art. 44(2) SSM‑FR, see supra, → para. 31. 157 Art. 45(1) sent. 3 and 45(2)-(3) SSM‑FR. 158 Art. 45(4) SSM‑FR. 159 Art. 45(5) SSM‑FR. 160 Art. 46(1)-(3) SSM‑FR. 161 Art. 47(1)-(4) SSM‑FR, respectively.

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State or belongs to the supervised group of such a credit institution, and is not significant on other grounds, if, for three consecutive calendar years, this supervised entity does not meet that criterion; and Finally, in the case that a supervised entity is directly supervised by the ECB under a Decision adopted pursuant to Art. 6(5)(b) SSMR (infra, → paras. 95-96), if, in its reasonable discretion, this is no longer necessary to ensure consistent application of high supervisory standards. 83 The “three-year rule” established in the first three cases above162 has been introduced in order to avoid rapid or repeated alternations of supervisory responsibilities, hence for the sake of stability of the status of a supervised entity as significant.163 Accordingly, a “moderation mechanism” has been embedded in the entire classification process: On the one hand, in accordance with Art. 43 SSM‑FR, the status change from less significant to significant is triggered if even one criterion is met in any one year (supra, → paras. 26-27); On the other hand, a significant entity or group qualifies for reclassification as less significant if the relevant criteria have not been met over three consecutive calendar years.164 84 As already noted (supra, → para. 40), by way of derogation from this three-year rule, when deciding on the basis of the size criterion, the economic importance criterion and cross-border activities criterion, in the case of the exceptional circumstances laid down in Art. 52(3) SSM‑FR, the ECB must decide, in consultation with NCAs, whether the affected supervised entities are significant or less significant and the date from which supervision will be carried out by the ECB or an NCA.

3. Pending procedures If a change in competence between the ECB and an NCA is to take place, the authority whose competence ends must inform the authority assuming supervision of any supervisory procedure formally initiated which requires a Decision. This information must be provided immediately after the former becomes aware of the imminent change in competence and be updated on a continual basis (in principle on a monthly basis), when there is new information on a supervisory procedure to report. The authority assuming supervision may, in duly justified cases, allow reporting on a less frequent basis. Prior to the change in competence, the authority whose competence ends must liaise with the one assuming supervision without undue delay after the formal initiation of any new supervisory procedure which requires a Decision.165 86 When the supervisory competence changes, the authority whose competence ends must undertake efforts to complete any pending supervisory procedure which requires a Decision prior to the date on which the change in the supervisory competence is to occur.166 87 If a formally initiated supervisory procedure, which requires a Decision, cannot be completed prior to the date on which a change in the supervisory competence occurs, the authority whose competence ends must undertake the following: 85

Art. 47(1)-(3) SSM‑FR. See Lackhoff, Single Supervisory Mechanism: A Practitioner’s Guide (2017), at p. 144 paras. 630-633. 164 See ECB, Guide to banking supervision (2014), Box 1, fourth paragraph, and SSM Supervisory Manual (2018), pp. 59-60); see also Ohler, in: Amtenbrink and Hermann (eds), The EU Law of Economic and Monetary Union (2020), at p. 1130 para. 37.70. 165 Art. 48(1) SSM‑FR. For the purposes of this Article, a supervisory procedure means an ECB or NCA supervisory procedure (Art. 48(1) last sent. SSM‑FR). 166 Art. 48(2) SSM‑FR. 162 163

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First, maintain competence to complete such pending supervisory procedure; retain all relevant powers until the supervisory procedure has been completed; Second, complete the pending supervisory procedure in question in accordance with the applicable law under its retained powers; Third, inform the authority assuming supervision prior to taking any Decision in a supervisory procedure pending prior to the change in competence; and Finally, provide to the authority assuming supervision a copy of the Decision taken and any relevant related documents.167 The ECB and the relevant NCA must cooperate with regard to the completion of any 88 pending procedure and may exchange any relevant information to this end.168

D. Micro-prudential supervision of less significant supervised entities and groups I. Powers of the ECB (Art. 6(5) SSMR) 1. The provisions of Art. 6(5)(a) and (c)-(d) SSMR a) Introductory remarks As already noted (supra, → para. 199), supervised entities and groups considered less 89 significant and classified as such are supervised directly by NCAs, albeit within the SSM.169 Indeed, NCAs are responsible for the direct supervision of less significant supervised entities and groups but their supervisory actions are subject to the provisions of Art. 6(5)-(6) SSMR and Arts. 96-100 SSM‑FR.170 In accordance with the rules set out in these Articles, and since the ECB has been assigned the responsibility for the “effective and consistent functioning of the SSM”,171 the ECB has a wide range of powers with regard to such entities and groups.172 Recital (16) SSMR makes in this respect the following considerations: “The safety and soundness of large credit institutions is essential to ensure the stability of the financial system. However, recent experience shows that smaller credit institutions can also pose a threat to financial stability. Therefore, the ECB should be 167 Art. 48(3) SSM‑FR. By way of derogation, the ECB may decide within one month of receiving the information necessary to complete its assessment of the relevant formally initiated supervisory procedure, and in consultation with the relevant NCA, to take over the supervisory procedure concerned. If, due to reasons of national law, an ECB Decision is required prior to the end of the above assessment period, the NCA must provide the ECB with the necessary information. If the ECB takes over a supervisory procedure, it must notify the relevant NCA and the parties of its Decision, which must also specify the consequences (Art. 48(4) SSM‑FR). 168 Art. 48(5) SSM‑FR; Art. 48 SSM‑FR does not apply to common procedures (Art. 48(6) SSM‑FR). 169 According to Glοs und Benzing, in: Binder, Glos and Riepe (eds), Handbuch Bankenaufsichtsrecht (2020), at pp. 51-52 para. 82, with further references, the supervisory competences of NCAs are original competences (originäre mitgliedstaatliche Zuständigkeiten), which were not transferred to the ECB but remained with them; see also D’Ambrosio, in: D’Ambrosio (ed), Law and Practice of the Banking Union and of its governing Institutions (Cases and Materials) (2020), at pp. 32-34, stating that the SSMR simply recognises and does not establish NCAs’ supervisory responsibilities. 170 Art. 6(4)(1) SSMR. 171 Art. 6(1) sent. 2 SSMR; see supra, → para. 1. 172 On these ECB powers, further analysed below, see also Tröger (2019), pp. 300-302, Glοs und Benzing, in: Binder, Glos and Riepe (eds), Handbuch Bankenaufsichtsrecht (2020), at p. 53 paras. 84-114 and Ohler (2020), pp. 1131-1132. On the basis of further literature referred to therein, Glοs und Benzing, in: Binder, Glos and Riepe (eds), Handbuch Bankenaufsichtsrecht (2020), at p. 53 para. 83 consider that the ECB is acting in this respect as “supervisor of supervisors”.

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able to exercise supervisory tasks in relation to all credit institutions authorised in, and branches established in, participating Member States.” b) The individual powers of the ECB In particular, the powers of the ECB regarding less significant supervised entities and groups under Art. 6(5)(a) and (c)-(e) SSMR173 (and taking into consideration the rules laid down in the SSM‑FR) include the following: First, it can issue Regulations, Guidelines or general instructions, which are addressed to NCAs in relation to the performance of their specific tasks laid down in Art. 4(1) SSMR (with the exception of points (a) and (c))174 and the adoption by them of supervisory Decisions. In order to ensure consistency of supervisory outcomes within the SSM, such instructions may refer to the specific supervisory powers under Art. 16(2) SSMR for groups or categories of credit institutions; 175 Second, it exercises oversight over the functioning of the SSM on the basis of the responsibilities and procedures set out in Art. 6 SSMR and the SSM‑FR, by virtue of which several obligations are imposed on NCAs;176 this covers the general oversight of NCAs’ supervisory activities to ensure the adequate and harmonised conduct of supervision of less significant supervised entities and groups. Such oversight activities can be conducted through reviews of specific risk areas across NCAs; they provide “a targeted insight into their supervision at the level of individual institutions or classes of similar institutions”;177 Third, it may, at any time, make use of its investigatory powers under Articles 10-13 SSMR, i.e., information requests, as well as the conduct of general and (judicially authorised) on-site investigations;178 and Fourth, it may request, on an ad hoc or on a continuous basis, information from NCAs on the performance of their tasks.179 This covers the oversight of supervisory practices and standards applied by NCAs; in this respect, the ECB collects and processes from them information regarding their practices and decisions, as well as on the financial condition of the entities and groups they supervise, in line with the procedures set out in the SSMR and the SSM‑FR.180 91 Noteworthy is also that the NCAs and ECB apply a proportionate approach to supervision and supervisory oversight and have, accordingly, adopted a methodology classifying less significant supervised entities and groups as a low, medium or high-priority, based on their intrinsic riskiness and potential impact on the domestic financial 90

Point (b) is separately discussed infra, → paras. 93-96. These points are exempted since the supervisory tasks referred to therein are performed by the ECB for all supervised entities in accordance with Arts. 14-15 SSMR (the “common procedures” under Arts. 73-88 SSM‑FR). 175 Art. 6(5)(a) SSMR; on the ECB supervisory powers under Art. 16(2) SSMR, infra → Art. 16 SSMR. 176 Art. 6(5)(c) SSMR; this aspect is further discussed infra, → paras. 102-106. 177 ECB, Guide to banking supervision (2014), para. 94; for more details on this aspect, see also SSM Supervisory Manual (2018), pp. 107-108. 178 Art. 6(5)(d) SSMR. 179 Art. 6(5)(e) SSMR. 180 See also ECB, Guide to banking supervision (2014), paras. 91-93 and SSM Supervisory Manual (2018), p. 107. 173

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system.181 This prioritisation is reflected in the scope and intensity of the specific oversight performed by the ECB and the direct supervision conducted by NCAs and is used in allocating supervisory resources and activities within the SSM as well as in determining the amount of supervisory information required by the ECB from NCAs. “High-priority” less significant supervised entities and groups are considered as medium or high risk with high or medium impact (meaning their failure may endanger the domestic financial system); “medium-priority” entities and groups have high intrinsic riskiness with low or medium impact, low intrinsic riskiness but medium or high impact or medium riskiness and medium impact; finally, “low-priority” entities and groups are considered to represent a very limited threat to financial stability and have manageable intrinsic riskiness. Furthermore, the “sector-related approach” to oversight pursued allows the ECB to 92 exercise a more focused oversight and NCAs to exercise a more targeted supervision. It aims at identifying common risks for supervised entities clustered in a sector that do not form part of a group but share specific common features (e.g., compliance with the same specific legal requirements, similar business models or shared central services, mutual support agreements or other forms of interconnection); capture potential contagion effects between individual entities; and assess the risk reduction imparted by sectoral arrangements.182

2. Direct supervision of less significant supervised entities by the ECB in accordance with Art. 6(5)(b) SSMR a) Criteria In addition to its above powers, if considered necessary in order to ensure consistent 93 application of “high supervisory standards”, the ECB may, at any time, decide to exercise directly the supervision of a less significant supervised entity or group, taking over supervisory responsibilities and decision-making powers from the relevant NCA. 183 This Decision may be taken either on its own initiative after consulting with the relevant NCA or upon the latter’s request;184 before taking it, the ECB must take into account, in particular, the following factors:185 First, whether the less significant supervised entity or group is close to meeting one of the criteria for significance; Second, its interconnectedness with other credit institutions; Third, whether it is a subsidiary of a supervised entity with its head office either in a non-participating Member State or in a third country and has established subsidiaries, which are also credit institutions or branches in participating Member States, one at least of which is significant; 181 See ECB, LSI supervision with the SSM (November 2017), at pp. 13-14, discussing institution-specific supervision and oversight of less significant supervised entities and groups (available at: ). This methodology enables the classification of all categories but only high-priority less significant supervised entities and groups have been officially determined by the ECB and NCAs so far. 182 ECB, LSI supervision with the SSM (November 2017), at p. 14. 183 Art. 6(5)(b) SSMR. In order to achieve consistent high supervisory standards, the ECB and NCAs have developed a series of joint supervisory standards (JSS); see details in LSI supervision with the SSM (2017), pp. 14-18. On Art. 6(5)(b) SSMR, see, in addition to the literature referred to below, D’Ambrosio and Montemaggi, in: D’Ambrosio (ed), Law and Practice of the Banking Union and of its governing Institutions (Cases and Materials) (2020). 184 Art. 67(1) SSM‑FR. 185 Art. 67(2) SSM‑FR.

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Fourth, the facts that the ECB instructions have not been followed by the NCA concerned, and that the NCA has not complied with the acts referred to in Art. 4(3)(1) SSMR; and/or Finally, the fact that the entity has requested or received indirect financial assistance from (the EFSF or anymore from) the ESM.186 94 On the other hand, the deterioration of a less significant supervised entity’s financial condition or the initiation of crisis management proceedings are not per se reasons for the ECB to take over supervision from the responsible NCAs;187 in the first case, though, applicable is Art. 96 SSM‑FR (infra, → para. 101). b) Procedure for preparing ECB Decisions (i) Activation of Art. 6(5)(b) SSMR on the ECB’s initiative 95

The procedure for activating Art. 6(5)(b) SSMR may start with an ECB request to an NCA to provide a Report setting out the supervisory history and risk profile of a less significant supervised entity or group, specifying the date by which this should be submitted to it. Prior to its final assessment as to whether supervision of that entity or group by it is necessary to ensure the consistent application of high supervisory standards the ECB must consult with the NCA. If it concludes that direct ECB supervision is necessary, it must adopt a Decision in accordance with Arts. 43-49 SSM‑FR.188 (ii) Activation of Art. 6(5)(b) SSMR at the request of an NCA

96

An NCA is also entitled submit a request to the ECB, identifying the less significant supervised entity or group in respect of which it is of the view that the ECB should assume direct supervision, stating why this is necessary to ensure the consistent application of high supervisory standards; this request must be accompanied by a report indicating the supervisory history and risk profile of the relevant entity or group. Based on this request, the ECB must then assess the necessity of exercising direct supervision in respect of that entity or group and in case of disagreement, consult with the NCA prior to its final assessment. If it concludes that assuming direct supervision is necessary, it must as well adopt a Decision in accordance with Arts. 43-49 SSM‑FR.189

186 See also Art. 62 SSM‑FR discussed supra, → para. 48. According to Lackhoff, Single Supervisory Mechanism: A Practitioner’s Guide (2017), at p. 153 para. 671, Art. 6 (5)(b) SSMR should not be interpreted narrowly as covering only cases of “home bias”, namely those where an NCA does not consistently apply the appropriate supervisory standards. His argument for a broader reading is based, inter alia, on the considerations set out in (the above-mentioned) Recital (16) SSMR. On the other hand (but not in contradiction to the above position), Ohler, in: Amtenbrink and Hermann (eds), The EU Law of Economic and Monetary Union (2020), at p. 1115 para. 37.28 claims that the ECB should apply this power restrictively, since an extensive use could eventually undermine NCAs’ competencies, which would be incompatible with the wording of Art. 127(6) TFEU, i.e., the legal basis of the SSMR. See also para. 61 (second sentence) of the General Court’s above-mentioned judgement in the Landeskreditbank case, which notes: “(…) the terms employed in that provision that the exercise of that prerogative calls for broad discretion conferred on the ECB, stating as it does that ‘when necessary to ensure consistent application of high supervisory standards, the ECB may at any time, on its own initiative after consulting with national competent 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 4 …’”. 187 See ECB, Guide to banking supervision (2014), para. 99, last sent. 188 Art. 69(1)-(3) SSM‑FR; on Arts. 43-49 SSM‑FR, see supra, → paras. 26-33. 189 Art. 68(1)-(5) SSM‑FR.

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c) Supervised entities classified as significant on the basis of Art. 6(5)(b) SSMR Art. 6(5)(b) SSMR has already been activated several times. Based on the list of super- 97 vised entities set up by the ECB, by 1 May 2021, the following supervised entities (credit institutions and holding companies) and groups were classified as significant on the basis of this SSMR Article: AXA Bank Belgium SA; AXA Bank Belgium NV (Belgium); Goldman Sachs Bank Europe SE (Germany); Morgan Stanley Europe Holding SE (Germany); and Banca Carige S.p.A. – Cassa di Risparmio di Genova e Imperia (Italy); by 1 November 2021, the first four changed grounds for significance as a result of the annual significance review of 2021.190

II. Responsibilities of NCAs 1. The provisions of Art. 6(6) SSMR With regard to less significant supervised entities, taking into account the provisions of 98 and subject to the procedures laid down in the SSM‑FR (infra, → paras. 101-106) and without prejudice to the ECB responsibilities, NCAs must carry out and are responsible for the tasks referred to in Art. 4(1) SSMR, with the exception of points (a) and (c) (common procedures) and point (h) on the supplementary supervision of financial conglomerates, and adopt all relevant supervisory Decisions.191 Without prejudice to Art. 31(1) SSMR on staff exchange and if deemed appropriate, the ECB may require an NCA to involve in its supervisory team in relation to the supervision of such entities staff members from other NCAs.192 On the other hand, with regard to all supervised entities, NCAs and NDAs maintain 99 their powers, in accordance with national law, to obtain information both from such entities and from undertakings included in their consolidated financial situation and to perform on-site inspections; this is without prejudice to Arts. 10-13 SSMR on the ECB’s investigatory powers.193 Furthermore, NCAs must inform the ECB, pursuant to Arts. 96-100 SSM‑FR (infra, 100 → paras. 101-106), of the measures taken and closely coordinate those measures with the ECB and report to it, on a regular basis, on the performance of their activities in accordance with Art. 6 SSMR.194

2. The provisions of Arts. 96-100 SSM Framework Regulation on the procedures for micro-prudential supervision of less significant supervised entities (and groups) a) Notification and information requirements (i) Rapid and significant deterioration of a less significant supervised entity’s financial situation If the situation of a less significant supervised entity deteriorates “rapidly and signifi- 101 cantly”, NCAs must inform the ECB. This obligation applies especially if such deterioration could lead to a request for direct or indirect financial assistance from the ESM, without prejudice to the application of Art. 62 SSM‑FR (on the obligation of NCAs to inform See at: . Art. 6(6)(1) SSMR. 192 Art. 7 SSM‑FR. 193 Art. 6(6)(2) sent. 1 SSMR. 194 Art. 6(6)(2) sent. 2 SSMR and Art. 6(6)(3) SSMR, respectively. 190

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the ECB of a possible request for or receipt of public financial assistance by a less significant supervised entity).195 (ii) Information requirements relating to “material” supervisory procedures NCAs must provide the ECB with information relating to their “material” supervisory procedures concerning less significant supervised entities to enable it to exercise its oversight over the functioning of the SSM in accordance with Art. 6(5)(c) SSMR (supra, → para. 90); such procedures consist of the removal of management board members of such an entity and the appointment of special managers to take over, and of procedures having a significant impact on it. In this respect, the ECB defines “general criteria”, taking into account, in particular, the risk situation and the potential impact on the domestic financial system of the less significant supervisory entity concerned in order to determine the information to be notified with respect to it. This information must be provided by NCAs either ex-ante or, in duly justified cases of urgency, simultaneously to the opening of a procedure.196 103 In addition to the above information requirements, the ECB may, at any time, request from NCAs information on the performance of their tasks in respect of less significant supervised entities, while NCAs must, on their own initiative, notify it of any other supervisory procedure which either they consider material or may negatively affect the SSM’s reputation.197 Any ECB request to an NCA to further assess specific aspects of its material supervisory procedures must specify the aspects concerned; the ECB and the relevant NCA must respectively ensure that the other party has sufficient time to enable the procedure and the SSM as a whole to function efficiently.198 102

(iii) Requirements relating to “material” draft supervisory Decisions 104

For the same above-mentioned purpose as well, NCAs must send to the ECB draft supervisory Decisions concerning less significant supervised entities for which the latter considers that, on the basis of the (yet again) “general criteria” defined by it regarding the risk situation of such entities and the potential impact on the domestic financial system, the information must be notified to it.199 This obligation applies to such draft Decisions, called “material” draft ECB supervisory Decisions, if the following criteria are met: First, they relate to the removal of members of the management boards of less significant supervised entities and the appointment of special managers or have a significant impact on it; in this case, they must be sent to the ECB prior to being addressed to the entity concerned; and Second, the ECB’s views are sought on a draft supervisory Decision or this may negatively affect the reputation of the SSM.200

Art. 96 SSM‑FR; on Article 62 SSM‑FR, see supra, → para. 48. Art. 97(1)-(2) SSM‑FR. 197 Art. 97(3)-(4) SSM‑FR. 198 Art. 97(5) SSM‑FR. 199 Art. 98(1) SSM‑FR. 200 Art. 98(2)-(3) SSM‑FR. In principle, such material draft Decisions must be sent to the ECB at least 10 days in advance of the planned date of their adoption; in cases of urgency, a reasonable period for sending such a draft Decision to the ECB must be defined by the relevant NCA. The ECB must express its views on the draft Decision within a reasonable time before their planned adoption (Art. 98(4) SSM‑FR). 195

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b) Ex-post reporting to the ECB In order to enable it to exercise oversight over the functioning of the SSM pursuant to 105 Art. 6(5)(c) SSMR as well, the ECB may require NCAs to report, on a regular basis, on the measures they have taken and on the performance of their tasks in accordance with Art. 6(6) SSMR; it must also inform them annually of the categories of less significant supervised entities and the nature of the information required. These requirements are as well without prejudice to the ECB’s right to make use of the investigatory powers referred to in Arts. 10-13 SSMR in respect of less significant supervised entities. 201 In addition, NCAs must submit to the ECB an Annual Report on less significant 106 supervised entities and groups or categories of such supervised entities in accordance with the ECB’s requirements.202

Art. 7 SSMR Close cooperation with the competent authorities of participating Member States whose currency is not the euro 1. Within the limits set out in this Article, the ECB shall carry out the tasks in the areas referred to in Articles 4(1), 4(2) and 5 in relation to credit institutions established in a Member State whose currency is not the euro, where close cooperation has been established between the ECB and the national competent authority of such Member State in accordance with this Article. To that end, the ECB may address instructions to the national competent authority or to the national designated authority of the participating Member State whose currency is not the euro. 2. Close cooperation between the ECB and the national competent authority of a participating Member State whose currency is not the euro shall be established, by a decision adopted by the ECB, where the following conditions are met: (a) the Member State concerned notifies the other Member States, the Commission, the ECB and EBA the request to enter into a close cooperation with the ECB in relation to the exercise of the tasks referred to in Articles 4 and 5 with regard to all credit institutions established in the Member State concerned, in accordance with Article 6; (b) in the notification, the Member State concerned undertakes: — to ensure that its national competent authority or national designated authority will abide by any guidelines or requests issued by the ECB, and — to provide all information on the credit institutions established in that Member State that the ECB may require for the purpose of carrying out a comprehensive assessment of those credit institutions; (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 4. 3. The decision referred to in paragraph 2 shall be published in the Official Journal of the European Union. The decision shall apply 14 days after its publication.

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Art. 99(1)-(2) SSM‑FR. Art. 100 SSM‑FR.

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Art. 7 SSMR Close cooperation with the competent authorities of participating Member States 4. Where the ECB considers that a measure relating to the tasks referred to in paragraph 1 should be adopted by the national competent authority of a concerned Member State in relation to a credit institution, financial holding company or mixed-financial holding company, it shall address instructions to that authority, specifying a relevant timeframe. That timeframe shall be no less than 48 hours unless earlier adoption is indispensable to prevent irreparable damage. The national competent authority of the concerned Member State shall take all the necessary measures in accordance with the obligation referred to in point (c) of paragraph 2. 5. The ECB may decide to issue a warning to the Member State concerned that the close cooperation will be suspended or terminated if no decisive corrective action is undertaken in the following cases: (a) where, in the opinion of the ECB, the conditions set out in points (a) to (c) of paragraph 2 are no longer met by the Member State concerned; or (b) where, in the opinion of the ECB, the national competent authority of the Member State concerned does not act in accordance with the obligation referred to in point (c) of paragraph 2. If no such action has been undertaken within 15 days of notification of such a warning, the ECB may suspend or terminate the close cooperation with that Member State. The decision to suspend or terminate the close cooperation shall be notified to the Member State concerned and shall be published in the Official Journal of the European Union. The decision shall indicate the date from which it applies, taking due consideration of supervisory effectiveness and legitimate interests of credit institutions. 6. The Member State may request the ECB to terminate the close cooperation at any time after a lapse of three years from the date of the publication in the Official Journal of the European Union of the decision adopted by the ECB for the establishment of the close cooperation. The request shall explain the reasons for the termination, including, when relevant, potential significant adverse consequences as regards the fiscal responsibilities of the Member State. In this case, the ECB shall immediately proceed to adopt a decision terminating the close cooperation and indicate the date from which it applies within a maximum period of three months, taking due consideration of supervisory effectiveness and legitimate interests of credit institutions. The decision shall be published in the Official Journal of the European Union. 7. If a participating Member State whose currency is not the euro notifies the ECB in accordance with Article 26(8) of its reasoned disagreement with an objection of the Governing Council to a draft decision of the Supervisory Board, the Governing Council shall, within a period of 30 days, give its opinion on the reasoned disagreement expressed by the Member State and, stating its reasons to do so, confirm or withdraw its objection. Where the Governing Council confirms its objection, the participating Member State whose currency is not the euro may notify the ECB that it will not be bound by the potential decision related to a possible amended draft decision by the Supervisory Board. The ECB shall then consider the possible suspension or termination of the close cooperation with that Member State, taking due consideration of supervisory effectiveness, and take a decision in that respect.

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The ECB shall take into account, in particular, the following considerations: (a) 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; (b) whether such suspension or termination could have significant adverse consequences as regards the fiscal responsibilities in the Member State which has notified a reasoned disagreement in accordance with Article 26(8); (c) whether or not it is satisfied that the national competent authority concerned has adopted measures which, in the ECB’s opinion: — ensure that credit institutions in the Member State which notified its reasoned disagreement pursuant to the previous subparagraph are not subject to a more favourable treatment than credit institutions in the other participating Member States, and — are equally effective as the decision of the Governing Council under the second subparagraph of this paragraph in achieving the objectives referred to in Article 1 and in ensuring compliance with relevant Union law. The ECB shall include these considerations in its decision and communicate them to the Member State in question. 8. If a participating Member State whose currency is not the euro disagrees with a draft decision of the Supervisory Board, it shall inform the Governing Council of its reasoned disagreement within five working days of receiving the draft decision. The Governing Council shall then decide about the matter within five working days, taking fully into account those reasons, and explain in writing its decision to the Member State concerned. The Member State concerned may request the ECB to terminate the close cooperation with immediate effect and will not be bound by the ensuing decision. 9. A Member State which has terminated the close cooperation with the ECB may not enter into a new close cooperation before a lapse of three years from the date of the publication in the Official Journal of the European Union of the ECB decision terminating the close cooperation. Bibliography Jens-Hinrich Binder, ‘Participation of non-euro area Member States in the SRM: centralised decision-making, decentralised implementation – shared responsibilities’ in ECB (ed), Building bridges: central banking in an interconnected world, ECB Legal Conference 2019, pp. 314–330; Klaus Lackhoff, Single Supervisory Mechanism (C.H. Beck/Hart/Nomos, Munich/Oxford/Baden-Baden 2017); Rosa Lastra, ‘Close Cooperation in the SSM’ in ECB (ed), Building bridges: central banking in an interconnected world, ECB Legal Conference 2019, pp. 283-295; Niamh Moloney, ‘Close Cooperation: the SSM Institutional Framework and lessons from the ESAs’ in ECB (ed), Building bridges: central banking in an interconnected world, ECB Legal Conference 2019, pp. 296–313. A. Rationale of close cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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B. Legal basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Notification by the Member State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Decision by the ECB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Complementary national legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Legal effects of a close cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5 6 8 9 11

C. Fundamentals of close cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Application of the SSMR mutatis mutandis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Powers of the ECB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Indirect supervision of all credit institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13 13 14 16

D. Suspension and termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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A. Rationale of close cooperation The participating Member States, as defined in Art. 2(1) SSMR, either belong to the euro area or have established a close cooperation with the ECB in accordance with Art. 7 SSMR. This distinction reflects a fundamental principle of the architecture of Economic and Monetary Union (EMU). Member States which have introduced the euro currency in accordance with Art. 140 TFEU are fully bound by the provisions of the Treaties in respect of EMU and by all measures adopted by the ECB thereunder, while the socalled Member States with a derogation under Art. 139(2) TFEU (“Pre-Ins” and “Outs”) are excluded from the rights and obligations within the framework of the Eurosystem.1 As a consequence, Art. 139(2)(1)(e) and (2) TFEU and Arts. 34 and 42 of the ESCB Statute confine the territorial scope of all legal acts adopted by the ECB under Art. 132 TFEU to the Member States of the euro area.2 This applies also to measures taken by the ECB within the SSM as the SSMR cannot supersede primary law. 2 Contrary to the limited regional scope of EMU and SSM, the internal market covers all Member States, cf. Art. 26 TFEU. Credit institutions established in any of the Member States enjoy the freedom of establishment and the freedom to provide services in accordance with secondary law.3 As a result, there is a mismatch between the territorial scope of the internal market and the one of the SSM that could threaten the unity of the internal market and increase the risk of loopholes in the supervision of cross-border operating banks. The EU legislator aimed at overcoming this latent conflict by introducing the concept of close cooperation. The legal basis of Art. 7 SSMR is complemented by a decision of the ECB of 31 January 2014.4 The SSM‑FR contains additional provisions in its Arts. 106 to 118. Art. 4 SRMR extends the legal effects of a close cooperation also to the SRM. 3 Participation in the SSM is voluntary for Member States outside the euro area. So far, only Bulgaria (2018) and Croatia (2019) requested the establishment of a close cooperation with the ECB. In 2020, this mechanism became applicable to both countries.5 The reasons why this model has been hesitantly accepted by other “Pre-Ins” are to be found in the design of EMU and of the SSMR. In particular, non-euro area Member States are represented in the Supervisory Board, but not in the Governing Council,6 the main decision-making body of the ECB and, accordingly, also under Art. 26(8) SSMR. Furthermore, the mechanics of close cooperation are complex and burdensome for both sides. Contrary to the general objectives and structure of the SSMR, a close cooperation results in a system of complete indirect supervision,7 while the direct responsibility for all credit institutions, significant and less significant ones, remains with the NCA of the Member State concerned. The benefits, however, of this system are the guarantee of an independent supervision with a priority on financial stability, adequate treatment of home-host 1

Cf. Art. 139(3) TFEU. Lackhoff, Single Supervisory Mechanism (2017), at p. 228; Moloney, ‘Close Cooperation: the SSM Institutional Framework and lessons from the ESAs’ in ECB (ed), Building bridges: central banking in an interconnected world, ECB Legal Conference (2019), at p. 297. 3 Cf. Arts. 35 to 46 of Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (CRD IV), OJ L176, 27.6.2013, p. 338. 4 Decision of the ECB of 31 January 2014 (ECB/2014/5). 5 Decision (EU) 2020/1015 of the European Central Bank of 24 June 2020, OJ L 224 I, p. 1; Decision (EU) 2020/1016 of the European Central Bank of 24 June 2020, OJ L 224 I, p. 4. 6 Art. 283(1) TFEU; Art. 10.1 ESCB Statute. 7 Lackhoff, Single Supervisory Mechanism (2017), at p. 227. 1

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issues, credibility and reputation, and participation in the SRM.8 A close cooperation can be also seen as a preparatory step on the way to full euro-area membership. When a non-participating Member State does not wish to establish a close cooper- 4 ation, the ECB and the competent authorities of this Member State shall conclude a memorandum of understanding.9 This legally non-binding document describes in general terms how both sides will cooperate with one another in the performance of their supervisory tasks. In addition, the ECB cooperates with supervisory authorities of these Member States within colleges of supervisors, as provided by secondary law.

B. Legal basis A close cooperation builds on two legal elements: a decision adopted by the ECB in 5 accordance with Art. 7(2) SSMR and national legislation that implements the requirements of Art. 7(2)(c) SSMR. However, as neither primary law nor the SSMR itself imposes an obligation on these Member States to participate in the SSM, Member States with a derogation are free to decide whether they wish to establish a close cooperation with the ECB. Therefore, a close cooperation can only be established on their initiative.

I. Notification by the Member State For this purpose, the Member State notifies the other Member States, the Commis- 6 sion, the ECB and the EBA request to enter into a close cooperation with the ECB.10 In this request, the Member State undertakes to ensure that its NCA will abide by any guidelines or requests issued by the ECB and provide all information required by the ECB.11 With a view to Art. 6(4) SSMR, the Member State must also commit itself to provide all information on the credit institutions established in its territory that the ECB may require for the purpose of carrying out a comprehensive assessment of those credit institutions.12 This assessment is compulsory and comprises an asset quality review and a stress test of all significant and potentially significant banks, prior to the ECB’s decision to establish a close cooperation. In addition, decision ECB/2014/5 requires that the Member State undertakes in its re- 7 quest that it will adopt the relevant national legislation necessary for the performance of its obligations under Art. 7(2)(c) SSMR. The requesting Member State must also attach a copy of the draft legislation and an English translation thereof, as well as a request for an ECB opinion on such draft legislation.13 The ECB then assesses the national legislative basis whether it properly reflects and safeguards the mechanics of close cooperation within the SSM.

8 Lastra, ‘Close Cooperation in the SSM’ in ECB (ed), Building bridges: central banking in an interconnected world, ECB Legal Conference (2019), at p. 286. 9 Art. 3(6) SSMR. 10 Art. 7(2) (a) SSMR. 11 Art. 7(2)(b), first indent SSMR. 12 Art. 7(2)(b), second indent SSMR and Art. 2(1) of Decision of the ECB of 31 January 2014 (ECB/ 2014/5). 13 Art. 2(2) of Decision of the ECB of 31 January 2014 (ECB/2014/5).

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II. Decision by the ECB 8

The close cooperation will be established by a decision in the meaning of Art. 132(1), second indent TFEU that the ECB adopts in accordance with Art. 7(2) SSMR. As it is the case for all supervisory measures of the ECB, the internal procedure that results in the adoption of that decision is governed by Art. 26 SSMR. As regards the substantive requirements, the ECB may only adopt the decision once it has been assured that the conditions laid down in Art. 7(2)(a) to (c) SSMR are met.14 The decision must be published in the Official Journal of the EU and applies 14 days after its publication.15

III. Complementary national legislation Prior to the adoption of the ECB’s decision to establish a close cooperation, the requesting Member State must have adopted relevant national legislation to ensure that its NCA will be obliged to adopt any measure in relation to credit institutions requested by the ECB, cf. Art. 7(2)(c) SSMR. Upon the entry into force of the measures, the Member State must provide a confirmation that the legal effects envisaged by Art. 7(2)(c) SSMR are actually ensured. 10 The national legislation provided by Art. 7(2)(c) SSMR forms the legal basis within the legal order of the Member State concerned that credit institutions can be supervised indirectly by the ECB. For this purpose, the legislator must ensure that its NCA will comply with all instructions issued by the ECB under Art. 7(4) SSMR. This also means that the Member State must abolish all national provisions which could hinder the NCA from implementing supervisory requirements which the ECB may impose in accordance with the SSMR. Insofar, the national legislation must mirror the legal system of the SSMR, including the powers which the ECB possesses thereunder. 9

IV. Legal effects of a close cooperation When analysing the legal effects of Art. 7 SSMR, two things must be discerned. Firstly, the SSMR as such is legally binding for all Member States, also for all Member States with a derogation, as Art. 139(2)(c) TFEU does not mention Art. 127(6) TFEU which forms the legal basis of the SSMR. Secondly, due to Art. 139(2)(e) TFEU, legal measures adopted by the ECB are not binding for a Member State with a derogation and do not have a legal effect within its legal order. Accordingly, supervisory decisions or other measures addressed towards credit institutions in that Member State would not have any binding effect, what the SSMR reflects in its Art. 9(3). 12 Against this legal backdrop, the establishment of a close cooperation does not mean that a Member State outside the euro area “accedes” in some way to the SSM. 16 The decision remains a unilateral act which is binding for the ECB itself and all Member States of the euro area, but not for the Member State concerned. Accordingly, it cannot be interpreted as a contractual relationship between both sides. Its legal content is limited to saying that from the date of its entering into force Art. 7 SSMR applies to that Member State. The latter provision is binding for the Member State and requires that it adopts all 11

14 Cf. Lackhoff, Single Supervisory Mechanism (2017), at p. 228 who acknowledges that the ECB enjoys discretion in this respect. 15 Art. 7(3) SSMR. 16 Lackhoff, Single Supervisory Mechanism (2017), at p. 227.

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legislative and administrative measures within its own legal order that are necessary in order to implement fully and immediately the supervisory instructions issued by the ECB. Only these national measures have a direct legal effect on the credit institutions which the ECB supervises under the system of close cooperation.17 This system applies regardless of whether the ECB exercises its supervisory competences towards significant banks or less significant banks in that Member State.

C. Fundamentals of close cooperation I. Application of the SSMR mutatis mutandis A close cooperation extends to all tasks conferred on the ECB in accordance with 13 Arts. 4(1), 4(2) and 5 SSMR. As far as the ECB’s competences ratione personae, i.e., with respect to the entities supervised, are concerned, the ECB is in a position comparable to the one it does normally hold under the SSMR.18 The SSM‑FR translates this concept into an application of the SSMR mutatis mutandis.19

II. Powers of the ECB As a result of Art. 139(2)(e) TFEU and Art. 9(3) SSMR, the ECB may not exercise its 14 supervisory and investigatory powers under Arts.10 to 18 SSMR directly in that Member State20 but must rely exclusively on its right to issue instructions to the NCA in accordance with Art. 7(4) SSMR.21 In addition, it may also make requests and issue guidelines to the NCA.22 The ECB adopts these measures in accordance with Art. 26 SSMR. They are, however, not binding as such,23 but only according to the national laws that were adopted by the Member States in order to safeguard the functioning of the close cooperation within the domestic legal order. In the instruction, request or guideline, the ECB must specify a relevant time limit 15 for the adoption of the corresponding measure by the NCA, which shall be no less than 48 hours, unless earlier adoption is necessary to prevent irreparable damage.24 When determining the time limit, the ECB shall take into account the administrative and procedural law with which the NCA has to comply.25 The NCA must take all necessary measures to comply with the ECB’s instructions, requests or guidelines and it must inform the ECB without undue delay of the measures it has taken.26 This system requires a close and effective cooperation between the ECB and NCA.

See also Lackhoff, Single Supervisory Mechanism (2017), at p. 227. Cf. Art. 107(2) SSM‑FR; see also Lackhoff, Single Supervisory Mechanism (2017), at p. 228. 19 Cf. Arts. 109, 110(1), 111(1), 112(1), 113(1), 114(1) and 115(1) SSM‑FR; cf. Lackhoff, Single Supervisory Mechanism (2017), at p. 229. 20 Cf. Arts. 107(2) and 114 of the SSM‑FR. 21 Art. 107(3) SSM‑FR. 22 Art. 108(1) SSM‑FR. 23 Moloney, ‘Close Cooperation: the SSM Institutional Framework and lessons from the ESAs’ in ECB (ed), Building bridges: central banking in an interconnected world, ECB Legal Conference (2019), at p. 297. 24 Art. 7(4) SSM Regulation. 25 Art. 108(4) SSM‑FR. 26 Art. 108(5) SSM‑FR. 17

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III. Indirect supervision of all credit institutions As regards to significant credit institutions that are established in the Member State concerned, the ECB has the exclusive competence for their supervision. In particular, the ECB may also establish Joint Supervisory Teams that perform the task of day-to-day supervision.27 However, as the ECB is unable to exercise a direct supervision, it does not address decisions of these credit institutions, as it would normally be the case within the framework of Art. 6(4) SSMR. 28 Instead, it must issue a specific or general instruction to the NCA which, in a second step, will then adopt the corresponding supervisory measure.29 The SSM‑FR does not provide an obligation of the ECB to hear the supervised entity prior to issuing an instruction.30 In order to protect the rights of defence of the credit institution, the NCA must carry through an administrative procedure including a hearing that complies with general legal principles as reflected in Art. 41 of the Charter of Fundamental Rights. As a consequence of the ECB’s exclusive competence, the NCA does not have the power to act on its own initiative towards a significant credit institution31 but must, in any event, rely on instructions issued prior thereto by the ECB.32 Whenever the NCA wishes to become active, it must request an instruction. 17 With regard to less significant credit institutions, the SSM‑FR provides that the ECB may issue only general instructions and guidelines and make requests to the NCA,33 while the responsibility for the direct supervision remains with the NCA. Also the investigatory powers, of which the ECB could normally make use in accordance with Arts. 6(5)(d) and 10 to 13 SSMR, apply only mutatis mutandis. Insofar, the ECB may instruct the NCA in accordance with Art. 7(4) SSMR to provide the necessary information. 18 As far as the common procedures under the SSMR (cf. Art. 14: Authorisation, and Art. 15: Assessment of acquisitions of qualifying holdings) are concerned, all decisions, which regularly the ECB would adopt, must be adopted by the NCA, based on instructions issued by the ECB. 16

D. Suspension and termination Both the ECB and the Member State may initiate the termination of the close cooperation in accordance with the conditions provided by Art. 7(5) to (8) SSMR. The formal decision, however, will be exclusively taken by the ECB. Insofar, the following situations must be discerned: 20 The ECB may suspend or terminate the close cooperation in the cases where the conditions set out in subparas. (a) to (c) of Art. 7(2) SSMR are no longer met by the Member State concerned or where its NCA does not comply with an instruction issued by the ECB. Prior to the suspension or termination, the ECB must issue a warning, where upon the Member State concerned has a time period of 15 days to comply with its obligations under the SSMR. The decision of the ECB to suspend or terminate the close cooperation must be notified to the Member State concerned and must be published in the Official Journal of the EU. 19

Art. 115(3) SSM‑FR. Cf. Art. 107(2) SSM‑FR. 29 Cf. Arts. 107(3) and 116 SSM‑FR. 30 For a different view see Lackhoff, Single Supervisory Mechanism (2017), at p. 230. 31 Lackhoff, Single Supervisory Mechanism (2017), at p. 229. 32 Art. 116(1) SSM‑FR. 33 Cf. Arts. 107(3) and 117 SSM‑FR. 27 28

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As long as the exemption under Art. 139(2) TFEU applies to the Member State, it may request the ECB to terminate the close cooperation at any time after a lapse of three years from the date of the publication of the decision to establish the close cooperation, cf. Art. 7(6) SSMR. In its request, the Member State must explain the reasons for the termination, including, when relevant, potential significant adverse consequences as regards its fiscal responsibilities. In this case, the ECB immediately proceeds to adopt a decision terminating the close cooperation and indicates the date from which it applies within a maximum period of three months, taking due consideration of supervisory effectiveness and legitimate interests of credit institutions. Further reasons to terminate a close cooperation may result from the fact that the Member State is only represented on the Supervisory Board but not in the Governing Council, the ultimate decision-making body of the SSM. Insofar, the right to terminate is a safeguard in a situation where the standpoints of the Member State and the Governing Council cannot be reconciled.34 Depending on the specific circumstances, the SSMR attributes the right to initiate the termination either to the ECB or to the Member State. In any event, the right to adopt the formal decision remains vested in the ECB. Under Art. 7(7) SSMR, the Member State may notify its reasoned disagreement with an objection of the Governing Council to a draft supervisory decision of the Supervisory Board in accordance with Art. 26(8) SSMR. Where the Governing Council confirms its objection, the Member State may notify the ECB that it will not be bound by the potential decision related to a possible amended draft decision by the Supervisory Board. The ECB will then consider whether to suspend or terminate the close cooperation with that Member State, taking due consideration of all effects of such suspension or termination, in particular on all aspects mentioned in subparas. (a) to (c), and take a decision in that respect. Under Art. 7(8) SSMR, when the Member State disagrees with a draft decision of the Supervisory Board, it informs the Governing Council of its reasoned disagreement within five working days of receiving the draft decision. The Governing Council will then decide about the matter within five working days, taking fully into account those reasons, and explain in writing its decision to the Member State concerned. The Member State concerned may request the ECB to terminate the close cooperation with immediate effect and will not be bound by the ensuing decision. On the date of the entry into force of the ECB’s decision to terminate the close cooperation, its tasks, competences and powers vis-à-vis the Member State and the credit institutions established in its territory will end.

