European Court of Auditors Special Report on Single Supervisory Mechanism

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On November 18, 2016, the European Court of Auditors published a report on the Single Supervisory Mechanism (“SSM“) (No 29/2016). The SSM was set up by the European Central Bank (“ECB“) to ensure the consistent application of prudential rules across the euro-zone countries. The report examines the setup and workings of the SSM and concludes that the complexity of the new system is a challenge, especially because it relies too heavily on the resources of national supervisors. This means that despite the ECB’s overall responsibility, the ECB has insufficient control over some important aspects of banking supervision.

The full report can be found here, but, in brief, specific concerns identified in the report relate to:

  • Under resourcing of internal audit for its work on the SSM, which is given less attention than other audit tasks.
  • Efforts to ensure transparency and accountability for the SSM towards the European Parliament and the general public are potentially weakened by the lack of a proper process for assessing and then reporting on supervisory effectiveness.
  • The independence of the ECB’s work relating to monetary policy and supervision functions.
  • Insufficient staffing levels and overdependence on staff appointed by national authorities leading to the ECB having insufficient control over the composition and skills of supervision and inspection teams.
  • Insufficient allocation of resources to joint off-site supervisory teams.
  • Inspection teams for on-site supervision include insufficient ECB staff. There are also concerns over missing guidance on prioritization for inspection requests, IT shortcomings and the qualifications of national competent authority on-site inspectors.

The report sets out a number of recommendations on how the SSM could be improved in relation to issues outlined above and explains that the ECB was not willing to share a number of documents needed for the audit to be completed. As a result, the report only reflects a partial assessment of whether the ECB is managing the SSM efficiently in the areas of governance, off-site supervision and on‑site inspections.