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Single Supervisory Mechanism (SSM)

The Single Supervisory Mechanism (SSM) is a key component of the European Union's Banking Union, serving as its first pillar. It grants the European Central Bank (ECB) supervisory powers over the financial system in the EU, particularly:

1. Scope: The SSM covers financial institutions in the euro area and non-euro EU countries that opt to join. It directly supervises significant banks, while national supervisors oversee smaller institutions.
2. Objectives: The main goals of the SSM are to ensure that banks adhere to EU banking regulations and to address problems at an early stage. This is achieved through a collaborative effort between the ECB and national supervisory authorities.

Relevant Legislation

The single supervisory mechanism (SSM) is the first component, or ‘pillar’, of the banking union and is regulated by the SSM Regulation 1024/2013. Delegated and implementing acts: Delegated and implementing acts to the SSM Regulation

Under the SSM, the European Central Bank (ECB) is the central prudential supervisor of financial institutions:

• in the euro area
• in non-euro EU countries that choose to join the SSM​

1. EURO Member States - SSM gives the European Central Bank certain supervisory powers over the EU financial system. By this Regulation the ECB does the following.
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• Directly supervises significant banks. A bank may be deemed as significant depending on its size, its importance to the domestic banking sector or whether it has been recapitalised by public funds. The ECB has the authority to:
  • conduct supervisory reviews, on-site inspections and investigations;
  • grant or withdraw banking licences;
  • assess a bank’s acquisition and disposal of qualifying holdings;
  • set higher capital requirements (‘buffers’) to counter current or future financial crises;
  • ​impose sanctions for any breach of EU law on credit institutions, financial holding companies* and mixed financial holding companies*.

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2. NON-EURO Member States - For non-Euro Member States, there are one Regulation and two Decisions more:
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• ​Regulation (EU) No 468/2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the European Central Bank and national competent authorities and with national designated authorities (SSM framework regulation) (ECB/2014/17)
• Decision 2014/434/EU on the close cooperation with the national competent authorities of participating non-euro Member States (ECB/2014/5) (ECB decision on close cooperation)
• Decision (EU) 2020/1015 establishing close cooperation between the European Central Bank and Българска народна банка (Bulgarian National Bank) (ECB/2020/30)

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3. Supervisory fees - There are one Regulation and one Decision more to the basic Regulation. 

Regulation (EU) No 1024/2013 (the basic Regulation) lists specific tasks for the European Central Bank (ECB) including levying an annual supervisory fee* on credit institutions*. This Regulation also establishes, in its Article 30, the principle of the payment of supervisory fees. It states that:

• the ECB:
  • levies an annual fee on all banks and branches falling within the scope of European banking supervision to cover the cost of its tasks and responsibilities;
  • establishes how to calculate the fees after conducting public consultations and analysing potential costs and benefits;
  • may require advance payments of the fee based on a reasonable estimate;
• supervisory fees:
  • are based on, and should not be higher than, the ECB’s expenditure on the specific supervisory tasks;
  • are determined by objective criteria linked to the importance and risk profile of the particular credit institution, including its risk weighted assets;
  • national authorities may levy fees under national law for costs they incur.

Regulation (EU) No 1163/2014 (ECB/2014/41) lays down the methodology and criteria for calculating the total amount of annual supervisory fees, their breakdown by supervised entity and supervised group and how the ECB collects them.

• This Regulation states that:
• the ECB levies an annual supervisory fee from each supervised credit institution or branch (the fee debtor*) established in a participating Member State;
• the annual supervisory fees to be levied on the supervised entities are calculated on the basis of the expenses incurred by the ECB in the relevant fee period that are directly or indirectly related to its supervisory tasks;
• total assets and total risk exposure (each 50%) of the fee debtor determine the annual fees. Specific rules apply to:
  • new supervised entities and entities no longer supervised or whose status has changed;
  • the split of annual costs between significant and less significant supervised entities;
  • the minimum fee component (a fixed 10% of the annual supervisory fee). This may be halved for entities and groups with total assets below specific thresholds;

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• the ECB:
  • cooperates with national competent authorities to ensure supervision remains cost-effective and reasonable for all credit institutions and branches;
  • issues fee notices annually to each fee debtor within 6 months of the fee following period and the amount due is to be paid within 35 days of the date of issuance of the fee notice;
  • applies interest on any outstanding amounts of the supervisory fee;
  • may impose sanctions;
  • submits an annual report to the European Parliament, Council of the European Union, European Commission and Eurogroup.

Decision (EU) 2019/2158 (ECB/2019/38) states that:
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• the ECB determines the respective fee factors in accordance with the total risk exposure amount and total assets for supervised entities and groups;
• fee debtors intending to exclude assets and/or risk exposure of subsidiaries in non-participating Member States or in non-EU countries must notify the ECB;
• national competent authorities ensure the quality and reliability of the fee factors they receive in standard templates from fee debtors before submitting them to the ECB.