Art. 8 SSMR International relations Without prejudice to the respective competences of the Member States and institutions and bodies of the Union, other than the ECB, including EBA, in relation to the tasks conferred on the ECB by this Regulation, the ECB may develop contacts and enter into administrative arrangements with supervisory authorities, international organisations and the administrations of third countries, subject to appropriate coordination with EBA. Those arrangements shall not create legal obligations in respect of the Union and its Member States.

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Cf. Recital 43 SSMR.

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Bibliography Anthony Aust, Modern Treaty Law and Practice (3rd edn, Cambridge University Press, Cambridge 2013); Chris Brummer, Soft Law and the Global Financial System (Cambridge University Press, Cambridge 2012); Christian Calliess and Matthias Ruffert (eds), EUV/AEUV (5th edn, C.H. Beck, Munich 2016); Jörn Axel Kämmerer, ‘Bahnfrei der Bankenunion? Die neuen Aufsichtsbefugnisse der EZB im Lichte der EU-Kompetenzordnung’, NVwZ (2013), 830; Christoph Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (C.H. Beck, Munich 2015); Helmut Siekmann (ed), EWU, Kommentar zur Europäischen Währungsunion (Mohr Siebeck, Tübingen 2013); René Smits, The European Central Bank (Kluwer Law International, The Hague 1997); Franziska Strauß, Soft Law als Steuerungsinstrument der Bankenaufsicht (Nomos, Baden-Baden 2016); Hans von der Groeben, Jürgen Schwarze and Armin Hatje (eds), Europäisches Unionsrecht, Band 3 (7th edn, Nomos, Baden-Baden 2015); Chiara Zilioli and Martin Selmayr, The Law of the European Central Bank (Hart Publishing, Oxford 2001). A. External relations of the euro area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. External competences in the area of monetary policy . . . . . . . . . . . . . . . . . . . . . . . . 1. Treaty making power of the EU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Treaty-making power of the ECB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Shared competences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. External competences in matters of banking supervision . . . . . . . . . . . . . . . . . . . .

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B. External competences under Art. 8 SSMR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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A. External relations of the euro area I. Overview The external relations of the euro area are subject to a complex system of explicit and implicit competences. This is the result of the EMU’s architecture, where competences for economic and financial policies are shared, to varying degrees, between the EU and its Member States.1 While, in general, monetary policy forms an exclusive competence of the EU under Art. 3(1)(c) TFEU, the competences in relation to issues of economic policy are shared between the EU and the Member States. In addition, the Treaties distinguish between the specific competences of the EU to conclude international agreements (treaty making power) and the general competence of international cooperation with other countries and international institutions. 2 In the field of EMU, the Member States concerned are, in general, only those that have introduced the euro currency. Furthermore, the practical operation of international relations is complicated by the fact that not all euro area Member States are members of all relevant international institutions and fora. While all EU Member States are members of the IMF, only a sub-set of them is represented in the OECD, G7, G20, the Financial Stability Board2 or the various international standard setting bodies, in particular the Basel Committee on Banking Supervision. 1

II. External competences in the area of monetary policy 1. Treaty making power of the EU 3

As regards the EU’s competences of international cooperation in matters of monetary policy, the principle of conferral according to Art. 5(1) and (2) TEU applies. The most 1 Cf. ECB, Monthly Bulletin May 2011, at p. 90; see also Zilioli and Selmayr, The Law of the European Central Bank (2001), at pp. 183 et seq. 2 ECB, Monthly Bulletin May 2011, at p. 91.

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important provisions in this respect are Arts. 138 and 219 TFEU which deviate in parts, as far as the allocation of powers between the Union organs is concerned, from the general rules under Art. 17(1)(6) TEU and Art. 218 TFEU.3 Art. 138(1) TFEU provides that “in order to secure the euro’s place in the internation- 4 al monetary system, the Council […] shall adopt a decision establishing common positions on matters of particular interest for economic and monetary union within the competent international financial institutions and conferences. The Council shall act after consulting the European Central Bank.” Art. 138(2) TFEU adds that “the Council […] may adopt appropriate measures to ensure unified representation within the international financial institutions and conferences. The Council shall act after consulting the European Central Bank.” In addition, the EU has the competence to enter into agreements for the establish- 5 ment of international exchange rate systems. Art. 219(1) TFEU attributes the power to the Council to conclude the respective agreements for the euro in relation to the currencies of third States. In the absence of such agreements, the Council may formulate general orientations for exchange-rate policy in relation to these currencies. Parties to the agreements mentioned before will be the relevant third States and the 6 EU, as only institutions with a legal personality, i.e., subjects of international law, may establish rights and obligations under public international law.4

2. Treaty-making power of the ECB The Treaties attribute international legal personality not only to the EU, but also to 7 the ECB,5 so that it is able to conclude international agreements. 6 In contrast thereto, the Eurosystem, the ESCB, and also the SSM lack legal personality as neither the Treaties nor a secondary law attribute this legal quality to them.7 The treaty making power of the ECB is rather limited, however. Art. 23, third indent of the ESCB Statute provides that the ECB may “conduct all types of banking transactions in relations with third countries and international organisations, including borrowing and lending operations.” The right “to conduct foreign-exchange operations consistent with the provisions of Art. 219” and “to hold and manage the official foreign reserves of the Member States” is also confirmed by Art. 127(2), second and third indents TFEU. In addition, the ECB may rely on implied powers, e.g., in relation to the Exchange Rate Mechanism II.8

3. Shared competences As has been said before, however, the EU shares its competences with the Member 8 States in the external sphere with regard to the various subject matters of EMU. Art. 219(4) TFEU provides that “without prejudice to Union competence and Union agreements as regards economic and monetary union, Member States may negotiate in 3 On the constitutional character of Art. 218 TFEU see Case C-425/13, Comission v. Council, ECLI:EU: C:2015:483, para. 62. 4 Cf. Case C-327/91, France v Commission, ECLI:EU:C:1994:305, para. 24, with respect to states see Art. 6 of the Vienna Convention on the Law of Treaties; Aust, Modern Treaty Law and Practice (3 rd edn, 2013), at p. 55. 5 Art. 282(3)(1) TFEU. 6 For an extensive analysis see Zilioli and Selmayr, The Law of the European Central Bank (2001), at pp. 179 et seq.; see also Häde, in: Calliess and Ruffert (eds), EUV/AEUV (5th edn, 2016), AEUV Art. 282, para. 34; Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), at p. 36. 7 With respect to the ESCB see Häde, in: Calliess and Ruffert (eds), EUV/AEUV (5 th edn, 2016), AEUV Art. 282, para. 2. 8 Cf. Zilioli and Selmayr, The Law of the European Central Bank (2001), at pp. 206 et seq.

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international bodies and conclude international agreements.” In addition, Art. 23 of the ESCB Statute grants treaty making powers also to national central banks. 9 The general right to cooperate with third countries and international organisations, other than in relation to the negotiation and conclusion of international agreements, also remains a competence shared between the EU and the participating Member States. This is a consequence of the general rule of Art. 220 TFEU that permits the EU to establish “all appropriate forms of cooperation” with international organisations. With respect to the specific tasks of the Eurosystem, this principle is reiterated by Art. 6 of the ESCB Statute.9 Art. 6.1 provides that “in the field of international cooperation involving the tasks entrusted to the ESCB, the ECB shall decide how the ESCB shall be represented.” Art. 6.2 adds that “the ECB and, subject to its approval, the national central banks may participate in international monetary institutions.”

III. External competences in matters of banking supervision In the Treaties, no specific provisions exist, as far as the external aspects of the EU’s competence for the supervision of credit institutions in accordance with Art. 127(6) TFEU are concerned. This subject matter does not constitute an exclusive competence that falls within the scope of Art. 3(1)(c) TFEU as this provision refers only to “monetary policy”10 but not to supervisory issues. Rather, Art. 127(6) TFEU must be treated as a competence that is shared between the EU and the Member States.11 This also corresponds to Art. 114 TFEU which forms a shared competence and constitutes the legal basis for legislative measures in the area of banking supervision. 11 Hence, the external competences of the EU in this area can be derived from Art. 216(1) TFEU. This provision refers to the general treaty-making power of the EU which can be activated in the cases provided therein, in particular, when the conclusion of an international agreement is provided for in a legislative act of the Union. In the CRD IV, the EU legislator made express use of this empowerment, as far as the treatment of branches of credit institutions having its head office in a third country12 and matters of supervision on a consolidated basis13 are concerned. 12 In addition, the EU also has a shared competence which is conferred by Art. 216(1) TFEU in respect of the conclusion of an agreement which is “necessary in order to achieve, within the framework of the Union’s policies, one of the objectives referred to in the Treaties”.14 13 As regards the general competence of the EU to cooperate with third countries and international organisations in the area of banking supervision, other than in relation to the conclusion of an international agreement, Art. 220(1)(subpara. 2) TFEU is applicable. This provision permits the Union to “maintain such relations as are appropriate with other international organisations.” However, it is not the ECB that may implement that Article but the High Representative of the Union, cf. Art. 220(2) TFEU. In contrast thereto, the scope of Art. 6.2 of the ESCB Statute is narrower as it refers only to the ECB’s participation in “international monetary institutions”. This competence does not extend 10

9 Cf. Herrmann, in: Siekmann (ed), EWU, Kommentar zur Europäischen Währungsunion (2013), ESCB Statute Art. 6, para. 6. 10 On this term see Case C-370/12, Pringle, ECLI:EU:C:2012:756, para. 53; Case C-62/14, Gauweiler, ECLI:EU:C:2015:400, para. 42. 11 Cf. Kämmerer, NVwZ 2013, 830, at p. 833. 12 Cf. Art. 47(3) CRD IV. 13 Cf. Art. 48(1) CRD IV. 14 See in this respect Opinion 2/15, ECLI:EU:C:2017:376, para. 242.

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to issues of prudential regulation and supervision.15 However, Art. 6 of the ESCB Statute does not hinder the EU legislator to confer a respective competence to the ECB by a legislative act that is based on an appropriate competence in the Treaties. Insofar, Art. 127(6) TFEU can also be used as a legal basis for the conferral of competences in the area of international supervisory cooperation. Art. 8 SSMR is a result of the EU legislator making use of this competence.

B. External competences under Art. 8 SSMR Art. 8 SSMR does not confer a treaty making power to the ECB. It refers only to issues 14 of general international cooperation with supervisory authorities, international organisations and the administrations of third countries in relation to tasks conferred on the ECB by the SSMR. The competence conferred by Art. 8 SSMR does not exclude the Member States and their supervisory authorities from participating in international institutions and fora, concluding agreements and administrative arrangements. The relevant partners with whom the ECB may cooperate are not specified by the 15 SSMR. From the point of view of EU law, it is sufficient that they perform supervisory tasks in the meaning of Arts. 4 and 5 SSMR. Whether they actually have such competences is not a matter of EU law but depends on the allocation of powers by the relevant provisions of domestic or international law under which these institutions were established. To the extent that the ECB enters into administrative arrangements with these institutions, the SSMR clearly provides that these may not create legal obligations in respect of the Union and its Member States. Insofar, the ECB may only agree on so-called Memoranda of Understanding with other supervisory authorities, which are legally not binding at all.16 It may also cooperate with the relevant standard setting bodies, in particular the Basel Committee on Banking Supervision. The international supervisory standards, which these bodies adopt, do not constitute binding obligations but are considered as recommendations. Nonetheless, the political and practical relevance of this international soft law is high.17 The competences of the EBA, to which Art. 8 SSMR refers, are laid down in Art. 33 of 16 the EBA Regulation.18 It provides, similarly to Art. 8 SSMR, that “the Authority may develop contacts and enter into administrative arrangements with supervisory authorities, international organisations and the administrations of third countries. Those arrangements shall not create legal obligations in respect of the Union and its Member States.” Therefore, it is possible that ECB and EBA act in parallel in many cases and must, accordingly, coordinate their policies. As regards international standard setting, both ECB and EBA are represented in the Basel Committee. A major difference between both authorities, however, may arise from the fact that the ECB is exclusively responsible for the direct supervision of significant credit institutions, while the main task of the EBA is to

15 For an application on the area of banking supervision, cf. Herrmann, in: Siekmann (ed), EWU, Kommentar zur Europäischen Währungsunion (2013), ESCB Statute Art. 6, para. 7; Smits, in: von der Groeben, Schwarze and Hatje (eds), Europäisches Unionsrecht, Band 3 (7th edn, 2015), ESCB Statute Art. 6, paras. 21–23; see also Smits, The European Central Bank (1997), at pp. 426 et seq. 16 Cf. Aust, Modern Treaty Law and Practice (2013), at pp. 28 et seq. 17 For an overview see Brummer, Soft Law and the Global Financial System (2012), and Strauß, Soft Law als Steuerungsinstrument der Bankenaufsicht (2016). 18 Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/78/EC, OJ L331, 15.12.2010, p. 12.

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contribute to the Single Rulebook. Insofar, the different tasks in the internal sphere will also be reflected in the performance of external competences.

Art. 9 SSMR Supervisory and investigatory powers1 1. For the exclusive purpose of carrying out the tasks conferred on it by Articles 4(1), 4(2) and 5(2), the ECB shall be considered, as appropriate, the competent authority or the designated authority in the participating Member States as established by the relevant Union law. For the same exclusive purpose, the ECB shall have all the powers and obligations set out in this Regulation. It shall also have all the powers and obligations, which competent and designated authorities shall have under the relevant Union law, unless otherwise provided for by this Regulation. In particular, the ECB shall have the powers listed in Sections 1 and 2 of this Chapter. To the extent necessary to carry out the tasks conferred on it by this Regulation, the ECB may require, by way of instructions, those national authorities to make use of their powers, under and in accordance with the conditions set out in national law, where this Regulation does not confer such powers on the ECB. Those national authorities shall fully inform the ECB about the exercise of those powers. 2. The ECB shall exercise the powers referred to in paragraph 1 of this Article in accordance with the acts referred to in the first subparagraph of Article 4(3). In the exercise of their respective supervisory and investigatory powers, the ECB and national competent authorities shall cooperate closely. 3. By derogation from paragraph 1 of this Article, with regard to credit institutions established in participating Member States whose currency is not the euro, the ECB shall exercise its powers in accordance with Article 7. Bibliography Giovanni Bassani, ‘The Centralisation of Prudential Supervision in the Euroarea: The Emergence of a New ‘Conventional Wisdom’ and the Establishment of the SSM’ (2020) EBLR, 1001; Henning Berger, ‘Rechtsanwendung durch die EZB im Single Supervisory Mechanism – Teil I’, WM (2016), 2325; Henning Berger, ‘Rechtsanwendung durch die EZB im Single Supervisory Mechanism –Teil II’, WM (2016), 2361; Andrea Biondi and Alessandro Spano, ‘The ECB and the Application of National Law in the SSM: New yet old’, (2020) EBLR, 1023; Florin Coman-Kund and Fabian Amtenbrink, ‘On the Scope and Limits of the Application of National Law by the European Central Bank within the Single Supervisory Mechanism’, 33 B.F.L.R (2018), 133; Christos V. Gortsos, The Single Supervisory Mechanism (SSM) (Nomiki Bibliothiki, Athens 2015); Carmen Hernández Saseta, ‘The Legal Review of ECB Instructions under Article 9 SSM Regulation’, in: Chiara Zilioli and Karl-Philipp Wojcik (eds), Judicial Review in the European Banking Union (Edward Elgar Publishing Limited 2021), 304; Peter Jedlicka and Gerald Lederer, ‘Auf der Suche nach dem nationalen Recht innerhalb des SSM – Zur Aufteilung behördlicher Befugnisse nach dem EuGH-Urteil “VTB Bank (Austria)”’, ZFR (2021), 218; Jörn Axel Kämmerer, ‘Rechtsschutz in der Bankenunion (SSM, SRM)’, WM (2016), 1; Klaus Lackhoff, Single Supervisory Mechanism – A Practitioner’s Guide (C.H. Beck/Hart/Nomos, Munich/Oxford/Baden-Baden 2017); Asen Lefterov, ‘The Single Rulebook: legal issues and relevance in the SSM context’, ECB Legal Working Paper Series No 15 (2015); Christoph Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (C.H. Beck 2015); Enrico Peuker, ‘Die Anwendung nationaler Rechtsvorschriften durch Unionsorgane’, JZ (2014), 764; Miro Prek, ‘Mutual judicial deference? The delineation of (interpretative) competence of European and national courts in the judicial review of ECB acts based on national law’, in: Building bridges: central banking law in an interconnected world – ECB Legal Conference 2019, 129 (available under www.ecb.europa.eu); Antonio Luca Riso and Georgios Zagouras, ‘Single Supervisory Mechanism (SSM)’, in: Simon G. Grieser and Manfred Heemann (eds), Europäisches Bankenaufsichtsrecht (School Verlag, Frankfurt 2016), 106; 1 This contribution should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the author and do not necessarily reflect those of the ECB.

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Gunnar Schuster, ‘The banking supervisory competences and powers of the ECB’, EuZW-Beilage (2014), 3; Andreas Witte, ‘The Application of National Banking Supervision Law by the ECB: Three Parallel Modes of Executing EU Law’, 21 MJ 1 (2014), 89; Andreas Witte, ‘The Application of National Law by the ECB, including Options and Discretions and its Impact on the Judicial Review’, in: Chiara Zilioli and Karl-Philipp Wojcik (eds), Judicial Review in the European Banking Union (Edward Elgar Publishing Limited 2021), 236. A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1

B. Competence of the ECB to exercise powers – Art. 9(1) SSMR . . . . . . . . . . . . . . . . I. The ECB as the competent or designated authority . . . . . . . . . . . . . . . . . . . . . . . . . . II. Powers of the ECB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Powers under the SSMR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Powers under Union law and national law transposing Union law . . . . . . . 3. Other supervisory powers under national law . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Possibility to give instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4 4 7 8 15 21 25

C. Exercise of powers by the ECB – Art. 9(2) SSMR . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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D. Exercise of powers in non-euro area Member States – Art. 9(3) SSMR . . . . . . .

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A. Introduction Art. 9 SSMR is a general provision on the ECB’s supervisory and investigatory 1 powers which are further specified in Arts. 10-18 SSMR. The provision thus serves as an introduction to Chapter III on the powers of the ECB. Art. 9 SSMR specifies in its first paragraph that the ECB shall be considered as the competent and designated authority in the participating Member States and shall have all the supervisory powers which such authorities have under Union law; the first paragraph also includes the power of the ECB to give instructions to national competent authorities (NCAs) to make use of their powers under national law. Art. 9(2) SSMR specifies how the ECB should exercise its powers. Art 9(3) SSMR concerns the exercise of powers in Member States whose currency is not the euro but have entered into a close cooperation with the ECB. Art. 9 SSMR was substantially amended during the discussions on the SSMR to clarify the ECB’s powers. The Commission’s proposal only foresaw two paragraphs which basically correspond to the current Art. 9(1)(1) SSMR.2 The changes introduced during the legislative process have, however, not necessarily contributed to a higher degree of clarity.3 The term “powers” is not explicitly defined in the SSMR. The term refers to the ECB’s 2 competence to undertake investigations and to impose legally binding supervisory measures on supervised entities.4 The exercise of such investigatory or supervisory powers which affect the fundamental rights of the entities concerned requires a specific legal basis.5 The ECB’s powers need to be distinguished from its tasks.6 The ECB’s micro-pru2 See Art. 8 of the Proposal for a Council Regulation conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (COM(2012) 511 final) . 3 Lackhoff, Single Supervisory Mechanism – A Practitioner’s Guide (2017), at p. 37 rightly points out that the first and the third sent. of Art. 9(1)(2) SSMR basically state the same, namely that the ECB may exercise the powers set out in the SSMR. 4 The term “powers” is often used in a broader sense to include the power to adopt legal acts of general application or other legal instruments or is used as an equivalent to the terms “tasks” or “responsibilities”. For the purposes of Art. 9 SSMR, the term should, however, be interpreted in a narrower sense since the scope of Chapter III, of which Art. 9 SSMR is part, is limited to supervisory measures imposed on individual supervised entities. Moreover, Art. 9 SSMR clearly distinguishes between “tasks” and “powers” which indicates that the two terms have a different meaning. 5 Witte, 21 MJ 1 (2014), 89, at pp. 94-95. 6 Schuster, EuZW-Beilage 2014, 3, at p. 6.

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dential tasks are defined in Art. 4 SSMR and its macro-prudential tasks in Art. 5 SSMR. These provisions define the scope of the ECB’s supervisory responsibilities, i.e. the persons and areas of which the ECB is in charge. In accordance with the principle of conferral set out in Art. 5 TEU7, the ECB may only exercise supervisory powers that fall within its tasks under SSMR.8 The existence of a task as such is, however, not sufficient to impose supervisory measures on supervised entities. In addition, a specific supervisory power to impose such a measure needs to be granted to the ECB.9 Supervisory powers are granted to the ECB for the purpose of fulfilling its tasks and may only be exercised for that purpose. At the same time, they limit the tasks since the ECB may only effectively perform its tasks if appropriate powers are available.10 3 The ECB may exercise its powers in principle only vis-à-vis entities that fall under its direct supervision, i.e. credit institutions, (mixed) financial holding companies and branches that are classified as significant institutions in accordance with Art. 6(4) SSMR and Arts. 39-72 of Regulation of the ECB No 468/201411. Less significant institutions remain under the direct supervision of the NCAs that may exercise the powers they have under Union and national law.12 The ECB in its oversight function may only take measures vis-à-vis the NCAs in accordance with Art. 6 SSMR. As an exception to this distribution of powers, the ECB may make use of its investigatory powers also vis-àvis less significant institutions (Art. 6(5)(d) SSMR). Moreover, its powers to grant and withdraw authorisations and to approve acquisitions of qualifying holdings extend to all credit institutions, regardless of whether they are significant or less significant. 13

B. Competence of the ECB to exercise powers – Art. 9(1) SSMR I. The ECB as the competent or designated authority 4

Art. 9(1)(1) SSMR provides that the ECB, for the exclusive purpose of carrying out the tasks conferred on it by Arts. 4 and 5 SSMR, is the competent authority or the designated authority in the participating Member States as established by the relevant Union law. The purpose of this provision is to clarify that the ECB takes over the competences of NCAs or national designated authorities (NDAs) and may exercise the micro and macroprudential powers conferred upon them, to the extent that these powers fall within the ECB’s tasks.14

Ohler, Bankenaufsicht und Geldpolitik (2015), § 5, para. 184. Lackhoff, Single Supervisory Mechanism – A Practitioner’s Guide (2017), at p. 37. See also Recital 45 SSMR according to which the ECB should be competent to exercise supervisory powers to “the extent that those powers fall within the scope of the supervisory tasks conferred on the ECB”. 9 Lackhoff, Single Supervisory Mechanism – A Practitioner’s Guide (2017), at pp. 25 and 37; Schuster, EuZW-Beilage 2014, 3, at p. 8. 10 Riso and Zagouras, in Grieser and Heemann (eds), Europäisches Bankenaufsichtsrecht (2016), 106, at p. 111. 11 Regulation of the ECB of 16 April 2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the ECB and national competent authorities and with national designated authorities (SSM‑FR) (ECB/2014/17), OJ L141, 14.5.2014, p. 1. 12 According to Witte, 21 MJ 1 (2014), 89, at p. 97 the ECB may also exercise its powers set out in Art. 16 SSMR vis-à-vis less significant institutions since Art. 16 SSMR would only refer to Art. 4 SSMR but not to Art. 6 SSMR. However, Art. 4 SSMR refers to Art. 6 SSMR and it was the legislator’s clear intention to entrust NCAs with the direct supervision of less significant institutions. 13 Arts. 4(1)(a) and (c), 6(6), 14, and 15 SSMR. 14 Lackhoff, Single Supervisory Mechanism – A Practitioner’s Guide (2017), at p. 37. 7

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Art. 9(1)(1) SSMR is more of a declaratory nature since the conferral of tasks from 5 Member States to the ECB under the SSMR automatically entails that the ECB becomes the competent or designated authority in all euro area Member States and may exercise the powers set out in relevant Union law that are related to such tasks. Other tasks not conferred on the ECB remain with NCAs and NDAs; they are competent to exercise the related powers.15 This concerns, for instance, the exercise of supervisory powers vis-àvis financial institutions that are not credit institutions within the meaning of Regulation (EU) No 575/2013 of the European Parliament and of the Council16, the supervision of third-country branches or the exercise of powers aiming to prevent money laundering or terrorist financing or the exercise of powers related to consumer protection. 17 Since the SSMR applies directly in all euro area Member States, the ECB’s status as a 6 competent or designated authority in a Member State does not depend on national law. It may exercise the powers that fall within its tasks, irrespective of whether national law explicitly confers this power to the ECB, or to the competent authority or still mentions the respective NCA or NDA as the competent authority.18

II. Powers of the ECB Art. 9(1)(2) SSMR specifies that the ECB shall have (a.) all the powers and obligations 7 set out in the SSMR, in particular the ones listed in Sections 1 and 2 of the Chapter III on the powers of the ECB and (b.) all the powers and obligations, which competent and designated authorities shall have under relevant Union law which includes national law transposing Union law. In addition, the ECB may have additional powers under national law which are not explicitly mentioned in Union law (c.).

1. Powers under the SSMR The ECB’s powers under the SSMR comprise the investigatory powers set out in 8 Section 1 of Chapter III (Arts. 10-13 SSMR) and the specific supervisory powers set out in Section 2 (Arts. 14-18 SSMR). The ECB’s investigatory powers include the general power to request from the legal 9 and natural persons listed in Art. 10 SSMR all information that is necessary for the ECB to perform its tasks under the SSMR (infra, → Art. 10 SSMR). The information may be requested ad hoc or at recurring intervals. Moreover, the ECB may conduct general investigations in accordance with Art. 11 SSMR which includes the right to require the submission of documents, to examine books and records, to obtain written or oral explanations, and to conduct interviews (infra, → Art. 11 SSMR). Finally, the ECB may conduct on-site inspections at the business premises of the persons listed in Art. 10 SSMR, i.e. in-depth investigations of risks, risk controls and governance with a pre-defined scope and time frame.19

Art. 1(5) and (6) as well as Recital 28 SSMR. Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and amending Regulation (EU) No 648/2012, OJ L176, 27.6.2013, p. 1. 17 For an overview see Gortsos, The Single Supervisory Mechanism (SSM) (2015), at pp. 138-139; Lackhoff, Single Supervisory Mechanism – A Practitioner’s Guide (2017), at pp. 35 et seq. 18 Of a different view: Berger, WM 2016, 2361, at p. 2362 who considers that the ECB may only apply national law where the national legislator has empowered the ECB to apply it. 19 For an overview see the ECB Guide to banking supervision, pp. 34 et seq., available under , for further details see infra, → Art. 12 SSMR. 15

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The ECB’s supervisory powers set out in Section 2 of Chapter III comprise the power to grant and withdraw authorisations to take up the business as a credit institution (Art. 14 and Art. 4(1)(a) SSMR). The ECB’s competence covers all credit institutions, regardless of whether they are significant or less significant. The ECB must exercise these powers in line with the common procedure defined in Art. 14 SSMR and Arts. 73-84 of Regulation of the ECB No 468/214, i.e. in cooperation with the relevant NCA, and the substantive requirements set out in national law transposing Arts. 8-21 of Directive 2013/36/EU of the European Parliament and of the Council.20 11 Moreover, the ECB has the power to approve the acquisition of a qualifying holding in a credit institution established in a participating Member State (Art. 15 SSMR). The ECB’s power is limited by the scope of its task defined in Art. 4(1)(c) SSMR which covers all credit institutions established in the participating Member States including less significant institutions but excludes acquisitions that are part of a resolution measure. The ECB must exercise its power in accordance with the common procedure defined in Art. 15 SSMR and Arts. 85-88 of Regulation of the ECB No 468/214 and the substantive requirements set out in national law transposing Arts. 22 et seq. of Directive 2013/36/ EU.21 12 In addition, the ECB may exercise the specific supervisory powers set out in Art. 16 SSMR which specifies in paragraph 2, a number of specific supervisory measures including the power to require institutions to hold own funds in excess of the statutory capital requirements. Art. 16(2) SSMR serves as the legal basis to impose on significant institutions capital, liquidity and other requirements as part of the regular Supervisory Review and Evaluation Process (SREP).22 But Art. 16(2) SSMR may also be used to impose on an ad hoc basis specific supervisory measures on supervised entities. The powers set out in Art. 16 SSMR are broadly identical to the powers listed in Art. 104 of Directive 2013/36/EU; the inclusion of these powers in the SSMR was necessary to ensure that the ECB can exercise them in a fully harmonised manner and does not depend on the national laws transposing Art. 104 of the said Directive.23 13 Finally, Art. 18 SSMR empowers the ECB under certain conditions to impose administrative penalties on supervised entities, either as a sanction for breaches of prudential requirements or as a measure to enforce compliance with prudential requirements. 24 Art. 18 SSMR foresees a complex distribution of powers between the ECB and NCAs: The ECB is only competent to impose administrative pecuniary penalties for breaches of requirements set out in directly applicable acts of Union law (i.e. regulations) in accordance with Art. 18(1) SSMR, or sanctions, in case of a breach of an ECB regulation or decision, in accordance with Art. 18(7) SSMR and Council Regulation (EC) No 2532/9825. For other cases (breaches of national law transposing Union law; breaches by 10

20 Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC, OJ L 176, 27.6.2013, p. 338. 21 For an overview see Lackhoff, Single Supervisory Mechanism – A Practitioner’s Guide (2017), at pp. 171 et seq. For further details see infra, → Art. 15. 22 For an overview see Lackhoff, Single Supervisory Mechanism – A Practitioner’s Guide (2017), at pp. 205 et seq.; for further details see infra, → Art. 16 SSMR. 23 Lackhoff, Single Supervisory Mechanism – A Practitioner’s Guide (2017), at p. 206. 24 For an overview, see Gortsos, The Single Supervisory Mechanism (SSM) (2015), at pp. 225 et seq. For further details see infra, → Art. 18 SSMR and Lackhoff, Single Supervisory Mechanism – A Practitioner’s Guide (2017), at pp. 211 et seq. 25 Council Regulation (EC) No 2532/98 of 23 November 1998 concerning the powers of the European Central Bank to impose sanctions, OJ L318, 27.11.1998, 4. The term “sanctions” covers fines of a repressive nature and periodic penalty payments which serve the enforcement of supervisory measures.

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natural persons), the ECB may only require NCAs to open proceedings in accordance with Art. 18(5) SSMR. In addition to the powers set out in Chapter III, the ECB also has macroprudential 14 powers as specified in Art. 5 SSMR.26 These powers are, however, not exclusive powers of the ECB. Rather, NCAs or NDAs are primarily responsible for taking macroprudential measures, in particular defining additional capital buffer requirements in accordance with national law transposing Arts. 129-142 of Directive 2013/36/EU. 27 The ECB is responsible for assessing the exercise of these powers by NCAs or NDAs; it may object to the measures taken by NCAs/NDAs or apply more stringent measures, in particular, impose higher capital buffer requirements (top-up power) in accordance with the procedure defined in Art. 5 SSMR. But the ECB may not only top up measures taken by NCAs/NDAs but also act instead of the NCAs/NDAs if they remain inactive.

2. Powers under Union law and national law transposing Union law In addition to the powers set out in the SSMR, the ECB may also exercise all supervi- 15 sory powers set out in relevant Union law. This term refers to Art. 4(3) SSMR which specifies the law to be applied by the ECB in the performance of its supervisory tasks. 28 The relevant Union law includes all Union law instruments that lay down prudential rules for credit institutions and are part of the Single Rulebook.29 The relevant Union law is composed of secondary law, i.e. directly applicable Regulations and Directives that are not directly applicable and require transposition into national law. Primary law is also part of the relevant Union law in the sense that it puts limits on the exercise of the supervisory powers conferred on the ECB. When taking supervisory measures, the ECB must respect the fundamental freedoms and fundamental rights set out in the Treaties and the Charter of Fundamental Rights as well as the general principles of Union law such as the principle of proportionality.30 Of relevance also are non-binding instruments like the Guidelines and Recommendations issued by the EBA.31 While these non-binding instruments do not include powers to take supervisory measures, they are relevant for the interpretation of secondary Union law. The ECB’s powers under directly applicable Union law are primarily laid down 16 in Regulation (EU) No 575/2013. On the basis of this Regulation, the ECB may for instance grant waivers from own funds and liquidity requirements32, grant exemptions from the scope of consolidation33, decide on the recognition of capital instruments issued by significant institutions as Common Equity Tier 134, authorise the reduction of own funds35 or approve internal models36. The ECB may also exercise the options 26 For an overview see Lackhoff, Single Supervisory Mechanism – A Practitioner’s Guide (2017), at pp. 186 et seq. 27 These provisions allow for the imposition of a capital conservation buffer, an institution specific countercyclical buffer, risk buffers for systemically relevant institutions and systemic risk buffers. 28 Berger, WM 2016, 2325, at p. 2330; Coman-Kund and Amtenbrink, 33 BFLR (2018), 133, at pp. 145 et seq.; Biondi and Spano (2020) EBLR, 1023, at p. 1027; Bassani (2020) EBLR, 1001, at pp. 1007 et seq. 29 See Lackhoff, Single Supervisory Mechanism – A Practitioner’s Guide (2017), at p. 95 and Lefterov, ECB Legal Working Paper Series No 15 (2015), at pp. 7 and 45, who rightly point out that the Single Rulebook is more a political concept than reality, taking into account that prudential law is not yet fully harmonised at Union level. 30 Berger, WM 2016, 2325, at p. 2330. 31 Berger, WM 2016, 2325, at p. 2330. 32 Arts. 7 and 8 Regulation (EU) No 575/2013. 33 Art. 19(2) Regulation (EU) No 575/2013. 34 Art. 26(3) Regulation (EU) No 575/2013. 35 Arts. 77 and 78 Regulation (EU) No 575/2013. 36 Art. 143 Regulation (EU) No 575/2013.

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set out in Regulation (EU) No 575/2013 where they are granted to the competent authorities.37 Where the ECB has exercised such options, its decision takes precedence over the previous exercise of options by NCAs.38 Of relevance also are the numerous regulations adopted by the European Commission in accordance with Arts. 290 and 291 TFEU, by which the Commission converts the implementing technical standards and the regulatory technical standards developed by the EBA into legally binding Union law. 17 Powers set out in Directives may not be exercised directly by the ECB since Directives are addressed to Member States and therefore in principle not directly applicable. They can therefore in principle not serve as a legal basis for taking supervisory measures, at least not for measures having adverse effects.39 The ECB may though, in accordance with Art. 4(3) SSMR, exercise the powers set out in national law transposing those Directives.40 The exercise of powers set out in national law by the ECB as a European institution is one of the peculiarities of the SSM.41 This empowerment was a prerequisite for the establishment of the SSM, otherwise the ECB would have been limited to powers set out in directly applicable Union law which would have led to a two-tier system of banking supervision. The legal concerns raised by some authors42 against the ECB exercising powers under national law are not substantiated. Art. 127(6) TFEU, as ratified by all Member States, allows for the conferral of supervisory tasks and powers on the ECB including the power to exercise powers under national law that transposes Union law.43 Moreover, the application of national law by European institutions is less “exotic” than presented by some authors; there are other areas where European institutions need to apply or at least respect national law.44 The application of national law by the ECB also does not lead to a gap in the judicial protection since the Court of the Justice is fully

37 The ECB has exercised options and discretions by way of Regulation (EU) 2016/445 of the ECB of 14 March 2016 on the exercise of options and discretions available in Union law (ECB/2016/4), OJ L 78, 24.3.2016, p. 60 and the ECB Guide on options and discretions available in Union law, published under . For further details see Witte, in: Judicial Review in the European Banking Union, 236, at pp. 245 et seq.; Bassani (2020) EBLR, 1001, at pp. 1017-1019. 38 Berger, WM 2016, 2325, at p. 2331. 39 Lackhoff, Single Supervisory Mechanism – A Practitioner’s Guide (2017), at p. 41; Witte, 21 MJ 1 (2014), 89, at p. 106. 40 Berger, WM 2016, 2361, at p. 2362; Coman-Kund and Amtenbrink, 33 BFLR (2018), at pp. 147 et seq.; Bassani (2020) EBLR, 1001, at pp. 1012-1013. See for instance Joined Cases T-133/16 to T-136/16, Crédit Agricole v ECB, ECLI:EU:T:2018:219 concerning the application of provisions of the French Monetary and Financial Code prohibiting the exercise of executive functions by the chair of the board of directors. Lackhoff, Single Supervisory Mechanism – A Practitioner’s Guide (2017), at p. 38. 41 See Berger, WM 2016, 2325, at pp. 2328, 2329 and 2332; Witte, 21 MJ 1 (2014), 89, at pp. 105 et seq.; Coman-Kund and Amtenbrink, 33 BFLR (2018), at pp. 149-150; Biondi and Spano (2020) EBLR, 1023, at pp. 1025 et seq.; Prek, in: Building bridges: central banking law in an interconnected world – ECB Legal Conference 2019, 129 et seq. 42 Ohler, Bankenaufsicht und Geldpolitik (2015), § 5, para. 180; Kämmerer, WM 2016, 1, at pp. 3-4 who qualifies the application of national law by the ECB as an exotic exception to the general principle that Union institutions only apply Union law and argues that the application of national law that goes beyond a transposition would be incompatible with the principle of conferral; Peuker, JZ 2014, 764, at pp. 767 et seq. 43 Witte, in: Judicial Review in the European Banking Union, 236, at p. 238. 44 Prek, in: Building bridges: central banking law in an interconnected world – ECB Legal Conference 2019, 129, at p. 131 referring inter alia to trade-mark litigation; Berger, WM 2016, 2325, at pp. 2328 and 2332. See for instance Case T‑279/06, European Dynamics v ECB, ECLI:EU:T:2009:241, para. 64 et seq. concerning the application of German law in a procurement procedure undertaken by the ECB. See also the opinion of AG Mengozzi on the related appeal (Case C-401/09 P, Evropaïki Dynamiki v ECB, ECLI: EU:C:2011:31), delivered on 27.01.2011, outlining the cases where European courts have to apply and interpret national law.

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empowered to interpret and apply national law and to disregard it if it is incompatible with Union law.45 In line with the settled case law of the Court of Justice of the European Union46, the 18 term “transposition” has to be interpreted broadly.47 It covers not only national law provisions that are a one-to-one transposition of a Directive but also provisions that are more detailed than the provisions in the Directive or even go beyond the requirements set out in a Directive (so called gold-plating provisions).48 The ECB is, however, only bound by national law, i.e. by legally binding instruments such as acts adopted by the national parliaments, regulations adopted by national governments or legally binding circulars adopted by NCAs based on a delegation from the national legislator. The ECB is therefore not bound by non-binding guidelines issued by NCAs or administrative practices of NCAs; 49 it may, however, take such guidelines or practices into account until it has developed its own administrative practice. Of particular relevance for the ECB are powers set out in national law transposing 19 Directive 2013/36/EU. For instance, the ECB is competent to decide on the suitability of members of supervised entities’ management bodies50 or on the exemption of material risk takers in a credit institution from the restrictions regarding their remuneration 51. The ECB may also exercise the powers conferred on competent authorities by national law transposing the BRRD52, in particular the power to take early intervention measures. In addition to powers set out in national law transposing Directives, the ECB may 20 also exercise powers set out in national law by which a Member State has exercised an option granted in a Regulation. For instance, the ECB may grant exemptions from large exposure limits on the basis of national law which Member States have adopted in the exercise of the option set out in Art. 439(3) Regulation (EU) No 575/2013 or approve the

45 For further details see Witte, in: Judicial Review in the European Banking Union, 236, at pp. 238 et seq.; Prek, in: Building bridges: central banking law in an interconnected world – ECB Legal Conference 2019, 129 et seq. 46 Case C-617/10, Åklagaren v Hans Åkerberg Fransson, ECLI:EU:C:2013:105, paras. 27-28: National provisions on penalties and criminal proceedings that penalise the infringement of a Directive are considered as a transposition even if the national legislator did not adopt the national law provisions for that purpose. Case C-248/83, Commission v Germany, ECLI:EU:C:1985:214, paras. 19 and 30 (pre-existing national law as implementation of a Directive); Case C-52/17, VTB Bank (Austria) AG v Finanzmarktaufsichtsbehörde, ECLI:EU:C:2018:648, para. 30 et seq. (administrative measure under national law considered as an implementation of Directive 2013/36/EU even if not mentioned in the Directive). 47 Bassani (2020) EBLR, 1001, at p. 1014; Riso and Zagouras, in Grieser and Heemann (eds), Europäisches Bankenaufsichtsrecht (2016), 106, at p. 120. 48 Lackhoff, Single Supervisory Mechanism – A Practitioner’s Guide (2017), at p. 97; Berger, WM 2016, 2325, at p. 2333; Schuster, EuZW-Beilage 2014, 3, at p. 8; Coman-Kund and Amtenbrink, 33 BFLR (2018), 133, at pp. 154-155. See for instance Joined Cases T-133/16 to T-136/16, Crédit Agricole v ECB, ECLI:EU: T:2018:219: While Article 88(1)(e) Directive 2013/36/EU only prohibits the chair of the management body in its supervisory function to exercise simultaneously the function of a chief executive officer, the French transposition of this provision goes beyond that and prohibits the chair to exercise any executive function. 49 Berger, WM 2016, 2325, at p. 2331; Biondi and Spano (2020) EBLR, 1023, at p. 1033. 50 Art. 91 Directive 2013/36/EU. 51 Art. 92 Directive 2013/36/EU. 52 Directive 2014/59/EU of the European of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012, of the European Parliament and of the Council, OJ L173, 12.6.2014, p. 190.

