On this page, the terms “bank” and “credit institution” are used interchangeably.
In European banking supervision the ECB is the authority in charge of banking authorisations, which include the following.
- “Common procedures”: the licensing of banks, withdrawal of banking licences and authorisation of acquisitions of qualifying holdings in banks. These decisions are taken by the ECB for all banks and investment firms authorised as banks under European banking supervision (both significant and less significant institutions).
- The supervisory approval or exemption from approval of (mixed) financial holding companies owning banks under direct ECB supervision.
- “Fit and proper” assessments, that look into whether members of the management body of a bank (or an investment firm authorised as a bank) or a (mixed) financial holding company are suitable for their roles. Outside the context of licensing or qualifying holdings, the ECB only takes fit and proper decisions for significant banks.
When deciding on authorisations, the ECB applies the EBA's Single Rulebook and, where relevant, national law.EBA Single Rulebook
National supervisory authorities play an important role in these authorisation processes: they are the entry point for related applications and cooperate closely with the ECB in assessing them. The ECB also works together with national supervisors to ensure a consistent approach and high standards across countries. Supervisory expectations are laid out in public guides.
Licensing of banks
The licensing process establishes confidence in the financial system because it ensures that banks that enter the market are fit to operate: only robust banks which comply with all legal requirements can get a licence. The same process and criteria apply to all banks – those with more traditional business models as well as those whose business models are based on technological innovation. Licensing should not hinder competition or innovation.
Licensing of investment firms
Following the entry into force of the legal framework for investment firms (Investment Firm Regulation and Directive), the definition of “credit institution” in the CRR has been amended to include investment firms that are classified as systemic. This includes investment firms:
- that are authorised to deal on their own account, and/or to underwrite/place financial instruments on a firm commitment basis (activities referred to in points (3) and (6) of Section A of Annex I of Directive 2014/65/EU);
- whose total value of assets at individual or group level is at least €30 billion (or subject to supervisory discretion if this value is less than €30 billion).
Those investment firms that qualify as systemic must apply for a banking licence at the latest on the day they meet the criteria. The cut-off date for the application of the Investment Firm Regulation and the transposition into national law of the Investment Firm Directive is 26 June 2021. From this date onwards investment firms can be authorised as credit institutions and fall under European banking supervision. Those that qualify as significant institutions will be directly supervised by the ECB, and those classified as less significant institutions will be supervised by national supervisors under the oversight of the ECB. In this oversight function, the ECB seeks to ensure that joint supervisory standards are applied consistently across the system and works closely with national supervisors to further harmonise the implementation of the rules governing banking supervision.
The ECB considers four main areas when it assesses a bank’s licence application.
- The amount, quality, origin and composition of the applicant credit institution’s capital and other regulatory requirements
- The programme of activities, structural organisation and business plan of the applicant credit institution
- Fit and proper assessments of the applicant credit institution’s management body
- A suitability assessment of direct and indirect shareholders of the applicant credit institution
The ECB assesses the applications in cooperation with the relevant national supervisors.
It usually takes from six to twelve months for a decision to be taken. EU law states that a decision must be taken within six months of the receipt of a complete application, but no more than 12 months following the receipt of the application. Some national legal deadlines are shorter.
* where applicable
** or rejection by the national supervisor
Acquisition of qualifying holdings
Approval from the ECB is needed for the acquisition or increase of a “qualifying holding” in an existing bank. A holding counts as “qualifying” if it represents 10% or more of the capital or voting rights in the bank or if it makes it possible to exercise significant influence over the bank. Applicable law provides for additional thresholds (e.g. 20, 30 or 50% of shares and/or voting rights or the bank becoming a subsidiary). The approval process aims to ensure that significant participations in banks can only be acquired by suitable shareholders. This helps to ensure the smooth functioning of the banking system.Supervision. Explained.: What is a qualifying holding? Supervision. Explained.: What is the ECB’s role in bank mergers and acquisitions?
The criteria assessed by the ECB are the following:
- reputation of the proposed acquirer;
- fitness and propriety of the board members to be appointed by the proposed acquirer;
- financial soundness of the proposed acquirer;
- ability of the target to continue to comply with prudential requirements following the acquisition;
- whether the transaction involves, or increases the risk of, money laundering or the financing of terrorism.
The ECB assesses the applications in cooperation with the relevant national supervisors.
A qualifying holding must be authorised or objected to within 60 working days of the receipt of a complete application. The timeframe may be extended by up to 30 working days, to a maximum of 90 working days. When a qualifying holding application coincides with a (mixed) financial holding company approval, an additional suspension of the assessment period for the qualifying holding can take place until the (mixed) financial holding company has been approved.
