Sanctions: a tool to enhance regulatory compliance and supervisory effectiveness

13 June 2025

By Pedro Machado, Member of the Supervisory Board of the ECB

Banks must carefully manage their risks and operations. They must address any shortcomings promptly. Supervisors, for their part, compel banks to make the necessary improvements if their existing processes fall short. Supervisors thoroughly analyse any issues that arise. They assess how serious they are and consider the best course of action for each case.

To this end, ECB Banking Supervision uses an escalation framework. This provides a structured approach to making sure banks address supervisory findings promptly and effectively. The escalation process typically begins with identifying potential problems or breaches. More intrusive tools – including sanctions – can be applied if required.

The ability to impose sanctions on banks and members of their decision-making bodies is an important tool in the hands of supervisors. Sanctions play a crucial role in fostering a culture of compliance across the banking sector. They are a cornerstone of credible and effective supervision.

The role of sanctions

Integrating sanctions into the escalation framework and aligning them with other supervisory measures makes our supervision more effective. In some cases, we can use sanctions on their own. In others, escalating from supervisory measures to sanctions can be the best approach.

The aim of sanctions is not just to punish violations of prudential rules. It is also to prevent future breaches by discouraging similar behaviour. It is thus a preventative measure to maintain compliance and deter misconduct.

The strategic use of sanctioning powers is underpinned by a complex legal framework. This framework divides responsibilities between the ECB and national competent authorities (NCAs), allowing for a coordinated and comprehensive approach to regulatory enforcement in the banking sector. While the ECB and NCAs have distinct roles, they also collaborate where needed. This creates a complementary structure that helps to address challenges effectively.

One such challenge is fostering a compliance culture where banks follow the rules not just because of the threat of punishment, but because it is part of their standard practices and values. This is a complex task and has led to the cautious use of sanctioning powers since the inception of ECB Banking Supervision.

European supervisors today are increasingly determined to use all the tools at their disposal, including sanctions, to discourage non-compliance and hold banks and their management accountable. This commitment is evident in the statistical data on sanctions that the ECB and NCAs impose. The data cover breaches of prudential rules under European banking supervision’s remit and we publish them annually on our website since 2020.

Key focus areas and emerging trends

Data show that the sanctioning activities under European banking supervision primarily concern breaches in the areas of internal governance and risk management. This reflects past and current supervisory priorities. It also highlights our continued commitment to strengthening governance frameworks in the banking sector. Other issues, such as reporting, large exposures, own funds, capital requirements, liquidity and qualifying holdings, are also frequently addressed through sanctions.

The recently published annual report on the sanctioning activities of the ECB and NCAs in 2024 shows an increase by 19% in sanctioning proceedings compared with the previous year. This was accompanied by a rise in the total number of penalties imposed, marking a year of efficient and rigorous enforcement.

This trend reflects the growing emphasis on regulatory compliance as the ECB intensifies the use of its full range of tools to enhance supervisory effectiveness. Fines totalling €27.9 million were imposed across supervised entities in 2024. The largest penalty was €10.4 million and was levied by the ECB against a significant institution for a severe breach (for more information, see our website).

While sanctioning activities primarily target supervised entities, individual accountability is increasingly in focus. In this regard, members of decision-making bodies or senior management may also be subject to penalties if their conduct falls within the scope of sanctions. In fact, the 2024 data already point to greater scrutiny on individual responsibility. Nearly half of all penalties imposed resulted from sanctioning proceedings against natural persons.

The recent amendments to the Capital Requirements Directive have further strengthened the sanctioning powers of European banking supervision. This may lead to a broader range of breaches being targeted.

Conclusion

The integration of sanctions into the ECB’s escalation framework strengthens compliance, enhances supervisory effectiveness and acts as a deterrent against future violations. In doing so, it helps safeguard the safety and soundness of banks and promotes a culture of compliance across the banking sector. The escalation process allows for a nuanced approach. It enables sanctions to be applied independently or alongside other supervisory measures to address deficiencies effectively. Collaboration between the ECB and NCAs ensures that sanctions can also be pursued at national level where relevant or when required by law.

Recent data highlight the increased scrutiny and sanctioning of both supervised entities and individuals, with a continued emphasis on governance-related breaches. This reflects ECB Banking Supervision’s commitment to ensuring compliance with prudential rules and maintaining the integrity and resilience of the European banking system through robust supervisory action. At the same time, we are committed to exercising our sanctioning powers with proportionality and consistency, recognising that sanctions are a means to an end and not an end in themselves.

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