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computation of capital instruments as Additional Tier 1 capital or Tier 2 capital in accordance with national law53.

3. Other supervisory powers under national law Soon after the establishment of the SSM, the question arose whether the ECB may also exercise supervisory powers under national law which are not explicitly provided for in Union law (so-called national powers).54 For instance, while Directive 2013/36/EU requires an authorisation for the acquisition of a qualifying holding in a credit institution established in the European Union, some national laws55 go beyond that and also require an authorisation for the acquisition of a qualifying holding in a non-credit institution or in a credit institution established outside the European Union. Moreover, in some Member States a merger involving a credit institution56, the transfers of assets to a credit institution57 or operations in third countries58 require prior approval by or a notification to the competent supervisory authority. And in some Member States amendments to a credit institution’s statutes59, the outsourcing of activities60 or the appointments of so-called key function holders61 need to be approved by or notified to the competent supervisory authority. Such approval and notification requirements go beyond Directive 2013/36/EU which only lay down general governance requirements but neither mentions statutes nor key function holders. 22 Some legal authors62 follow a narrow approach and consider that the ECB is not competent to exercise such powers under national law since they do not constitute a transposition of Directive 2013/36/EU and therefore do not fall under the powers conferred on the ECB under Art. 9(1) SSMR and Art. 4(3) SSMR. In the view of these authors, the wording of Art. 4(3) SSMR and the principle of conferral set out in Art. 5 TEU limit the powers conferred on the ECB. 23 The ECB and the European Commission63, supported by other authors64, follow a broader approach. In a communication published in June 2017,65 the ECB informed all banks that it has, in cooperation with the European Commission, clarified the delineation of competences between the ECB and the NCAs as regards the exercise of supervisory powers granted under national law. According to this communication, the 21

53 See Recital 75 Regulation (EU) No 575/2013 which clarifies that Member States may establish a pre-approval requirement for such capital instruments although the Regulation does not foresee such a requirement. 54 For an overview see Lackhoff, Single Supervisory Mechanism – A Practitioner’s Guide (2017), at pp. 26 et seq. who refers to autonomous national prudential law; Jedlicka and Lederer, ZFR (2021), at pp. 218 et seq. 55 See for instance Art. 57(1) Luxembourg Law of 5 April 1993; Art. 77(1)(2) Belgian Banking Law. 56 See for instance Art. 21(1)(1)(6) and (7) Austrian Banking Act; Art. 77(1)(3) Belgian Banking Act. 57 See for instance Art. 77(1)(3) Belgian Banking Act; Art. 58 Italian Consolidated Banking Act. 58 See for instance Arts. 15(2) and 16(2) Italian Consolidated Banking Act. 59 See for instance Art. 56 Italian Consolidated Banking Act; Art. 9(4) Slovak Act on Banks. 60 See for instance Art. 53 Italian Consolidated Banking Act. 61 See for instance the Irish Central Bank Reform Act 2010, sec. 23, Part 3; Art. 43(1) and (2) Austrian Banking Act. 62 Berger, WM 2016, 2325, at p. 2334; Kämmerer, WM 2016, 1, at p. 4; Schuster, EuZW-Beilage 2014, 3, at p. 8; Jedlicka and Lederer, ZFR (2021), 218, at p. 219. 63 Report from the Commission to the European Parliament and the Council on the Single Supervisory Mechanism pursuant to Regulation (EU) No 1024/2013, COM(2017) 12 and accompanying Commission Staff working document (SWD (2017) 336 final, 26-27). 64 Lackhoff, Single Supervisory Mechanism – A Practitioner’s Guide (2017), at pp. 27, 31, 33-35; Biondi and Spano (2020) EBLR, 1023, at pp. 1032 et seq.; Bassani (2020) EBLR, 1001, at pp. 1014-1016; Hernández Saseta, in: Judicial Review in the European Banking Union, 304, at p. 306. 65 Published on the ECB’s webpage under ‘Letters to banks’.

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ECB considers itself competent to exercise all the supervisory powers granted under national law listed in the communication which includes all the examples given above. The ECB explained that it may exercise supervisory powers granted under national law, even if they are not explicitly mentioned in Union law provided that they (i) fall within the scope of the ECB’s tasks under Arts. 4 and 5 SSMR and (ii) underpin a supervisory function under Union law. The latter requirement covers powers of a prudential nature, i.e. that serve prudential purposes. In a recent judgment, the Court of Justice of the European Union66 indirectly confirmed the ECB’s and the Commission’s broad interpretation by deciding that national law provisions imposing absorbing interest for the breach of large exposure requirements should be qualified as an administrative measure within the meaning of Art. 65(2) of Directive 2013/36/EU even if not explicitly mentioned in Article 67(2) of that Directive. As a consequence of this judgment, the ECB is competent to exercise this national power vis-à-vis significant institutions since it is considered as a transposition of Directive 2013/36/EU. This broad interpretation is supported by the following arguments: First, the above- 24 mentioned powers, even if not explicitly mentioned in Directive 2013/36/EU, can still be considered as a transposition of that Directive since they serve the effective application and enforcement of the prudential requirements set out in the Union law.67 The Directive explicitly requires in Art. 64(2) that “[c]ompetent authorities shall be given all supervisory powers to intervene in the activity of institutions that are necessary for the exercise of their function ...”. Moreover, most of the national powers are linked to the powers set out in Art. 104 of Directive 2013/36/EU which empowers competent authorities to require changes to their governance arrangements or to impose business restrictions. Second, the purpose of the SSMR is to centralise the supervision of all significant institutions at the ECB as a single banking supervisor with all powers that are needed to effectively perform supervision.68 The narrow interpretation would lead to a two-tier system of banking supervision where the ECB is only competent to exercise certain supervisory powers whereas NCAs remain competent to exercise national powers. This is hardly compatible with the idea of a single supervisory mechanism and may lead to inconsistencies, in particular because in many cases a single economic operation triggers several approval requirements. For instance, a capital increase by a credit institution may require amendments to its statutes and the recognition of the newly issued capital instruments as Common Equity Tier 1 capital.

III. Possibility to give instructions Pursuant to Art. 9(1)(3) SSMR, the ECB may, to the extent necessary to carry out its 25 tasks, require NCAs, by way of instructions, to make use of their powers under and in accordance with national law where this Regulation does not confer such powers on the ECB. The scope of this provision is unclear. It depends on whether one follows the narrow 26 or the broad interpretation of the ECB’s competences to exercise supervisory powers un66 Case C-52/17, VTB Bank (Austria) AG v Finanzmarktaufsichtsbehörde, ECLI:EU:C:2018:648, para. 30 et seq.; see on this judgment Jedlicka and Lederer, ZFR (2021), 218, at pp. 220-221. 67 Biondi and Spano (2020) EBLR, 1023, at p. 1034. 68 Lackhoff, Single Supervisory Mechanism – A Practitioner’s Guide (2017), at pp. 27, 31, 34; similarly Biondi and Spano (2020) EBLR, 1023, at p. 1035 who argue that an instruction would “represent a confusing and questionable legal instrument with the potential to undermine the direct supervision tasks and powers of the ECB”.

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der national law as outlined under II above.69 If one follows the narrow approach and considers that the ECB may not exercise supervisory powers under national law, Art. 9(1)(3) SSMR could have a broad scope and serve as the legal basis for the ECB to instruct NCAs to exercise these national supervisory powers and to take a specific supervisory decision.70 The ECB would then have two ways to impose supervisory measures on supervised entities: Either directly by way of an ECB decision if the power is conferred on the ECB or indirectly by way of an instruction if the power remains with the NCA. 27 If one follows, however, the broad approach according to which the ECB may also exercise national powers if they fall within its tasks and underpin a supervisory function, the scope for giving instructions in accordance with Art. 9(1)(3) SSMR is very limited. 71 It would only cover powers that do not fall within the ECB’s tasks or are not of a prudential nature but may have at the same time an impact on the performance of the ECB’s tasks.72 One could think of cases where NCAs have powers to enforce compliance with anti-money laundering or consumer protection regulations and where the exercise of these powers is necessary to avoid a prudential impact. 28 Apart from its scope, the application of Art. 9(1)(3) SSMR raises a number of additional issues. The provision sets-up a two-stage process which is similar to the framework for state aid decisions.73 In the first stage, the ECB adopts an instruction addressed to an NCA. The instruction is legally binding and constitutes an ECB legal instrument. In the second stage, the NCA has to adopt a supervisory measure in accordance with national law and notify the measure to the entity or entities concerned. The discretion left to the NCA depends on the level of detail of the ECB instruction. Against this background, the question arises whether the addressee(s) of the supervisory measure may only challenge the NCA decision before national courts or also or instead the ECB instruction before the Court of Justice of the European Union. Building on the case-law of the Court of Justice74 in the area of state aid, one can argue that the addressees of individual NCA decisions may request the annulment of the ECB’s instruction pursuant to Art. 263 TFEU, if they are directly and individually concerned by the instruction.75

69 Jedlicka and Lederer, ZFR (2021), at pp. 218 and 222. Yet another interpretation is followed by Witte, 21 MJ 1 (2014), 89, at pp. 103-104, who considers that Art. 9(1)(3) SSMR does not constitute a separate legal basis to give instructions but only gives guidance on how existing powers to give instructions should be exercised. 70 Schuster, EuZW-Beilage 2014, 3, at p. 9; Riso and Zagouras, in Grieser and Heemann (eds), Europäisches Bankenaufsichtsrecht (2016), 106, at p. 121. 71 Hernández Saseta, in: Judicial Review in the European Banking Union, 304, at p. 307; similar Lackhoff, Single Supervisory Mechanism – A Practitioner’s Guide (2017), at pp. 38-39; Biondi/Spano (2020) EBLR, 1023, at p. 1035; Jedlicka and Lederer, ZFR (2021), 218, at p.222 emphasise that the broad interpretation leaves no room for instructions under Art. 9(1)(3). 72 Biondi and Spano (2020) EBLR, 1023, at p. 1036 refer to powers of resolution authorities under national law to suspend payments or impose a moratorium. Lackhoff, Single Supervisory Mechanism – A Practitioner’s Guide (2017), at pp. 38-39 refers to Recital 35 of Council Regulation (EU) No 1024/2013 which mentions early intervention and precautionary powers. This reference is not fully clear since the power to take early intervention measures is part of the powers which the ECB has under the relevant Union law. It may only be relevant if a national legislator has implemented Directive 2014/59/EU incorrectly and conferred this power on a different authority. 73 Hernández Saseta, in: Judicial Review in the European Banking Union, 304, at pp. 306 et seq.; Witte, 21 MJ 1 (2014), 89, 98 et seq. 74 Case C-730/79, Philip Morris Holland BV v Commission, ECLI:EU:C:1980:209; Joined Cases C-15/98 and C-105/99, Italy and Sardegna Lines v Commission, ECLI:EU:C:2000:570, paras. 32-34. 75 Hernández Saseta, in: Judicial Review in the European Banking Union, 304, at pp. 313-315; ComanKund and Amtenbrink, 33 BFLR (2018), at pp. 165-167.

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C. Exercise of powers by the ECB – Art. 9(2) SSMR The first sentence of Art. 9(2) SSMR clarifies that the ECB shall exercise its powers 29 in accordance with the acts referred to in the first subpara. of Art. 4(3) SSMR, i.e. in accordance with relevant Union law and national law transposing Union law. The relevant Regulations and Directives are mentioned under B.II. above. Art. 9(2) sent. 1 SSMR is more of a declaratory nature since Art. 9(1) SSMR refers already to the relevant Union law (which is specified in Art. 4(3) SSMR) and it is somehow self-evident that the ECB must exercise its powers in accordance with the acts on which these powers are based. As regards the procedure, the ECB shall exercise its powers in accordance with the procedural rules laid down in the SSMR and Regulation of the ECB No. 468/2014 and with the general principles of Union law.76 National procedural law is in principle not applicable.77 The second sentence of Art. 9(2) SSMR specifies that the ECB and the NCAs shall 30 cooperate closely in the exercise of their supervisory and investigatory powers. The provision replicates the ECB’s and NCAs’ general duty of cooperation in good faith, as set out in Art. 6(2)(1) SSMR.78 Good cooperation is in particular required for common procedures or in cases where the same powers are conferred on the ECB and NCAs (e.g. investigatory powers vis-à-vis less significant institutions). Art. 9(2) SSMR appears though to go beyond Art. 6 SSMR which governs the cooperation within the SSM. Its scope seems to extend to the NCAs’ supervisory powers outside the SSM.

D. Exercise of powers in non-euro area Member States – Art. 9(3) SSMR Art. 9(3) SSMR regulates the exercise of powers in Member States whose currency is 31 not the euro but have entered into a close cooperation with the ECB in accordance with Art. 7 SSMR. The provision clarifies that, by derogation from paragraph 1, the ECB may not be considered as the competent or designated authority in that Member State. It may only exercise supervisory powers in accordance with Art. 7 SSMR, i.e. by way of instructions to the NCA of that Member State.79 Following the establishment of close cooperation with the Bulgarian National Bank and the Croatian National Bank on 1 October 2020, the ECB is now exercising its supervisory powers vis-à-vis significant institutions established in these Member States by way of instructions according to Art. 7 SSMR (infra, → Art. 7 SSMR).

76 Of particular relevance are the due process requirements set out in Art. 22 SSMR and Art. 31 et seq. of Regulation of the ECB 468/2014. 77 Berger, WM 2016, 2325, at p. 2335; Lackhoff, Single Supervisory Mechanism – A Practitioner’s Guide (2017), at p. 37. See also Recital 34 SSMR specifying that the ECB should apply the ‘material rules relating to the prudential supervision of credit institution’ set out in Union or national law which excludes national procedural law. 78 For further details on this general duty, see the commentary of Gortsos on → Art. 6 SSMR. 79 Lackhoff, Single Supervisory Mechanism – A Practitioner’s Guide (2017), at pp. 39 and 229; Gortsos, The Single Supervisory Mechanism (SSM) (2015), at pp. 186-187. Of a different view Witte, 21 MJ 1 (2014), 89, at p. 95: Member States that have entered into a close cooperation with the ECB are qualified as “participating Member States” which implies that the ECB’s powers should be the same as in other participating Member States. This view is difficult to reconcile with Art. 9(3) SSMR which includes a derogation from Art. 9(1) SSMR and explicitly refers to Art. 7 SSMR.

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Request for information

Art. 10 SSMR Request for information 1. Without prejudice to the powers referred to in Article 9(1), and subject to the conditions set out in relevant Union law, the ECB may require the following legal or natural persons, subject to Article 4, to provide all information that is necessary in order to carry out the tasks conferred on it by this Regulation, including information to be provided at recurring intervals and in specified formats for supervisory and related statistical purposes: (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 points (a) to (d); (f) third parties to whom the entities referred to in points (a) to (d) have outsourced functions or activities. 2. The persons referred to in paragraph 1 shall supply the information requested. Professional secrecy provisions do not exempt those persons from the duty to supply that information. Supplying that information shall not be deemed to be in breach of professional secrecy. 3. Where the ECB obtains information directly from the legal or natural persons referred to in paragraph 1 it shall make that information available to the national competent authorities concerned. Bibliography Klaus Lackhoff, Single Supervisory Mechanism – A Practitioner’s Guide (C.H. Beck/Hart/ Nomos, Munich/Oxford/Baden-Baden 2017); Georgios Zagouras, ‘Der Rechtsrahmen für Vor-Ort-Prüfungen der Europäischen Zentralbank nach Art. 12 SSM‑VO’, WM 2019, 2191; Georgios Zagouras, ‘Onsite Inspections Conducted by the European Central Bank: Legal Considerations’, JIBLR 33 (2018), 437; Daniel Segoin, ‘The investigatory powers, including on-site inspections, of the ECB and their judicial control’, in: Chiara Zilioli/Karl-Philipp Wojcik, Judicial Review in the European Banking Union (Edward Elgar Publishing, Cheltenham 2021), pp. 285-303.

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A. Overview to the investigatory powers of Arts. 10 to 13 SSMR . . . . . . . . . . . . . . . .

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B. Function and background of Art. 10 SSMR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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C. Scope of the information request power of the ECB . . . . . . . . . . . . . . . . . . . . . . . . . . I. Material scope – what can be requested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Personal scope – who can be requested information . . . . . . . . . . . . . . . . . . . . . . . . . III. Professional secrecy – no limitation to the obligation to provide information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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D. Procedural aspects of the exercise of the power to request information and consequences of non-compliance with such request . . . . . . . . . . . . . . . . . . . . . . . . . .

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E. Exchange of information between the ECB and national competent authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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F. Power to require the provision of information at recurring intervals and in specified formats for supervisory and related statistical purpose . . . . . . . . . . . . .

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A. Overview to the investigatory powers of Arts. 10 to 13 SSMR The Arts. 10-13 SSMR form the first section of the chapter on the powers of the ECB. 1 This mirrors that the ability to receive information on the supervised entities is key for a supervisor.1 To this end, different methods of information acquisition are envisaged by the SSMR. Art. 10 SSMR provides ECB the power to require supervised entities to provide on ad hoc basis institution-specific information if necessary for carrying out a supervisory task (ad hoc information requests). In addition, this provision is the basis on which the ECB may require additional recurring reporting from supervised entities. Art. 11 SSMR empowers the ECB to carry out (off-site) specific measures to obtain information. Art. 12 SSMR finally stipulates that the ECB may go on the site of a supervised entity in order to carry out all necessary inspections and shall have the powers envisaged in Art. 11 SSMR. Part of an on-site inspection is in addition that the ECB may search itself for information on-site in the files (including in the IT systems of the supervised entity). If an on-site inspection by the ECB or the assistance by an NCA requires authorisation by a judicial authority according to national rules such authorisation shall be applied for, Art. 13 SSMR. This is relevant if the supervised entity does not voluntarily provide comprehensive access to its premises and/or files (including IT systems). Art. 10 SSMR on requests for information together with Art. 11 SSMR on general in- 2 vestigations and Arts. 12 and 13 SSMR on on-site inspections vest in the ECB investigatory powers for the exclusive purpose of carrying out its tasks under Arts. 4(1), (2) and 5(2) SSMR. These investigatory powers (Section 1 of Chapter III, Arts. 10 to 13 SSMR) together with the other supervisory powers (Section 2 of Chapter III, Arts. 14-18 SSMR) and the complementary general provision of Art. 9 SSMR (and the powers under applicable national law) form the toolbox of directly applicable powers that the ECB may exercise in order to perform effective risk-based supervision. In general, the investigatory powers reflect the powers that the national competent authorities are required to have under the national law implementing Art. 65(3) Directive 2013/36/EU (CRD). 2 The underlying concept of the investigatory powers is that the supervised entities 3 are required to grant access and provide any information necessary for the exercise of the supervisory tasks of the ECB. From this, it follows that the supervised entities are also subject to an obligation to ensure that they are in a position to be able to comply with the supervisory powers insofar as they may influence this. Assume for example that a subsidiary of an “SSM parent credit institution” is located in a third country and is included in the prudential supervision on a consolidated basis. Assume further, that according to the laws of this country borrower related information may be provided by this subsidiary to other entities and supervisors only with the consent of the borrower or the prior approval of the competent authority of this third country. In such a case, it needs to be ensured that this information (which is for example relevant to identify borrower units) can be provided to the parent credit institution and the ECB. To this end, the subsidiary, for example, should ensure a sufficient consent of the borrowers 1 See also Lackhoff, The Single Supervisory Mechanism – European Banking Supervision by the SSM (2017), at pp. 754 et seq. 2 Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC, OJ L176, 27.6.2013, p. 338. Art. 65(3) Directive 2013/36/EU requires that competent authorities have all information gathering and investigatory powers that are necessary for the exercise of their functions. Those powers should include power to require information, the power to conduct all necessary investigations and power, subject to other conditions set out in Union law, to conduct all necessary inspections at the business premises.

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in the loan documentation. Another example could result from the substantial making use of the home office in the Corona pandemic. If employees would have relevant documentation in their home office, the institution has (among others with a view to the investigatory powers) to ensure that it may require return of such documentation on site within a short notice. 4 Another common feature of all investigatory powers is that in terms of process the SSMR stipulates that a hearing prior to the adoption of a supervisory decision is not required (see Art. 22(1) SSMR, Art. 25(1) SSM‑FR).3

B. Function and background of Art. 10 SSMR Art. 10 SSMR enshrines the core investigatory power as it provides to the ECB the power to ask for “all information” necessary for carrying out its tasks. According to the wording of Art. 10(1) SSMR this power is subject to two conditions: (i) the conditions set out in relevant Union law and (ii) the condition that the information requested (ad hoc or in recurring intervals) must be necessary in order to carry out the tasks conferred on the ECB by the SSMR. A general requirement is that the information request must be proportional, i.e. there must be for example no less burdensome (for the credit institutions) and equally effective way (taking also into account the efforts required at the ECB) to receive such information. 6 With regard to the part of the wording that the power is subject to the conditions set out in relevant Union law it should be noted that the term (relevant) Union law is not expressly defined in the SSMR (see also supra, → Art. 4 para. 101 et seq.). According to Recital 32 SSMR, Union law seems to be encompassing (only) legal acts of the Union: “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 aid, competition rules and merger control and the single rulebook applying to all Member States.” On the other side, in connection with the obligation of the ECB to also apply national law implementing directives, the concept of Union law seems to extend also to national implementing provisions. Recital 34 SSMR states as Art. 4(3) SSMR: “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 credit institutions 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.” 7 It is argued here that the reference to Union law in Art. 10 SSMR intends to equip the ECB with the same investigatory powers as those envisaged for national competent authorities under Directive 2013/36/EU (CRD), and therefore the condition refers in this specific context only to the provisions of the Directive 2013/36/EU on investigatory powers. They in fact envisage also only the need that the information gathering must be necessary for the function of the competent authority (Art. 65(3) Directive 2013/36/EU). In addition, it is envisaged that the national competent authorities are bound by professional secrecy obligations when processing confidential information 4 (Arts. 53 et seq. Di5

See also infra, → para. 36. On the concept of confidential information see EUCJ Case C-15/16 Bundesanstalt für Finanzdienstleistungsaufsicht v Ewald Baumeister, ECLI:EU:C:2018:464, in particular para. 35. 3

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rective 2013/36/EU)5. This understanding, which does not refer to the potentially deviating national implementations of Union law does also ensure the effet utile of the provision. It follows that the power to request information under Art. 10(1) SSMR is only sub- 8 ject to the condition that the information request must be necessary for carrying out a supervisory task of the ECB and that it is proportional. In addition, the ECB is subject to professional secrecy obligations as set out in the relevant acts of Union law, Art. 27(1) SSMR. The direct vesting of investigatory powers to the ECB under the SSMR does not pre- 9 clude the ECB to make use of all the powers which competent authorities have under the relevant Union law, including national law transposing the relevant Union law. Hence, next to the investigatory powers conferred by Arts. 10-13 SSMR, the ECB would be able to request information and make on- and off-site investigations based on the national law, including the one implementing Art. 65(3) Directive 2013/36/EU. Conversely, the national competent authorities and national designated authorities 10 maintain the powers, in accordance with national law6, to obtain information from significant credit institutions, holding companies, mixed holding companies and undertakings included in the consolidated financial situation of a credit institution and to perform on-site inspections at those entities7. A more narrow reading of Art. 6(6) SSMR, limiting its scope to less significant credit institutions, could be seen as depriving this clause of its function as such powers belong to the national competent authorities (NCAs) as the direct supervisor of less significant credit institutions anyhow. 8 Such position could, however, be based on the argument that otherwise the SSMR would envisage a remaining power of the NCAs in respect of significant credit institutions although the tasks for the supervision of significant credit institutions are exclusively assigned to the ECB, see Art. 4(1) SSMR.

C. Scope of the information request power of the ECB I. Material scope – what can be requested Art. 10(1) SSMR grants the power to the ECB to directly request from specified per- 11 sons (information providers, see infra, → para. 18) all information that is necessary in order for the ECB to carry out its tasks conferred on it under the SSMR (see → Art. 4 SSMR). This power covers one-off information requests (ad hoc information requests) but also the power to require the provision of information at recurring intervals, i.e. additional reporting of information. It covers, subject to limitations resulting from the principle of proportionality, also the request for the delivery of information not yet available at the relevant information provider. Such a request is in fact a request to compile information and is covered by Art. 10(1) SSMR as the information that shall be deliv5 On the interpretation of Art 53 Directive 2013/36/EU see also EUCJ Case C-594/16, Enzo Buccioni v Banca d'Italia, ECLI:EU:C:2018:464. 6 The ability of NCAs to make use of powers under national law to receive information may be limited, as the NCA may not be able to justify that the NCA requires the information for its tasks. However, as supporting the supervision by the ECB is a task of the NCAs resulting from the SSMR, the NCA would act in carrying out its tasks if it collects information on behalf of the ECB. 7 Art. 6(6) sent. 2 SSMR. The national competent authorities must inform the ECB, in accordance with the framework set out in Art. 6(7) SSMR, of the measures taken pursuant to this para. and closely coordinate those measures with the ECB. 8 See also Lackhoff, The Single Supervisory Mechanism (2017), para. 756.

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ered is determined from the perspective of supervisory needs (“all information that is necessary to carry out the tasks conferred on it”). Also, the format in which requested information shall be delivered can be determined by the ECB subject to proportionality considerations. Thus the ECB may for example oblige the credit institutions to deliver for a horizontal review the information in a specific data format. To require a unified format also from those credit institutions that want to deliver the data in another format can be proportional if otherwise an effective evaluation would be substantially hindered. However, the power of the ECB under Art. 10(1) SSMR is limited by both factual and legal constrains. The ECB may in principle not request information under this provision if such information is already available to it or to a national competent authority (already available information), see Art. 139(2) SSM‑FR. Requesting such information could impose an unjustified burden on the supervised entities and hence contradict the principle of proportionality. However, if the ECB for example could only extract the information from other information available to it with substantial additional use of resources or costs, it may be proportional to request such information from a supervised entity. The ECB may only require information providers under Art. 10(1) SSMR to provide information if and insofar as the information is necessary for carrying out the tasks conferred on it by the SSMR. This means that the requested information must be related to and necessary for carrying out its supervisory tasks. These tasks include both microprudential tasks under Art. 4(1) and (2) SSMR and macro-prudential tasks under Art. 5(2) SSMR. Consequently, it is necessary that the ECB demonstrates in an information request why any information requested is necessary for carrying out such tasks. In respect of significant credit institutions, this justification should be in principle easier (as they are directly supervised by the ECB) than for less significant credit institutions in respect of which the ECB does not carry out the direct supervision but is limited to an oversight function. Moreover, it can be expected that there is some leeway for the ECB to determine whether certain information is necessary for carrying out its tasks. An issue raising particular questions with regard to the powers of the ECB under Arts. 10–13 SSMR is the fact that (i) the ECB has certain powers (the power relating to the so-called common procedures (authorisations, withdrawal of authorisations, qualifying holdings) although the credit institution in respect of which these powers may be exercised is not directly supervised by the ECB (in case of a less significant credit institution) or (ii) an area of supervision is excluded from the tasks of the ECB (e.g. supervision of payment services and compliance with anti-money laundering and counter-terrorist fighting rules (AML/CTF) but certain powers that may be based on the breach of such rules in respect of a credit institution are centralised with the ECB (e.g. the withdrawal of an authorisation) or such breaches are relevant (also) for prudential measures (such as the fit and proper assessment of a board member of a credit institution). In case the tasks and powers of the ECB extend to credit institutions not directly supervised by it, the ECB may exercise its investigatory powers in respect of these entities in so far as this is necessary for carrying out these tasks (see also infra, → para. 23). With regard to the areas of supervision excluded from the tasks of the ECB, in particular, the area of AML/CTF is and may be of relevance in the future. In respect of the issue whether the ECB can use its investigatory powers to collect evidence in order to withdraw an authorisation the ECB stated on its webpage: “Since the ECB’s tasks do not include AML/CTF, it cannot conduct its own investigations (for example, on-site inspections) into AML/CTF compliance. It has to rely on the facts as investigated by the other authorities competent for AML/CTF. Drawing conclusions from these facts, in particular

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whether they justify a licence withdrawal, would, however, be a competence of the ECB.”9 In addition the ECB expresses the view that it cannot determine “whether breaches of AML legislation have taken place. The competence for investigating such breaches, and determining whether AML legislation has indeed been breached, lies solely with the AML authority, as part of its fact-finding competences. The AML authority may also use its own powers to respond to its findings, for example by imposing a fine. Once such breaches have been established by the AML authority, the ECB can take the facts thus identified as given and use its Pillar 2 powers. The most appropriate context for doing so would be the annual Supervisory Review and Evaluation Process exercise. Any measures adopted by the ECB would, however, always be applied from a prudential perspective and not from a crime avoidance perspective.”10 As the ECB may only request information necessary for carrying out its supervisory 16 tasks, the ECB may not use the supervisory power under Art. 10(1) SSMR to request information to fulfil its monetary policy tasks. This follows from the principle of separation.11 Similarly, the ECB is not allowed to use its powers under Art. 10(1) SSMR to request information only on behalf of other competent authorities, for example, in insurance and securities markets or the SRB, even in cases where cooperation is agreed in a respective Memorandum of Understanding. However, information which the ECB has already collected or which it is also collect- 17 ing under Art. 10(1) SSMR for the performance of its tasks can be exchanged pursuant to Art. 27 SSMR with national or Union authorities, subject to the conditions in Arts. 53-62 Directive 2013/36/EU. For the exchange of information between the supervisory directorates general of the ECB and its directorates pursuing monetary policy the Decision of the ECB 2014/723/EU of 17 September 2014 on the implementation of the separation between the monetary policy and supervisory functions of the European Central Bank (ECB/2014/39)12 determines the framework for the possible information exchange.

II. Personal scope – who can be requested information Art. 10(1) SSMR provides for a conclusive list of legal and natural persons which 18 the ECB may require to provide information (“information provider(s)”) and which are obliged to provide the requested information (Art. 10(2) SSMR: “… shall supply the information requested.”). This list is equivalent in scope with the list of natural and legal persons from which the national competent authorities should under the national law be able to request information as required in Art. 65(3)(a) Directive 2013/36/EU. The list includes credit institutions (see infra, → paras. 22-23), (mixed) financial holding companies (see infra, → para. 25) and mixed-activity holding companies that are established in the participating Member States (see infra, → para. 26) as well as persons belonging to these entities (see infra, → paras. 27-29) and third parties to whom these entities have

9 See . 10 See . See in this context CJEU, Cases T‑351/18 and T‑584/18, Versobank, ECLI:EU:T:2021:669, paras. 197, 219. See also discussion in Lackhoff, The Single Supervisory Mechanism (2017), paras. 735 et seq. 11 Art. 25 SSMR. 12 Decision of the European Central Bank of 17 September 2014 on the implementation of separation between the monetary policy and supervision functions of the European Central Bank (ECB/2014/39), OJ L300, 18.10.2014, p. 57.

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outsourced functions and activities (see infra, → para. 30), no matter where such persons or third parties are established. 19 If the information that the ECB needs for carrying out its tasks is available to several information providers, the ECB has the discretion to select which person it asks to provide the information. In doing so it has to apply the principle of proportionality. In the case of groups, where the ECB is the consolidating supervisor, it may ask the consolidating entity also for information available to it in respect of consolidated entities. The ECB may address such request to the parent undertaking, insofar as the parent undertaking and the subsidiaries are obliged to ensure that the data required for consolidation are duly forwarded, Art. 11(1) Regulation (EU) No 575/2013. The ECB should, in particular do so in cases where information providers are located in third countries and there may be an issue with the enforceability of request for information (see infra, → para. 20-22). 20 Insofar as the obliged information provider is located outside the participating Member States (Art. 2(1) SSM‑FR), the SSMR claims effects also outside the euro area and even the EU (hereafter called “extraterritorial effects”). However, it needs to be noted that Art. 10(1)(a)-(d) SSMR refers only to credit institutions and (mixed) financial/ activity holding companies established in the participating Member States. Thereby the provision limits the scope of the obliged entities. Whether this limitation makes sense can be questioned. In respect of the persons belonging to the entities referred to in Art. 10(1)(a)-(d) SSMR 13 and outsourcing providers no such limitation exists, Art. 10(1) (e) and (f) SSMR.14 It is argued that Art. 42(1) ESCB Statute should not exclude extraterritorial effects in respect of Member States with a derogation. Art. 42(1) ESCB Statute determines that certain articles of the ESCB Statute shall not confer any rights or obligations to Member States in respect of which the Council has not decided that they fulfil the necessary conditions for the adoption of the euro (Member States with a derogation). First, one could argue that the Statute in principle is only of relevance for the ESCB – thus not referring to tasks conferred under the SSMR, and second, even if one does not follow this position it should be noted that Art. 42 ESCB Statute does not refer to Art. 25(2) ESCB Statute and, thereby, to Art. 127(6) TFEU and therefore, the Council may confer upon the ECB tasks whereby ECB powers may extend beyond participating Member States. An opposite view would deny the ECB’s ability to impose obligations by binding legal acts outside of participating Member States, due to a primary law limitation pursuant to Art. 42 ESCB Statute which could be interpreted as limiting the effectiveness of the ECB decisions to participating Member States. 21 If one follows the first approach, the legislator of the SSMR appears to have provided for an extraterritorial effect of Art. 10 SSMR. This is justified as (i) the envisaged obligation to provide information is limited to information necessary for carrying out the tasks conferred on the ECB and (ii) the required connection of the information provider with the (significant) supervised entity provides a sufficient connecting factor to justify such effect. For this reason, a credit institution and (mixed) financial/activity holding company established in a participating Member State would be well advised to ensure in any contractual relationship which it has with an information provider (e.g. in its contract with an outsourcing provider) that such information provider will comply with any information request of the ECB. First, the ECB could in case of non-response to an information request ask the supervised entity to provide such information. Second, if such information cannot be provided it is not excluded that the ECB may conclude that risks 13 Parties belonging to the entities referred to in Art. 10(1)(a)-(d) SSMR include in particular subsidiaries of such entities but also their parent undertaking if it is established in another State. 14 See Lackhoff, The Single Supervisory Mechanism (2017), para. 758.

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exist that can be the basis for supervisory measures pursuant to Art. 16 SSMR vis-à-vis a credit institution located in the participating Member State. Even if the legislator of the SSMR has provided to the ECB the possibility to oblige in- 22 formation providers located in non-participating Member States and in third countries to provide information, this obligations cannot be enforced by the ECB itself. The ECB may not impose sanctions on such information providers which do not comply with a supervisory decision obliging them to provide information. This is because under Council Regulation 2532/98 15 such sanctions may only be imposed on undertakings in a participating Member State.16 Under Art. 10(1)(a) SSMR, the ECB may request information from credit institu- 23 tions established in participating Member States. The provision does not differentiate whether the credit institution is significant or less significant. As the ECB has tasks in respect of both types of institutions, it makes sense that the power to require information extends to both: In respect of significant institutions, the necessity to request information emanates from day-to-day direct supervision needs. In respect of less significant institutions, the ECB needs to have an information gathering power,17 to determine the significance of institutions,18 to carry out common procedures,19 to ensure consistency of supervisory outcomes within the SSM,20 in order to be able to effectively exercise its powers directly vis-à-vis less significant institutions, where necessary, 21 and in order to fulfil its oversight role.22 The ECB may request credit institutions to provide information on an individual lev- 24 el, but also on a consolidated level, in particular in cases where the credit institution is obliged to comply with the prudential requirements on a consolidated basis (see Art. 11 Regulation (EU) No 575/2013). The proportionality of the ECB’s request for information from credit institutions obliged to comply with the prudential requirements on a consolidated basis in respect of subsidiaries within the perimeter of consolidation23 can be defended by the fact that parent institutions should under the pillar 1 rules possess all the information necessary for the purposes of consolidated supervision as such information has to be delivered to the parent in order to comply with this requirement. In particular, Art. 11 Regulation (EU) No 575/2013 requires parent institutions and subsidiaries subject to Regulation (EU) No 575/2013 to set up a proper organisational structure and appropriate internal control mechanisms in order to ensure that the data required for consolidation are duly processed and forwarded. In addition, parent institutions in the Member States must also ensure that subsidiaries not subject to Regulation (EU) No 575/2013 implement arrangements, processes and mechanisms to ensure a proper consolidation (Art. 11(1) Regulation (EU) No 575/2013). Hence the ECB should be able to

15 Regulation (EU) No 2532/98 of the Council of 23 November 1998 concerning the powers of the European Central Bank to impose sanctions, OJ L318, 27.11.1998, p. 4 as amended by Regulation (EU) 2015/159 of the Council of 27 January 2015, OJ L27, 3.2.2015, p. 1. 16 De lege ferenda, discussion could be opened whether it is possible to abolish this limitation to undertakings in participating Member States as it is justified to ensure also that undertakings in other States can be sanctioned if they do not comply with an ECB supervisory decision requiring the provision of information. 17 This is also made explicit in Art. 6(5)(d) SSMR. 18 Art. 6(4) SSMR. 19 See Arts. 73-88 of SSM‑FR. Common procedures consist of authorisations, withdrawals of authorisations and assessments of qualifying holdings. 20 Art. 6(5)(a) SSMR. 21 Art. 6(5)(b) SSMR. 22 Art. 6(5)(c) SSMR. 23 Art. 18 Regulation (EU) No 575/2013.

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request information from the parent institutions for the entire consolidation scope, irrespective of the location of the consolidated entities.24 Under Art. 10(1)(b) and (c) SSMR, the ECB may request information from financial holding companies 25 and mixed financial holding companies26 established in participating Member State regardless of the fact whether such holding companies belong to a significant or less significant group.27 The ECB might need to make such a request in particular where it carries out supervision on a consolidated basis pursuant to Art. 4(1)(g) SSMR. The relevance of this power may increase based on the fact that following changes by CRR 2 financial holding companies and mixed financial holding companies are under certain conditions obliged to comply with prudential requirements on consolidated basis (see Art. 11(2) CRR, Art. 3(3) CRD). The ECB does not exercise direct supervision over mixed activity holding companies. However, under Art. 10(1)(d) SSMR, the ECB is still able to request information from mixed activity holding companies established in the participating Member States but only to the extent to which it is necessary for the supervision of credit institutions which belong to such companies. Under Art. 10(1)(e) SSMR, the ECB may request information from persons, wherever they are located,28 belonging to credit institutions, (mixed) financial holding companies and mixed activities holding companies established in the participating Member States. It is not fully clear whether the term “belonging to” should be read in a narrow sense of ownership or a broader sense of affiliation. In case of a narrow reading in a sense of ownership, only legal persons that are owned by a credit institution or a (mixed) financial/activity holding company established in a participating Member State would fall within the scope of Art. 10(1)(e) SSMR. However, it would not be clear what level of ownership is necessary, for example, whether it is needed that the ownership must lead to control or whether a lower threshold is sufficient. It is considered that as a minimum, even the narrow reading of the term “belonging to” could be interpreted as including all subsidiaries. However, a parent undertaking in another State pursuant to this reading would not belong to the entities referred to in Art. 10(1)(a)-(d) SSMR. In case of a broader reading in sense of affiliation, the scope of Art. 10(1)(e) SSMR would include both natural and legal persons which have a sufficiently close connection to a credit institution, (mixed) financial holding company or mixed activity holding company established in a participating Member State. This would include subsidiaries but also a parent undertaking in a State which is not a participating Member State (unless one is of the view this is excluded in light of the reference to “participating Member States” in letters (a) to (d) of Art. 10(1) SSMR). Further, this would for example include the board members or staff29 as well as companies in which these entities hold interest. Also members of a management body in its supervisory function would be covered by such broader reading even if the body acts only as a collegial organ as they are only asked to provide their factual knowledge and not to speak on behalf of the body. Such a broader interpretation is preferable as it is in line with the wording and as it would sup24 The information request in respect of non-EU entities raises concern regarding confidentiality, which are discussed infra, → para. 33. 25 As defined in Art. 2(4) SSMR. 26 As defined in Art. 2(5) SSMR. 27 Reasons set out in supra, → para. 23 apply to financial holding companies and mixed financial holding companies mutatis mutandis. 28 The information request in respect of non-EU entities raises concern regarding confidentiality, which are discussed infra, → para. 33. 29 See Lackhoff, The Single Supervisory Mechanism (2017), para. 759.

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port the effectiveness of the provision since the ability to receive the relevant information is decisive for effective supervision. However, if this approach is taken, the ECB should heed the principle of proportionality in determining which persons are obliged to provide information. Under Art. 10(1)(f) SSMR, the ECB may request information from third parties to 30 whom the credit institutions, (mixed) financial holding companies and mixed activities holding companies established in the participating Member States have outsourced functions and activities.30 Such third persons could be both natural and legal persons. The functions and activities referred to in Art. 10(1)(f) SSMR should be interpreted as including all (or part of the) functions and activities which would be subject to the ECB’s prudential supervision pursuant to Art. 4(1) and (2) SSMR, if the outsourcing credit institutions or (mixed) financial holding companies would have been performing such functions and activities themselves. It would not matter whether such functions and activities are outsourced directly or indirectly as Art. 10(1)(f) SSMR focuses on functions and activities of outsourcing entities, not on the way how these are outsourced.31 In this regard, the ECB may request from the third parties to whom such functions and activities have been outsourced not only the information on the performance of such functions and activities but also all relevant information which is necessary to investigate whether such functions and activities can be performed properly (e.g. all service level agreements, organisational structure of the third party, etc).