* where applicable
** or senior management, if delegated
Withdrawal of licence
Both the ECB and the relevant national supervisor have the right to initiate the withdrawal of a banking licence in certain circumstances. A licence may be withdrawn if a credit institution ceases its activities or no longer meets the established requirements.
EU law does not foresee a deadline for a decision to be taken. The timeline for a decision depends on the circumstances of each case and any legal or procedural requirements under applicable law.
Withdrawal initiated by the ECB
* where applicable
Withdrawal initiated by the national supervisor
* often at the request of the bank
** where applicable
*** or senior management, if delegated
“Fit and proper” assessment
The management body of a credit institution must be suited to carry out its responsibilities. It must also be composed in a manner that ensures effective management and balanced decision-making. To ensure this the ECB assesses the individual and collective suitability of members of banks’ management bodies.
Ensuring that banks’ management bodies are “fit and proper” enhances the safety and soundness of individual banks and strengthens the banking sector as a whole. It also helps increase public trust in the people managing the euro area’s financial sector.
The ECB considers five criteria within the fit and proper assessment:
- conflicts of interest and independence of mind;
- time commitment to duly perform the functions;
- collective suitability of the board.
When appointments are part of a licensing or qualifying holding procedure, the fit and proper assessment forms part of the overall licensing or qualifying holding assessment.
National legal deadlines apply.
* or senior management, if delegated
Approval of parent (mixed) financial holding companies
Many supervised banks are controlled by a parent company. It is important that supervisors also keep an eye on this parent company, in particular if it qualifies as a financial holding company (FHC) or a mixed financial holding company (MFHC) in its own right. A parent company qualifies as a financial holding company if more than 50% of its equity, consolidated assets, revenues, personnel or other indicator considered relevant by the banking supervisor are associated with subsidiaries that are banks or financial institutions.
This ensures the effective supervision of those banks controlled by another company as well as a coordinated overview of the whole group (the supervised group).
Therefore, following the introduction of CRD, parent (M)FHCs are also subject to an approval process. Once approved, the parent company takes on the responsibility of ensuring compliance with the consolidated prudential requirements throughout the whole supervised group. In the past, the credit institution subsidiary was responsible for ensuring compliance with prudential requirements on a consolidated basis. The parent (M)FHC can also be exempted from approval if the cumulative conditions laid down in law are met and another company takes on that responsibility within the group.
Whenever the ECB is the supervisor of a significant banking group it is responsible for approving or exempting these parent (M)FHCs. In some cases, the ECB will take a joint decision with another competent authority outside the SSM. The approval or exemption of parent companies of less significant banking groups is the responsibility of the national supervisory authorities that supervise these groups.
The criteria the parent (M)FHC must fulfil to obtain an approval are the following.
- Adequate internal arrangements and distribution of tasks within the supervised group that allow the group to effectively coordinate all the subsidiaries, prevent or manage conflicts within the group and enforce the group-wide policies.
- The structure of the group does not prevent the effective supervision of the subsidiary banks or the parent. The role and the position of the parent company in the supervised group and the overall shareholding structure are important factors in this respect.
- The requirements concerning the suitability of shareholders and the fitness and propriety of directors are fulfilled.
If these criteria are met, the ECB grants its approval and monitors the fulfilment of the criteria on an ongoing basis. If it finds that the criteria are not met, or are no longer met, it can impose supervisory measures on the parent to ensure or restore effective supervision and compliance with the requirements.
The parent (M)FHC must fulfil all of the below criteria to obtain an exemption:
- the parent company’s main activity is to acquire holdings;
- the parent company has not been designated as a resolution entity;
- another subsidiary in the supervised group has been designated as responsible to ensure the group’s compliance with prudential requirements on a consolidated basis;
- the parent company does not take decisions that affect the whole supervised group;
- there is no impediment to effective supervision of the group.
We carefully assess whether these criteria are fulfilled and only grant exemptions when all of the above criteria are met.
If the ECB intends to refuse the approval or exemption it will notify the applicant within four months of the receipt of a complete application. The ECB will in any event take a decision within six months from the receipt of the application.
Intermediate EU parent undertaking
When two banks in the European Union belong to the same third-country group, they have to establish a single parent entity in the EU. This is called an intermediate EU parent undertaking, or IPU for short.
This parent entity can be a bank, a financial holding company, a mixed financial holding company or in some cases an investment firm.
This requirement to have a single parent entity in the EU applies to third-country groups with total EU assets of at least €40 billion. This includes the assets of the third-country group’s branches in the EU.
Having a single parent entity in the EU allows for consolidated supervision of otherwise standalone entities. It helps supervisors get a full picture of the risks stemming from all of the third-country group’s activities in the EU.