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ECB and NCAs: a productive partnership for LSI supervision

Almost five years into European banking supervision, cooperation between the European Central Bank (ECB) and national competent authorities (NCAs) in the supervision of less significant institutions (LSIs) is well established. Although NCAs are responsible for the direct supervision of LSIs, the ECB is responsible for ensuring that supervisory processes and methodologies are applied consistently throughout the system, while taking the proportionality principle into account. To that end, close collaboration between the ECB and NCAs is of the utmost importance to enable the ECB to perform its oversight tasks.

Cooperation has gained momentum since the early years of the Single Supervisory Mechanism (SSM), as shown in the graph below. Between 2016 and 2018, the number of cooperation initiatives increased by 48%, from 23 to 34. Examples of these include multilateral fora, bilateral visits and workshops at both management and technical level. In addition to planned initiatives, both the ECB and the NCAs may undertake ad hoc initiatives, for example in areas where the NCAs see the need for stronger cooperation on LSI supervision. Targeted cooperation initiatives help the ECB coordinate and support NCAs’ activities in cases where a country is facing challenges in its LSI banking sector and/or in the supervision of that sector.

Cooperation on LSI supervision under the SSM is on the rise

In the case of multilateral fora, cooperation at senior management level is supported through the organisation of a high-level network and conferences. The goal of these initiatives is to assist the Supervisory Board in fulfilling its tasks related to LSI supervision. At expert level, workshops and working groups are organised to discuss specific technical topics.

The ECB also promotes ongoing bilateral initiatives, again at both senior management and expert level, to address country-specific issues. These initiatives can take the form of country visits, meetings at the ECB and teleconferences. In 2018, ECB senior management took part in 16 country visits to NCAs, while one meeting took place at the ECB and 13 teleconferences were held, again at senior management level. Other forms of bilateral initiatives include joint supervisory activities such as on-site inspections and the secondment of NCA experts to the ECB for a few months. Between 2016 and 2018, the ECB benefited from the expertise of 14 seconded staff members from nine NCAs. In 2018, five NCAs took part in cooperation “on the ground” where the ECB hosted NCA staff, or vice versa, for a temporary period.

So far, cooperation initiatives between the ECB and NCAs have taken place on a wide range of supervisory topics such as supervisory priorities, methodologies and LSI risk analysis. For instance, the ECB has organised several training events on the new LSI Supervisory Review and Evaluation Process (SREP) methodology and offered methodological advice, at NCAs’ request, to support the implementation of the business model assessment methodology. Training sessions were also conducted on the supervision of IFRS 9 implementation by LSIs. Both of the LSI SREP and IFRS 9 training events were supported by online e-learning tools.

Since 2016, 16 NCAs have hosted major events relating to LSI supervision. Thematic highlights of supervisory cooperation include IFRS 9, fintech, a roadshow on the methodology for LSI on-site inspections and support for one NCA in developing a stress-testing methodology. In 2017, the rate of participation in cooperation initiatives reached about 25% of all staff tasked with LSI supervision under the SSM.

Since the SSM came into existence, all these initiatives have helped foster closer collaboration across the euro area. This has strengthened the dynamic between NCAs and the ECB and enabled them to learn from each other, exchange experience and expertise and apply best practices, which in turn promotes a common supervisory culture.

The cooperation plan for 2019 sees cooperation growing and intensifying with respect to previous years, with several new bilateral cooperation initiatives between NCAs.

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