III. Professional secrecy – no limitation to the obligation to provide information Art. 10(2)(1) SSMR expressly stipulates that professional secrecy provisions do not 31 exempt entities subject to information requirements from the duty to supply such information and supplying such information shall not be deemed to be in breach of professional secrecy. In this context, it should be noted that the obligation of professional secrecy can be based on two different sources: a contractual and/or a statutory. Contractual secrecy obligations cannot be raised against an information request 32 based on Art. 10(1) SSMR as the statutory obligation to provide information to the ECB is not subject to a contractual agreement between the information provider and its contractual counterparty. Accordingly, information providers should ensure when entering in contractual secrecy obligations that they may provide information upon request to the ECB in order to avoid that they are in breach of contract when complying with this obligation. So, for example, a credit institution must in its contract with clients ensure that no contractual obstacle exists that would be in contradiction to its obligation to comply with an (justified) information request under Art. 10(1) SSMR. Insofar as professional secrecy obligations to which an information provider is sub- 33 ject are based on statutory provisions, Art. 10(2) SSMR overrules such provisions of EU Member States (i.e. the Member States whose professional secrecy rules apply in respect of a person that is obliged under Art. 10(1), (2) SSMR to provide information). Insofar as the information provider is subject to third-country professional secrecy rules, the SSMR cannot overrule statutory third-country professional secrecy obligations. This brings in particular difficulties where the ECB requires information, for example, in respect of transactions with non-EU clients, consolidated information which includes 30 On the other hand, Art. 10(1)(f) SSMR does not cover outsourcing of persons referred to in Art. 10(1)(e) SSMR. 31 See also Lackhoff, The Single Supervisory Mechanism (2017), para. 760.

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non-EU subsidiaries related information or if information is requested directly from non-EU entities (e.g. under Art. 10(1)(e) and (f) SSMR). In such a situation, the principle of proportionality would not allow the ECB to require the information provider to provide information, which it could only provide in breach of such third-country statutory professional secrecy provisions. However, the information provider is obliged based on its obligation under Art. 10(1) SSMR to undertake bona fide all efforts to obtain any available waivers or consents that would allow the delivery of such information. If the unavailability of the information would form an obstacle in effective supervision – for example by preventing the ECB to properly assess risks to the credit institution – the ECB may have recourse to alternative measures, such as the exclusion of a non-EU entity from the scope of consolidation32 or requiring the supervised entity established in the participating Member State to make necessary divestments to reduce the risk inherent in the activities, products and systems of the institution.33

D. Procedural aspects of the exercise of the power to request information and consequences of non-compliance with such request Unlike for general investigations under Art. 11(1) SSMR and on-site inspections under Art. 12(3) SSMR, the SSMR does not expressly require that the ECB adopts an ECB 34 supervisory decision to request information under Art. 10 SSMR. Although the ECB may indeed request information by a not enforceable “operational act”35 or even in the supervisory dialogue, an enforceable information request36 may only be issued by way of an ECB supervisory decision adopted in a non-objection procedure.37 This position is based on the need for a justification to impose an obligation (i.e. the obligation to deliver specific information) on the information provider. A counter position, arguing that Art. 10 SSMR already imposes by operation of law an obligation may not be convincing as such obligation must be specified to be operational and only thereby creates the obligation. 35 A connected issue is whether information providers which are requested to provide information would only be able to avail themselves of the exemption from the professional secrecy (Art. 10(2) SSMR) if they are requested to provide information by an ECB supervisory decision and not if the information request is made (only) in the ongoing supervisory dialogue or by an “operational act”. In light of the effectiveness of the provision and the wording of Art. 10(2)(1) SSMR it seems justified to assume that the exemption also covers information requests other than in the form of an ECB supervisory decision. 34

Art. 19(2)(a) Regulation (EU) 575/2013. Art. 16(2)(f) SSMR. 34 See Art. 2(26) SSM‑FR. See also Segoin, ‘The investigatory powers, including on-site inspections, of the ECB and their judicial control’, in: Zilioli/ Wojcik, Judicial Review in the European Banking Union (Edward Elgar Publishing, Cheltenham 2021), para. 17.09. who is of the view that a decision under Art 10 SSMR is not a contestable act (para. 17.10). On the legal form and procedural requirements for measures under Art. 10 SSMR see also Lackhoff, The Single Supervisory Mechanism (2017), para. 761 et seq. 35 This means by an informal supervisory measure, in general on the concept of informal supervisory measures see → Art. 4 paras. 153 et seq. 36 Even if a credit institution may not provide information upon an informal request it is under a factual ‘obligation’ in its own interest to do so, as this interferes with the on-going supervisory relationship. 37 Art. 26(8) SSMR and Art. 13g Decision of the European Central Bank of 19 February 2014 adopting the Rules of Procedure of the European Central Bank (ECB/2004/2), OJ L80, 18.3.2004, p. 33. 32 33

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The text of SSMR (Art. 22(1) SSMR38) and the SSM‑FR (Art. 25 SSM‑FR) does not 36 envisage a hearing prior to the adoption of such a decision.39 The ECB may request information on an ad hoc basis. Ad hoc information requests 37 are a crucial tool in risk-based supervision as it grants power to the ECB to make targeted information requests in ongoing supervision depending on the need and phase in the supervisory dialogue. This being said, ad hoc information requests may be substantiated not only by specific objectives of supervision of the supervised entity from which the information is requested but also by horizontal supervisory objectives. The details of the exercise of ad hoc information requests are specified in Art. 139 SSM‑FR. When making ad hoc information request, the ECB must specify the information concerned and a reasonable time limit within which the specified person is to provide information to the ECB.40 In setting the scope and timing for the provision of information, the ECB must observe the principle of proportionality.41 In this respect, the ECB must be able to justify why it needs the information and why it needs them at a particular time. In particular, providing the same information twice should be prevented – therefore Art. 139(2) SSM-FR requires the ECB to first take account of information already available to the national competent authorities before requiring information to be provided under Art. 10 SSMR. If an information request is enshrined in an ECB supervisory decision non-compli- 38 ance with such decision can be sanctioned pursuant to Art. 18(7) SSMR.

E. Exchange of information between the ECB and national competent authorities Under Art. 10(3) SSMR, the ECB is obliged (“shall”) to share information that it has 39 obtained from the entities with the national competent authorities concerned. This obligation of the ECB is part of the duty of cooperation in good faith and the obligation to exchange information between the ECB and national competent authorities under Art. 6(2) SSMR. In practical terms the duty to share information is likely the most effective way to prevent double reporting by supervised entities in the single supervisory mechanism.42 The exchange of information is also possible from the perspective of professional secrecy requirements, in particular by the combination of Art. 27 SSMR and Art. 56 Directive 2013/36/EU.

38 Art. 22(1) SSMR does not require hearing for decisions made in accordance with Section 1 of Chapter III SSMR. 39 See court rulings on the parallel provisions in the field of competition, see CJEU Case T‑357/06, Koninklijke Wegenbouw Stevin BV v European Commission, ECLI:EU:T:2012:488, para. 227. 40 Art. 139(1) SSM‑FR. 41 Recital 55 SSMR states that “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.” More generally, the principle of proportionality stems from the basic principles of the European Administrative law. 42 Recital 47 SSMR.

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F. Power to require the provision of information at recurring intervals and in specified formats for supervisory and related statistical purpose In addition to ad hoc information requests, additional reporting may be required based on Art. 10(1) SSMR from information providers only if the Union law does not determine conclusively the reporting requirements in a certain area and (only) in so far as necessary for carrying out its supervisory tasks.43 41 The ECB may request information at recurring intervals and in specified formats for supervisory and related statistical purposes. In particular, under Art. 141 SSM‑FR, the ECB may specify the categories of information that should be reported as well as the process, formats, frequencies and time limits for the provision of the information concerned. Practically, under Arts. 141(2) and 140(3) and (4) SSM‑FR, entities subject to the reporting obligation will submit the requested information to their relevant national competent authorities, whereas the national competent authorities will perform the initial data checks and make the information available to the ECB. The ECB shall organise the processes relating to the collection and quality review of data reported by supervised entities. 42 From an individual supervised entity the ECB may require additional or more frequent institution-specific reporting based both on Art. 10(1) SSMR as well as pursuant to Art. 16(2)(j) SSMR. Consequently, the question arises whether the latter provision is (at least insofar as their personal scope overlaps) lex specialis to Art. 10(1) SSMR. Art. 10(1) SSMR provides for a legal basis to request information in ongoing supervision where it may not yet be possible to assess that any of the conditions in Art. 16(1) SSMR are fulfilled. On the other hand, Art. 16(2)(j) SSMR may be imposed only to address identified risks and in this regard may provide for more onerous reporting obligations proportionate to the risks identified. If this should be the case individual reporting requirements for those entities that can be the addressees of supervisory measures pursuant to Art. 16 SSMR could be only based on Art. 16(2)(j) SSMR. That Art. 16(2)(j) SSMR is a special provision compared to Art. 10(1) SSMR could be supported by the fact that it applies under more restrictive conditions than Art. 10(1) SSMR. 43 With CRD V44 another question arises. According to the new Art. 104(2) CRD the possibility to require additional reporting pursuant to Art. 104(1)(j) CRD shall be restricted. Art. 104(1)(j) CRD was the model for Art. 16(2)(j) SSMR. Consequently, it can be asked whether a limitation of Art. 104(1)(j) CRD should also impact Art. 16(2)(j) SSMR and in this specific case also the ability to ask for reporting under Art. 10 SSMR. The answer could be that this cannot be the case45 as it could be argued that it follows already from the different legislative process necessary for amending the SSMR on the one side and the CRD on the other side. The opposite position would be that the ECB 40

43 See for example Regulation (EU) 2015/534 of the European Central Bank of 17 March 2015 on reporting of supervisory financial information, OJ L 86, 31.03.2015, p. 13 as amended by Regulation (EU) 2017/538 of European Central Bank of 25 August 2017, OJ L 240, 19.09.2017, p. 1. In so far the ECB is of the view that Regulation 680/2014 of 16 April 2014, OJ L 191, 28.06.2014, p. 1 does not exhaustively determine the financial reporting. 44 Directive (EU) 2019/878 of the European Parliament and of the Council of 20 May 2019 amending Directive 2013/36/EU as regards exempted entities, financial holding companies, mixed financial holding companies, remuneration, supervisory measures and powers and capital conservation measures, OJ L150, 7.6.2019, p. 253 (274), Art. 1 (32). 45 Another provision where this issue applies is Art. 104a CRD V which provides for limitations of the power to impose own funds requirements.

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must apply all relevant Union law, which includes the new requirements under the CRD V and that this determines also the understanding of the SSMR. The ECB can stipulate based on Art. 10(1) SSMR and Art. 4(3) SSMR also generally 44 applicable reporting obligations by way of a regulation or identical decisions. It may introduce such reporting requirements only if the Union law neither comprehensively imposes reporting requirements on credit institutions as a part of the pillar 1 framework nor excludes such additional reporting requirements. In particular, the ECB may not impose additional reporting requirements where the Union law establishes uniform requirements in relation to supervisory reporting to competent authorities as is the case of Commission Implementing Regulation (EU) 2021/451.46 That Regulation aims at increasing efficiency and reducing the administrative burden by establishing a coherent reporting framework on the basis of a harmonised set of standards.47 If the national competent authorities or the ECB within the scope of this regulation were able to impose additional reporting requirements this would directly contradict the maximum harmonisation objective of the common supervisory reporting standards.48 Consequently, the reporting obligations established by the ECB in Regulation (EU) 2015/534 on reporting of supervisory financial information and by individual decisions requiring additional supervisory information at recurring intervals (e.g. in the past the so-called “Short Term Exercise” – STE) are only possible as they are out of the scope of established reporting obligations.

Art. 11 SSMR General investigations 1. In order to carry out the tasks conferred on it by this Regulation, and subject to other conditions set out in relevant Union law, the ECB may conduct all necessary investigations of any person referred to in Article 10(1) established or located in a participating Member State. To that end, the ECB shall have the right to: (a) require the submission of documents; (b) examine the books and records of the persons referred to in Article 10(1) and take copies or extracts from such books and records; (c) obtain written or oral explanations from any person referred to in Article 10(1) 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; 2. The persons referred to in Article 10(1) shall be subject to investigations launched on the basis of a decision of the ECB. When a person obstructs the conduct of the investigation, the national competent authority of the participating Member State where the relevant premises are located shall afford, in compliance with national law, the necessary assistance including, in 46 Commission Implementing Regulation (EU) 2021/451 of 17 December 2020 laying down implementing technical standards for the application of Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to supervisory reporting of institutions and repealing Implementing Regulation (EU) No 680/2014, OJ L97, 19.3.2021, p. 1. 47 Recital 1 of Regulation (EU) No 680/2014. 48 Under Art. 4(3)(2) SSMR the ECB may take decisions on information requests subject to and compliance with the relevant Union law and in particular any legislative and non-legislative act, including binding regulatory and implementing technical standards developed by EBA and adopted by the Commission.

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the cases referred to in Articles 12 and 13, facilitating the access by the ECB to the business premises of the legal persons referred to in Article 10(1), so that the aforementioned rights can be exercised. Bibliography Klaus Lackhoff, Single Supervisory Mechanism – A Practitioner’s Guide (C. H. Beck/Hart/ Nomos, Munich/Oxford/Baden-Baden 2017); Jürgen Schwarze, European Administrative Law (revised 1st edn, Sweet & Maxwell, London 2006); Georgios Zagouras, ‘Der Rechtsrahmen für Vor-Ort-Prüfungen der Europäischen Zentralbank nach Art. 12 SSM‑VO’, WM 2019, 2191; Georgios Zagouras, ‘On-site Inspections Conducted by the European Central Bank: Legal Considerations’, JIBLR 33 (2018), 437; Daniel Segoin, ‘The investigatory powers, including on-site inspections, of the ECB and their judicial control’, in: Chiara Zilioli and Karl-Philipp Wojcik, Judicial Review in the European Banking Union (Edward Elgar Publishing, Cheltenham 2021), pp 285-303. A. Function and background of the provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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B. Personal scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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C. Material scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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D. Exercise of the general investigation powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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A. Function and background of the provision The power of the ECB to conduct general investigations is one of ECB’s investigatory powers specified in Section 1 of Chapter III of the SSMR. The provision of Art. 11 SSMR on general investigations complements both Art. 10 SSMR on the off-site requests of information and Art. 12 SSMR on on-site inspections by providing the specific manner in which the ECB may obtain information about supervised entities in both on-site and off-site investigations.1 The investigation tools envisaged in Art. 11 SSMR are consequently available to the Joint Supervisory Teams in their ongoing supervision and to onsite inspection teams based on Arts. 12 and 11 SSMR. As with all investigatory powers, the power of general investigations is available to the ECB for the exclusive purpose of carrying out its tasks under Arts. 4(1), 4(2) and 5(2) SSMR. These powers cannot be used to facilitate any other tasks of the ECB or tasks of other authorities. 2 2 The power of the ECB to conduct general investigations under Art. 11(1) SSMR mirrors the general investigation powers that the national competent authorities shall have under the national law implementing Art. 65(3)(b) CRD. In this regard, direct vesting of the power to conduct general investigations to the ECB under the SSMR does not preclude the ECB from making use of all the powers which competent authorities have under the relevant Union law, including national law transposing the relevant Union law.3 Conversely, the national competent authorities and national designated authorities also maintain the powers, in accordance with national law, to conduct, in principle, general investigations based on their national law even at significant supervised entities.4 1

B. Personal scope 3

Art. 11 SSMR empowers the ECB to conduct “all necessary investigations of any person referred to in Article 10(1) established or located in a participating Member State”. Hence, its personal scope prima facie follows the personal scope of Art. 10(1) SSMR. See Lackhoff, The Single Supervisory Mechanism (2017), para. 755. See supra, → Art. 10 para. 16. 3 Arts. 4(3) and 9(1) SSMR. 4 Art. 6(6) sent. 2 SSMR. See also supra,  Art. 10 para. 10. 1

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However, by the addition of “established or located in a participating Member State” this personal scope is according to the wording limited in all cases to persons established or located in a participating Member State. This would be a substantial limitation of the personal scope of Art. 11(1) SSMR compared to Art. 10(1)(e) and (f) SSMR. The ECB would only be able to apply the power to perform general investigations to persons belonging to a credit institution or (mixed) financial/activity holding company established or located in a participating Member State or third parties to whom such an entity has outsourced functions and activities5 if such a person or third party is established or located in a participating Member State. As this limitation of the personal scope to persons listed in Art. 10(1) SSMR which 4 are established or located in a participating Member State is neither repeated in Art. 11(2) SSMR, which only refers to the persons referred to in Art. 10(1) SSMR, nor included in Art. 10 SSMR or Art. 12 SSMR one could argue that the context shows that the addition of “established or located in a participating Member State” in Art. 11(1) SSMR was a drafting error. Also the purpose of the investigatory power to ensure that the ECB is in the position to get the information necessary for carrying out its supervisory tasks could be seen as supporting this view, in particular taking into account that an “extraterritorial effect” would be justified.6

C. Material scope Art. 11(1)(2) SSMR provides a list of general investigation powers which consists of 5 (i) the power to require the submission of documents (see infra, → para. 7), (ii) the power to examine books and records (see infra, → paras. 10 et seq.), (iii) the power to obtain written or oral explanations (see infra, → paras. 14 et seq.) and (iv) the power to interview any other person who consents to be interviewed (see infra, → para. 10). This list could be deemed to be exhaustive but the wording does not provide a conclusive hint. Rather the list is preceded by the statement that the ECB may conduct “all necessary investigations”. Based on this and the fact that also Art. 12(1)(1) SSMR emphasise that the ECB may carry out “all necessary on-site inspections” and further taking into account that the text does not express that the list of investigation measures is exhaustive, the list should be interpreted broadly. All of the powers entailed in Art. 11(1)(2) SSMR provide a specific way of obtaining 6 information and should be interpreted broadly so as to achieve their effet utile, which is that the ECB should have sufficient access to information and data to fulfil its prudential supervisory tasks. According to Art. 11(1)(2)(a) SSMR, the ECB may require the submission of docu- 7 ments. The documents which an obliged party has to submit extend to all documents which relate to the subject matter of the investigation. The scope of the investigation determines the limits of the investigation; the purpose of the investigation needs to be included in the decision relating to the investigation, see Art. 142 SSM‑FR. However, the ECB may also require the submission of documents in respect of which it is not clear whether they are relevant for the investigation in order to assess their relevance. “Documents” are not only paper documents but also electronic documents wherever stored. See supra, → Art. 10 paras. 20 et seq. See supra, → Art. 10 paras. 22 et seq. Different, i.e. limiting with the exception of interviews the scope to persons established or located in a participating Member State, Segoin, ‘The investigatory powers, including on-site inspections, of the ECB and their judicial control’, in: Zilioli and Wojcik, Judicial Review in the European Banking Union (2021), p. 289 para. 17.17. 5

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10

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12

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14

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The power to require the submission of documents extends not only to already existing documents but also to documents which the supervised entity needs to compile (unless one sees the power to request such documents only included in Art. 10 SSMR). However, the request to submit not already existing documents must, in particular, be assessed with regard to its proportionality. Among others, the effort needed and the cost of the compilation of documents, the availability of the relevant data, and the relevance for the tasks of the ECB have to be assessed and the request may not be disproportionate to the objective that the ECB seeks to achieve. The ECB may, subject to limitations resulting from the principle of proportionality, determine the manner – be it in paper or electronic form and in which electronic format – in which the documents shall be submitted to it. Under Art. 11(1)(2)(b) SSMR, the ECB may examine books and records and take copies and extracts from such books and records. The entities referred to in Art. 10(1) SSMR must fully cooperate with the ECB to access books and records and refrain from any actions which would manipulate or withhold information from examined books and records. “Books and records” means any documents (in whatever format) relating to the business activities carried out by the obliged information provider to which the information request or on-site inspection of the ECB relates. In the case of an outsourcing provider books and records refer, therefore, only to those part of the books and records relating to the credit institution to which the information request or on-site inspection of the ECB relates. Part of the books and records are among others business-related correspondence (including e-mails, short messages, letters), and contracts. The power to examine books and records encompasses also the right for the ECB to have direct (reading) access to the IT system of the information provider. It also covers the right of the ECB to have such access without being observed by the information provider (e.g. by an observer) as otherwise the effectiveness of the power may be impaired. Necessary measures to ensure data security and integrity have to be followed by the persons carrying out the investigation. Non-compliance with such requirements could give rise to a claim for damages of the information provider, Art. 340 TFEU. The power to take copies and extracts from books and records covers all technically available forms to take such copies, e.g. by photo. The rules on professional secrecy, apply also with regard to the treatment of such copies and excerpts as with regard to the books and records themselves. Under Art. 11(1)(2)(c) SSMR, the ECB may request written or oral explanations from any person referred to in Art. 10(1) SSMR or their representative or staff. Oral or written explanations are crucial for the ECB’s understanding of data and documents it collects, and to get all the facts necessary. The persons obliged to provide written or oral explanations encompass the information providers listed in Art. 10(1) SSMR. In so far as a person listed in Art. 10(1) SSMR is a legal person, Art. 11(1) SSMR clarifies that the legal representatives e.g. board members or authorised officers have to provide such explanations. In order to ensure comprehensive access to information, also staff members of an information provider have to provide explanations. “Staff ” covers any full or parttime employee of the information provider. In order to ensure the effectiveness of the provision freelancers also should be covered. Service providers that are not outsourcing providers should not be covered (Art. 10(1)(f) SSMR a contrario). It is noteworthy that this provision ensures that the ECB may access the staff even if the obliged person in the meaning of Art. 10(1) SSMR concentrates the communication to the ECB to certain representatives; this follows from the fact that the possibility to request explanations from the staff is provided in addition to the possibility to ask the 174

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obliged person and its representatives for explanations. So, if the obliged person would concentrate the communication to e.g. one contact person the ECB may nevertheless contact directly (other) staff and representatives. Art. 11(1)(2)(c) SSMR which relates to representatives or staff of any person men- 16 tioned in Art. 10(1) SSMR differs from Art. 11(1)(2)(d) SSMR that relates to any other persons. The difference is that Art. 11(1)(2)(c) SSMR does not require the consent of (i) the obliged person in the meaning of Art. 10(1) SSMR, (ii) its representatives or (iii) staff to provide the requested information. It follows that this provision stipulates as a mirror image to the power of the ECB to require the delivery of this information an obligation to provide these explanations. This obligation is only limited by general principles of law and fundamental rights in specific cases. The obliged person, its representatives and staff are also obliged to make themselves 17 available to the ECB within a reasonable time in order to comply with the obligation to provide explanations when stipulated in a supervisory decision. This applies also – subject to applicable health rules – if the employees should be in the home office due to the Corona pandemic. Subject to proportionality considerations7, they may also be obliged to appear in Frankfurt to this end. In the case of non-compliance, in principle, a sanction according to Art. 18(7) SSMR could be a consequence. Finally, under Art. 11(1)(2)(d) SSMR, the ECB has the right to interview any other 18 person who consents to be interviewed in order to collect information relating to the subject matter of an investigation. The power to interview goes beyond the personal scope of investigatory powers as the ECB may interview any other person who consents to be interviewed, even those who are not listed in Art. 10(1) SSMR and are neither representatives nor staff of a supervised entity. Accordingly, these are the persons that are providing information voluntarily to the ECB. Consequently, if such a person refuses his/her consent, the ECB may not interview it and may not impose a sanction.

D. Exercise of the general investigation powers Art. 11(2) SSMR expressly requires that the ECB adopts a decision to launch investi- 19 gations at any legal or natural person listed in Art. 10(1) SSMR. Art. 142 SSM‑FR requires that such ECB decision must specify (i) the legal basis for the decision and its purpose; (ii) the intention to exercise one of the general investigations powers and (iii) the fact that any obstruction of the investigation by the person being investigated constitutes a breach of an ECB decision within the meaning of Art. 18(7) SSMR. The ECB decision to launch an investigation needs to be adopted in a non-objection procedure.8 A different position would only be conceivable if the decision9 in the meaning of Arts. 11(2), 12(2) and (3) SSMR would be understood just as an internal act. This would, however, not be convincing as imposing an obligation (i.e. the obligation to tolerate the investigation) requires a legal basis as it otherwise interferes with the rights of the addressee.

7 In many cases it might be sufficient and proportionate that a person makes themselves available by electronic means. 8 Art. 26(8) SSMR and Art. 13g Decision of the European Central Bank of 19 February 2014 adopting the Rules of Procedure of the European Central Bank (ECB/2004/2), OJ L80,18.3.2004, p. 33. See also Lackhoff, The Single Supervisory Mechanism (2017), para. 761 et seq., and 772. 9 Art. 12(2) SSMR stipulates that business premises may be accessed based on an “investigation decision” and Art. 12(3) SSMR which determines that “[t]he legal persons referred to in Article 10(1) shall be subject to on-site inspections on the basis of a decision of the ECB.”

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The text of the SSMR (Art. 22(1) SSMR10) and the SSM‑FR (Art. 25 SSM‑FR) does not envisage a hearing prior to the adoption of such a decision.11 Moreover, the supervisory decision needs to be motivated. Such motivation may be brief and concise and can be encompassed in the statement on the intention of the exercise of the power. The legal basis for a decision launching an investigation, which needs to be stated in the decision launching a general investigation,12 would be Art. 11 SSMR. General investigation powers are often used in an on-site inspection. In such case, one could argue that the decision to launch an on-site inspection would also have to include a decision on the use of general investigation powers. Such a decision would then be based both on Arts. 11 and 12 SSMR. This is supported by the fact that Art. 12 SSMR in its paras. (2) and (3) differentiates between an investigation decision and a decision allowing an onsite inspection. However, one could also hold the view that the decision allowing the onsite inspection includes the decision to apply the general investigation powers. The ECB’s decision to launch an investigation must state its purpose, i.e. reasons and the aim for launching a general investigation.13 The purpose must be based on the ECB’s prudential supervisory tasks. Further it this decision needs also to state the intention to exercise one of the general investigation powers.14 Insofar, the decision should be precise as to which powers are to be used vis-à-vis which persons. The use of the investigatory powers must be proportionate. In addition, the ECB’s decision to launch the investigation must state the fact that any obstruction of the investigation by the person being investigated constitutes a breach of an ECB decision within the meaning of Art. 18(7) SSMR. 15 This requirement of Art. 142 SSM‑FR clarifies that the obstruction of general investigations launched by an ECB decision would be a breach of the ECB decision for which the ECB may impose sanctions in accordance with Regulation (EC) No 2532/98,16 which include fines and periodic penalty payments. In addition, pursuant to the second subpara of Art. 11(2) SSMR, when a person obstructs the conduct of the investigation, the national competent authority of the participating Member State where the relevant premises are located must afford, in compliance with national law, the necessary assistance. This assistance would for example, in case of an on-site inspection, mean facilitating the access by the on-site inspection team of the ECB to the business premises of the legal persons subject to the on-site inspection. The professional secrecy provisions do not exempt the entities which are subject to a general investigation from an obligation to provide any information, documents, access to books and records or other data to the ECB. Supplying such information to the ECB should not be deemed to be in breach of professional secrecy. The provisions of Art. 10(2) SSMR applies mutatis mutandis to all information received in the course of a general investigation. This follows from the fact that Art. 11 SSMR complements Arts. 10 and 12 SSMR by providing specific powers by which the ECB may obtain information about supervised entities in both on-site and off-site investigations and, there10 Art. 22(1) SSMR does not require hearing for decisions made in accordance with Section 1 of Chapter III SSMR. 11 See supra, → Art. 10 para. 36. 12 Art. 142(a) SSM‑FR. 13 Art. 142(a) SSM‑FR. Setting reasons on which a decision is based is also a requirement under Art. 22(2) SSMR. 14 Art. 142(b) SSM‑FR. 15 Art. 142(b) SSM‑FR. 16 Regulation (EC) No 2532/98 of the Council of 23 November 1998 concerning the powers of the European Central Bank to impose sanctions, OJ L318, 27.11.1998, p. 4.

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fore, should be subject to the same regime in respect of professional secrecy rules. Furthermore, such interpretation is also necessary to ensure the effectiveness of the general investigation powers; otherwise, the entities subject to general investigations could easily obstruct general investigations. By a similar logic, Art. 10(3) SSMR also applies mutatis mutandis to information ob- 27 tained in a general investigation. Hence, the ECB has to share information that it has obtained from the entities with the national competent authorities concerned. This obligation of the ECB is a part of a duty of cooperation in good faith and an obligation to exchange information between the ECB and national competent authorities.17 If an investigation should be carried out without being based on a supervisory 28 decision, the question arises whether the results of such an investigation can be utilised. If documents are submitted to the ECB upon an information request in form of an operational act in a voluntary manner, i.e. recognizing that no obligation to deliver information exists, the information gained from such documents can be used. Banking supervision encompasses an ongoing communicative process between the credit institutions and the supervisor. The exchange of information is an inseparable part of this process. As long as the credit institution does provide within this process information although it is aware that no obligation by a supervisory decision to do so exists, this information can be utilised. The situation may change if the credit institution is obliged by a supervisory decision to deliver the information, but this decision is annulled by the CJEU because it had defects. It could be argued that information received by using a supervisory power is only received in a justified manner if the decision is justified in terms of procedure and substance. If this is not the case and the decision is annulled, one could consider that a prohibition to utilise the information for sanctioning cases may be the consequence.18

Art. 12 SSMR On-site inspections 1. In order to carry out the tasks conferred on it by this Regulation, and subject to other conditions set out in relevant Union law, the ECB may in accordance with Article 13 and subject to prior notification to the national competent authority concerned conduct all necessary on-site inspections at the business premises of the legal persons referred to in Article 10(1) and any other undertaking included in supervision on a consolidated basis where the ECB is the consolidating supervisor in accordance with point (g) of Article 4(1). Where the proper conduct and efficiency of the inspection so require, the ECB may carry out the on-site inspection without prior announcement to those legal persons. 2. The officials of and other persons authorised by the ECB to conduct an on-site inspection may enter any business premises and land of the legal persons subject to an investigation decision adopted by the ECB and shall have all the powers stipulated in Article 11(1). 3. The legal persons referred to in Article 10(1) shall be subject to on-site inspections on the basis of a decision of the ECB. 4. Officials and other accompanying persons authorised or appointed by the national competent authority of the Member State where the inspection is to be conducted Art. 6(2) SSMR. See Joint Cases 197-200, 243, 245 and 247/80, Ludwigshafener Walzmühle, ECLI:EU:C:1981:311, paras. 13 et seq.; Schwarze, European Administrative Law (revised 1st edn, 2006), at pp. 1241 et seq. 17 18

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shall, under the supervision and coordination of the ECB, actively assist the officials of and other persons authorised by the ECB. To that end, they shall enjoy the powers set out in paragraph 2. Officials of the national competent authority of the participating Member State concerned shall also have the right to participate in the on-site inspections. 5. Where the officials of and other accompanying persons authorised or appointed by the ECB find that a person opposes an inspection ordered pursuant to this Article, the national competent authority of the participating Member State concerned shall afford them the necessary assistance in accordance with national law. To the extent necessary for the inspection, this assistance shall include the sealing of any business premises and books or records. Where that power is not available to the national competent authority concerned, it shall use its powers to request the necessary assistance of other national authorities.

Art. 13 SSMR Authorisation by a judicial authority 1. If an on-site inspection provided for in Article 12(1) and (2) or the assistance provided for in Article 12(5) requires authorisation by a judicial authority according to national rules, such authorisation shall be applied for. 2. Where authorisation as referred to in paragraph 1 of this Article is applied for, the national judicial authority shall control that the decision of the ECB is authentic and that the coercive measures envisaged are neither arbitrary nor excessive having regard to the subject matter of the inspection. In its control of the proportionality of the coercive measures, the national judicial authority may ask the ECB for detailed explanations, in particular relating to the grounds the ECB has for suspecting that an infringement of the acts referred to in the first subparagraph of Article 4(3) has taken place and the seriousness of the suspected infringement and the nature of the involvement of the person subject to the coercive measures. However, the national judicial authority shall not review the necessity for the inspection or demand to be provided with the information on the ECB’s file. The lawfulness of the ECB’s decision shall be subject to review only by the CJEU. Bibliography Klaus Lackhoff, Single Supervisory Mechanism – A Practitioner’s Guide (C. H. Beck/Hart/ Nomos, Munich/Oxford/Baden-Baden 2017); Georgios Zagouras, ‘Der Rechtsrahmen für Vor-Ort-Prüfungen der Europäischen Zentralbank nach Art. 12 SSM‑VO’, WM 2019, 2191; Georgios Zagouros, ‘Onsite inspections conducted by the European Central Bank: legal considerations’, JIBLR 33 (2018), 437; Daniel Segoin, ‘The investigatory powers, including on-site inspections, of the ECB and their judicial control’, in: Chiara Zilioli/Karl-Philipp Wojcik, Judicial Review in the European Banking Union (Edward Elgar Publishing, Cheltenham 2021), pp 285-303.

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B. Scope of the on-site inspection powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Personal scope of an on-site inspection – who can be subject to an on-site inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Territorial scope of an on-site inspection – where can the ECB conduct an on-site inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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C. Exercise of the on-site inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Planning and initiation of an on-site inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Conduct of an on-site inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Follow up on the on-site inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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D. Art. 13 SSMR: Authorisation by a judicial authority . . . . . . . . . . . . . . . . . . . . . . . . . .

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A. Background and purpose of on-site inspections The power to conduct on-site inspections is the most intrusive of ECB’s investigatory 1 powers. As with all investigatory powers, the power to conduct on-site inspections is available to the ECB for the exclusive purpose of carrying out its tasks under Arts. 4(1), 4(2) and 5(2) SSMR. This power cannot be used to facilitate any other tasks of the ECB or tasks of other authorities.1 The direct vesting of on-site inspection powers to the ECB under the SSMR does not 2 preclude the ECB to make use of all the investigatory powers which competent authorities have under the relevant Union law, including national law transposing the relevant Union law. Hence, the ECB would also be able to perform an on-site inspection based on the national law, including the one implementing Art. 65(3)(c) CRD IV. Conversely, the national competent authorities and national designated authorities maintain the powers, in accordance with national law, to conduct an on-site inspection of credit institutions, financial holding companies, mixed financial holding companies and undertakings included in the consolidated financial situation of a credit institution even with respect to significant supervised entities.2 The objective of the on-site inspection power is to enable the ECB to obtain a 3 more in-depth view of different risks, internal control systems, the business model and the governance of an inspected entity by investigations within a predefined scope and timeframe at the premises of the inspected legal entity.3 More specifically, an on-site inspection aims according to the ECB’s view to perform a focused and on the ground investigation of (i) (ii) (iii) (iv) (v) (vi)

the level, nature and features of the inherent risks to which the entity is exposed, also taking into account the entity’s risk culture; the appropriateness and quality of the inspected legal entity’s corporate governance and internal control framework in the light of the nature of its business and risks; the control systems and risk management processes, focusing, in particular on detecting weaknesses or vulnerabilities that could have an impact on the own funds of the inspected legal entity; the quality of balance-sheet items and the financial situation of the inspected legal entity; the business model of the inspected legal entity; as well as compliance with banking regulation, and, in the case of internal models, with the legal requirements pertaining to internal models used for the calculation of capital requirements (initial approval, material changes, extensions, roll-out, permanent partial use or reversion to less sophisticated approaches).4

This is done in an on-site inspection by interacting with the key individuals responsible for the management of business or risk areas of a credit institution and having access See supra, → Art. 10 para. 2. Art. 6(6) sent. 2 SSMR. The national competent authorities must inform the ECB, in accordance with the framework set out in Art. 6(7) SSMR, of the measures taken pursuant to this para. and closely coordinate those measures with the ECB. See also supra, → Art. 10 para. 10. 3 See ECB, Guide to on-site inspections and internal model investigations, September 2018, https://ww w.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.osi_guide201809.en.pdf?49b4c0998c62d4ab6f31a4733c 7ea518, at p. 6, Section 1.3. 4 ECB, Guide to on-site inspections and internal model investigations, https://www.bankingsupervisi on.europa.eu/ecb/pub/pdf/ssm.osi_guide201809.en.pdf?49b4c0998c62d4ab6f31a4733c7ea518, at p. 6, Section 1.3. 1 2

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to the relevant documentation and IT-systems, the management and the reporting systems which go beyond the regulatory reports that the ECB receives in the course of the on-going off-site supervision. With this detailed and focused “access to people and documents/IT -systems on-site”, the ECB shall be put in the position to form its own view on the risk situation and the compliance with regulatory requirements in order to be also able to challenge the position of the management body and the senior management on these issues in an informed way. It follows from the above that on-site inspections complement the ongoing supervision5 by providing focused and detailed information to understand the weaknesses of the credit institution feeding into the follow-up supervisory work of the relevant joint supervisory team.

B. Scope of the on-site inspection powers I. Personal scope of an on-site inspection – who can be subject to an on-site inspection Art. 12(1) SSMR empowers the ECB to conduct “all necessary on-site inspections at the business premises of legal persons referred to in Article 10(1) and any other undertaking included in supervision on a consolidated basis where the ECB is the consolidating supervisor in accordance with point (g) of Article 4(1).” Hence, the personal scope of the power to carry out on-site inspections broadly follows the personal scope of the power to request information under Art. 10(1) SSMR.6 This includes less significant credit institutions.7 However, two notable exemptions exist. 5 First, an on-site inspection may only be made at the business premises of legal persons. This is a difference to the personal scope of Arts. 10 and 11 SSMR which apply both to natural and legal persons. However, the power under Arts. 10 and 11 SSMR can be used by the ECB vis-à-vis natural persons (such as managers or employees) when performing an on-site inspection at the business premises of a legal person. This distinction between the personal scope of an on-site inspection (legal persons only) and the general investigation powers (also natural persons) used during an on-site inspection is apparent from Art. 12(2) SSMR which, subject to a decision under Art. 11 SSMR, vests into official and other persons authorised by the ECB to conduct an on-site inspection all general investigation powers stipulated in Art. 11(1) SSMR. Consequently, the ECB could not carry out an on-site inspection at the home-office of a manager or employee of a supervised entity, but the supervised entity would be obliged to ensure that for example all documents that are located in such home-office are moved back on-site if they fall in the scope of documents whose review is subject to the on-site inspection and the manager could be required to provide information according to Art. 10 or 11 SSMR. 6 Second, an on-site inspection may be carried out at the business premises of any undertaking included in supervision on a consolidated basis where the ECB is the con4

See also ECB, Guide to on-site inspections and internal model investigations, at p. 5, Section 1.1.4. See supra, → Art. 10 paras. 7-13. 7 Zagouros, JIBLR 33 (2018), 437, at p. 439 is, contrary to the wording which does not differentiate between significant and less significant credit institutions, of the view that less significant credit institution fall only in the scope of Art. 12 SSMR once the ECB has taken over their supervision. 5

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solidating supervisor under Art. 4(1)(g) SSMR.8 Art. 111 CRD determines in which circumstances the ECB is the consolidating supervisor and hence has to carry out supervision on a consolidated basis under Art. 4(1)(g) SSMR. The scope of consolidated undertakings in respect of which the ECB may exercise its on-site inspection powers is determined by Art. 18 CRR. According to this provision, the scope of prudential consolidation includes institutions,9 financial institutions10 and ancillary services undertakings.11 These undertakings are subject to the consolidated supervision if (i) a parent–subsidiary relationship12 exists with the consolidating credit institution or (mixed) financial holding company13 (Art. 18(1) CRR), (ii) they are managed on a unified basis14 with the consolidating credit institution or the administrative, management or supervisory bodies consist in the majority of the same persons as those of the consolidating credit institution15(Art. 18(3) CRR) or (iii) those institutions, financial institutions and ancillary services undertakings need to be proportionally consolidated under Art. 18(4) CRR. The proportional consolidation covers joint ventures and this extends the scope of Art. 12 SSMR compared to the persons belonging to the entities referred to in Art. 10(1)(a) - (d) SSMR. On the other hand, in cases where the ECB or the NCAs may determine whether and how consolidation shall be carried out (i) because of participations or capital ties other than those mentioned in Art. 18(1) to (4) CRR (Art. 18(5) CRR), or (ii) because of a significant influence or single management (Art. 18(6) CRR), the consolidation would insofar not result in a power of the ECB to conduct an on-site inspection at the entities consolidated as the relevant consolidation method (equity method or the other consolidation method) under Art. 22(7)-(9) of Directive 2013/34/EU 16 does not constitute inclusion of the undertakings concerned in supervision on a consolidated basis. On-site inspections may be conducted at different levels of consolidation, depend- 7 ing on the goals of the inspection. An inspection can be done at a group level in which case the scope of an on-site inspection would include the parent entity as well as some or all of the subsidiaries and branches in the group or it can be conducted at an individual level, in which case the on-site inspection investigates one particular member of a group (be it the parent or a subsidiary).

8 Art. 12(1) SSMR. Under point (g) of Art. 4(1) SSMR, the ECB has a task 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 in those colleges as observers, in relation to parents not established in one of the participating Member State. 9 As defined in Art. 4(1)(3) CRR. 10 As defined in Art. 4(1)(26) CRR. 11 As defined in Art. 4(1)(18) CRR. For inclusion of ancillary services undertakings into the prudential consolidation scope see Article 18(2) CRR. 12 Art. 18(1) CRR. 13 Art. 11 CRR. 14 Art. 22(7)(a) Directive 2013/34/EU. 15 Art. 22(7)(b) Directive 2013/34/EU. 16 Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC, OJ L182, 29.6.2013, p. 19.

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II. Territorial scope of an on-site inspection – where can the ECB conduct an on-site inspection Art. 12 SSMR empowers the ECB to conduct an on-site inspection also at the premises of legal persons established in the non-participating EU Member States and in third countries. In particular, (i) the cross-reference to Art. 10(1) SSMR includes persons belonging to participating Member State-based credit institutions, (mixed) financial holding companies and mixed activity holding companies17 and third parties to which participating Member State based credit institutions, (mixed) financial holding companies and mixed activity holding companies have outsourced their functions and activities,18 without any express territorial limitation; and (ii) in Art. 12(1) sent. 1 SSMR the reference to “other undertakings included in supervision on a consolidated basis” is also without any territorial limitation. In this respect, the SSMR seems to claim EU-wide 19 as well as “extraterritorial effects”. 20 However, the exercise of on-site inspections outside of the euro-area and outside of the EU is subject to several legal and practical considerations. 9 In this context, the rules applying to on-site inspections in the non-participating Member States and in third countries are different although the underlying questions are the same. These underlying questions are (i) on which basis the ECB may exercise the investigatory power in a non-participating Member State/third country and (ii) whether the ECB has a legal basis to get access to the premises of the relevant entity. Certain specificities apply also if an on-site inspection shall be carried out in a Member State whose currency is not the euro but that entered into a close cooperation with the ECB, Art. 7 SSMR although such a Member State is a participating Member State, Art. 1(1) SSMR. In this case the ECB may not issue supervisory measures directly to the supervised entities established in the Member State in close cooperation, Art. 7(1), (4) SSMR. Consequently, the ECB has to instruct the national competent authority of the Member State in close cooperation to issue a decision to initiate an on-site inspection. With this instruction it may also instruct this national competent authority to appoint as persons carrying out the on-site inspection the same persons which the ECB has appointed for the on-site inspection at the supervised entity established in other participating and not participating Member States.21 10 Where the ECB intends, in its role as consolidating supervisor, to carry out an on-site inspection at an institution, a financial holding company, a mixed financial holding company, a financial institution, an ancillary services undertaking, a mixed-activity holding company, a subsidiary as referred to in Art. 125 CRD (insurance companies or investment firms) or a subsidiary as referred to in Art. 119(3) CRD situated in a nonparticipating Member State, it must follow the relevant Union law provisions in order to carry out the inspection in this country (‘access to the country’). This stems from the requirement of Art. 12(1) sent. 1 SSMR which empowers the ECB to conduct on-site inspections “subject to other conditions set out in relevant Union law”. In particular, the 8

Art. 10(1)(e) SSMR. Art. 10(1)(f) SSMR. 19 The limitation of Art. 139 TFEU does not apply to the powers conferred on the ECB by the SSMR, as the legal basis for the SSMR is Art. 127(6) TFEU, which is omitted from the list of derogations under Art. 139(2)(c) TFEU. 20 See supra, → Art. 10 paras. 20 et seq. for a general discussion of “extraterritorial effects” of investigatory powers. 21 See in this context also Arts. 114 and 115 SSM‑FR. 17

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ECB has to follow in such a case Art. 118 CRD.22 According to this provision, the ECB must first ask the competent authorities of that non-participating Member State to have that check carried out. The competent authorities of that non-participating Member State are then required, within the framework of their competence, to act upon the request of the ECB either (i) by carrying out the check themselves, (ii) by allowing the ECB to carry it out, or (iii) by allowing an auditor or expert to carry it out. The ECB may participate in the check where it does not carry out the check itself. If the ECB is allowed to carry out the on-site inspection itself (which is what normally happens), the officials and other accompanying persons authorised or appointed by the national competent authority of the Member State where the inspection is to be conducted are, pursuant to Art. 12(4) SSMR, required to actively assist the officials of and other persons authorised by the ECB under the supervision and coordination of the ECB. To that end, they shall enjoy all the investigatory powers provided in Art. 11(1) SSMR. These rules should be also applied to on-site inspections at the premises of outsourcing providers in the nonparticipating Member States as there is no reason to treat them differently. If the competent authority in the non-participating Member State should carry out 11 the inspection itself, it has to rely on the powers vested to it in its national law to get access to the premise of the inspected entity. If the ECB is allowed by the competent authority to carry out the inspection, the ECB may base its request for access on its onsite inspection decision23 and if necessary on the judicial authority by a national court which it may have to receive in line with Art. 13 SSMR. Where the ECB subjects entities located in a third country to an on-site inspection, 12 the ECB is faced with the same questions as in connection with on-site inspections in non-participating Member States in a different legal context. First, the ECB staff and other accompanying persons for such an on-site inspection may only enter the third country in order to carry out the inspection subject to the permission of such a third country (‘access to the country’). To this end, the ECB carries out on-site inspections only with the consent of the relevant authorities of the relevant third country. Secondly, the members of the on-site inspection team possess no power to demand access to the premises of the inspected entity. Therefore, the ECB’s ability to access the premises and to carry out the inspection on-site depends on the law of the third country and the assistance of the competent authorities of that third country or the (voluntary) cooperation of the inspected entity. The ECB may only perform during an on-site inspection in a third country such checks which are allowed by the law of the third country and under the conditions of the law of that third country. An investigated entity located in a third country may voluntarily provide necessary cooperation to the ECB, however, it may also only do so subject to the restrictions imposed by laws of the third country (including any statutory confidentiality requirements). The ECB may not impose sanctions on entities in the non-participating Member 13 States or third countries that oppose or do not cooperate in the on-site inspection as initiated by the ECB supervisory decision. While a sanction would be in principle be possi-

22 Art. 118 CRD is also relevant in the inverse situation that the competent authority of a non-participating Member State intends to carry out an on-site inspection in participating Member State. Since Art. 118 CRD is finally an expression of state sovereignty it may be argued that it is not for the ECB but the relevant Member State (via its competent authority) to decide whether to allow the competent authority of the non-participating Member State to carry out the on-site. In the case of third-country authorities, this argument would be even stronger. 23 See discussion on “extraterritorial effects” supra, → Art. 10 para. 20.

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bly based on Art. 18(7) SSMR it follows from Council Regulation 2532/9824 that such sanctions may only be imposed on undertakings in a participating Member State.25

C. Exercise of the on-site inspections I. Planning and initiation of an on-site inspection The need for on-site inspections stems from the on-going supervisory needs either on an institution/group-specific level or on a horizontal level. Based on such institutionspecific and strategic supervisory needs, the Supervisory Board adopts for each institution annually the Supervisory Examination Programme (SEP)26 in line with Art. 99 CRD. The Supervisory Examination Programme determines (i) how the ECB intends to carry out its tasks and to allocate resources; (ii) identifies institutions subject to enhanced supervision; and (iii) a plan for the on-site inspections, including those of branches and subsidiaries. In addition to the planned on-site inspections, the ECB may carry out ad hoc on-site inspections that are not part of the Supervisory Examination Programme. With such ad hoc on-site inspections, the ECB may react to rapidly changing risks at the level of an individual institution or at the broader system level.27 Finally, the ECB may also conduct, in the form of an on-site inspection, thematic inspections which focus on one issue (e.g. the business area, types of transactions) across a group of peer credit institutions; such inspections with a specific focus have to be differentiated from “deep dives” which are part of the on-going review.28 15 Pursuant to Art. 12(3) SSMR and Art. 143(2) SSM‑FR, on-site inspections are conducted on the basis of an ECB decision.29 This decision is an ECB supervisory decision (Art. 2(26) SSM‑FR)30 which must specify at least (i) the subject matter and the purpose of the on-site inspection and (ii) the fact that any obstruction to an on-site inspection by the legal person subject thereto shall constitute a breach of an ECB decision within the meaning of Art. 18(7) SSMR, without prejudice to national law as laid down in Art. 11(2) SSMR.31 As a matter of practice, the on-site inspections planned by the Supervisory Examination Programme are conducted on the basis of the ECB’s supervisory decision, which specifies the subject matter and purpose of each inspection32 while on the other hand, ad hoc on-site inspections (i.e. those not planned in the Supervisory Examination Programme) are based on an ad hoc ECB supervisory decision. 14

24 Regulation (EU) No 2532/98 of the Council of 23 November 1998 concerning the powers of the European Central Bank to impose sanctions, OJ L318, 27.11.1998, p. 4 as amended by Regulation (EU) 2015/159 of the Council of 27 January 2015, OJ L27, 03.02.2015, p. 1. 25 See Art. 4b(2) Regulation (EU) No 2532/98. 26 See also ECB, Guide to on-site inspections and internal model investigations, at p. 5, Section 1.2. 27 See also ECB, SSM Supervisory Manual, March 2018, https://www.bankingsupervision.europa.eu/ecb /pub/pdf/ssm.supervisorymanual201803.en.pdf?42da4200dd38971a82c2d15b9ebc0e65, p. 5 para. 1.1.3. 28 ECB, SSM Supervisory Manual, March 2018, https://www.bankingsupervision.europa.eu/ecb/pub/pd f/ssm.supervisorymanual201803.en.pdf?42da4200dd38971a82c2d15b9ebc0e65, p. 64 para. 4.1.3 29 See also Lackhoff, The Single Supervisory Mechanism (2017), para. 761 et seq. and 775 30 See Art. 143(2) SSM‑FR. 31 However, given the territorial limitation of sanctioning and investigatory powers to the territory of participating Member States, the ECB shall not be able to impose sanctions on entities located outside of participating member states due to limitations under Regulation (EC) No 2532/98. 32 See ECB, Guide to on-site inspections and internal model investigations, September 2018, https://ww w.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.osi_guide201809.en.pdf, p. 5, para. 1.2.

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Arts. 12, 13 SSMR

The SSMR (Art. 22(1) SSMR33) and the SSM‑FR (Art. 25 SSM‑FR) do not envisage a hearing prior to the adoption of a decision subjecting a legal person to an on-site inspection.34 Where this is necessary for the proper conduct and efficiency of the on-site inspection, no prior announcement on an on-site inspection is to be made in such a case pursuant to the last sent. of Art. 12(1) SSMR and Art. 145(2) SSM‑FR. It is sufficient that the reasoning of the supervisory decision to carry out an on-site inspection is brief; it may solely consist of the description of the content and purpose of the on-site inspection. If the inspected entity is located in a participating Member State, the officials of and other persons authorised by the ECB shall have all the powers stipulated in Art. 11(1) SSMR, Art. 12(2) SSMR. Accordingly, in such cases, the ECB decision based on which an on-site inspection is conducted covers all general investigation powers and in addition as an element genuine to on-site inspections the power to carry out searches for information/documents falling within the scope of the on-site inspection. If an on-site inspection shall be carried out based on Art. 12 SSMR, the ECB is in charge of the establishment and composition of the on-site inspection team (OSI team) with the involvement of the relevant NCAs, Art. 144(1) SSM‑FR. Under Art. 144(2) SSM‑FR, the ECB must also designate the head of the on-site inspection team (‘Head of mission’) from among ECB and NCA staff members. In general, the on-site inspection team will consist of staff members of the ECB and NCAs (both from the NCA in the jurisdiction of the supervised entity as well as other NCAs)35 and/or third parties authorised by the ECB. The composition of the team, in terms of size, skills, expertise and seniority will depend on the scope and nature of each individual inspection.36 Members of the Joint Supervisory Team (JST) responsible for the ongoing supervision may participate in inspections as inspectors, but not as heads of mission, in order to ensure that onsite inspections are conducted independently.37 Where necessary and appropriate, the ECB can call on external consultants38 such as external auditors or other specialists.39 Pursuant to Art. 144(3) SSM‑FR, the ECB and NCAs are to consult with each other and agree on the use of NCA resources with regard to the on-site inspection teams. Finally, without prejudice to the composition of the on-site inspection team, Art. 12(4) SSMR gives the right to the officials of the national competent authority of the participating Member State concerned to participate in the on-site inspection (as observers). As a final step in the initiation of an on-site inspection, the ECB must under Art. 145 SSM‑FR notify the legal person subject to an on-site inspection at least five working days before the start of the on-site inspection (i) on the ECB decision to carry out an onsite inspection, and (ii) on the identity of the members of the on-site inspection team. This provision modifies the rules on the notification of ECB supervisory decisions (Art. 39 SSM‑FR) for the decision to carry out a supervisory decision. However, pursuant to Art. 12(1) SSMR and Art. 145(2) SSM‑FR, the notification of the legal person 33 Art. 22(1) SSMR does not require hearing for decisions made in accordance with Section 1 of Chapter III SSMR. 34 See supra, → Art. 10 para. 36. 35 See ECB, Guide to on-site inspections and internal model investigations, September 2018, https://ww w.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.osi_guide201809.en.pdf, at p. 7 et seq., Section 1.6. 36 See ECB, Guide to on-site inspections and internal model investigations, September 2018, https://ww w.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.osi_guide201809.en.pdf, at p. 8, Section 1.6. 37 See also ECB, Guide to on-site inspections and internal model investigations, September 2018, https:/ /www.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.osi_guide201809.en.pdf, at p. 7, Section 1.5. 38 See also ECB, Guide to on-site inspections and internal model investigations, September 2018, https:/ /www.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.osi_guide201809.en.pdf, at p. 8, Section 1.6. 39 See also Lackhoff, The Single Supervisory Mechanism, para. 778 and fn. 850.

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16

17

18

19

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On-site inspections/Authorisation by a judicial authority

subject to the on-site inspection is not necessary if the proper conduct and efficiency of the inspection so require. This would be the case, in particular, where there is a risk that the legal entity subject to inspection would manipulate data, systems or people in order to hamper the on-site inspection. The NCA of the Member State where the on-site inspection is to be conducted must also be notified by the ECB. This shall be done at least one week before notifying the legal person subject to the on-site inspection. If the on-site inspection is carried out in a third country the notification of the competent authority shall follow the rules laid down in a Memorandum of Understanding (MoU) with that authority; if no MoU exists or the MoU does not deal with the issue, it is recommendable to apply Art. 145 SSM‑FR also in this case.

II. Conduct of an on-site inspection 20

21

22

23

24

The head of an on-site inspection team appointed by the ECB is responsible for leading the on-site inspection and all persons in the on-site inspection team. The members of an on-site inspection team (ECB staff, NCA staff and external experts) are obliged to follow the instructions of the head of an on-site inspection team (Art. 146(1) SSM‑FR). Furthermore, in case of significant credit institutions the coordination between the JST and the on-site inspection team is crucial to ensure the efficiency of the on-site inspection. Art. 146(2) SSM‑FR makes the head of an on-site inspection team responsible for the coordination between the on-site inspection team and the JST responsible for the supervision of the significant credit institution. If the on-site inspection is conducted in a Member State, the ECB may ask the NCA for assistance without authorising these NCA members (assisting NCA team). In this case, the officials and other accompanying persons authorised or appointed by the NCA of the Member State where the inspection is to be conducted are required under Art. 12(4) SSMR, under the supervision and coordination of the ECB, to actively assist the officials of and other persons authorised by the ECB. To that end, the NCA officials or other accompanying persons shall have the power to enter the premises of the inspected entity and shall have all investigatory powers as specified in Art. 11(1) SSMR. The officials of the NCAs of the participating Member State where the on-site inspection is conducted shall also have the right to participate in the on-site inspection (Art. 12(4) sent. 3 SSMR) (observers). Where the officials of and other accompanying persons authorised or appointed by the ECB find that the inspected legal person opposes an inspection, the national competent authority of the participating Member State concerned are required under Art. 12(5) SSMR to afford them the necessary assistance in accordance with national law. To the extent necessary for the inspection, this assistance shall include the sealing of any business premises and books or records. Where that power is not available to the national competent authority concerned, it shall use its powers to request the necessary assistance of other national authorities (e.g. market authorities). Other national authorities are required to provide assistance in line with the national law. The on-site inspection team has a right to enter premises and use all the investigatory powers under Art. 11(1) SSMR and to search for information, Art. 12(2) SSMR. Hence, it may require submission of necessary documents and (reading-) access to ITsystems, examine books and records, obtain written or oral explanation and also interview any person other than those listed in Art. 10(1) SSMR. Under the conditions of the COVID pandemic on-site inspections may also be carried off-site by asking for remote

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On-site inspections/Authorisation by a judicial authority

Arts. 12, 13 SSMR

access to documents and IT-systems, the delivery of documents and carrying out meetings on-line. The use of these powers needs to be proportionate to the subject matter and goals of the on-site inspection and risk based.40 In general, the scope of an on-site inspection and the powers used will depend on the type of an on-site inspection. A full-scope inspection would cover a broad spectrum of risk and activities of the credit institution in order to provide a holistic view of the credit institution, whereas a targeted inspection would focus on a particular part of the credit institution’s business, or on a specific issue or risk. The legal professional privilege may (only) in specific situations limit the access to documents. It does only limit the access in on-site inspections to the communication between an independent (i.e. not employed) lawyer and the reviewed supervised entity in respect of communication connected with the right of defence.41 The professional secrecy provisions do not exempt the entities subject to an on-site 25 inspection from an obligation to provide access to premises, information, documents, access to books and records or other data to the on-site inspection team. Supplying such information to the on-site inspection team may not be deemed to be in breach of professional secrecy. Art. 10(2) SSMR 42 applies mutatis mutandis to all information received in the course of an on-site inspection. This interpretation stems from the fact that Art. 12 SSMR complements Arts. 10 and 11 SSMR by allowing the ECB to obtain and verify information about supervised entities in the on-site investigations and therefore the same principles with regard to professional secrecy rules should apply. Furthermore, such interpretation is also necessary to ensure the effectiveness of the on-site inspection powers; otherwise the entities subject to an on-site inspection could easily obstruct such on-site inspection. The on-site inspection is finalised by an on-site inspection report (OSI-report). 43 26 The drafting of the report is under the responsibility of the head of the on-site inspection team. The report is consulted with the legal person subject to inspection in a closing meeting and should be based on the facts and objections on which the inspected legal entity had an opportunity to comment.44 The final report, signed by the head of the on-site inspection team (Head of Mission), is provided to the inspected legal entity.

III. Follow up on the on-site inspection After the on-site inspection report is finalised, the work of the on-site inspection 27 team is finished. It is then up to the JST to follow up on any findings of the on-site inspection. The follow-up is either made by (i) a follow-up letter (operational act) that includes (non-binding) recommendations to remedy the shortcomings mentioned in the final report or (ii) an ECB supervisory decision that stipulates binding supervisory mea-

40 See ECB, Guide to on-site inspections and internal model investigations, September 2018, https://ww w.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.osi_guide201809.en.pdf, at p. 6, Section 1.3. 41 Segoin, ‘The investigatory powers, including on-site inspections, of the ECB and their judicial control’, in: Zilioli/ Wojcik, Judicial Review in the European Banking Union (Edward Elgar Publishing, Cheltenham 2021), para. 17.57 et seq. 42 See supra, → Art. 10 paras. 31 et seq. 43 See ECB, Guide to on-site inspections and internal model investigations, September 2018, https://ww w.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.osi_guide201809.en.pdf, at p. 13 et seq., Section 2.2.3. 44 See ECB, Guide to on-site inspections and internal model investigations, September 2018, https://ww w.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.osi_guide201809.en.pdf, at p. 22 et seq., Section 3.3.1.

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Arts. 12, 13 SSMR

On-site inspections/Authorisation by a judicial authority

sures to remedy those shortcomings.45 Such a decision needs to be adopted in a nonobjection procedure and is normally based on Art. 16 SSMR. The procedural rules for adopting supervisory decisions apply. Non-compliance with such a “follow-up decision” can be sanctioned (Art. 18(7) SSMR) while “non-compliance” with a follow-up operational act cannot be sanctioned. 28 Finally, if the on-site inspection report has identified intentional or negligent breaches of requirements under directly applicable acts of Union law (in particular CRR), the ECB may impose for such breaches sanctions under Art. 18(1) SSMR. In case the on-site inspection report reveals other breaches of Union law (in particular national transposition of CRD), the ECB may require NCAs to open proceedings with a view to taking action in order to ensure that appropriate penalties are imposed in accordance with national law implementing Union law (Art. 18(5) SSMR).

D. Art. 13 SSMR: Authorisation by a judicial authority The conduct of the on-site inspections may interfere with the protection of (also) business premises against arbitrary or disproportionate intervention by public authorities in the sphere of the private activities of any person, whether natural or legal. 46 As stated by the CJEU in the context of EU competition law in the Hoechst case, “in all the legal systems of the Member States, any intervention by the public authorities in the sphere of private activities of any person, whether natural or legal, must have a legal basis and be justified on the grounds laid down by law, and, consequently, those systems provide, albeit in different forms, protection against arbitrary or disproportionate intervention. The need for such protection must be recognized as a general principle of Community law”.47 Therefore, carrying out an on-site inspection requires an ECB supervisory decision to justify this interference. 30 In addition, Art. 13 SSMR clarifies that the ECB shall also apply for judicial authorisation for accessing the business premises and carrying out on-site investigations if this is required pursuant to national law (Art. 13(1) SSMR in connection with Art. 12(1) and (2) SSMR). The same applies for an NCA assisting the ECB (Art. 13(1) SSMR in connection with Art. 12(5) SSMR). 31 However, if the ECB applies for such an authorisation envisaged by national legislation, the scope of control by the national judicial authorities is limited by Art. 13(2) SSMR. They may (only) review whether the ECB decision initiating an on-site inspection is authentic and that coercive measures envisaged by the ECB in the on-site investigation are proportionate, i.e. neither arbitrary nor excessive having regard to the subject matter of the inspection. In particular, Art. 13(2) SSMR specifies further the nature of control of the proportionality of the coercive measures - the national judicial authority may ask the ECB for detailed explanations, in particular relating to the grounds the ECB has for suspecting that an infringement of the Union law has taken place and the seriousness of the suspected infringement and the nature of the involvement of the person subject to the coercive measures. 32 This definition of the scope of national judicial review is similar to the scope provided in the context of EU competition law as specified in Art. 20(8) of Council Regulation 29

45 See ECB, Guide to on-site inspections and internal model investigations, September 2018, https://ww w.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.osi_guide201809.en.pdf, at p. 15, Section 2.3.1. 46 See Case C-94/00, Roquette Frères, ECLI:EU:C:2002:603, paras. 27 et seq. 47 Joined Cases 46/87 and 227/88, Hoechst v. Commission, ECLI:EU:C:1989:337, para. 19.

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Art. 14 SSMR

Authorisation

(EC) No 1/200348 which in turn follows the terms of the CJEU competition law judgment in the Roquette Freres case.49 It is however questionable to what extent the principles developed for the national judicial review of investigations by the Commission in its capacity as a competition authority may be so easily applied to the on-site investigations by the ECB as a prudential supervisor. In particular, the ECB’s on-site inspections are not necessarily driven only by the aim to investigate an infringement of the relevant Union prudential law but follow a much wider scope and purpose as noted supra,  para. 3. For this reason, the “suspected infringement” of the relevant Union law as a test for 33 proportionality under Art. 13(2) SSMR of on-site inspections should be read widely and include the possible necessity of investigations of risks commensurate with the size, activities and risk profile of the inspected legal entity.50 Only this wide interpretation ensures that on-site inspection may fulfil their purpose in line with the objectives of and tasks conferred on the ECB by the SSMR. Finally, the national judicial authority may not examine the lawfulness of the ECB’s 34 decision initiating on-site inspection or any other ECB decisions following up on the onsite inspection. Such examination is pursuant to Art. 13(2) SSMR in the exclusive competence of the CJEU.

Art. 14 SSMR Authorisation 1. Any application for an authorisation to take up the business of a credit institution to be established in a participating Member State shall be submitted to the national competent authorities of the Member State where the credit institution is to be established in accordance with the requirements set out in relevant national law. 2. If the applicant complies with all conditions of authorisation set out in the relevant national law of that Member State, the national competent authority shall take, within the period provided for by relevant national law, a draft decision to propose to the ECB to grant the authorisation. The draft decision shall be notified to the ECB and the applicant for authorisation. In others cases, the national competent authority shall reject the application for authorisation. 3. The draft decision shall be deemed to be adopted by the ECB unless the ECB objects within a maximum period of ten working days, extendable once for the same period in duly justified cases. The ECB shall object to the draft decision only where the conditions for authorisation set out in relevant Union law are not met. It shall state the reasons for the rejection in writing. 4. The decision taken in accordance with paragraphs 2 and 3 shall be notified by the national competent authority to the applicant for authorisation. 5. Subject to paragraph 6, the ECB may withdraw the authorisation in cases set out in relevant Union law on its own initiative, following consultations with the national competent authority of the participating Member State where the credit institution is established, or on a proposal from such national competent authority. These consultations shall in particular ensure that before taking decisions regarding withdrawal, the ECB allows sufficient time for the national authorities to decide on 48 Regulation (EC) No 1/2003 of the Council of 16 December 2002 on the implementation of the rules on competition laid down in Arts. 81 and 82 of the Treaty, OJ L 1, 4.1.2003, p. 1. 49 Case C-94/00, Roquette Frères, ECLI:EU:C:2002:603. 50 See third subpara. of Art. 1 SSMR.

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the necessary remedial actions, including possible resolution measures, and takes these into account. Where the national competent authority which has proposed the authorisation in accordance with paragraph 1 considers that the authorisation must be withdrawn in accordance with the relevant national law, it shall submit a proposal to the ECB to that end. In that case, the ECB shall take a decision on the proposed withdrawal taking full account of the justification for withdrawal put forward by the national competent authority. 6. As long as national authorities remain competent to resolve credit institutions, in cases where they consider that the withdrawal of the authorisation would prejudice the adequate implementation of or actions necessary for resolution or to maintain financial stability, they shall duly notify their objection to the ECB explaining in detail the prejudice that a withdrawal would cause. In those cases, the ECB shall abstain from proceeding to the withdrawal for a period mutually agreed with the national authorities. The ECB may extend that period if it is of the opinion that sufficient progress has been made. If, however, the ECB determines in a reasoned decision that proper actions necessary to maintain financial stability have not been implemented by the national authorities, the withdrawal of the authorisations shall apply immediately. Bibliography Tomas A. Arons, ‘Judicial protection of supervised credit institutions in the European Banking Union’ in: Danny Busch and Guido Ferrarini (eds), European Banking Union (2nd edn, Oxford University Press, Oxford 2020), 93; Henning Berger, ‘Der einheitliche Aufsichtsmechanismus (SSM) – Bankenaufsicht im europäischen Verbund’, WM (2015), 501; Henning Berger, ‘Rechtsanwendung durch die EZB im Single Supervisory Mechanism (SSM)’, WM (2016), 2325; Jens-Hinrich Binder, ‘Erlaubnispflicht, Zulassungsvoraussetzungen und Zulassungsverfahren’ in: Jens-Hinrich Binder, Alexander Glos and Jan Riepe (eds), Handbuch Bankenaufsichtsrecht (2nd edn, RWS Verlag, Cologne 2020), 115; Karl-Heinz Boos, Reinfrid Fischer and Hermann Schulte-Mattler (eds), KWG/CRR VO (5 th edn, C.H. Beck, Munich 2016); Josefa Breitenlechner and Marija Radosavljevic, ‘Die Entscheidungsbefugnis der EZB im Rahmen des europäischen Zulassungsverfahrens von Kreditinstituten’, ZFR (2016), 170; Concetta Brescia Morra, ‘The administrative and judicial review of decisions of the ECB in the supervisory field’, in: Banca d’Italia, Quaderni di Ricerca Giuridica No 81 (2016), 109; Alexander Glos and Markus Benzing, ‘Institutioneller Rahmen: SSM, EZB und nationale Aufsichtsbehörde’ in: Jens-Hinrich Binder, Alexander Glos and Jan Riepe (eds), Handbuch Bankenaufsichtsrecht (2nd edn, RWS Verlag, Cologne 2020), 23; Elke Gurlit, ‘Die Entwicklung des Banken- und Kapitalmarktaufsichtsrechts seit 2017 – Teil I’, WM (2020), 57; Jörn Axel Kämmerer, ‘Rechtsschutz in der Bankenunion’, WM (2016), 1; Ann-Kathrin Kaufhold, ‘Einheit in Vielfalt durch umgekehrten Vollzug? Zur Anwendung mitgliedstaatlichen Rechts durch europäische Institutionen’, JÖR 66 (2018), 85; André Kruschke, ‘Zulassung von Instituten’, in: Simon G. Grieser and Manfred Heemann (eds), Europäisches Bankaufsichtsrecht (Frankfurt School Verlag, Frankfurt 2016), 193; Klaus Lackhoff, Single Supervisory Mechanism (C.H. Beck/Hart/Nomos, Munich/Oxford/Baden-Baden 2017); Asen Lefterov, ‘Judicial review in a multi-level administrative framework – the case of the SSM’, ESCB Legal Conference 2020 (Frankfurt 2021), p. 286; Mario Martini and Quirin Weinzierl, ‘Nationales Verfassungsrecht als Prüfungsmaßstab des EuGH’, NVwZ (2017), 177; Yves Mersch, ‘Mehrteilige Verwaltungsverfahren in der Aufsichtspraxis der EZB’, EuZW (2020), 781; Peter-Christian Müller-Graff, ‘Rechtsschutz von Kreditinstituten in der Bankenaufsicht der Europäischen Zentralbank’, EuZW (2018), 101; Christian Müller, Reinfrid Fischer and Jan Hendrik Müller, ‘Rechtsschutz bei der Erteilung und Entziehung von Erlaubnissen für Kreditinstitute’, WM (2015), 1505; Kerstin Neumann, ‘The supervisory powers of national authorities and cooperation with the ECB – a new epoch of banking supervision’, EuZW-Supplement 1 (2014), 9; Christoph Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (C.H. Beck, Munich 2015); Bernhard Raschauer, Finanzmarktaufsichtsrecht (Verlag Österreich, Vienna 2015); Josef Ruthig, ‘Die EZB in der europäischen Bankenunion’, ZHR 2014, 443; Gunnar Schuster, ‘The banking supervisory competences and powers of the ECB’, EuZW-Supplement 1 (2014), 3; Tobias Tröger, ‘Der Einheitliche Aufsichtsmechanismus (SSM) – Allheilmittel oder quacksalberische Bankenregulierung?’, ZBB (2013), 373; Eddy Wymeersch, ‘The Single Supervisory Mechanism for banking supervision – Institutional aspects’ in: Danny Busch and Guido Ferrarini (eds), European Banking Union (2nd edn, Oxford University Press, Oxford 2020), 93.

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A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Basic content . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Relevant substantive and procedural law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Substantial requirements for authorisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Substantial requirements for withdrawal of authorisation . . . . . . . . . . . . . . . . 3. Procedural requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Practical relevance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 1 2 2 5 7 8

B. Scope of application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Credit institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. All credit institutions irrespective of significance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Territorial scope of application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10 10 16 17

C. Authorisation (Art. 14(1)-(4) SSMR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Triggers for Art. 14 SSMR procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Submission of application to an NCA (Art. 14(1) SSMR) . . . . . . . . . . . . . . . . . . . . III. Assessment of an application by an NCA (Art. 14(2) SSMR) . . . . . . . . . . . . . . . . . 1. Draft decision to grant authorisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Final decision to reject application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. The ECB’s assessment and decision (Art. 14(3) and (4) SSMR) . . . . . . . . . . . . . . 1. Assessment of compliance with Union law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. The ECB’s decision on an application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Scope of authorisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18 18 21 24 24 27 28 28 29 32 36

D. Withdrawal of authorisation (Art. 14(5) and (6) SSMR) . . . . . . . . . . . . . . . . . . . . . I. Authorisations subject to withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Withdrawal initiated by the NCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Assessment of the NCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Assessment and decision by the ECB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a) Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b) Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Withdrawal initiated by the ECB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Assessment of ECB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Lapsing of the authorisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

38 38 40 41 42 44 44 45 47 49 49 51 55 56

E. Judicial review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Distribution of competences between national and European courts . . . . . . . . II. Review in the European courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Optional administrative review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Admissibility of action for annulment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Assessment of the court und judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

59 59 61 61 62 64

A. Introduction I. Basic content Art. 14 SSMR opens the section on specific powers granted to the ECB within the 1 SSM, thereby giving force to the tasks conferred on the ECB by Art 4(1)(a) SSMR. The authorisation of credit institutions and the withdrawal of licences are among the direct supervisory powers granted to the ECB irrespective of the significance of the credit institution. However, direct supervision of the ECB is performed within a complex cooperation arrangement with the NCAs of the relevant Member States. Art. 14 SSMR outlines the so-called common procedures to be followed, thereby vesting the final decision on

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the authorisation (Art. 14(1)-(4) SSMR) and withdrawal of licence (Art. 14(5) and (6) SSMR) in the ECB.

II. Relevant substantive and procedural law 1. Substantial requirements for authorisation Substantive rules governing the authorisation of credit institutions are contained in Arts. 8 and 10 to 14 CRD IV1 and in the national laws implementing these provisions. According to Art. 10 CRD IV, an application must be accompanied by a programme of operations setting out the types of business envisaged, the structural organisation of the credit institution, and its internal governance. However, the supervisory review of the applicant’s business plan is limited, since, pursuant to Art. 11 CRD IV, the programme of operations is not to be examined in terms of the economic needs of the market. Art. 12 CRD IV requires the applicant to hold separate own funds and an initial capital of at least EUR 5 million, giving the option to accept an initial capital no less than EUR 1 million. According to Art. 13(1) CRD IV, an authorisation shall only be granted where at least two persons, that are deemed fit and proper within the meaning of Art. 91(1) CRD IV, effectively direct the business of the credit institution.2 Additionally, pursuant to Art. 13(2) CRD IV, a credit institution is required to have its head office in the Member State which received its application and in which it actually carries out its business. Finally, authorisation requires disclosure of the shareholders and members that have qualifying holdings. Art 14(2) and (3) CRD IV mandates the refusal of authorisation if those shareholders are not deemed suitable for the sound and prudent management of the credit institution or if close links between the credit institution and third parties could prevent the effective exercise of supervisory functions. 3 The RTS and ITS drafted by the EBA under Art. 8(2) and (3) CRD IV, specifying the requirements on authorisation,3 are still awaiting adoption by the Commission. They will form part of the relevant Union law that has to be applied by the ECB according to Art. 4(3)(2) SSMR. The ECB adopted two sets of guidelines setting out the policies on assessment of licence applications and on assessments of licence applications filed by FinTech credit institutions.4 While there is no doubt that this guidance does not have a legally binding nature and that regulatory standards drafted by the EBA and adopted by the Commission prevail over them, the NCAs have agreed to interpret national law in line with these policies to the extent possible. 4 The authorisation requirements laid down in the CRD IV are minimum harmonisation provisions not forestalling the Member States to set additional requirements 5 that form part of the cooperative licensing process according to Art. 14(2) SSMR. 2

Directive 2013/36/EU as amended by Directive (EU) 2019/878, OJ L150, 7.6.2019, p. 253. See for this requirement joined cases T-133/16 to 136/16, Caisse régionale de credit agricole mutual Alpes Provence v. ECB, ECLI:EU:T:2018:219. 3 EBA, Final Report – Draft regulatory technical standards under Article 8(2) of Directive 2013/36/EU on the information to be provided for the authorisation of credit institutions, the requirements applicable to shareholders and members with qualifying holdings and obstacles which may prevent the effective exercise of supervisory powers, 14.7.2017 (EBA/RTS/2017/08); Draft implementing technical standards under Article 8(3) of Directive 2013/36/EU on standard forms, templates and procedures for the provision of the information required for the authorisation of credit institutions, 14.7.2017 (EBA/ITS/2017/05). 4 ECB, Guide to assessments of licence applications, 2 nd edn (2019); ECB, Guide to assessments of FinTech credit institutions licence applications (2018). 5 Art. 8(1) CRD IV; Recital 15 CRD IV. 1

2

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2. Substantial requirements for withdrawal of authorisation The rules for withdrawal of authorisation are set out in Art. 18 CRD IV. According 5 to this provision, an authorisation may be withdrawn in a number of cases: – if the credit institution does not make use of the authorisation within 12 months, expressly renounces the authorisation or has ceased to engage in business for more than six months unless the national law provides for lapsing of authorisation in such cases,6 – if the credit institution has obtained the authorisation through false statements, – if it no longer fulfils the conditions under which authorisation was granted, – if the credit institution no longer meets the prudential requirements set out in Parts Three, Four or Six of the CRR or imposed under Art. 104(1)(a) or Art. 105 CRD IV or can no longer be relied on to fulfil its obligations towards its creditors and, in particular, no longer provides security for the assets entrusted to it by its depositors; or – if the credit institution commits one of the breaches referred to in Art. 67(1) CRD IV. The reference to Art. 67(1) CRD IV, providing for administrative sanctions, has the 6 effect of establishing quite a number of reasons for withdrawal, for instance cases of non-compliance with requirements on governance, large exposures and liquidity. But even with the long list of cases of non-compliance, the catalogue of reasons justifying a withdrawal is not conclusive. As is stipulated in Art. 18 lit. e CRD IV, an authorisation may also be withdrawn in cases provided for in national law, thereby giving Art. 18 CRD IV the effect of minimum harmonisation.7 Therefore, Member States may provide for withdrawal in cases that do not express a prudential concern and are not in the ambit of the SSMR.8 Because Art. 18 CRD IV stipulates that the relevant authority “may” withdraw the authorisation, the decision to withdraw is discretionary.

3. Procedural requirements The procedures are set out in detail in Arts. 73 to 79 SSM‑FR with regard to licensing 7 and in Articles 80 to 84 SSM‑FR relating to the withdrawal of authorisation. Some formal aspects of the application for an authorisation are detailed in the EBA’s draft ITS under Art. 8(3) CRD IV, which is awaiting the approval of the Commission. Finally, the ECB’s non-binding guide on assessments of applications contains a number of procedural considerations especially with regard to timelines.9

III. Practical relevance The legislature considered the instrument of prior authorisation a key prudential 8 technique to ensure that only appropriate operators carry out banking activities, and, 6 See also Art. 18 lit aa) CRD IV as amended by Art. 62 IFD providing for withdrawal if an investment firm qualified as a credit institution pursuant to Art. 4(1) point 1 lit. b CRR has, for a period of five consecutive years, average total assets below the thresholds set out in that Article. 7 Lackhoff, Single Supervisory Mechanism (2017), at pp. 166, 170; Kruschke, in: Grieser and Heemann (eds), Europäisches Bankaufsichtsrecht (2016), 193 at p. 210; see also Berger, WM 2016, 2361, at p. 2366: additional reasons for withdrawal are not to be considered as gold-plating of Union law, but national autonomous law; Recital 21 SSMR; obviously different view by Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 213. 8 Lackhoff, Single Supervisory Mechanism (2017), at pp. 166–168, 179 with the example of § 35, para. 2, point 6 KWG (German Banking Act) justifying a withdrawal in the case of non-compliance with antimoney laundering requirements; Berger, WM 2016, 2361, at p. 2366 with the example of the general withdrawal provisions in §§ 48, 49 VwVfG (German Administrative Procedure Act). 9 ECB, Guide to assessments of licence applications (2019), at pp. 27 et seq.

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therefore, should be conferred on the ECB.10 While the academic production on issues of authorisation of credit institutions according to Art. 14 SSMR is quite impressive, the ECB’s report on supervisory activities of 202011 shows that its practical relevance lags behind despite the ECB’s broad reading of the applicability of Art. 14 SSMR (→ paras. 12 et seq.) The bulk of ECB decisions on authorisations relate to fit and proper decisions taken by the ECB12 on the presumption that national laws requiring an approval of the appointment of all members of the management bodies of significant credit institutions are to be applied by the ECB.13 Out of almost 3.400 applications notified by the NCAs in 2020, only 28 concerned licensing, and 18 related to withdrawals, respectively. The main drivers for applications for authorisations are the licensing of FinTech companies and Brexit-related applications by UK and third country credit institutions. Withdrawal procedures were in most instances initiated by credit institutions voluntarily terminating their banking activities and by banks entering into mergers or engaging in a restructuring.14 9 Decisions of the ECB on authorisations or withdrawals contested in the European courts are sparse. So far, judicial review focussed on procedural issues of actions for annulment of withdrawal decisions, relating to the admissibility of action of banks in liquidation and their shareholders,15 and the availability of preliminary suspension of ECB’s withdrawal decisions.16 However, there are more withdrawal cases pending at the General Court.17

B. Scope of application I. Credit institutions 10

The procedure set out in Art. 14 SSMR is applicable for all undertakings to be established as credit institutions within the meaning of Art. 4(1) CRR, Art. 2(3) SSMR. According to Art. 4(1) point 1 lit. a CRR, this covers the business to take deposits or other repayable funds from the public and, cumulatively, to grant credits for its own ac-

Recital 20 SSMR. The following statistical data are derived from ECB, Annual Report on supervisory activities 2020 (2021), at pp. 56 et seq. 12 2.828 out of 3.385 applications notified by the NCAs in 2019 related to fit and proper assessments. 13 ECB, Guide to fit and proper assessments, 2018, at pp. 5 et seq.; ECB’s power to decide ex ante on approval on the appointment of all members of the management bodies is debatable since neither Art. 16 SSMR nor Art. 91 CRD IV require an ex ante approval procedure, see Gurlit, WM 2020, 57 at pp. 64 et seq. The self-acclaimed burden to decide on high numbers of fit and proper applications induced the ECB to delegate decision-making procedures, see Decision (EU) 2017/935 of the ECB of 16.11.2016 on delegation of powers to adopt fit and proper decisions and the assessment of fit and proper requirements (ECB/ 2016/42), OJ L141, 1.6.2017, p. 21. 14 ECB, Annual Report on supervisory activities 2020 (2021), at pp. 57 et seq. 15 Joined cases C-663/17 P, C-665/17 P, C-669/17 P – Trasta Komercbanka AS et al v ECB, ECLI:EU:C: 2019:923. 16 Case T-797/19 R – Anglo Austrian AAB Bank and Belegging-Maatschappij ‘Far East’ BV v ECB, ECLI: EU:T:2019:801 (decision of the President of the GC of 20.11.2019, revoked by order of 7.2.2020); Case T-230/20 R – PNB Banka AS v ECB, ECLI:EU:T:2021:68 (order of the President of the GC of 8.2.2021). 17 Action brought on 22.5.2017, Case T-321/17 R – Niemelä et al. v ECB, OJ C 283, 28.8.2017, p. 52; action brought on 5.6.2018, Case T-351/18 – Ukrselhosprom and Versobank v ECB, OJ C294, 20.8.2018, p. 51. 10 11

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counts.18 Since the harmonising focus of the CRR and the CRD IV is directed towards institutions engaged or striving to engage in both types of business, applications to take up business in only one activity – either in granting credits or in taking deposits – are not in the ambit of Art. 14 SSMR notwithstanding distinct authorisation requirements according to national law.19 Certain public sector credit institutions listed in Art. 2(5) of the revised CRD IV are excluded from the regime of the CRD IV and hence are no longer a credit institution within the meaning of the CRR and the SSMR. Other categories of financial institutions such as financial holding companies and mixed financial holding companies are – despite their indirect inclusion in the SSM pursuant to Art. 4(1) lit. g SSMR – not considered as credit institutions and therefore not addressees of the licencing regime of Art. 14 SSMR.20 As part of the regulatory package for prudential requirements und prudential super- 11 vision of investment firms,21 the definition of credit institutions was recently extended. According to Art. 4(1) point 1 lit. b CRR, an investment firm dealing on own accounts and/or engaging in the activity of underwriting financial instruments or placing financial instruments on a firm commitment basis, will qualify as a credit institution if the total value of the consolidated assets of the firm is equal or exceeds EUR 30 billion. 22 In the view of the legislature, big-size investment firms engaging in bank-like activities may pose a bank-like risk to financial stability.23 Consequently, investment firms exceeding the threshold will fall in the ambit of Art. 14 SSMR.24 Because of the link between the definition of CRR credit institutions and the scope of 12 the SSM, it seems self-evident that authorisation for other financial activities remains in the competence of the Member States.25 However, passporting of CRR credit institutions includes business services listed in Annex I of the CRD IV such as portfolio management or investment services if authorised by the NCA (Art. 33 CRD IV). Therefore, the question comes up whether an application of a credit institution to extend its licence to these types of business is within the scope of Art. 14 SSMR. The same issue arises with regard to further national authorisation requirements going beyond the activities listed in Annex I of the CRD IV.26 In the view of the ECB as communicated to the NCAs and 18 For a deeper understanding of the meaning of these essential activities see Breitenlechner and Radosavljevic, ZFR 2016, 170, at pp. 174 et seq.; ECB, Guide to assessments of licence applications (2019), at pp. 9 et seq.; crit. because of different understandings in the Member States EBA, Opinion of the European Banking Authority on matters relating to the perimeter of credit institutions, 27.11.2014 (EBA/Op/2014/12); EBA, Report to the European Commission on the perimeter of the credit institutions established in the Member States, 27.11.2014. 19 Lackhoff, Single Supervisory Mechanism (2017), at pp. 36, 161; Neumann, EuZW Supplement (2014), 9, at p. 10; Breitenlechner and Radosavljevic, ZFR 2016, 170, at p. 174; ECB, Guide to assessments of licence applications (2018), at p. 7; see also Recital 14 CRD IV. 20 Gurlit, WM 2020, 57, at p. 60; Glos and Benzing, in: Binder, Glos and Riepe (eds), Handbuch Bankenaufsichtsrecht (2nd edn, 2020), § 2 para. 126; detailed analysis by Wymeersch, in: Busch and Ferrarini (eds), European Banking Union (2nd edn, 2020), paras. 4.60 et seq. 21 Regulation (EU) 2019/2033 on the prudential requirements of investment firms (IFR), OJ L314, 5.12.2019, p. 1; Directive (EU) 2019/2034 on the prudential supervision of investment firms (IFD), OJ L314, 5.12.2019, p. 64. 22 Art 4(1) CRR as amended by Art. 62 IFR. 23 Recitals 38 et seq. IFR, Recital 33 IFD. 24 See Art. 8a CRD IV as amended by Art. 62 IFD for the phasing-in of application requirements for investment firms. 25 Binder, in: Binder, Glos and Riepe (eds), Handbuch Bankenaufsichtsrecht (2 nd edn, 2020), § 3 paras. 5, 65, 78; Fischer and Müller, in: Boos, Fischer and Schulte-Mattler (eds), KWG/CRR-VO (5 th edn, 2016), KWG § 32 para. 66; Kämmerer, WM 2016, 1, at p. 5. This is obviously the view of the German legislature as well, see BT-Drucks. 18/2575, 196. 26 See Recital 14 CRD IV stating that Member States may require additional authorisations for specific banking activities.

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the banking industry, as far as national law requires credit institutions to hold a separate licence for additional activities, the granting of the licence is within the ambit of Art. 14 SSMR.27 Moreover, ECB’s power to withdraw authorisations would extend to authorisations for other activities required by national law.28 This view is based on the general assumption that the ECB may exercise supervisory powers granted under national law but not intended to transform Union law (autonomous national law) if they fall within the scope of tasks under Arts. 4 and 5 SSMR and underpin a supervisory function under Union law (“the national power issue”).29 13 The approach of the ECB is highly problematic. First, it tends to stretch the competences and powers of the ECB beyond the wording and systematic structure of the SSMR. The ECB’s stance is hardly compatible with the much stricter language of Art. 14(1) SSMR, which refers to the activity “to take up the business of a credit institution”. The ECB’s reading of Art. 4(3), Art. 9(1)(2) SSMR, as empowering the ECB to apply the national law transforming Union law, thereby using all the powers granted to the NCAs, cannot carry the argument that national authorisation procedures not based on Union law shall be executed by the ECB. On the contrary, Art. 9(1)(3) SSMR – which is not cited by the ECB – expressly stipulates that in cases where powers are not conferred upon the ECB, it may require, by way of instructions to the NCAs, to make use of their powers, thereby clarifying that the ECB may not use powers not based on Union law.30 Art. 78(5) SSM‑FR, stipulating that the decision to grant an authorisation shall cover the applicant’s activities as a credit institution as provided for in national law, cannot serve as a confirmation for the ECB’s view (infra, → para. 36).31 The SSM‑FR, as based on Art. 132 TFEU, Art. 34(1) ESCB Statute and Art. 4(3)(2) SSMR, has to be read in the light of the superior SSMR. 14 Furthermore, bringing additional business activities requiring authorisation according to national law within the ambit of Art. 14 SSMR, provokes further ambiguities with regard to the question of what types of authorisation requirements “underpin a supervisory function” that in the view of the ECB justify the use of autonomous national powers by the ECB. Considering that the ECB actually excludes the separate authorisation for the issuance of covered bonds from the scope of Art. 14 SSMR,32 there could be

27 ECB, Additional clarification regarding the ECB’s competence to exercise supervisory powers granted under national law, 31.3.2017, SSM/2017/0140. 28 Lackhoff, Single Supervisory Mechanism (2017), at p. 166. 29 ECB, Additional clarification regarding the ECB’s competence to exercise supervisory powers granted under national law, 31.3.2017, SSM/2017/0140, at p. 2; ECB, Guide to assessments of licence applications (2019), at pp. 7, 11 and 13; see also Lackhoff, Single Supervisory Mechanism (2017), at pp. 27, 31, 33. The ECB’s stance is obviously shared by the Commission, see Commission Staff, Report from the Commission to the European Parliament and the Council on the Single Supervisory Mechanism (SSM) established pursuant to Regulation (EU) No 1024/2013, 11.10.2017, SWD (2017) 336 final, at p. 27; for the evolution of this doctrine see Glos and Benzing, in: Binder, Glos and Riepe (eds), Handbuch Bankenaufsichtsrecht (2nd edn, 2020), § 2 paras. 59 et seq. 30 Schuster, EuZW Supplement (2014), 3, at p. 8; Kämmerer, WM 2016, 1, at p. 4; Berger, WM 2016, 2325, at pp. 2333 et seq.; Breitenlechner and Radosavljevic, ZFR 2016, 170, at p. 174; Gurlit, WM 2020, 57 at p. 65; Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 paras. 179 et seq; Glos and Benzing, in: Binder, Glos and Riepe (eds), Handbuch Bankenaufsichtsrecht (2nd edn, 2020), § 2 paras. 58 et seq., 124, 184. 31 For a different understanding ECB, Additional clarification regarding the ECB’s competence to exercise supervisory powers granted under national law, 31.3.2017, SSM/2017/0140, fiche VII, at p. 13; Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 210. 32 ECB, Additional clarification regarding the ECB’s competence to exercise supervisory powers granted under national law, 31.3.2017, SSM/2017/0140, at p. 1; ECB, Guide to assessments of licence applications (2019), at p. 13 note 13.

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more national product and market-related licence obligations not connected with prudential concerns.33 Finally, extending the scope of Art. 14 SSMR to additional licensing requirements 15 provided for in autonomous national law, raises jurisdictional problems if the ECB decisions are contested in the European courts. Even if the GC and the CJEU have jurisdiction to judge on the ECB’s interpretation of national law implementing relevant Union law, this must not be the case with regard to national law never intended to transpose Union law (infra, → para. 65).

II. All credit institutions irrespective of significance According to Art. 4(1)(a) SSMR, the ECB is assigned the task to authorise credit insti- 16 tutions and to withdraw an authorisation. Art. 6(4) SSMR excludes the tasks of authorisation and withdrawal of licences from the work sharing arrangements based on the significance of a credit institution. Additionally, Art. 14(1) SSMR stipulates that “any” application should be submitted to the NCA. There is no doubt that the ECB has the exclusive competence and the power to decide on authorisations and their withdrawal with regard to all credit institutions (to be) established in a participating Member State irrespective whether the institution is significant or less significant. 34 However, this is different with investment firms qualified as credit institutions pursuant to Art. 4(1) point 1 lit. b CRR. Since their status as a credit institution is linked to a total value of consolidated assets of at least EUR 30 billion (supra, → para. 11), this threshold is constitutive for the authorisation regime of Art. 14 SSMR.

III. Territorial scope of application Art. 14 SSMR applies to all credit institutions (to be) established in one of the partic- 17 ipating Member States. Credit institutions incorporated in non-participating Member States are authorised by the NCA of the non-participating Member State that is the location of their incorporation. Passporting granted by Art. 17 CRD IV enables them to establish a branch or provide cross-border services in participating Member States without further authorisation – notwithstanding the ECB’s supervisory tasks pursuant to Art. 4(2) SSMR.35 While the establishment of branches of credit institutions of third countries does not fall within the supervisory powers of the ECB,36 a different rule applies if the establishment of a subsidiary of a third country credit institution in a participating Member State is at stake. In this case, Art. 14 SSMR applies.37

33 Recital 28 SSMR; Lackhoff, Single Supervisory Mechanism (2017), at p. 162 concedes the need of clarification especially with regard to authorisation requirements under MiFID II. Lately, authorisation requirements under the IFD came into focus. 34 Lackhoff, Single Supervisory Mechanism (2017), at p. 159. 35 For the complex regime with regard to the supervision of branches and subsidiaries see Tröger, ZBB 2013, 373, at pp. 378, 383.; Wymeersch, in: Busch and Ferrarini (eds), European Banking Union (2 nd edn, 2020), paras. 4.66 et seq. 36 Recital 28 SSMR; Schuster, EuZW Supplement (2014), 3, at p. 4; Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 121. 37 Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 162.

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C. Authorisation (Art. 14(1)-(4) SSMR) I. Triggers for Art. 14 SSMR procedures Since the task to authorise credit institutions is an exclusive competence of the ECB regardless of the significance of the credit institution – subject to the special case of big investment firms (supra, → para. 11), Art. 14 procedures apply to all potential credit institutions within the meaning of Art. 4(1) CRR irrespective of significance. The submission of an application to the NCA is required for the initial authorisation to take up the business of a credit institution.38 According to the problematic view of the ECB, Art. 14 SSMR procedures also apply for credit institutions already authorised for extending the licence to other activities, e.g. portfolio management or money broking, if national law mandates a separate licence for these types of activities (supra, → paras. 12 et seq.),39 as is the case for instance in Austria, France and Germany.40 19 The ECB promotes the view that Art. 14 SSMR procedures also apply if an authorised credit institution engages in certain types of organisational restructuring; however, there are no specific provisions in Union law. A mere change of legal form not accompanied by a change of the business programme or other factors relevant for an authorisation usually does not trigger a requirement for a new authorisation.41 This is different in the case of a merger of two or more credit institutions creating a new legal entity 42 not merely established as a temporary construct for a “legal second”.43 If national law requires an approval of the merger, thereby allowing the transferral of the licence to the universal successor,44 this may not be in line with the provisions of the CRD IV if the merger approval procedure only incidentally touches the issue of the authorisation as a credit institution. The ECB seems to suspect a circumvention of the centralised authorisation system of the SSMR.45 However, even accepting the broad reading of the ECB for the scope of application of Art. 14 SSMR, an application for an approval of a merger required by national law can hardly be viewed as falling within the scope of Art. 4 SSMR and underpinning a supervisory function. 20 Finally, a bridge bank, created to hold the assets of another (insolvent) credit institution, has to apply for a licence, following Art. 14 SSMR procedures, if the activities the bridge institution acquires by virtue of the transfer are the activities of a credit institution. This follows from Art. 41(1)(e) BRRD and the national law transposing the BRRD.46 A preliminary and limited waiver from compliance with the requirements of 18

ECB, Guide to assessments of licence applications (2019), at p. 10. ECB, Additional clarification regarding the ECB’s competence to exercise supervisory powers granted under national law, 31.3.2017, SSM/2017/0140; Lackhoff, Single Supervisory Mechanism (2017), at pp. 160 et seq. 40 ECB, Additional clarification regarding the ECB’s competence to exercise supervisory powers granted under national law, fiche VII. 41 Lackhoff, Single Supervisory Mechanism (2017), at p. 40 with fn. 145. 42 ECB, Guide to assessments of licence applications (2019), at p. 10. 43 ECB, Guide to assessments of licence applications (2019), at p. 10 considers an exception if there are safeguards in place in case the transfer to the final new entity cannot be completed within a legal second; see also Lackhoff, Single Supervisory Mechanism (2017), at p. 40 with fn. 145. 44 This is the legal scheme of § 21 Austrian Banking Act, example taken from Lackhoff, Single Supervisory Mechanism (2017), at p. 40. 45 Lackhoff, Single Supervisory Mechanism (2017), at p. 40. 46 Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms, OJ L173, 12.6.2015, p. 190, as amended by Directive (EU) 2019/879, OJ L150, 7.6.2019, p. 296; see ECB, Guide to assessments of licence applications (2019), at p. 11. 38

39

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authorisation according to CRD IV is not to be confused with the need to apply for a licence as provided for in Art. 41(1)(2) BRRD.

II. Submission of application to an NCA (Art. 14(1) SSMR) Pursuant to Art. 14(1) SSMR, any application for an authorisation to take up the busi- 21 ness of a credit institution to be established shall be submitted to the NCA of the Member State where the credit institution is to be established in accordance with the requirements set out in national law. As regards with the form and procedure to be followed for the submission of an application, Art. 14(1) SSMR refers to the requirements set out in relevant national law. National law provides for information and documents to be submitted with the application, thereby typically requiring the use of specific templates.47 Since the NCA has to assess compliance both with national law and with Union law (infra, → para. 24), and since the ECB’s decision on compliance with Union law has to be based on the application (infra, → para. 33), the documents required by national law to accompany the application must contain all information necessary to assess compliance both with national law und Union law. If the application is incomplete, the NCA shall ask the applicant, according to Art. 73(3) SSM‑FR, to provide more information, either on its own initiative or at the request of the ECB. As far as national law does not provide for further information requests, Art. 73(3) SSM‑FR serves as directly applicable power of the NCAs. According to Art. 73(1) SSM‑FR, the NCA shall notify the ECB of the receipt of an 22 application within 15 working days. The notification has to consist of the application itself and the information and documents accompanying such application. This follows indirectly from Art. 73(3) sent. 2 SSM‑FR, which requires the NCA to send additional information received to the ECB in 15 working days from receipt thereof. The receipt of the application starts the countdown period of Art. 15 CRD IV and 23 the national law transposing this provision,48 mandating that a decision of the ECB to grant or to refuse authorisation shall be taken within 12 months of the receipt of the application. However, while in some Member States the countdown starts when the NCA receives an application even if it is incomplete, in others only an application qualified complete by the NCA will be considered as the receipt of an application;49 therefore, the starting point of the time limit may differ. In view of these circumstances, the ECB strongly recommends pre-application discussions with the potential applicant to ensure a smooth and timely authorisation process.50 Once the countdown starts, the time period of 12 months is an absolute one, as follows from the language of Art. 15 CRD IV. Hence, suspension periods provided for in national law for the time until additional information is submitted cannot postpone the legal deadline.51

47 See e.g. § 32(1) of the KWG (German Banking Act) together with § 14 Regulation concerning reports and the submission of documentation under the Banking Act. 48 Art. 15 CRD IV was not transformed e.g. by Germany. However, since the requirement is clear and does not leave any discretion, it can be applied directly by the ECB; slightly different view with regard to timelines for procedures expressed by Lackhoff, Single Supervisory Mechanism (2017), at p. 42. 49 ECB, Guide to assessments of licence applications (2019), at p. 27. 50 ECB, Guide to assessments of licence applications (2019), at p. 28. 51 ECB, Guide to assessments of licence applications (2019), at p. 29.

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III. Assessment of an application by an NCA (Art. 14(2) SSMR) 1. Draft decision to grant authorisation Pursuant to Art. 14(2) SSMR, the NCA shall take a draft decision to propose to the ECB to grant the authorisation if the applicant complies with all conditions set out in the relevant national law of that Member State. Art. 74 SSM‑FR confirms that the NCA’s assessment has to be based on the relevant national law. According to Art. 14(3) SSMR, the ECB shall object to the draft decision only where the conditions set out in relevant Union law are not met. This does not mean, however, that the assessments of the NCA and the ECB are complimentary. On the contrary, since final licensing by the ECB according to Art. 14(3) SSMR can be done by way of no-objection to the draft decision, the NCA’s draft has to assess compliance of the application with Union law as well. Accordingly, the NCA has to examine the application with respect to autonomous national law, national law transposing Union law, and directly applicable Union law. 52 25 Art. 76(3) sent. 1 SSM‑FR empowers the NCA to attach recommendations, conditions and restrictions to a draft authorisation decision in accordance with national law and Union law. In the terms of Union law, recommendations are non-binding suggestions to the applicant. Conditions concern the validity of the authorisation, requiring the applicant to undertake an action or to refrain from action to make the authorisation become effective. Restrictions or obligations, on the other hand, do not affect the validity of the licence. Instead, they are part of the licence on an ongoing basis and can be enforced or sanctioned.53 Union law considers these types of ancillary provisions as justified in cases where an application would otherwise be rejected.54 Thus, conditions and restrictions serve as enabling the supervisor to grant the licence. The NCA may also attach a condition or obligation provided for in national law to ensure compliance with requirements of autonomous national law. Pursuant to Art. 76(3) sent. 2 SSM‑FR, the assessment of compliance with conditions and restrictions lies within the responsibility of the NCA. However, this does not give the NCA power to decide exclusively on the necessity of conditions or restrictions based on Union law.55 Rather, the follow-up examination of compliance with these ancillary decisions is entrusted to the NCAs while the decision to attach conditions or restrictions, at least with regard to Union law, is assigned to the ECB (infra, → para. 28). 26 The draft decision proposed to the ECB in favour of granting a licence is not a final decision. Instead, the proposal shall be notified to the ECB at least 20 working days before the end of the assessment period provided for by the national law according to Art. 14(2) sent. 2 SSMR, Art. 76(2) SSM‑FR. If the national law does not provide for a timeline, the relevant time limit follows from Art. 15 CRD IV. Additionally, the NCA has to notify the applicant of its draft authorisation decision pursuant to Art. 88(3)(a) SSM-FR. 24

52 Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 211; Lackhoff, Single Supervisory Mechanism (2017), at p. 164; Raschauer, Finanzmarktaufsichtsrecht (2015), at p. 157; Berger, WM 2015, 501, at p. 503. 53 ECB, Guide to assessments of licence applications (2019), at pp. 31 et seq. 54 Case C-18/14, CO Sociedad de Gestión y Participación SA et al v. De Nederlandsche Bank NV et al, ECLI:EU:C:2015:419, paras. 30 et seq. 55 Lackhoff, Single Supervisory Mechanism (2017), at p. 165.

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2. Final decision to reject application If the applicant does not comply with all conditions set out in national law, Art. 14(2) 27 sent. 3 SSMR requires the NCA to reject the application for authorisation. The NCA’s rejection can be based on autonomous national law as well as on national law transposing Union law.56 Since refusal of authorisation is a final decision not requiring any further involvement by the ECB, the NCA has to comply with national law on administrative procedure providing, e.g., for the applicant’s right to be heard.57 An element of the right to a hearing is the applicant’s right of access to the application file prior to the NCA’s intended decision to reject the application.58 According to Art. 88(3)(b) SSM‑FR, the NCA has to notify the applicant of its decision to reject the application. The relevant national law may require information on the availability of judicial review.59 However, if rejection of the application by the NCA is based on Union law or national law transposing Union law, the procedural rights provided for in Art. 41(2) CFREU (infra, → paras. 30 et seq.) have to be granted regardless of the provisions of national administrative law. This follows from Art. 51(1) CFREU.60

IV. The ECB’s assessment and decision (Art. 14(3) and (4) SSMR) 1. Assessment of compliance with Union law According to Art. 14(3) sent. 2 SSMR, the ECB shall object to the draft decision only 28 where the conditions for authorisation set out in relevant Union law are not met. It follows in conjunction with Art. 4(3)(1) SSMR and Art. 77(1) SSM‑FR that the ECB has to assess the application against directly applicable Union Law and national law transposing Union law. However, according to the view of the ECB, the application has also to be examined with regard to autonomous national law that falls within the scope of tasks under Arts. 4 and 5 SSMR and underpins a supervisory function under Union law (supra, → paras. 12 et seq.). Therefore, the ECB will also assess if the applicant complies with the requirements set forth in autonomous national law for an extension of licence to carry out business activities other than granting credits and taking deposits. Additionally, the ECB will assess the conditions and restrictions based on national law and suggested by the NCA pursuant to Art. 76(3) SSM‑FR. However, if these conditions and restrictions are based on autonomous national law, it is highly questionable if the ECB has the power to reject conditions and restrictions suggested by the NCA. If national law provides that conditions and restrictions to an authorisation may be attached if otherwise an application must be refused,61 the ECB would, by rejecting a certain condition or restriction, create a (positive) decision on the authorisation not compatible with national law.

56 Berger, WM 2015, 501, at p. 503; different view expressed by Breitenlechner and Radosavljevic, ZFR 2016, 170, at p. 176: NCA’s final decision is limited to a rejection based on autonomous national law. 57 Lackhoff, Single Supervisory Mechanism (2017), at p. 164; see e.g. § 28(1) VwVfG (German Administrative Procedure Act). 58 See e.g. § 29 VwVfG (German Administrative Procedure Act). 59 See e.g. § 37(6) VwVfG (German Administrative Procedure Act). 60 Mersch, EuZW 2020, 781, at p. 784. 61 This is the case e.g. in Germany, see § 36(1) VwVfG (German Administrative Procedure Act).

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2. Procedure According to Art. 77(1) sent. 2 SSM‑FR, the ECB shall give the applicant the opportunity to comment in writing on the facts and objections relevant to the assessment, if in the view of the ECB the conditions for authorisation are not met. Furthermore, pursuant to Art. 77(2) SSM‑FR, the ECB may give the applicant the opportunity to comment in a meeting. Hereby the ECB fulfils the applicant’s right to be heard as provided for in Art. 22 SSMR, Art. 31(1) and (2) SSM‑FR. Since the right to be heard is guaranteed (only) if the decision intended by the ECB adversely affects the rights of the applicant, 62 a hearing must take place if the ECB wants to reject the application or intends to attach conditions and/or restrictions to the authorisation.63 30 The right to be heard guarantees the opportunity to comment in writing as provided for in in Art. 31(1) sent. 1 and Art. 77(1) sent. 2 SSM‑FR. In contrast, Art. 31(1) sent. 2 and Art. 77(2) SSM‑FR gives the ECB broad discretion if a meeting should be held.64 However, primary law, especially Art. 41(2)(a) CFREU, does not give a right to a meeting.65 According to Art. 31(1) sent. 3 SSM‑FR, the ECB’s notification to give the applicant the opportunity to comment shall mention the material content of the intended decision and the material facts, objections and legal grounds on which the ECB intends to base its decision. If the ECB intends to substitute the legal grounds or wants to base the decision on different or additional facts, it is required to give the opportunity for a second hearing.66 31 Finally, the right to be heard encompasses the right of access to the ECB’s application file subject to the conditions set out in Art. 22(2) SSMR and Art. 32 SSM‑FR. Though the right of access is not mentioned in Art. 77 SSM‑FR specifying the procedural rights of the applicant, there is no doubt that the applicant is entitled to have access to the file, since the right of access is guaranteed in all supervisory procedures pursuant to Section 2 of Chapter III SSMR. Access may only be denied in order to protect business secrets of third parties and confidential information.67 Since the right of access to the file is an element of the right to be heard, access has to be granted prior to the decision of the ECB.68 Granting access may be necessary to enable the applicant to comment on the decision envisaged by the ECB. However, the ECB has to keep in mind the time limits set in Art. 14(3) SSMR. Since a decision of the ECB shall be deemed to be adopted by the ECB unless the ECB objects within a maximum period of ten working days,69 29

62 Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 200 referring to Art 41(2)(a) CFREU. 63 ECB, Guide to assessments of licence applications (2018), at p. 33, excluding instances where conditions or obligations have been pre-agreed with the applicant, concern statutory provisions with which the application must comply, or qualify as reporting requirements mandated by law. 64 See Lackhoff, Single Supervisory Mechanism (2017), at p. 115 on the criteria how to exercise discretion. 65 Case C-209/78, van Landewyck, ECLI:EU:C:1980:248, para. 18; Case T-199/99, Sgaravatti, ECLI:EU: T:2002:228, para. 58; Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 200. 66 Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 201; Lackhoff, Single Supervisory Mechanism (2017), at p. 115. 67 See for a comprehensive account of the scope of the right of access Lackhoff, Single Supervisory Mechanism (2017), at pp. 117 et seq.; Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 203. 68 Lackhoff, Single Supervisory Mechanism (2017), at p. 117 para. 507: prior to the adoption of a draft decision by the Supervisory Board. The view of ECB, Guide to assessments of licence applications (2019), at p. 33, according to which access to the file is granted following a decision is not compatible with Art. 41(2)(b) CFREU, Art. 32(1) SSM‑FR. 69 See for the internal procedure in the relation of the Supervisory Board to the General Council Art. 13i of ECB’s Rules of Procedure.

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Art. 31(3)(3) sent. 2 SSM‑FR requires a shortening of the time limit to provide comment to three working days. The ECB may prolong the maximum period for a final decision up to 20 days if a meeting is considered necessary or in other comparable cases (Art. 14(3) SSMR in conjunction with Art. 77(2) sent. 1 SSM‑FR). 70 An extension for a final decision may also be used to extend the time period available for the applicant to comment on the envisaged decision.71 The extension of the time limit has to be notified to the applicant according to Art. 77(2) sent. 2 and Art. 35 SSM‑FR in order to prevent an authorisation becoming effective by way of no-objection pursuant to Art. 14(3) SSMR.

3. The ECB’s decision on an application Pursuant to Art. 14(3) SSMR and Art. 78(3) SSM‑FR, a draft authorisation decision proposed by an NCA shall be deemed adopted by the ECB unless the ECB objects within a maximum period of ten working days. By giving a non-objection option, the ECB is provided with an easy and efficient way to decide on an application. The ECB may also expressly grant the authorisation.72 If the ECB rejects the application, the decision necessarily has to be stated expressly. In positive terms, the ECB shall base its decision on its assessment of the application, the draft authorisation decision of the NCA, and any comments provided by the applicant as required by Art. 78(2) SSM‑FR. Thus, corresponding with the right to be heard is the obligation of the ECB to consider the comments of the applicant.73 In negative terms, as a fundamental rule grounded in primary law,74 the ECB may not base its decisions on objections on which the applicant has not been able to comment, as is stipulated in Art. 22(1) sent. 2 SSMR and Art. 31(3) SSM‑FR. However, since the ECB is required to consider the comments of the applicant, a shift in the ECB’s legal assessment due to the hearing of the applicant must not be viewed as a surprise decision not based on objections on which the applicant could not comment.75 According to Art. 22(2)(2) SSMR and Art. 33(1) SSM‑FR, and in line with Art. 41(2) (c) CFREU, the decision of the ECB has to be accompanied by a statement of reasons. As a rule, the statement of reasons shall enable the applicant to consider if he or she should contest the decision. It further serves to enable judicial review of the legality of the decision. 76 Therefore, the requirement of a statement of reasons is to be read strictly, if the ECB rejects the application or attaches conditions and/or restrictions to it. 77 However, the requirement to provide a statement of reasons is not limited to these cases. 78 If the ECB chooses the option to grant an authorisation expressly, the decision has to be accompanied by a statement of reasons as well. For decisions on authorisations, a specific notification procedure applies. According to Art. 88(2)(1) SSM‑FR, the ECB shall notify the relevant NCA on its decision on an application for authorisation. However, following Art. 14(4) SSMR and Art. 88(3)(c) and 70 See Lackhoff, Single Supervisory Mechanism (2017), at p. 116 for a critical account of Art. 31(3)(3) SSM‑FR. 71 Critical account by Lackhoff, Single Supervisory Mechanism (2017), at p. 116 para. 502. 72 Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 212. 73 Lackhoff, Single Supervisory Mechanism (2017), at p. 115 para. 499; Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 201. 74 Art. 41(2) CFREU, Art. 296(2) TFEU. 75 Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 201. 76 C-417/11 P, Council v Bamba, ECLI:EU:C:2012:718, para. 49; Lackhoff, Single Supervisory Mechanism (2017), at p. 120. 77 Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 204. 78 See C-413/06, Bertelsmann and Sony v Impala, ECLI:EU:C:2007:790, Opinion of AG Kokott, para. 98.

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(d) SSM‑FR, the decision adopted by the ECB shall be notified by the NCA to the applicant. This provision is lex specialis to Art. 35 SSMR stipulating the ways by which the ECB itself shall notify supervisory decisions to a party.79 Arguing that Art. 14(4) SSMR is a case of administrative assistance of the NCA, it could be inferred that the NCAs when notifying the applicant of the decision have to follow the rules of Art. 35 SSM‑FR that apply if the ECB itself would be responsible for the notification.80 On the other hand, the case for a mere administrative assistance is far from clear because according to Art. 88(1)(a) SSM‑FR, a decision on withdrawal of an authorisation has to be notified by the ECB directly to the credit institution. The legislature paid due regard to the fact that an authorisation procedure necessarily starts with an application submitted to the NCA following national procedures. Therefore, the notification of a decision must also comply with the requirements of national law.

4. Scope of authorisation Pursuant to Art. 78(5) SSM‑FR, the decision granting an authorisation shall cover the applicant’s activities as a credit institution as provided for in the relevant national law – without prejudice to any additional requirements for authorisation under national law for other business activities. The meaning of this provision, defining the scope of authorisation, is not quite clear. In the view of some authors, Art. 78(5) SSM‑FR clarifies the ECB’s power to decide upon national provisions requiring specific licensing procedures for the extension of the licence as a credit institution to other activities such as portfolio management or other investment services,81 thereby giving force to the ECB’s stance on this “national power issue”. However, Art. 78(5) SSM‑FR expressly relates the coverage of the authorisation to the provisions in the relevant national law. As far as Member States such as Germany, Austria and France do not automatically provide for a universal licence covering all activities of Annex 1 of CRD IV, but instead require a specific authorisation procedure, the licence granted by the ECB cannot cover these additional activities.82 Therefore, the scope of the authorisation granted by the ECB is dependent on the scope of the authorisation of a credit institution according to the relevant national law. 37 The explicit reference to the relevant national law in Art. 78(5) SSM‑FR explains why the scope of the authorisation is “without prejudice” to any additional requirements for authorisation under national law for other business activities: If Member States provide for additional requirements, these requirements remain valid and have to be enforced by the NCAs. 36

Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 212. See for this argument Lackhoff, Single Supervisory Mechanism (2017), at p. 166. 81 Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 210; Raschauer, Finanzmarktaufsichtsrecht (2015), at p. 158; ECB, Additional clarification regarding the ECB’s competence to exercise supervisory powers granted under national law, 31.3.2017, SSM/2017/0140, fiche VII, at p. 13; Breitenlechner and Radosavljevic, ZFR 2016, 170, at pp. 175 et seq. arguing that the extension of licence to activities listed in Annex 1 of CRD IVis based on national law transforming Union law and therefore encompassed by the powers of the ECB. 82 Berger, WM 2015, 501, at p. 504 with regard to German law. That Art. 78(5) SSM‑FR serves as a counter argument to the ECB’s position is conceded by Lackhoff, Single Supervisory Mechanism (2017), at p. 160 with fn. 711. 79

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D. Withdrawal of authorisation (Art. 14(5) and (6) SSMR) I. Authorisations subject to withdrawal Art. 14(5)(1) SSMR referring to “the” authorisation that may be withdrawn, and 38 Art. 14(5)(2) SSMR referring to the NCA which has proposed the authorisation according to Art. 14(1) SSMR could imply that the scope of Art. 14 SSMR withdrawal procedures are limited to authorisations granted by the ECB, thereby excluding authorisations granted by the NCAs before the ECB assumed its tasks on 4 November 2014. 83 However, according to Art. 33(5) SSMR, credit institutions authorised by participating Member States on 3 November 2013 shall be deemed to be authorised in accordance with Art. 14 SSMR. Therefore, Art. 14 withdrawal procedures are applicable to authorisations granted by NCAs prior to the establishment of the SSM.84 According to the problematic view that Art. 14 SSMR authorisation procedures apply 39 to specific authorisation requirements provided for in national law for additional business activities of credit institutions (supra, → paras. 12 et seq.), Art. 14 SSMR withdrawal procedures would be vice versa applicable if withdrawal of an extension of a licence is at stake.85 However, this seems especially questionable if withdrawal shall be limited to the authorisation of additional business activities required by national law, thereby leaving the authorisation as a credit institution intact. In the constellation of authorisations granted by NCAs prior to the establishment of the SSM, the legal fiction of Art. 33(5) SSMR should be construed as covering only authorisations “as” credit institutions. Therefore, specific authorisations for other business activities of credit institutions granted by the NCAs prior to the establishment of the SSM may only be withdrawn if the basic licence as a credit institution is withdrawn as well.

II. Withdrawal initiated by the NCA According to Art. 14(5) sent. 1 SSMR, the ECB may withdraw the authorisation on its 40 own initiative or on a proposal from the NCA. In practice, withdrawal procedures are initiated by NCAs.86 A proposal can be made only by the NCA where the credit institution is established, as follows from the word “such”.87 Since reasons for withdrawal typically relate to conduct of the supervised credit institutions, it can be assumed that withdrawal procedures initiated by the NCA will in most instances affect less significant institutions directly supervised by the NCAs.88 However, the initiative to withdraw the au-

83 This argument is raised in action brought on Case T-321/17 R, Niemelä et al. v. ECB, OJ C283, 28.8.2017, p. 52. 84 Lackhoff, Single Supervisory Mechanism (2017), at p. 166; Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 213; Müller, Fischer and Müller, WM 2015, 1505, at p. 1507; see for this constellation Case T-247/16, Trasta Komercbanka AS et al v ECB, ECLI:EU:T:2017:623: withdrawal of authorisation granted by Latvian authorities in 1991. 85 Lackhoff, Single Supervisory Mechanism (2017), at p. 166. 86 See Case T-247/16, Trasta Komercbanka AS et al v ECB, ECLI:EU:T:2017:623; Case T-321/17 R, Niemelä et al. v. ECB, action brought on 22.5.2017, OJ C 283, 28.8.2017, p. 52; ECB, Annual Report on supervisory activities 2020 (2021), at pp. 57 et seq. 87 With additional systematic and teleological arguments Lackhoff, Single Supervisory Mechanism (2017), at p. 168. 88 Lackhoff, Single Supervisory Mechanism (2017), at p. 170; Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 215.

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thorisation may stem from the credit institution itself, as is made clear by Art. 88(1) SSM‑FR.89

1. Assessment of the NCA 41

Pursuant to Art. 14(5)(2) SSMR, the NCA considers withdrawal of the authorisation in accordance with the national law, comprising of autonomous national law and national law transposing Union law, as is made clear by Art. 88(1) SSM‑FR. Since the power to decide on withdrawal is entrusted exclusively to the ECB, reasons for withdrawal based solely on autonomous national law are of special relevance. The NCAs are required to perform a thorough in-depth analysis of the facts and the requirements of national law, thereby enabling the ECB to take full account of the NCA’s justification as provided for in Art. 14(5)(2) SSMR (infra, → para. 44). 90 Since withdrawal of authorisation requires exercise of discretion, the NCA’s assessment has to include considerations on discretion as well. This is made clear by Art. 14(5)(2) SSMR requiring a proposal to the ECB only if the NCA considers that the authorisation “must” be withdrawn. However, as the final decision is vested in the ECB, exercise of discretion by the NCA has to comply with the standards of discretion of Union law irrespective of whether withdrawal is based on Union law or autonomous national law.91

2. Procedure According to Art. 14(5)(2) SSMR, the NCA shall submit a proposal to the ECB if it is of the opinion that the authorisation must be withdrawn. Unlike authorisation procedures, there are no situations left for the NCA to take a final decision. In order to enable the ECB to assess the case and to adopt a decision, the NCA’s draft withdrawal decision has to be accompanied by explanatory documentation. The documentation may contain information about the credit institutions’ history of non-compliance with supervisory standards to ensure that proportionality of a withdrawal decision can be assessed by the ECB.92 43 Since the NCA is not empowered to take a final decision, Union law requires neither a hearing nor a notification to the credit institution by the NCA.93 Nevertheless, a hearing may be available according to national law.94 Pursuant to Art. 80(2) SSM‑FR, the NCA has to coordinate with the national resolution authority (NRA) as regards to any draft withdrawal decision that is relevant to the NRA. This cooperation requirement corresponds with the provisions of the BRRD requiring a close cooperation of the NCA and the NRA especially if there is a justification for withdrawal of the authorisation.95 However, this would also apply if the responsibility for resolution lies with the Single Resolution Board (SRB).96 In practical terms, the need for cooperation between the NCA and the SRB seems to be a hypothetical question: While an NCA will start a with42

89 According to ECB, Guide to assessments of licence applications (2019), at p. 34, in this case, the NCA and the ECB jointly assess if the relevant preconditions have been met, reserving the final decision to the ECB. 90 Berger, WM 2016, 2361, at p. 2367; Lackhoff, Single Supervisory Mechanism (2017), at pp. 170 et seq. 91 Berger, WM 2016, 2361, at p. 2367. 92 Lackhoff, Single Supervisory Mechanism (2017), at p. 170. 93 Lackhoff, Single Supervisory Mechanism (2017), at p. 170. 94 § 28(1) VwVfG (German Administrative Procedure Act) requires a hearing only if an adverse final decision is intended. 95 Arts. 3(4), 32(4)(1) and 82(3)(a) BRRD. 96 See Art. 5 SRMR stipulating that the SRB shall for the application of the BRRD be considered to be the relevant NRA.

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drawal proceeding typically with regard to less significant credit institutions directly supervised by the NCA, the SRB is only responsible for adopting resolution decisions relating to significant institutions, Art. 7(2) SRMR. However, cooperation with the SRB may be useful if a withdrawal decision is initiated by the ECB (infra, → para. 53).

3. Assessment and decision by the ECB a) Assessment According to Art. 14(5)(2) sent. 2 SSMR and Art. 83(2) SSM‑FR, the ECB shall take 44 into account its assessment of the circumstances justifying withdrawal and the NCA’s draft withdrawal decision. There is no doubt that the ECB when taking the final decision has – within the limits of these provisions – full power for an independent judgment of the withdrawal of authorisation if the NCA based its draft withdrawal decision on national law transposing Art. 18 CRD IV. However, the NCA may base its draft withdrawal decision on autonomous national law as provided for in Art. 18, lit. e CRD IV. National justifications for withdrawal of a licence may concern matters not even in the ambit of the SSMR, e.g. non-compliance with anti-money laundering provisions. In this case, the application of Art. 14(5)(2) sent. 2 SSMR requiring the ECB to take full account of the justification for withdrawal put forward by the NCA, has to be modified. Since the ECB is not empowered to make an independent judgment with regard to matters lying outside the realm of the SSMR and within the supervisory competencies of the Member States, it has to consider non-compliance with these national provisions as interpreted and determined by the NCA as a fact.97 If the credit institution claims changes of circumstance requiring a different interpretation, the ECB accordingly has to contact the NCA to consider if a factual change did happen and if it bears on the interpretation of the national provision.98 Finally, the exercise of discretion by the ECB while following standards of Union law has to be based on the facts submitted by the NCA. It follows that a withdrawal decision by the ECB based solely on autonomous national law is to a high degree predetermined by the NCA.99 b) Procedure Pursuant to Art. 81 SSM‑FR, the ECB shall assess the NCA’s draft withdrawal decision 45 without undue delay. The right to be heard, as provided for in Art. 31 SSM‑FR, shall apply. In this respect, the procedural rights of the credit institution subject to a withdrawal of licence correspond with the rights of the applicant for an authorisation the ECB intends to reject (supra, → para. 30).100 As in the case of authorisation, the credit institution is guaranteed a right to comment in writing, leaving a meeting at the discretion of the ECB. Additionally, the right of defence encompasses the right of access to the withdrawal file.101 Art. 31(3) sent. 2 SSM‑FR provides for a shortening of a comment period to three days. Despite the mandatory language of Art. 31(3) SSM‑FR, the ECB should be empowered to extend the hearing period on its discretion since there are – 97 Berger, WM 2016, 2361, at p. 2367; Mersch, EuZW 2020, 781, at p. 786; Lackhoff, Single Supervisory Mechanism (2017), at p. 170. 98 Berger, WM 2016, 2361, at p. 2367; Lackhoff, Single Supervisory Mechanism (2017), at p. 170. 99 Mersch, EuZW 2020, 781, at p. 786: ECB has to determine if non-compliance as stated by NCA is so grave as to warrant withdrawal. 100 However, it could be argued that a hearing must not take place if a withdrawal procedure is started on a credit institutions’ request. In this constellation, the credit institution is not adversely affected by a withdrawal decision. 101 Lackhoff, Single Supervisory Mechanism (2017), at pp. 169, 171.

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other than in the case of authorisation – no time limits for adopting the decision. Relevant factors for the exercise of discretion are issues of financial stability or of equal treatment of creditors and depositors.102 The shareholders of the affected credit institution do not possess a right to be heard since their rights as shareholders of the undertaking are not affected by the withdrawal decision.103 46 It is not quite clear if the ECB’s direct cooperation with the NRA is warranted when a withdrawal procedure was initiated by the NCA. As a result, the objection mechanism provided for in Art. 14(6) SSMR would apply.104 Art. 82(4) SSM‑FR requires active cooperation of the ECB with the NRA only if the withdrawal procedure was initiated by the ECB. On the other hand, Art. 83(2) SSM‑FR mandates the ECB to take the consultation with the NRA into account. Typically, the NRA would intervene in the NCA’s process of drafting a withdrawal decision. Accordingly, Art. 80(2) SSM‑FR stipulates that the NCA shall coordinate with the NRA with regard to any draft withdrawal decision that is relevant for the NRA, and the BRRD provides for cooperation in more detail. 105 Hence, even if Art. 14(6) SSMR objection procedures are applicable, it seems unlikely that the NRA would object to a withdrawal proceeding if it did not intervene when cooperating with the NCA. c) Decision According to Art. 83(1) sent. 2 SSM‑FR, the ECB may accept or reject the NCA’s draft withdrawal decision. In positive terms, the ECB shall base its decision on its assessment of the circumstances justifying withdrawal, the NCA’s draft decision, the consultation with the NRA, and any comments provided by the credit institution. As in the case of an authorisation, the ECB may not base its decisions on objections on which the credit institution has not been able to comment, as is stipulated in Art. 22(1) sent. 2 SSMR and Art. 31(3) SSM‑FR. Pursuant to Art. 22(2)(2) SSMR, Art. 33(1) SSM‑FR, and in line with Art. 41(2)(c) CFREU, the ECB’s decision has to be accompanied by a statement of reasons (supra, → para. 34). The notification procedures are set out in Art. 88 SSM‑FR. According to Art. 88(1)(a) and (2)(b) SSM‑FR, the ECB shall notify the credit institution and the NCA of its decision. The NCA shall notify the relevant NRA of the ECB decision on withdrawal if the authority is not identical with the supervisory authority, Art. 88(4) SSM‑FR. 48 While regularly the withdrawal decision is adopted by the Governing Council of the ECB by way of the non-objection procedure pursuant to Art. 26(8) SSMR, under specific circumstances, the withdrawal decision is delegated to nominated heads of working units within the ECB according to Art. 5 of ECB Decision (EU) 2019/1376. 106 The ECB’s delegation framework aims at preserving the functioning of the decision-making bodies by giving it the inherent power to delegate non-complex decisions, insofar as such mea47

Lackhoff, Single Supervisory Mechanism (2017), at pp. 169, 171 paras. 733, 739. Lackhoff, Single Supervisory Mechanism (2017), at p. 114; see with regard to standing according to Art. 263(4) TFEU Joined Cases C-663/17 P, C-665/17 P, C-669/17 P, Trasta Komercbanka v ECB, ECLI:EU: C:2019:923, paras. 107 et seq.; Case T-457/09, Westfälisch-Lippischer Sparkassen- und Giroverband v Commission, ECLI:EU:T:2014:683, para. 112. 104 For applicability of Art. 14(6) SSMR in this constellation Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 216; Lackhoff, Single Supervisory Mechanism (2017), at pp. 168 et seq., 171; for an analysis of Art. 14(6) SSMR, see infra, → para. 52. 105 Arts. 3(4), 32(4)(1) and 82(3)(a) BRRD. 106 Decision (EU) 2019/1376 on delegation of the power to adopt decisions on passporting, acquisition of qualifying holdings and withdrawal of authorisations of credit institutions, OJ L224, 28.8.2019, p. 1; Decision (EU) 2019/1377 nominating heads of work units on passporting, acquisition of qualifying holdings and withdrawal of authorisations of credit institutions, OJ L224, 28.8.2019, p. 6. 102

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sures are justified.107 Hence, the delegation of decision-making power to heads of working units is limited to the case that withdrawal is requested by the supervised entity or due to a merger, no deposits from the public remain after withdrawal, and the withdrawal is linked to a reorganisation within a group.

III. Withdrawal initiated by the ECB 1. Assessment of ECB According to Art. 14(5) sent. 1 SSMR and Art. 82(19) SSM‑FR, the ECB may with- 49 draw the authorisation in the cases set out in Union law. Since Art. 18 lit. e CRD IV leaves it to the Member States to provide for further withdrawal justifications based on national law, justifications provided for in national law do not belong to the cases set out in Union law (supra, → para. 6). Hence, the ECB is not empowered to initiate a withdrawal procedure based on autonomous national law.108 This result cannot be questioned with the argument that withdrawal is only an actus contrarius of authorisation. 109 Typically, the withdrawal decision will concern authorisations granted by the NCA before establishment of the SSM. Moreover, withdrawal procedures initiated by NCAs based solely on national law make use of the supervisory and legal expertise of the NCA on national law issues that is lacking in the ECB. If the ECB is of the opinion that there is reason for withdrawal on the basis of national law, it may instruct the NCA to initiate a withdrawal procedure pursuant to Art. 6(3) sent. 2 SSMR.110 As the ECB is required to exercise discretion according to Art. 18 CRD IV, it has to 50 consider if remedial actions, e.g., measures according to Art. 16(2) SSMR, are available rendering a complete withdrawal of the authorisation inappropriate.111 Additionally, the ECB has to consider if withdrawal of a licence would prejudice financial stability.112 Art. 14(6) sent. 4 SSMR and Art. 84(3) SSM‑FR, empowering the ECB to adopt a decision if no actions necessary to maintain financial stability have been implemented by the NCA and the NRA, does not serve as a counter argument. Instead, the ECB’s determination of inappropriateness of remedial actions and measures to maintain financial stability constitutes the critical date for the ECB’s decision if the authorisation should be withdrawn (infra, → para. 54).

2. Procedure If the ECB intends to withdraw the authorisation on its own initiative, the credit in- 51 stitution has a right to be heard according to Art. 82(3) sent. 2 and Art. 31 SSM‑FR. The right corresponds with the right of the credit institution when confronted with a withdrawal procedure initiated by the NCA (infra, → para. 45). Pursuant to Art. 82(2) sent. 1 SSM‑FR, the ECB may consult at any time with the relevant NCA, referring to the NCA in which the credit institution is established. If the ECB intends to withdraw the authorisation, consultation with the relevant NCA is mandatory according to Art. 14(5) SSMR, Art. 82(2) sent. 2 SSM‑FR. When consulting the NCA, it shall be in107 Decision (EU) 2017/933 on a general framework for delegating decision-making powers, OJ L141, 1.6.2017, p. 14; see also Gurlit, WM 2020, 57, at p. 58. 108 Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 215; Berger, WM 2016, 2361, at p. 2366. 109 For this view Lackhoff, Single Supervisory Mechanism (2017), at p. 170 with fn. 779. 110 Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 215. 111 Lackhoff, Single Supervisory Mechanism (2017), at p. 170 with fn. 769. 112 Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 216.

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formed of any comments provided by the credit institution pursuant to Art. 82(3) SSM‑FR. Hence, consultation with the NCA has to take place after the hearing of the credit institution. However, according to Art. 82(2) sent. 2 SSM‑FR, the ECB shall consult with the NCA at least 25 working days prior to the intended decision. Only in duly justified cases, the time limit may be reduced to five working days. 52 According to Art. 14(5)(1) sent. 2 SSMR, consultation with the NCA shall in particular ensure that the ECB allows sufficient time for the national authorities to decide on the necessary remedial actions, including resolution measure, and takes these into account. The national authorities referred to include the NRAs. Accordingly, Art. 82(4) SSM‑FR requires the ECB to coordinate with the NRAs with regard to a proposal to withdraw a licence. Additionally, the ECB shall inform the NCAs after initiating contact with the NRA. 53 Contacting the NRA serves the purpose of enabling the NRA to duly notify the ECB of their objections to a withdrawal according to Art. 14(6) sent. 1 SSMR; however, the objection mechanism applies only “as long as national authorities remain competent to resolve credit institutions”. Within the institutional framework of the SRM, the SRB is competent to make decisions relating to the resolution of credit institutions that are directly supervised by the ECB (Art. 7(2) SRMR), while the resolution of less significant credit institutions remains in the competence of the participating Member States (Art. 7(3) SRMR). It seems appropriate to exclude the NRAs from withdrawal proceedings in the case of a potential resolution of a significant credit institution because in this situation the NRAs are reduced to the role of executors of the SRB’s decisions (Art. 29(1) SRMR). However, the question arises if instead the SRB should be informed by the ECB and be invited to make objections. Teleological arguments support this view. The ratio of Art. 14(6) SSMR to ensure the necessary actions for resolution and to maintain financial stability is also valid if the ECB intends the withdrawal of the authorisation of a significant credit institution.113 54 The NRA or the SRB may object if they consider that the withdrawal would hamper the adequate implementation of actions necessary for resolution or actions to maintain financial stability. If the risks are explained in detail, the ECB will, according to Art. 14(6) sent. 2 SSMR, Art. 84(1) SSM‑FR, abstain from withdrawal proceedings for a period mutually agreed. If consent on the period of the moratorium is not reached, the ECB will determine the period unilaterally.114 The ECB may extend the period if sufficient progress has been made. To this end, the ECB shall consult with the NCA and the NRA or, respectively, the SRB (Art. 84(2) SSM‑FR). Based on this consultation, the ECB will dispense with a further extension if it determines in a reasoned decision that proper actions to maintain financial stability have not been implemented. Pursuant to Art. 14(6) sent. 4 SSMR, in this case the withdrawal of authorisation shall apply immediately. However, this does not mean that insufficient measures to maintain financial stability automatically result in a withdrawal of the authorisation. Rather, the reasoned decision of the ECB marks the end of the procedural involvement of the NRA and the NCA. As is clarified by reference to Art. 83 SSM‑FR in Art. 84(3) SSM‑FR, the ECB’s determination that proper measures have not been implemented, simply enables the ECB to decide if the authorisation should be withdrawn. Accordingly, the same is true if the NRA or the SRB does not object to the withdrawal of the authorisation.

113 Lackhoff, Single Supervisory Mechanism (2017), at pp. 168 et seq.; Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 216. 114 Lackhoff, Single Supervisory Mechanism (2017), at pp. 168 et seq.

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3. Decision The ECB shall base its decision on its assessment of the circumstances justifying 55 withdrawal on the consultation with the NCA and NRA, and any comments provided by the credit institution. For the rest, the same principles apply as in the case of a withdrawal initiated by the NCA (supra, → para. 47).

IV. Lapsing of the authorisation Lapsing of authorisation occurs if an authorisation ceases to exist. The authorisation 56 ceases ipso iure without further constitutive administrative decisions. If the authorisation lapsed, it cannot be withdrawn. While the CRD IV does not mandate constellations of lapsing, national law may do so according to Art. 18 lit. a CRD IV. This provision stipulates that the Member States may provide for lapsing where a credit institution does not make use of the authorisation within 12 months, expressly renounces the authorisation, or has ceased to engage in business for more than six months. According to Art. 79 SSM‑FR, lapsing occurs in the situations of Art. 18 lit. a CRD IV, where the relevant law so provides. If the national law so provides,115 the NCA shall inform the ECB of the individual 57 cases where an authorisation lapses (Art. 79 sent. 2 SSM‑FR). The ECB shall then make public the lapsing of the authorisation in accordance with the relevant national law, Art. 79 sent. 3 SSM‑FR.116 The publication serves to inform the market participants that a credit institution is no longer acting as an authorised institution; however, whether lapsing occurred may be disputed between the NCA and the credit institution. Therefore, national law may provide that the NCA formally declares the authorisation as lapsed. National law may also offer the credit institution an administrative proceeding to declare the authorisation as effective or to seek a declaratory judgment by the courts. 117 In these situations, the NCA should not inform the ECB while administrative or judicial proceedings are still pending. Otherwise, the ECB may publish a lapsing incorrectly resulting in reputational damage of the credit institution. Art. 79 SSM‑FR does not offer a procedure for situations of lapsing not mentioned in 58 Art. 18 lit. a CRD IV but otherwise provided for in national law.118 It can be inferred from Art. 79 sent. 1 SSM‑FR, that the ECB considers only the cases mentioned in Art. 18 lit. a CRD IV as constellations of lapsing. In other cases of lapsing, the national law may provide that a withdrawal procedure according to Art. 14(5) SSMR should apply in order to ensure that the ECB’s power to adopt a decision is maintained.119 However, it is questionable if the SSM‑FR can have the effect of limiting the Member States’ competence to provide for lapsing in light of the minimum harmonisation of the CRD IV. 115 See e.g. section 35(1) sent. 1 KWG (German Banking Act), mandating lapsing if the credit institution does not make use of its licence within 12 months; the case of renouncement of authorisation is viewed as a “natural” case of lapsing not requiring specific statutory authority, see Fischer and Müller, in: Boos/Fischer/Schulte-Mattler (eds), KWG/CRR VO (5th edn, 2016), KWG § 35 para. 12. 116 See e.g. section 38(3) KWG (German Banking Act) requiring the supervisory authority to publish lapsing in the Bundesanzeiger (Federal Register). 117 See with regard to German law Fischer and Müller, in: Boos/Fischer/Schulte-Mattler (eds), KWG/ CRR-VO (5th edn, 2016), KWG § 35 paras. 62 et seq. 118 See e.g. section 35(1) sent. 2 KWG (German Banking Act) providing for lapsing if a bank was excluded from deposit guarantee and investor compensation schemes. 119 See e.g. section 35(1) sent. 3 KWG (German Banking Act); German legislature obviously considered it necessary to provide for withdrawal procedures according to Art. 14(5) SSMR instead of lapsing in constellations not mentioned in Art. 79 SSM‑FR, see BT-Drucks. 18/2575, 197.

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E. Judicial review120 I. Distribution of competences between national and European courts Decisions on authorisation and withdrawal as being adopted in a cooperative arrangement of NCAs and the ECB are especially challenging with regard to the allocation of competences. In principle, competences are not distributed following the origin of the law that has to be applied; instead, the allocation of judicial competence follows the institution that acted or abstained from action required by law. Hence, decisions and other actions executed by the NCA are to be contested before the national courts, while acts performed or abstained from by the ECB can only be challenged in the European courts.121 If the ECB should instruct the NCA pursuant to Art. 9(1)(3) SSMR, the NCA’s decision following the instruction has to be contested in the national courts. Thus, the fact that the NCA acted without discretion does not justify attributing the decision to the ECB.122 However, the instruction itself may be challenged through legal action by the credit institution in the European courts.123 60 In authorisation procedures, a final decision of the NCA to reject an application can only be contested in the national courts irrespective whether the rejection is based on autonomous national law or on law transposing Union law. The same is valid if the NCA fails to act on an application submitted.124 The allocation of competences is more difficult, if the NCA proposes to grant an authorisation subject to conditions and/or restrictions based on autonomous national law. In the view of the CJEU, the European courts have exclusive competence because the draft proposed by the NCA forms a non-binding part of a complex procedure resulting in a final decision by the ECB. If the credit institution claims legal errors of the NCA’s proposal infecting the validity of final decision of the ECB, the European courts will incidentally review the national act as well.125 The 59

120 The following remarks focus on judicial proceedings instituted by private enterprises; see Kämmerer, WM 2016, 1, at pp. 6 et seq. and Lackhoff, Single Supervisory Mechanism (2017), at pp. 256 et seq. analysing proceedings concerning the relation of NCAs and the ECB. 121 Berger, WM 2015, 501, at p. 504; ibid, WM 2016, 2361, at pp. 2367 et seq.; Glos and Benzing, in: Binder, Glos and Riepe (eds), Handbuch Bankenaufsichtsrecht (2nd edn, 2020), § 2 para. 235; Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 246; Brescia Morra, Quaderni di Ricerca Guridica, No 81 (2016), 109, at pp. 128 et seq.; Case C-219/17, Berlusconi and Fininvest, ECLI:EU:C: 2018:1023, para. 45; different view expressed by Neumann, EuZW upplement 1 (2014), 9, at pp.11 et seq.: ECB decisions on authorisation are ascribed to the NCA with the consequence of judicial review by national courts, decision to withdraw an authorisation are attributed to the ECB. 122 Kämmerer, WM 2016, 1, at p. 5; Glos and Benzing, in: Binder, Glos and Riepe (eds), Handbuch Bankenaufsichtsrecht (2nd edn, 2020), § 2 para. 236. 123 Legal action in European courts may be required to prevent the instruction becoming definitive, see Case C-188/92, Textilwerke Deggendorf, ECLI:EU:C:1994:90, paras. 17 et seq.; Case C-135/16, Georgsmarienhütte, ECLI:EU:C:2018:582, para. 19; Glos and Benzing, in: Binder, Glos and Riepe (eds), Handbuch Bankenaufsichtsrecht (2nd edn, 2020), § 2 para. 236; Lefterov, ESCB Legal Conference 2020 (2021), p. 286, at pp. 298, 301; Arons, in: Busch and Ferrarini (eds), European Banking Union (2 nd edn, 2020), paras. 3.29 et seq. with regard to standing of credit institutions. 124 Berger, WM 2015, 501, at pp. 505 et seq.; different view expressed by Ruthig, ZHR 2014, 443, at pp. 481 et seq. and Müller, Fischer and Müller, WM 2015, 1505, at p. 1509: action against failure to act before the European courts according to Art. 256 TFEU. 125 Case C-219/17, Berlusconi and Fininvest, ECLI:EU:C:2018:1023, paras. 48 et seq., with regard to proceedings pursuant to Art. 15 SSMR, probably based on an identical suggestion made by Lackhoff, Single Supervisory Mechanism (2017), at pp. 254 et seq.; Case C-414/18, Iccrea Banca, ECLI:EU:C:2019:1036, paras. 37 et seq., with regard to the SRM; evolution of the “preparatory acts doctrine” analysed by Lefterov, ESCB Legal Conference 2020 (2021), 786, at pp. 290 et seq.; analysis of potential legal defects on the national level infecting the ECB decision by Mersch, EuZW 2020, 781, 785 et seq.

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centralisation of judicial review may be seen critical.126 However, the credit institution is spared the necessity to contest both the NCA’s draft and the final decision of the ECB. 127 The identical scheme applies in withdrawal procedures. Since Art. 14(5) and (6) SSMR do not provide for final withdrawal decisions of NCAs, judicial review is concentrated on the European level.

II. Review in the European courts 1. Optional administrative review If an application for an authorisation was finally rejected by the ECB, or if the ECB 61 adopted a decision to withdraw the licence, the applicant or the credit institution, respectively, may request a review of these decisions by the ABoR according to Art. 24(1) and (5) SSMR. However, review by the ABoR is “without prejudice” to the right to bring proceedings before the European courts,128 thereby rendering review by ABoR optional.129 Following a non-binding opinion of the ABoR, the ECB will adopt a new decision abrogating the initial decision, replacing it with a decision of identical content, or replacing it with an amended decision, Art. 24(7) SSMR.130

2. Admissibility of action for annulment Appropriate action for the unsuccessful applicant for an authorisation or for a credit 62 institution contesting conditions or restrictions attached to a decision, or challenging a decision to withdraw the licence is an action for annulment according to Art. 263 TFEU. The action is directed either against the original decision of the ECB or – in the case of a previous review by the ABoR – against the decision replacing that decision after an opinion of the ABoR was delivered. Actions brought by natural or legal persons fall in the jurisdiction of the General Court (Art. 256(1) sent. 1 TFEU in conjunction with Art. 51 Statute of the CJEU) and may be appealed before the CJEU (Art. 256(1)(2) TFEU in conjunction with Art. 56 Statute of the CJEU). Art. 263(4) TFEU grants standing to the addressees of the ECB decisions rejecting or 63 conditioning an authorisation or withdrawing it. A credit institution already in the process of liquidation according to national law as a result of withdrawal of licence may still challenge the ECB decision. Especially, representation of its legal interests may not be exclusively transferred to a liquidator whose sole responsibility is the liquidation of the undertaking.131 Although there is no constellation conceivable of a third-party challeng-

126 For a different view Berger, WM 2015, 501, at p. 506; for the German Law Müller, Fischer and Müller, WM 2015, 1505, at p. 1508. 127 Gurlit, WM 2020, 57, at p. 66. 128 Art. 24(11) SSMR uses the somewhat unclear abbreviation “CJEU”, meaning the “Court of Justice of the European Union”, Recital 48 SSMR, encompassing the General Court (GC), the Court of Justice (ECJ) and specialised courts, Art. 19(1) TEU; see Berger, WM 2015, 501, at p. 505. 129 Berger, WM 2015, 501, at p. 505; Glos and Benzing, in: Binder, Glos and Riepe (eds), Handbuch Bankenaufsichtsrecht (2nd edn, 2020), § 2 para. 240. This is also the view of the ECB, see Decision of the ECB of 14.4.2014 concerning the establishment of the Administrative Board of Review (ECB/2014/16), Recital 4. 130 See for a comprehensive account of ABoR procedures Glos and Benzing, in: Binder, Glos and Riepe (eds), Handbuch Bankenaufsichtsrecht (2nd edn, 2020), § 2 paras. 241 et seq.; Brescia Morra, Quaderni di Ricerca Guridica, No 81 (2016), 109, at pp. 112 et seq. 131 Joined Cases C-663/17 P, C-665/17 P, C-669/17 P, Trasta Komercbanka v ECB, ECLI:EU:C:2019:923, paras. 69 et seq.

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ing the rejection of a licence,132 the situation may be different in the case of withdrawal of licence with regard to shareholders of the credit institution.133 However, in the view of the CJEU, shareholders are not directly concerned by a withdrawal because their rights as members of the undertaking – voting rights and the right to receive dividends – are formally preserved. The economic effects, e.g. the unlikeliness to receive dividends, are not to be considered for matters of standing.134

3. Assessment of the court und judgment Pursuant to Art. 263(2) TFEU, the General Court reviews the legality of the ECB’s decision as regards to complaints of lack of competence, infringement of an essential procedural requirement, infringement of the treaties or of any rule of law relating to their application, or misuse of powers. If the ECB’s interpretation and application of substantial requirements for granting or withdrawing an authorisation is at stake, the plaintiff will raise the issue of infringement of the treaties or of other applicable rules. In the case of a withdrawal decision lying in the discretion of the ECB, the plaintiff may also contend a misuse of power. 65 The General Court has to examine the legality of the ECB’s act with regard to its interpretation of the relevant Union law. However, since Art. 4(3)(1) SSMR requires the ECB to apply the national legislation transposing directives, it follows that review of the court includes the examination of the ECB’s application of national law transposing Union law as well.135 Because the ECB is of the opinion that it is empowered to apply autonomous national law within the tasks of Art. 4 SSMR and underpinning a supervisory function, thereby deciding on extensions of licences to other business activities and on withdrawal of these extensions (→ paras. 12 et seq.), questions about judicial review arise. A competence of the General Court and the CJEU to authoritatively interpret autonomous national law cannot be linked to Art. 4(3)(1) SSMR. Quite to the contrary, Art. 4(3) and Art. 9(1)(3) SSMR indicate that the ECB does not have the power to decide on national provisions not intended to transpose Union law and has to consider autonomous national law as a legal fact.136 On the other hand, barring an effective review by the European courts of the application and validity of autonomous national law is itself highly problematic in the light of Art. 47(1) CFREU, resulting in calls for a reverse referral procedure mirroring Art. 267 TFEU.137 For the time being, the plaintiff may 64

132 One could theoretically conceive the case of a rejection of authorisation based on the assessment that members of the management board are not deemed fit and proper, or that owners of qualifying holdings do not pass muster, these persons bringing action for annulment on grounds of reputational damage. However, in these situations, the principle of proportionality will induce the ECB to act directly against these persons instead of rejecting the authorisation. 133 See for further analysis of third party standing Lackhoff, Single Supervisory Mechanism (2017), at pp. 252 et seq.; Lefterov, ESCB Legal Conference 2020 (2021), 786, at pp. 299 et seq. 134 Joined Cases C-663/17 P, C-665/17 P, C-669/17 P, Trasta Komercbanka v ECB, ECLI:EU:C:2019:923, paras. 107 et seq.; Lefterov, ESCB Legal Conference 2020 (2021), 786, at pp. 299 et seq. 135 Joined Cases T-133/16 to 136/16, Caisse régionale de crédit agricole mutuel Alpes Provence, ECLI:EU: T:2018:219, paras. 47 et seq.; Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 180; Arons, in: Busch and Ferrarini (eds), European Banking Union (2nd edn, 2020), para. 3.27; Lackhoff, Single Supervisory Mechanism (2017), at pp. 253 et seq.; Kämmerer, WM 2016, 1, at p. 4; Berger, WM 2016, 2325, at p. 2332; crit. assessment by Martini and Weinzierl, NVwZ 2017, 177, at pp. 181 et seq. and Peuker, JZ 2014, 764, at p. 768 for constitutional reasons. 136 Berger, WM 2016, 2361, at p. 2368. 137 Kaufhold, JÖR 66 (2018), 85, at pp. 106 et seq.; Müller-Graff, EuZW 2018, 101, at p. 107; Martini and Weinzierl, NVwZ 2017, 177, at p. 182.

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complain about lack of competence if the ECB transgressed the limits of its competence.138 If an action for annulment is successful, the court will declare the ECB’s decision void. 66 In the case of a void decision on withdrawal, the original authorisation will come to life again.139 However, the court does not have the power to order warranted action of the ECB in case of rejecting or conditioning an authorisation. Instead, Art. 266 TFEU stipulates the obligation of the ECB to take the necessary measures to comply with the judgment. In the case of non-compliance, a new legal action has to be instituted.

Art. 15 SSMR Assessment of acquisitions of qualifying holdings 1. Without prejudice to the exemptions provided for in point (c) of Article 4(1), any notification of an acquisition of a qualifying holding in a credit institution established in a participating Member State or any related information shall be introduced with the national competent authorities of the Member State where the credit institution is established in accordance with the requirements set out in relevant national law based on the acts referred to in the first subparagraph of Article 4(3). 2. The national competent authority shall assess the proposed acquisition, and shall forward the notification and a proposal for a decision to oppose or not to oppose the acquisition, based on the criteria set out in the acts referred to in the first subparagraph of Article 4(3), to the ECB, at least ten working days before the expiry of the relevant assessment period as defined by relevant Union law, and shall assist the ECB in accordance with Article 6. 3. The ECB shall decide whether to oppose the acquisition on the basis of the assessment criteria set out in relevant Union law and in accordance with the procedure and within the assessment periods set out therein. Bibliography Henning Berger, ‘Der einheitliche Aufsichtsmechanismus (SSM) – Bankenaufsicht im europäischen Verbund’, WM 2015, 501; Henning Berger, ‘Rechtsanwendung durch die EZB im Single Supervisory Mechanism (SSM)’, WM 2016, 2325; Karl-Heinz Boos, Reinfrid Fischer and Hermann Schulte-Mattler (eds), KWG/CRR VO, Kommentar (5th edn, C.H. Beck, Munich 2016); Concetta Brescia Morra, ‘The administrative and judicial review of decisions of the ECB in the supervisory field’, in Banca d’Italia, Quaderni di Ricerca Giuridicano 81 (2016), 109; Alexander Glos and Markus Benzing, ‘Institutioneller Rahmen: SSM, EZB und nationale Aufsichtsbehörde’ in Jens-Hinrich Binder, Jan Riepe and Alexander Glos (eds), Handbuch Bankenaufsichtsrecht (2nd edn, RWS Verlag, Cologne 2020), § 2, p. 23; Manfred Heemann, ‘Erwerb und Veräußerung einer qualifizierten Beteiligung an einem Kreditinstitut’ in Simon G. Grieser and Manfred Heemann (eds), Europäisches Bankaufsichtsrecht (Frankfurt School Verlag, Frankfurt 2016), p. 223; Klaus Lackhoff, Single Supervisory Mechanism, European Banking Supervision by the SSM (C.H. Beck/Hart/Nomos, Munich/Oxford/Baden-Baden 2017); Asen Lefterov, ‘Judicial review in a multilevel administrative framework – the case of the SSM’, ESCB Legal Conference 2020 (Frankfurt 2021), p. 286; Yves Mersch, ‘Mehrteilige Verwaltungsverfahren in der Aufsichtspraxis der EZB’, EuZW (2020), 781; Christoph Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (C.H. Beck, Munich 2015); Andreas Steck, ‘Beteiligungskontrolle’, in Jens-Hinrich Binder, Alexander Glos and Jan Riepe (eds), Handbuch Bankenaufsichtsrecht (2nd edn, RWS Verlag, Cologne 2020), § 4, p. 173; Sebastian Tusch, ‘Die ausdrückliche Nichtuntersagung durch die BaFin im Inhaberkontrollverfahren nach § 2c KWG und § 104 VAG’, in WM 2013, 633.

Kämmerer, WM 2016, 1, at p. 4; Lackhoff, Single Supervisory Mechanism (2017), at p. 253. In the constellation of an unlawful rejection of authorisation, this result cannot be affected by the legal fiction of authorisation pursuant to Art. 14(3) SSMR, see Müller, Fischer and Müller, WM 2015, 1505, at p. 1508. 138

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A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Basic content . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Relevant substantive and procedural law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Substantial provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Procedural rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Practical relevance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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B. Scope of application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Credit institutions as acquisition targets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Completed acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Disposal of acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Exemption for resolution-related acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V. Territorial scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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C. Notification of an intended acquisition of a qualifying holding (Art. 15(1) SSMR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Point of entry for notifications and relevant law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Persons required to notify a proposed acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Proposed acquirer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Target credit institution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Object of notification: acquisition or increase of a qualifying holding . . . . . . . 1. Direct qualifying holding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Indirect qualifying holding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Significant influence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Content of notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V. Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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D. Assessment by the NCA (Art. 15(2) SSMR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Assessment according to Union and national law . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Draft decision of the NCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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E. Assessment by the ECB (Art. 15(3) SSMR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Assessment according to Union law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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F. Judicial review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Distribution of competences between national and European courts . . . . . . . . II. Review in the European courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Optional administrative review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Admissibility of action for annulment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Assessment of the court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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A. Introduction I. Basic content 1

Art. 15 SSMR confers the power to oppose the acquisition of a qualifying holding in a credit institution exclusively on the ECB, thereby giving force to the task to assess the intended acquisition or the disposal of a qualifying holding in a credit institution granted to the ECB by Art. 4(1)(a) SSMR. In the case of an acquisition of shares or voting rights, a prior assessment is deemed necessary to ensure the sound and prudent management of the credit institution. The European legislator considered the ECB to be well placed to carry out the final assessment and decision on the acquisition of qualifying holdings.1

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Recital 22 SSMR.

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The assessment is part of the direct supervisory powers entrusted to the ECB, irre- 2 spective of the significance of the credit institution. Together with Art. 14 SSMR, Art. 15 SSMR forms the common procedures by providing a complex cooperation arrangement with the relevant NCAs. The concrete arrangement of Art. 15 SSMR differs from the one envisaged by Art. 14 SSMR. Whereas in authorisation procedures, the NCA has a final say to reject the application based on national law, no comparable power was conferred on the NCA when opposing the acquisition of a qualifying holding in a credit institution. Instead, all decision-making powers are vested in the ECB. Whereas this feature makes acquisition procedures comparable to the procedure for withdrawal of an authorisation pursuant to Art. 14(5) SSMR, the procedural arrangement of Art. 15 SSMR deviates in another respect. While a withdrawal procedure may be initiated by the ECB, in acquisition procedures an initiative draft proposal of the NCA is mandatory.2

II. Relevant substantive and procedural law 1. Substantial provisions Substantive rules governing the assessment of the acquisition (and the disposal) of a 3 qualifying holding are embodied in Art. 22 to 27 CRD IV3 and in the national laws transposing these provisions. The CRD IV rules derive from the Directive 2007/44/EC on the acquisition of qualifying holdings in the financial sector.4 According to Art. 22(1) CRD IV, any natural or legal person or persons acting in concert that intend to acquire a qualifying holding in a credit institution, shall notify their intention to the NCA of the credit institution in which they are planning to acquire or increase a qualifying holding. Pursuant to Art. 2 no. 8 SSMR, Art. 4(1) no. 36 CRR, Art. 3(1) no. 33 CRD IV, a proposed holding in a credit institution is considered as qualifying, if the holding directly or indirectly comprises 10 percent or more of the capital or the voting rights of the credit institution, or if the holding makes it possible to exercise a significant influence over the management of the target bank. If an existing qualifying holding exceeds certain higher thresholds of the capital or the voting rights, a further notification is necessary. The assessment criteria are set out in Art. 23(1) CRD IV. Pursuant to this provision, the suitability of the acquirer, and the soundness of the acquisition has to be assessed in accordance with the following criteria: – the reputation of the proposed acquirer with regard to integrity and professional competence; – the fit and proper-criteria pursuant to Art. 91(1) CRD IV, if the acquisition will result in the appointment of new members of the management body; – the financial soundness of the acquirer; – whether the credit institution will be able to comply with relevant Union law, and whether the group of which the credit institution becomes a part has a structure that makes it possible to exercise effective supervision; and – whether there are reasonable grounds to suspect that money laundering or terrorist financing is being committed, or that the intended acquisition could increase the risk thereof. Lackhoff, Single Supervisory Mechanism (2017), at pp. 141 et seq. Directive 2013/36/EU as amended by Directive (EU) 2019/878, OJ L150, 7.6.2019, p. 253. 4 Directive 2007/44/EC of the European Parliament and of the Council of 5.9.2007 amending Council Directive 92/49/EEC and Directives 2002/83/EC, 2004/39/EC, 2005/68/EC and 2006/48/EC as regards procedural rules and evaluation criteria for the prudential assessment of acquisitions and increases in holdings in the financial sector, OJ L247, 21.9.2007, p. 1. 2

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According to Art. 23(2) CRD IV, the list of assessment criteria is exhaustive; therefore, the regulatory framework aims at a maximum harmonisation of the control of the acquisition of qualifying holdings in credit institutions (Art. 22(8) CRD IV).5 The ESAs adopted Joint Guidelines on the acquisition of qualifying holdings, detailing the calculation of thresholds, assessment criteria and procedures to be applied.6 These guidelines are, subject to the comply or explain mechanism of Art. 16(3)(2) ESA-Regulations, binding on the ECB as well, see Art. 4(3)(2) sent. 2 SSMR.7 The RTS and ITS drafted by the EBA under Art. 8(2) and (3) CRD IV, specifying inter alia the requirements applicable to the proposed shareholders and members of qualifying holdings in credit institutions,8 will not apply to acquisition assessment procedures. They are only relevant in authorisation procedures (Art. 14(2) CRD IV).9 5 Insofar as the NCAs and the ECB must assess as part of the Art. 15 SSMR procedure, whether the proposed future members of the management body of the credit institution pass the fit and proper-test, they will apply the Joint Guidelines of EBA and ESMA on the assessment of the suitability of members of the management body.10 Additionally, the ECB adopted a non-binding Guide to fit and proper assessments11 that is applicable in Art. 15 SSMR procedures as well. 4

2. Procedural rules 6

The procedural aspects of the cooperation between NCAs and the ECB are set out in Art. 85 to Art. 87 SSM‑FR. These procedural rules are to be applied within the complex structure of the notification and assessment procedure that is contained in Art. 22(2) to (5), Art. 24 CRD IV, and the national provisions transposing these requirements. These provisions were at the time of their enactment not constructed with the view of SSM common procedures.12 Procedural issues relate to the time period of 60 working days available for the assessment of the proposed acquisition and to the information to be submitted by the proposed acquirer. Since incomplete information does not start the assessment period, these subjects are interconnected. Art. 23(4) CRD IV requires the Member States to publish a list, specifying the information that must accompany the notification, to enable the authority to carry out the assessment. The relevant lists of the Member States typically have the form of a binding regulation stating in detail the infor5 Maximum harmonisation is viewed as a means to prevent protectionism by the Member States, see Recital 6 of Directive 2007/44/EC. 6 EIOPA, EBA, ESMA, Final Report – Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector, 20.12.2016 (JO/GL/2016/01). 7 Lackhoff, Single Supervisory Mechanism (2017), at pp. 97 seq. 8 EBA, Draft regulatory technical standards under Art. 8(2) of Directive 2013/36/EU on the information to be provided for the authorisation of credit institutions, the requirements applicable to shareholders and members with qualifying holdings and obstacles which may prevent the effective exercise of supervisory powers, 14.7.2017 (EBA/RTS/2017/08); Draft implementing technical standards under Art. 8(3) of Directive 2013/36/EU on standard forms, templates and procedures for the provision of the information required for the authorisation of credit institutions, 14.7.2017 (EBA/ITS/2017/05). 9 EBA, Draft regulatory technical standards under Art. 8(2) of Directive 2013/36/EU, 6 states that the RTS closely follows the Joint Guidelines applicable in assessments on the acquisition of qualifying holdings in existing credit institutions; on the other hand, Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (2016), para. 9.5, states that after the date of application of the RTS the information provisions of the RTS shall be relevant for separate acquisition procedures as well. 10 ESMA and EBA, Final report on the assessment of the suitability of members of the management body and key function holders under Directive 2013/36/EU and Directive 2014/65/EU, 2.7.2021 (ESMA 35-36-2319; EBA/GL/2021/06). 11 ECB, Guide to fit and proper assessments, May 2018; to the scope of the guide see pp. 4, 29. 12 Mersch, EuZW 2020, 781, at p. 783.

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mation that has to be submitted.13 In addition, Annex I of the Joint Guidelines on acquisitions of qualifying holdings provides for a recommended list of information required for the assessment.14

III. Practical relevance Decisions of the ECB on the acquisition of qualifying holdings form the major part 7 of the common procedures. In 2020, the ECB adopted 110 decisions.15 The majority of cases related to internal reorganisations of the shareholding structure of supervised institutions, e.g., a change from an indirect holding into a direct holding. However, some assessments involved so-called specific acquirers like private equity funds or sovereign management funds that may have a complex corporate structure, a possibly short-term investment horizon, or that use leveraged funding for the acquisition. Only a very few proposed acquisitions related to cross-border banking sector consolidation.16 So far, only one decision of the ECB to oppose the acquisition of a qualifying holding 8 was contested in the European courts. However, the case Berlusconi and Fininvest did not focus on matters of substantive law; rather, it related to the allocation of judicial competences between the national courts and the European courts. The CJEU decided that national courts are precluded from reviewing the preparatory acts of the NCAs within the framework of Art. 15 SSMR procedures, and that judicial review is concentrated in the European courts (infra, → para. 48).17

B. Scope of application I. Credit institutions as acquisition targets Art. 15 SSMR procedures relate to credit institutions within the meaning of Art. 4(1) 9 no. 1 CRR, Art. 2 no. 3 SSMR as target undertakings of an acquisition. This covers institutions active in the business of taking deposits or other repayable funds from the public and, cumulatively, to grant credits for its own accounts (→ Art. 14 para. 10). As part of the regulatory package for prudential requirements und prudential supervision of investment firms,18 the definition of credit institutions was recently extended. According to Art. 4(1) point 1 lit. b CRR, an investment firm dealing on own accounts and/or engaging in the activity of underwriting financial instruments or placing financial instruments on a firm commitment basis, will qualify as a credit institution if the total value of the consolidated assets of the firm is equal or exceeds EUR 30 billion (→ Art. 14 13 See e.g. for Germany: Inhaberkontrollverordnung (Regulation on Notifications in Accordance with § 2c KWG (German Banking Act) and § 104 VAG (German Insurance Supervision Act), BGBl. 2009, I-562, 688; BGBl. 2017, I-1693; see also BaFin, Guidance Notice on Holder Control (Merkblatt zur Inhaberkontrolle) of 27.11.2015; for Austria: Eigentümerkontrollverordnung 2016, BGBl. II no. 425/2015; BGBl. II No. 255/2017; BGBl. II No. 195/2018. 14 EIOPA, EBA, ESMA, Final Report – Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector, 20.12.2016 (JO/GL/2016/01), Annex I. 15 ECB, Annual Report on supervisory activities 2020 (2021), at p. 56. The decision load is quite stable over the years. 16 ECB, Annual Report on supervisory activities 2020 (2021), at p. 58. 17 Case C-219/17, Berlusconi and Fininvest, ECLI:EU:C:2018:1023. 18 Regulation (EU) 2019/2033 on the prudential requirements of investment firms (IFR), OJ L 314, 5.12.2019, p. 1; Directive (EU) 2019/2034 on the prudential supervision of investment firms (IFD), OJ L 314, 5.12.2019, p. 64.

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para. 11).19 Art. 15 SSMR applies to existing credit institutions already authorised pursuant to Art. 14 SSMR. The assessment of proposed shareholders and members of a credit institution not yet established is a requirement for its authorisation and, therefore, part of Art. 14 SSMR authorisation procedures. 10 According to Art. 4(1)(c) SSMR, the ECB is assigned the task of assessing notifications of the acquisition and disposal of qualifying holdings in credit institutions. Art. 6(4) SSMR excludes the task of assessing the acquisition of qualifying holdings from the work sharing arrangements based on the significance of a credit institution. Hence, the ECB has the exclusive competence and the power to assess and decide on a notification of a proposed acquisition with regard to all credit institutions as targets established in a participating Member State irrespective whether the credit institution is significant or less significant.20 However, this is different with investment firms qualified as credit institutions pursuant to Art. 4(1) point 1 lit. b CRR. Since their status as a credit institution is linked to a total value of consolidated assets of at least EUR 30 billion (→ text para. 9), this threshold is constitutive for the applicability of Art. 15 procedures. Since fit and proper assessments of the proposed members of the management body of the target bank are part of the acquisition requirements (Art. 23(1)(b) CRD IV), the exclusive power of the ECB includes these assessments in acquisition procedures with regard to all credit institutions. This has to be noted because isolated fit and proper decisions as part of the ongoing supervision are entrusted to the ECB only with regard to significant credit institutions (Art. 4(1)(e), Art. 6(4) SSMR). 21 11 Some Member States’ jurisdictions provide for a specific approval procedure if an acquisition in a non-credit institution or a credit institution outside the EU is involved.22 In the view of the ECB, as communicated to the NCAs and the banking industry, these autonomous national powers are to be exercised by the ECB, if the proposed acquirer is itself a significant credit institution.23 This view is based on the general assumption that the ECB may exercise supervisory powers granted under national law but not intended to transpose Union law (autonomous national law) if they fall within the scope of tasks under Art. 4 and 5 SSMR and underpin a supervisory function under Union law (“the national power issue”).24 12 It is highly debatable whether the SSMR entrusts the ECB with powers not explicitly mentioned in the SSMR (→ Art. 14 paras. 12 et seq.). However, even accepting the ECB’s stance, assessments of intended acquisitions by significant credit institutions involving non-credit institutions and/or credit institutions outside the EU are not within the scope of Art. 15 SSMR. The rationale for these assessments is to ensure the sound and prudent management of the acquiring significant credit institution with regard to requirements of own funds, liquidity and leverage.25 Therefore, they are not part of the Art 4(1) CRR as amended by Art. 62 IFR. Lackhoff, Single Supervisory Mechanism (2017), at pp. 171 et seq. 21 Lackhoff, Single Supervisory Mechanism (2017), at pp. 172 et seq. 22 See for the latter § 21(1) lit. 2 Austrian Banking Act. 23 ECB, Additional clarification regarding the ECB’s competence to exercise supervisory powers granted under national law, 31.3.2017, SSM/2017/0140, Annex 2, fiche I. 24 ECB, Additional clarification regarding the ECB’s competence to exercise supervisory powers granted under national law, 31.3.2017, SSM/2017/0140, p. 2; see also Lackhoff, Single Supervisory Mechanism (2017), at pp. 27, 31 et seq., 33f., 161. The ECB’s stance is obviously shared by the Commission, see Commission Staff, Report from the Commission to the European Parliament and the Council on the Single Supervisory Mechanism (SSM) established pursuant to Regulation (EU) No 1024/2013, 11.10.2017, SWD (2017) 336 final, at p. 27; for the evolution of this doctrine see Glos and Benzing, in: Binder, Glos and Riepe (eds), Handbuch Bankenaufsichtsrecht (2nd edn, 2020), § 2 paras. 59 et seq. 25 ECB, Additional clarification regarding the ECB’s competence to exercise supervisory powers granted under national law, 31.3.2017, SSM/2017/0140, Annex 2, fiche I. 19

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common procedure of Art. 15 SSMR, but elements of the supervision of significant institutions. Accordingly, the significant institutions are required to submit notifications directly to the ECB pursuant to Art. 95(1) SSM‑FR.26

II. Completed acquisitions Art. 15 SSMR provides for the arrangement for the notification and assessment of in- 13 tended acquisitions. It does not confer any powers if the proposed acquirer abstains from a notification and executes the acquisition without prior assessment. 27 Additionally, Art. 15 SSMR is not relevant if the acquirer does not comply with a rejection of the acquisition by the ECB or if the acquirer turns out to operate to the detriment of the prudent and sound management of the acquired credit institution after the acquisition was approved. However, in these instances, Art. 26(2) CRD IV requires the Member States to take appropriate measures, e.g., the suspension of voting rights.28 According to the ECB’s position on the “national power issue”, the ECB is competent to exercise supervisory powers granted by national law vis-à-vis a significant credit institution’s shareholders.29 As with the power relating to the acquisitions by significant credit institutions (supra, → para. 12), the exercise of this power lies outside the ambit of Art. 15 SSMR. In the view of the ECB, the power to act with regard to shareholders of significant credit institutions is part of its direct powers of ongoing supervision.

III. Disposal of acquisitions Art. 4(1)(c) SSMR also confers the task of assessing the disposal of a qualifying hold- 14 ing in a credit institution on the ECB, while Art. 15 SSMR does not provide for any accompanying powers. Art. 25 CRD IV requires the Member States to establish a notification procedure if the acquirer intends to dispose of the acquisition or to reduce it under the relevant thresholds. However, there is no substantive law mandating a supervisory decision on the disposal or the reduction of a qualifying holding.30 It is self-evident that the European legislator did not conceive the need to subject notification procedures for disposals to the SSM; therefore, the application of Art. 25 CRD IV lies outside the realm of Art. 15 SSMR.

IV. Exemption for resolution-related acquisitions According to Art. 4(1)(c) SSMR, the task of assessing the proposed acquisition of 15 qualifying holdings is entrusted to the ECB “except in the case of a bank resolution”, 26 ECB, Additional clarification regarding the ECB’s competence to exercise supervisory powers granted under national law, 31.3.2017, SSM/2017/0140, at pp. 2 et seq. 27 This was the case with the Chinese HNA Group acquiring 9,9 % of Deutsche Bank by shares and by financial instruments, possibly enabling it to exercise a significant influence. After reducing its holding due to financial distress to 7, 9 %, HNA sold the remaining shares in December 2019. 28 See, for example, § 2c(2) KWG (German Banking Act). 29 ECB, Additional clarification regarding the ECB’s competence to exercise supervisory powers granted under national law, 31.3.2017, SSM/2017/0140, Annex 1; according to newspaper articles, the ECB considered a suspension of the voting rights of HNA Group in Deutsche Bank. 30 According to Lackhoff, Single Supervisory Mechanism (2017), at pp. 171 et seq. with fn. 788, the overreaching of Art. 4(1)(c) SSMR could be seen as argument that tasks with regard to significant credit institutions could go beyond the requirements of CRD IV.

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which is the exemption referred to in Art. 15(1) SSMR. The acquisition of a qualifying holding may occur in the event of a bank resolution if, for example, capital instruments are conversed by way of a bail-in. The requirement to assess the acquisition of a qualifying holding is modified in these cases by the BRRD,31 which provides for specific arrangements if the use of resolution instruments causes the situation of the acquisition of a qualifying holding. In these instances, the NCA, in deviation from Art. 22 to 26 CRD IV, is required to perform the assessment in a timely manner that does not delay the application of the resolution tools.32 Hence, the exemption, resulting in the competence of the NCAs, is intended to ensure smooth cooperation between the NCAs responsible for the assessment of the acquisition and the national resolution authorities of the Member States where the credit institution is established. Considering this purpose, the exemption is limited to the constellation in which the acquisition inevitably occurs because of the use of a resolution instrument.33 This rationale has a limiting effect on the scope of the exemption. If the application of a resolution tool results in a direct qualifying holding in the credit institution that is the subject of resolution measures, and an indirect holding in the credit institution established in a different participating Member State, the ECB will remain competent with regard to the latter.34

V. Territorial scope 16

Pursuant to Art. 15(1) SSMR, the intention to acquire a qualifying holding must be notified to the NCA of the participating Member State where the credit institution is established. Since assessment procedures focus on the effects an acquisition may have on the prudent management of the credit institution, the location of the natural or legal person intending to acquire a qualifying holding is not decisive for the applicability of Art. 15 SSMR procedures. However, the applicability of Art. 15 SSMR can still be challenging in constellations of chain holdings resulting in direct and indirect qualifying holdings in credit institutions. If a person proposes the acquisition of a direct holding in a parent credit institution established in a non-participating Member State, the assessment procedures, pursuant to Art. 22 to 24 CRD IV, are entrusted exclusively to the NCAs located at the establishment of the parent institution. If the direct holding results in indirect qualifying holdings in a number of subsidiaries of the parent undertaking, Art. 15 SSMR will apply with regard to subsidiaries established in participating Member States. Hence, one single acquisition may trigger several Art. 15 SSMR procedures of different NCAs.35

31 Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms, OJ L173, 12.6.2014, p. 190, as amended by Directive (EU) 2019/879, OJ L150, 7.6.2019, p. 296. 32 See Art. 38(8) and (9) BRRD for the application of the business tool, Art. 47(4) und (5) BRRD for the application of the bail-in instrument. Art. 63(1)(m) BRRD requires the Member States to provide for the national resolution authorities’ power to order a timely assessment of the qualifying holding by the NCA. 33 Lackhoff, Single Supervisory Mechanism (2017), at p. 172; see also Recital 22 of the SSMR, referring to the “context” of bank resolution. 34 Lackhoff, Single Supervisory Mechanism (2017), at p. 172. 35 Lackhoff, Single Supervisory Mechanism (2017), at p. 174; Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (2016), para. 8.5 suggests that in the case of intra-group transactions, only the direct acquirer shall be required to notify.

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C. Notification of an intended acquisition of a qualifying holding (Art. 15(1) SSMR) I. Point of entry for notifications and relevant law Art. 15(1) SSMR stipulates that any notification of an acquisition of a qualifying hold- 17 ing shall be introduced with the NCA of the Member State where the credit institution is established in accordance with the requirements set out in relevant national law based on the acts referred to in Art. 4(3)(1) SSMR. Hence, the location of the establishment of the target bank is decisive for the point of entry. Consequently, the point of entry determines the applicable law governing the notifi- 18 cation. While Art. 15(1) SSMR explicitly names the “national law based on” the acts referred to in Art. 4(3)(1) SSMR as applicable, Art. 15(2) SSMR states that for the assessments of acquisitions by the NCAs the acts referred to in Art. 4(3)(1) SSMR have to be applied. The different wording is due to the fact, that the CRD IV is silent on the content of a notification; Art. 23(4) CRD IV explicitly delegates the designation of information that has to be attached to a notification to the Member States. Art. 15(1) SSMR does not refer to the EBA-Guidelines as applicable notification standards within the meaning of Art. 4(3)(2) SSMR. Insofar as the NCAs opted to comply with the Joint Guidelines on the prudential assessment of qualifying holdings pursuant to Art. 16(3) EBA-Regulation No. 1093/2010, they will apply the recommended list of required information.36

II. Persons required to notify a proposed acquisition 1. Proposed acquirer According to Art. 22 CRD IV and, respectively, the national law transposing this pro- 19 vision, a notification is required by any natural or legal person who has taken a decision to acquire a qualifying holding in a credit institution. The notification requirement encompasses, as legal persons, undertakings that according to national corporate law are able to acquire shares or voting rights, be it directly or indirectly. Hence, an intended acquisition has to be notified regardless of the legal form of the proposed acquirer.37 Additionally, natural and legal persons acting in concert with the intention to acquire a qualifying holding are required to notify their project. If there is an explicit or implicit agreement between persons, each person concerned has to notify the NCA if the intended holding crosses, on an aggregated level, the relevant notification thresholds.38 The Joint Guidelines offer a non-exhaustive list of factors indicating a situation where persons are acting in concert.39

36 Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (2016), Annex I; see para. 8.5 with regard to the applicability. 37 Steck in Binder, Glose and Riepe and (eds), Handbuch Bankenaufsichtsrecht (2 nd edn, 2020), § 4 para. 23; Schäfer, in Boos, Fischer and Schulte-Mattler (eds), KWG/CRR VO (5 th edn, 2016), KWG § 2c KWG para. 7; BaFin, Merkblatt zur Inhaberkontrolle (2015) II.1. 38 Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (2016), paras. 4.3 and 4.4; see for Germany BaFin, Merkblatt zur Inhaberkontrolle (2015) II.1 suggesting to submit the notifications in this instance as a package. 39 Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (2016), paras. 4.6; see for Germany BaFin, Merkblatt zur Inhaberkontrolle (2015) II.1 with examples.

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Although Art. 15(1) SSMR states that an acquisition has to be notified, the wording of Art. 22(1) CRD IV makes clear that a notification has to be submitted prior to the acquisition in order to enable the authorities to object to the acquisition. The relevant point in time for the notification is “the decision” of the person or the persons to acquire a qualifying holding. A decision triggering the notification requirement can be assumed if concrete negotiations have taken place and/or if the basic elements of the deal with regard to the size of capital or voting rights and the means of financing the acquisition have been decided upon.40 Prior to this point in time, there is no factual basis for an assessment of the proposed acquisition.41

2. Target credit institution 21

According to Art. 26(1) CRD IV and the national laws transposing this provision,42 the target undertaking shall, on becoming aware of any acquisition of holdings that exceed the notification thresholds, inform the NCA of those acquisitions. The obligation shall enable the NCA to examine whether the proposed acquirer complied with the notification requirement.43

III. Object of notification: acquisition or increase of a qualifying holding 22

According to Art. 22(1) CRD IV, the intention to acquire, directly or indirectly, a qualifying holding, must be notified. Art. 4(1) no. 36 CRR defines a holding as qualifying which represents 10 % or more of the capital or of the voting rights or which makes it possible to exercise significant influence over the management of that undertaking. While the determination of a direct qualifying holding typically does not pose insurmountable problems, the calculation of an indirect qualifying holding may be challenging. The alternative trigger of a significant influence irrespective of the 10 % threshold needs interpretative guidance as well.

1. Direct qualifying holding 23

A direct qualifying holding is assumed if the proposed acquirer intends to acquire 10 % or more of the capital or of the voting rights of the target credit institution. The alternative trigger is relevant, if the size of shares and voting rights is incongruent. This is the case, if the target bank has emitted special shares not accompanied by voting rights. In this instance, Art. 4(1) no. 36 CRR follows the ratio that ownership of 10 % or

40 According to Steck in Binder, Glos and Riepe (eds), Handbuch Bankenaufsichtsrecht (2 nd edn, 2020), § 4 paras. 68 et seq., a decision on the concrete transaction structure – direct or indirect holding – is not a precondition for an intention to acquire. 41 For Germany Schäfer in: Boos, Fischer and Schulte-Mattler (eds), KWG/CRR VO (5 th edn, 2016), KWG § 2c para. 10; Steck in: Binder, Glos and Riepe and (eds), Handbuch Bankenaufsichtsrecht (2 nd edn, 2020), § 4 paras. 67 et seq. with examples of hard cases; BaFin, Merkblatt zur Inhaberkontrolle (2015) II.2; Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (2016), para. 7.1. 42 See for Germany § 24(1) lit. 10 KWG (German Banking Act). 43 Braun in: Boos, Fischer and Schulte-Mattler (eds), KWG/CRR VO (5 th edn, 2016), KWG § 24 para. 134; Steck in: Binder, Glos and Riepe and (eds), Handbuch Bankenaufsichtsrecht (2 nd edn, 2020), § 4 para. 4.

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more of the capital indicates that a significant influence may be exercised.44 According to Art. 27(2) CRD IV and corresponding national law,45 voting rights or shares which credit institutions or financial services may hold as the result of providing the underwriting of financial instruments shall not be taken into account, provided that those rights are not exercised and are disposed of within one year of acquisition.46

2. Indirect qualifying holding An indirect holding is easy to calculate if a holding relates to capital. In this case, the 24 quota is relevant for the determination. If, for example, undertaking A directly holds 30 % of the capital of credit institution B, and undertaking C holds 40 % of the capital of undertaking A, C, in effect, indirectly holds 12 % of the capital of credit institution B (40 % of 30 %).47 In this case, both A and C are required to notify their holding. If a holding has to be determined with regard to voting rights, a different regime has to be applied. According to Art. 27(1) CRD IV, which refers to the aggregation approach of the Transparency Directive 2004/109/EC,48 and national law transposing this provision,49 voting rights may be fully accounted both for a direct holding and the indirect holding if the undertaking acquiring the indirect holding is, for example, the controlling parent undertaking of a subsidiary with a direct holding.50 The Joint Guidelines seem to follow a different approach. Instead of detailing the cri- 25 teria of Art. 27(1) CRD IV in conjunction with Directive 2004/109/EC, the ESAs developed a notion of control as the first step factor that is not derived from these legal requirements.51 If the control criterion does not provide a clear result, the Joint Guidelines recommend as a second step the so-called multiplication criterion.52 The approach of the ESAs is not convincing. It goes beyond the purpose of detailing the legal requirements, and it tends to blur the distinction between a size-based criterion and the alternative criterion of significant influence.53

3. Significant influence If the proposed holding does not amount to 10 %, it nevertheless has to be notified 26 if it will enable the acquirer to exercise a significant influence over the management of 44 Steck in: Binder, Glos and Riepe and (eds), Handbuch Bankenaufsichtsrecht (2 nd edn, 2020), § 4 para. 25; Heemann in: Grieser and Heemann (eds), Europäisches Bankaufsichtsrecht (2016), at pp. 223, 233. 45 See for Germany § 1(9) sent. 3 KWG (German Banking Act). 46 See for further exemptions relating to voting rights Heemann in Grieser and Heemann (eds), Europäisches Bankaufsichtsrecht (2016), at pp. 223, 236 et seq. 47 Example taken from BaFin, Merkblatt zur Inhaberkontrolle (2015) IV.3.a (1). 48 Art. 9 to Art. 11 of Directive 2004/109/EC on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market. The Directive was amended by Directive 2013/50/EU, resulting in minor changes of Art. 9. 49 For Germany: § 1(9) sent. 2 KWG (German Banking Act) together with § 34 WpHG (German Securities Trading Act). 50 Steck in Binder, Glos and Riepe and (eds), Handbuch Bankenaufsichtsrecht (2 nd edn, 2020), § 4 paras. 41 et seq.; Heemann in Grieser and Heemann (eds), Europäisches Bankaufsichtsrecht (2016), at pp. 223, 234 et seq.; BaFin, Merkblatt zur Inhaberkontrolle (2015) IV.3.b. 51 Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (2016), paras. 3.1 (ii) and 6.3, referring to Directive 2013/34/EU. 52 Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (2016), para. 6.6 and Annex II with examples; see also Steck in Binder, Glos and Riepe (eds), Handbuch Bankenaufsichtsrecht (2nd edn, 2020), § 4 paras. 46 et seq. 53 Critical account by Steck in Binder, Glos and Riepe (eds), Handbuch Bankenaufsichtsrecht (2 nd edn, 2020), § 4 para. 44.

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the target bank. This requirement is not defined by the CRD IV. According to the Joint Guidelines, all relevant facts and circumstances have to be taken into account. Relevant factors are, amongst others, the relationship of the acquirer with the target bank, like additional rights of the acquirer or its membership in the supervisory body. Additionally, the ownership structure of the target undertaking is of particular relevance. For example, if voting rights are distributed across a large number of shareholders, the acquirer would be able to exercise significant influence with a share of less than 10 %.54

IV. Content of notification Pursuant to Art. 15(1) SSMR, any notification shall be introduced to the NCA in accordance with national law based on Union law, detailing the information to be attached to the notification. Additionally, the NCAs will apply the recommended list of required information set out in the Joint Guidelines (→ paras. 6 and 18). Information necessary to make an assessment on the intended acquisition concerns: – the identity and personal and professional circumstances of the acquirer, including criminal records and criminal or administrative investigations against the acquirer or persons that will be appointed to the management body of the target undertaking,55 – the financial situation of the acquirer and his means of financing the transaction,56 – direct and indirect holdings already held by the acquirer,57 – the business plan with regard to the acquisition and further strategic aims, if a controlling holding is intended,58 and – the proposed group structure and its impact on supervision.59 28 The amount of information to be attached to the notification is considerable. However, Art. 23(4) sent. 2 CRD IV stipulates that information required shall be proportionate and adapted to the nature of the proposed acquirer and the proposed acquisition.60 Therefore, certain information may not be necessary in instances where the NCA 27

54 See non-exhaustive list of factors in Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (2016), para. 5.2; see also BaFin, Merkblatt zur Inhaberkontrolle (2015) IV.4. 55 In Germany: §§ 9 and 10 Inhaberkontrollverordnung (Regulation on Notifications in Accordance with § 2c German Banking Act and § 104 German Insurance Supervision Act); Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (2016), Annex I, sections 3 to 5, 6(1)(d). 56 In Germany: §§ 13 and 14 Inhaberkontrollverordnung (Regulation on Notifications in Accordance with § 2c German Banking Act and § 104 German Insurance Supervision Act); Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (2016), Annex I, sections 4(1)(c), 5(1)(i), 9. 57 In Germany: § 11 Inhaberkontrollverordnung (Regulation on Notifications in Accordance with § 2c German Banking Act and § 104 German Insurance Supervision Act); Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (2016), Annex I, sections 4 (1)(f), 5(1)(c) to (g). 58 In Germany: § 15 Inhaberkontrollverordnung (Regulation on Notifications in Accordance with § 2c German Banking Act and § 104 German Insurance Supervision Act); Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (2016), Annex I, sections 7(b) and 10 to 12. 59 In Germany: § 15(1) lit. 6 Inhaberkontrollverordnung (Regulation on Notifications in Accordance with § 2c German Banking Act and § 104 German Insurance Supervision Act); Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (2016), Annex 1, section 8. 60 See also Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (2016), para. 8.2.

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already possesses the relevant information, e.g. in cases of the increase of a recently acquired qualifying holding or if the acquirer is a credit institution.61 On the other hand, additional information may be required in the case of notifications of specific acquirers such as sovereign wealth funds and private equity funds.62

V. Procedure According to Art. 22(2) CRD IV and national law transposing this provision,63 the 29 NCA shall acknowledge receipt of the notification and of all the documents required to the proposed acquirer within two working days following receipt. The acknowledgement of receipt must state the date of expiry of the assessment period. The acknowledgement in writing is a prerequisite for the countdown of the assessment period of 60 working days that starts on the date of the written acknowledgement. Hence, as long as the NCA does not confirm the receipt of all information required, the assessment period will not start. In order to prevent abusive delay of assessment procedures, the Joint Guidelines recommend an acknowledgement of an incomplete notification as well, designating it as incomplete and supplemented by a separate letter specifying the missing information.64 For a smooth process, it is recommended to discuss the content of the information required with the NCA prior to a formal notification.65 If the proposed acquisition results in direct as well as in indirect holdings of different 30 persons established in the same Member State, the assessment period will start only when all notifications have been confirmed by the NCA as complete.66 If an acquisition has to be introduced with different NCAs because several subsidiaries of a parent credit institution are affected, the assessment period may start at different points in time. 67 Pursuant to Art. 85(1) SSM‑FR, the NCA shall notify the ECB of the notification no 31 later than five working days following the acknowledgement of receipt. Art. 15(2) SSMR seems to imply that the notification forwarded to the ECB only has to contain the information that receipt of the complete notification of the proposed acquirer was acknowledged. However, if the notification is viewed as a means of enabling the ECB to initiate a parallel assessment within the strict limits of the assessment period, it could be argued that the notification by the NCA should include all the documents delivered by the proposed acquirer.68 This argument is further enhanced by Art. 85(2) SSM‑FR, requiring the NCA to deliver additional information within 5 working days following receipt thereof. 61 In Germany: § 16 Inhaberkontrollverordnung (Regulation on Notifications in Accordance with § 2c German Banking Act and § 104 German Insurance Supervision Act); Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (2016), Annex 1, section 13. 62 Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (2016), Annex 1, sections 5(4) and (5). 63 In Germany: § 2c(1) sent. 9 KWG (German Banking Act). 64 Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (2016), para. 9.2; crit. with regard to the handling by the German BaFin Steck in Binder, Glos and Riepe (eds), Handbuch Bankenaufsichtsrecht (2nd edn, 2020), § 4 paras 83 et seq. 65 Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (2016), para. 9.3; Steck in Binder, Glos and Riepe (eds), Handbuch Bankenaufsichtsrecht (2nd edn, 2020), § 4 para. 79. 66 BaFin, Merkblatt zur Inhaberkontrolle (2015) V.1.b. 67 Lackhoff, Single Supervisory Mechanism (2017), at p. 174. 68 This is the view of Lackhoff, Single Supervisory Mechanism (2017), at p. 175; suggested as a practical matter by Heemann in Grieser and Heemann (eds), Europäisches Bankaufsichtsrecht (2016), at pp. 223, 261.

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D. Assessment by the NCA (Art. 15(2) SSMR) I. Assessment according to Union and national law Pursuant to Art. 15(2) SSMR, the NCA shall assess the proposed acquisition based on the criteria set out in the acts referred to in Art. 4(3)(1) SSMR. This provision states that the ECB shall apply relevant Union law and transposing national law if Union law is composed of Directives. Art. 86(1) SSM‑FR simply refers to the relevant Union and national law. Subject to the direct applicability of the Directive, the national provisions transposing Art. 23 CRD IV69 are relevant. Since Art. 22(8) and Art. 23(2) CRD IV make clear that the assessment criteria set out in Art. 23 CRD IV are exhaustive, a high degree of convergence can be expected. Although Art. 15(2) SSMR does not refer to Art. 4(3)(2) SSMR, stipulating the application of EBA-Guidelines, the NCAs will apply the Joint Guidelines subject to an objection pursuant to Art. 16(3) EBA-Regulation no. 1093/2010 (supra, → para. 4). 33 The assessment criteria of Art. 23 CRD IV and the national provisions transposing them form the primary basis for the proposal of the NCA to oppose or not to oppose the intended acquisition. The NCAs have to examine the proposed acquisition with regard to all of the criteria; however, an objection does not require a negative assessment on all of the criteria. When performing the assessment, NCAs should pay due regard to the proportionality principle. An important factor is whether the proposed acquirer aims to gain influence over the management of the target bank. If the acquisition is solely part of a strategy to diversify investments, a reduced standard having regard to professional competence as an element of the acquirer’s reputation70 may be applied.71 Similarly, when examining the financial soundness of the proposed acquirer, intensity of the assessment depends on the question whether the acquirer intends to take control. 72 A reduced assessment may be carried out, if the acquisition merely is an intra-group transaction. In this instance, a full assessment is only necessary for the new persons and entities.73 32

II. Procedure 34

Pursuant to Art. 22(2) CRD IV and national law transposing this provision, the date of acknowledgement of completeness of information is the beginning of the assessment period of a maximum of 60 working days, adding up to approximately 80 calendar days. The NCA may, according to Art. 22(3) CRD IV, during the assessment period, request further information that is necessary to carry out the assessment. Since the NCA has by this stage acknowledged the completeness of the information delivered, the requested information is additional information. However, for the period between the date of request for further information and the receipt of a response, the assessment period In Germany: § 2c(1b) KWG (German Banking Act). Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (2016), para. 10.1 differentiate between integrity and professional competence. No reduced standards should be applied with regard to integrity concerns, para. 10.2. 71 Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (2016), paras. 8.3, 10.3 and 10.28. 72 Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (2016), paras. 8.4 and 12.5. 73 Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (2016), para. 8.5; see also Lackhoff, Single Supervisory Mechanism (2017), at p. 172. 69

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shall be suspended for up to 20 working days. If the proposed acquirer is located in a third country or if he or she is not supervised as a financial institution, the suspension may be extended up to 30 working days, see Art. 22(4) CRD IV. Art. 85(2) SSM‑FR stipulates that the NCA must notify the ECB of a suspension and send the additional information within 5 working days following receipt thereof. Any further requests for additional information will not result in a suspension of the assessment period (Art. 22(3)(2) CRD IV). According to Art. 22(3) CRD IV, a request for information resulting in a suspension 35 of the assessment period may be made no later than on the 50th working day of the assessment period. Since the assessment period includes the assessment carried out by the ECB following a draft proposal of the NCA, this time schedule has to be modified: While Art. 15(2) SSMR requires the NCA to submit a proposal for a decision at least ten working days before the expiry of the assessment period, Art. 86(2) SSM‑FR mandates that a draft decision shall be submitted to the ECB at least 15 working days before the expiry of the assessment period. Therefore, a request by the NCA to deliver further information, resulting in a suspension of the assessment period, must be made prior to the 45th working day of the assessment period.74 Since the NCA is not empowered to take a final decision on the acquisition, Union 36 law does not require a hearing if the NCA intends to propose a decision to oppose the acquisition.75 It could be argued that the NCA’s assessment, being an integral part of an ECB procedure, is not subject to national procedural law.76 The Berlusconi Judgment of the CJEU giving the European courts exclusive competence in Art. 15 SSMR procedures (infra, → para. 48)77 does not expressly preclude administrative hearings pursuant to national law. But even if a hearing should be available according to national law,78 it must be carried out in a manner not conflicting with the strict time limits of the assessment period.79

III. Draft decision of the NCA According to Art. 86(1) SSM‑FR, the NCA shall prepare a draft decision for the ECB 37 to oppose or not to oppose the acquisition. In either instance, the final decision rests with the ECB. In deviation from Art. 14 SSMR procedures, Art. 15 SSMR does not give the NCAs the power to finally reject an intended acquisition. Rather, the NCAs perform an integral step in a procedure of the ECB.80 Pursuant to Art. 23(2) CRD IV and the national law transposing this provision, the 38 intended acquisition may be opposed only if there are reasonable grounds for doing so on the basis of the assessment criteria or if the information provided by the acquirer is incomplete. Reasonable grounds to oppose the acquisition can be assumed if the NCA, on consideration of the facts and the documents provided, is not convinced of the suitability of the acquirer and the financial soundness of the acquisition with regard to the sound and prudent management of the credit institution. Since the proposed acquirer Heemann in Grieser and Heemann (eds), Europäisches Bankaufsichtsrecht (2016), at pp. 223, 262. Mersch, EuZW 2020, 781, at p. 785. 76 Lackhoff, Single Supervisory Mechanism (2017), at p. 175. 77 Case C-219/17 – Berlusconi and Fininvest/Banca d’Italia, ECLI:EU:C:2018:1023. 78 This is not the case in Germany. § 28(1) VwVfG (German Administrative Procedure Act) requires a hearing only if an adverse final decision is intended. 79 Lackhoff, Single Supervisory Mechanism (2017), at p. 175. 80 Lackhoff, Single Supervisory Mechanism (2017), at p. 175; Case C-219/17 – Berlusconi and Fininvest/Banca d’Italia, ECLI:EU:C:2018:1023, para. 55. 74

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has an evident interest to submit all documents supporting his case, the burden of proof rests with the acquirer.81 The NCA may also propose to oppose the acquisition on the ground of incomplete information. Since the assessment period will only start after acknowledgement of receipt of all documents required by the lists according to national law (formal completeness), the acquisition can be opposed if additional information that was requested by the NCA (Art. 22(3) CRD IV) was not delivered by the proposed acquirer, or if the information does not allow a qualified assessment.82 39 Since the decision to oppose an acquisition requires exercise of discretion, the NCA’s draft decision must also include considerations on discretion. However, as the final decision is entrusted to the ECB, exercise of discretion by the NCA has to comply with the standards of the exercise of discretion according to Union law.83 Pursuant to Art. 15(2) SSMR as modified by Art. 86(2) SSM‑FR, the NCA shall submit the draft decision to the ECB at least 15 working days before the expiry of the assessment period.

E. Assessment by the ECB (Art. 15(3) SSMR) I. Assessment according to Union law 40

According to Art. 15(3) SSMR, the ECB shall decide on the basis of the criteria set out in relevant Union law. Because Art. 23(1) CRD IV is not directly applicable, the ECB has to apply the national law transposing this provision.84 Hence, the assessment must also be based on the legal foundations that are relevant for the NCAs, encompassing Art. 23(1) CRD IV and the detailing factors set out in the Joint Guidelines. The ECB has to carry out an independent assessment that is not bound by the NCA’s prior assessment as is made clear by Art. 87 SSM‑FR stipulating that a decision has to be based on its own assessment and the NCA’s draft decision. In exercising this task, the NCAs are required to assist the ECB.

II. Procedure According to Art. 87 sent. 2 SSM‑FR, the right to be heard as provided for in Art. 31 SSM‑FR shall apply. Since the right to be heard is guaranteed (only) if the decision intended by the ECB adversely affects the rights of the proposed acquirer, 85 a hearing must take place if the ECB intends to oppose the acquisition. 42 The right to be heard guarantees the opportunity to comment in writing as provided for in Art. 31(1) sent. 1 SSM‑FR. Art. 31(1) sent. 2 SSM‑FR gives the ECB broad discretion if a meeting should be held.86 According to Art. 31(1) sent. 3 SSM‑FR, the ECB’s 41

81 Lackhoff, Single Supervisory Mechanism (2017), at p. 174; for Germany: Schäfer in Boos, Fischer and Schulte-Mattler (eds), KWG/CRR VO (5th edn, 2016), KWG § 2c paras. 16, 28; Verwaltungsgerichtshof Kassel, Case 6 A 2227/08, 6.10.2010, BeckRS 2010, 54766: doubts about the source of funds to finance the transaction may constitute reasonable grounds to oppose the acquisition. 82 Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (2016), para. 9.1; Mersch, EuZW 2020, 781, at p. 784. 83 Berger, WM 2016, 2361, at p. 2367 with regard to a draft decision to withdraw the authorisation. 84 Lackhoff, Single Supervisory Mechanism (2017), at p. 175 with fn. 810. 85 Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 200, referring to Art. 41(2)(a) CFEU. 86 See Lackhoff, Single Supervisory Mechanism (2017), at p. 115 on the criteria how to exercise discretion.

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notification to give the proposed acquirer the opportunity to comment shall mention the material content of the intended decision and the material facts, objections and legal grounds on which the ECB intends to base its decision. If the ECB intends to substitute the legal grounds or wants to base the decision on different or additional facts, it is required to give the opportunity for a second hearing.87 Finally, the right to be heard encompasses the right of access to the ECB’s acquisition file subject to the conditions set out in Art. 22(2) SSMR, Art. 32 SSM‑FR. Although the right of access is not mentioned in Art. 87 sent. 2 SSM‑FR, there is no doubt that the proposed acquirer is entitled to have access to the file, since the right of access is guaranteed in all supervisory procedures, see Art. 22(2) SSMR. Granting access may be necessary to enable the proposed acquirer to comment on the decision envisaged by the ECB. However, the ECB must keep in mind the time limits relevant for a decision to oppose. According to Art. 22(6) CRD IV and the national law transposing this provision, a proposed acquisition shall be deemed to be approved, if the competent authority – the ECB – does not oppose within the assessment period in writing. In the worst-case scenario, the ECB has to carry out its assessment and adopt a decision in writing within the 15 remaining working days of the assessment period (→ para. 35). Therefore, Art. 31(3)(3) sent. 2 SSM‑FR requires a shortening of the time limit to provide comment to three working days.

III. Decision Pursuant to Art. 87 SSM‑FR, the ECB shall decide on the basis of its own assessment 43 and the NCA’s draft decision. If the ECB decides not to oppose the intended acquisition, it does not need to act, because according to Art. 23(6) CRD IV, the acquisition shall be deemed approved if the ECB does not oppose the proposed acquisition within the assessment period. While regularly the withdrawal decision is adopted by the Governing Council of the ECB by way of the non-objection procedure pursuant to Art. 26(8) SSMR,88 under specific circumstances, the acquisition decision is delegated to nominated heads of working units within the ECB according to Art. 4 of ECB Decision (EU) 2019/1376.89 The ECB’s delegation framework aims at preserving the functioning of the decision-making bodies by giving it the inherent power to delegate non-complex decisions, insofar as such measures are justified.90 Hence, the delegation of decision-making power to heads of working units is limited to the cases that the acquisition is the result of the addition or removal of an intermediate layer in the acquirer’s group structure, the result of a shift of ownership in the target credit institution from one holding entity to another holding entity within the same group, or the result of the increase of an already existing qualifying holding without material changes involved.

87 Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 201; Lackhoff, Single Supervisory Mechanism (2017), at p. 115. 88 See Lackhoff, Single Supervisory Mechanism (2017), at p. 176 for the internal procedure: If the Governing Council objects to the draft decision of the Supervisory Board not to oppose, the acquisition will be deemed to be approved because of the lapse of time. 89 Decision (EU) 2019/1376 on delegation of the power to adopt decisions on passporting, acquisition of qualifying holdings and withdrawal of authorisations of credit institutions, OJ L 224, 28.8.2019, p. 1; Decision (EU) 2019/1377 nominating heads of work units to adopt delegated decisions on passporting, acquisition of qualifying holdings and withdrawal of authorisations of credit institutions, OJ L 224, 28.8.2019, p. 6. 90 Decision (EU) 2017/933 on a general framework for delegating decision-making powers, OJ L 141, 1.6.2017, p. 14; see also Gurlit, WM 2020, 57, at p. 58.

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The ECB may inform the proposed acquirer of a positive assessment upon the request of the acquirer.91 The acquirer will be especially interested in a positive statement if the assessment of the NCA and the ECB is completed prior to the end of the assessment period.92 However, it is not quite clear if the ECB may formally decide to approve the acquisition. The open wording of Art. 88(1)(b) SSM‑FR, relating the notification requirement to the “ECB Decision on the acquisition of a qualifying holding”, implies that the ECB may choose to adopt a formal approval decision.93 However, if accepting such a power, the question arises whether the ECB may attach conditions and obligations to the approval.94 Art. 22 CRD IV is silent on this issue. Since conditions and obligations affect the rights of the proposed acquirer, they may only be attached if provided for in the national law.95 Additionally, the imposition of conditions and obligations requires a hearing of the proposed acquirer. 45 If the ECB decides to oppose the intended acquisition, it must adopt a formal decision. The decision will usually be based on the substantive criteria set out in Art. 23(1) CRD IV or in the national law transposing this provision. However, the decision may also be based on grounds of incomplete information, if the potential acquirer fails to provide additional information requested by the NCA.96 Although Art. 87 SSM‑FR does not expressly require the ECB to consider the comments provided by the proposed acquirer,97 a duty to do so corresponds with the right to be heard.98 Additionally, as a fundamental rule grounded in primary law,99 the ECB may not base its decision on objections on which the proposed acquirer has not been able to comment, as is stipulated in Art. 22(1) sent. 2 SSMR, Art. 31(3) SSM‑FR. 46 According to Art. 22(2)(2) SSMR, Art. 33(1) SSM‑FR, and in line with Art. 41(2)(c) CFREU, the decision of the ECB has to be accompanied by a statement of reasons. The statement of reasons shall enable the proposed acquirer to examine if he or she should contest the decision. It further serves to enable judicial review of the legality of the decision.100 Therefore, the requirement of a statement of reasons is to be read strictly. 101 However, the requirement to provide a statement of reasons is not limited to these cases.102 If the ECB chooses the option to formally approve the acquisition, the decision must be accompanied by a statement of reasons as well. Pursuant to Art. 88(1)(b) SSM‑FR, the ECB must notify the proposed acquirer of its decision in accordance with 44

Recital 5 of Directive 2007/44/EC; Tusch, WM 2013, 633, at p. 636. This is the case, for example, if contract clauses link the execution of the proposed transaction to an approval of the relevant authority, Tusch, WM 2013, 633, at p. 635. 93 Tusch, WM 2013, 633, at p. 639 qualifies a formal “non-opposition” as a declaratory administrative act. 94 Lackhoff, Single Supervisory Mechanism (2017), at p. 175 suggesting such a power of the ECB. 95 § 2c (1b) sent. 3 KWG (German Banking Act) empowers German BaFin to impose appropriate measures directed to prevent a rejection of acquisition. 96 Mersch, EuZW 2020, 781, at p. 784: this is to be distinguishes from the constellation of not providing the relevant information for notification in first instance, thereby making it impossible for the NCA to confirm completeness of notification. In this case, the NCA may close the file. 97 Insofar Art. 87 SSM‑FR deviates from Art. 78(2) SSM‑FR requiring that a decision on an application for authorisation has also to be based on the comments received. 98 Lackhoff, Single Supervisory Mechanism (2017), at p. 115; Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 201. 99 Art. 41(2) CFREU, Art. 296(2) TFEU. 100 Case C-417/11 P, Council v Bamba, ECLI:EU:C:2012:718, para. 49; Lackhoff, Single Supervisory Mechanism (2017), at p. 120. 101 Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 204. 102 Case C-413/06, Bertelsmann and Sony v Impala, ECLI:EU:C:2007:790, Opinion of AG Kokott, para. 98. 91

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Art. 35 SSM‑FR. Additionally, the ECB must inform the relevant NCA, see Art. 88(2)(c) SSM-FR.

F. Judicial review I. Distribution of competences between national and European courts Decisions on acquisitions of qualifying holdings as being adopted in a cooperative 47 arrangement between NCAs and the ECB are challenging with regard to the allocation of judicial competences. In principle, competences are not distributed following the origin of the law that has to be applied; instead, the allocation of judicial competence follows the institution that acted or abstained from action required by law. Hence, decisions adopted and other actions executed by the NCA are to be contested before the national courts, while acts performed or abstained from by the ECB can only be challenged in the European courts.103 Deviating from authorisation procedures pursuant to Art. 14 SSMR, there is no pow- 48 er of the NCAs to adopt final decisions on the acquisition of qualifying holdings, irrespective of whether the acquisition is approved or opposed. Instead, the NCAs prepare non-binding draft decisions, which is a necessary step in a procedure that is finalised by the ECB. The CJEU concluded in the Berlusconi Case that judicial review is exclusively entrusted on the European courts.104 This follows the argument that judicial review should be concentrated on the actor whose decision-making power gives rise to immediate adverse legal effects. The preparatory acts of the NCAs will be reviewed by the European courts incidentally insofar, as the illegality of the preparatory acts could affect the validity of ECB’s final decision.105 Hence, the “preparatory acts doctrine” is aimed at serving procedural economy.106

II. Review in the European courts 1. Optional administrative review If an acquisition was finally opposed by the ECB, the proposed acquirer may request 49 a review of this decision by the Administrative Board of Review (ABoR) according to Art. 24(1) and (5) SSMR. Review by the ABoR is “without prejudice” to the right to bring proceedings before the European courts,107 thereby rendering review by ABoR 103 Berger, WM 2015, 501, at p. 504; WM 2016, 2361, at pp. 2367 et seq.; Glos and Benzing in Binder, Glos and Riepe (eds), Handbuch Bankenaufsichtsrecht (2nd edn, 2020), § 2 para. 235; Ohler, Bankenaufsicht und Geldpolitik in der Währungsunion (2015), § 5 para. 246; Brescia Morra, Quaderni di Ricerca Guridica, No 81 (2016), 109, at pp. 128 et seq. 104 Case C-219/17, Berlusconi and Fininvest/Banca d’Italia, ECLI:EU:C:2018:1023, paras. 47 et seq.; confirmed in Case C-414/18, Iccrea Banca/Banca d’Italia, ECLI:EU:C:2019:1036, paras. 37 et seq. 105 Case C-219/17, Berlusconi and Fininvest/Banca d’Italia, ECLI:EU:C:2018:1023, paras. 47 et seq.; analysis of the “preparatory acts doctrine” by Lefterov, ESCB Legal Conference 2020 (2021), 286, at pp. 290 et seq.; Lackhoff, Single Supervisory Mechanism (2017), at pp. 254 et seq.; analysis of potential violations of the NCA infecting the ECB’s decision is offered by Mersch, EuZW 2020, 781, at p. 785; composite procedures within to the SRM analysed by Valavanidou, ESCB Legal Conference 2020 (2021), 278, at pp. 279 et seq. 106 Lefterov, ESCB Legal Conference 2020 (2021), 286, at p. 291. 107 Art. 24(11) SSMR uses the somewhat unclear abbreviation “CJEU”, meaning the “Court of Justice of the European Union”, Recital 48 SSMR, encompassing the General Court, Court of Justice (CJEU) and specialised courts, Art. 19(1) TEU; see Berger, WM 2015, 501, at p. 505.

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optional.108 Following a non-binding opinion of the ABoR, the ECB will adopt a new decision abrogating the initial decision, replacing it with a decision of identical content, or replacing it with an amended decision, Art. 24(7) SSMR.109

2. Admissibility of action for annulment 50

The appropriate action for an unsuccessful acquirer is an action for annulment according to Art. 263 TFEU. The action is directed either against the original decision of the ECB or – in the case of a previous review by the ABoR – against the decision replacing that decision after an opinion of the ABoR was delivered. Actions brought by natural or legal persons fall in the jurisdiction of the General Court (Art. 256(1) sent. 1 TFEU in conjunction with Art. 51 Statute of the CJEU) and may be appealed before the CJEU (Art. 256(1)(2) TFEU in conjunction with Art. 56 Statute of the CJEU). Art. 263(4) TFEU grants standing to the unsuccessful acquirer as addressee of the ECB decision. Questions of third-party standing have so far not come up in the courts with regard to the acquisition of qualifying holdings. However, the target bank may be directly and individually concerned by the ECB’s decision to oppose the acquisition if the transaction is based on a contractual agreement with the acquirer.

3. Assessment of the court Pursuant to Art. 263(2) TFEU, the CFI reviews the legality of the ECB’s decision as regards complaints of lack of competence, infringement of an essential procedural requirement, infringement of the treaties or of any rule of law relating to their application, or misuse of powers. If the ECB’s interpretation and application of the assessment criteria of Art. 23(2) CRD IV is at stake, the plaintiff will raise the issue of infringement of the treaties or of other applicable rules. 52 The General Court has to examine the legality of the ECB’s act with regard to its interpretation of the relevant Union law. Since Art. 4(3)(1) SSMR requires the ECB to apply the national legislation transposing the directives, it follows that review of the European courts include the examination of the ECB’s application of national law transposing Union law as well.110 This construction is viewed as problematic if the European courts have to examine the preparatory act of the NCA incidentally, that may suffer from defects of administrative procedure law not based on Union law.111 However, it is hardly conceivable that violation of procedural requirements according to national law could bear on the validity of the final decision of the ECB.112 51

108 Berger, WM 2015, 501, at p. 505; Glos and Benzing in Binder, Glos and Riepe (eds), Handbuch Bankenaufsichtsrecht (2nd edn, 2020), § 2 para. 227. This is also the view of the ECB, see Decision of the ECB of 14.4.2014 concerning the establishment of the Administrative Board of Review (ECB/2014/16), Recital 4. 109 See for a comprehensive account of ABoR procedures Glos and Benzing in Binder, Glos and Riepe (eds), Handbuch Bankenaufsichtsrecht (2018), § 2 paras. 240 et seq.; Brescia Morra, Quaderni di Ricerca Guridica, No 81 (2016), 109, at pp. 112 et seq. 110 Cases T-133/16 to 136