CubeIQ Blog - CubeIQ Limited

Go to content

European System of Financial Supervision

CubeIQ Limited
Published by in Risk & Compliance ·
Tags: #ESFS#FinancialSupervision

The framework under which European Union supervises the European Financial institutions and imposes regulations among which are 4MLD‎, MiFID-II, MAD/MAR … and other is called European System of Financial Supervision (ESFS) and was formed by the European Commission in 2009 in response to the financial crisis of 2007 – 2008.

The main objective of the ESFS is to ensure that the rules applicable to the financial sector are adequately implemented in order to preserve financial stability, to promote confidence in the financial system as a whole, and provide sufficient protection for financial consumers.

The European System of Financial Supervision is consisted of:

The European Systemic Risk Board (ESRB)
The European Systemic Risk Board (ESRB) carries out macro-prudential oversight of financial markets at the European level. Its objective is to prevent and mitigate systemic financial stability risk in the European Union in the light of macro-economic developments. The ESRB carries out a range of tasks including the collection and analysis of relevant information, risk identification and prioritization, issuing warnings and recommendations, monitoring their follow-up, and providing assessments to the Council on the existence of any emergency situations that may arise. It also cooperates with other members of the ESFS and coordinates actions with other international financial organizations such as the International Monetary Fund (IMF) and the Financial Stability Board (FSB).

The European Supervisory Authorities (ESAs)
The objective of the ESAs is to improve the functioning of the internal market by ensuring appropriate, efficient and harmonized European regulation and supervision. ESAs’ objectives is realized by ensuring consistent application of rules by national competent authorities across the EU as well as to work with the European Commission to prepare detailed secondary legislation for the implementation of financial services Regulations and Directives.
ESA consists of the three European Supervisory Authorities (ESAs):

The Joint Committee of the ESAs
The Joint Committee is a forum with the objective of strengthening cooperation between the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA), collectively known as the three European Supervisory Authorities (ESAs).
The Joint Committee works to ensure cross-sectorial consistency and joint positions in the area of supervision of financial institutions. The ESAs, within the Joint Committee, jointly explore and monitor potential emerging risks for financial markets and the financial system as a whole and coordinate their supervisory activities in the scope of their regulatory responsibilities. The Joint Committee also is the instrument of coordination and exchange of information between the ESRB and the ESAs.

The European Central Bank and the National Supervisory Authorities (NSAs) of EU Member States
The National supervisory authorities, Member States central (or National) Banks remain in charge of supervising individual Member State Financial Institutions. National Supervisory Authorities (NSAs) ensure the supervision of the regulatory framework in all Member States Financial Institutions.
NSAs are responsible, in particular, to:
  • Advice Member States Financial Institutions on ECB new regulations
  • Generate appropriate local legislation depicting ECB new or amended regulations
  • Supervises enforce and certifying the implementation of CEB regulatory framework
  • Supervises credit and financial institutions and certain categories of enterprises in the financial sector
  • Supervises insurance and reinsurance firms as well as insurance intermediaries

Single Supervisory Mechanism (SSM)
The Single Supervisory Mechanism (SSM) is the name for the mechanism which has granted the European Central Bank (ECB) a supervisory role to monitor the financial stability of banks based in participating states, starting from 4 November 2014. Eurozone states are obliged to participate, while EU Member states of the European Union outside the Eurozone can voluntarily participate. As of 3 November 2014, none of the Non-Eurozone Member states had opted to join, although the ECB reported that some of them had expressed an interest in joining, and that talks were being held with each of them to map which changes to national legislation need to be adopted in order to become a SSM member. The SSM is the first established part of the EU banking union, and will function in conjunction to the Single Resolution Mechanism.

The Single Supervisory Mechanism was decided as part of the euro area shift towards banking union at the European Council summit in in Brussels on 28–29 June 2012. The proposal for establishing SSM European was developed by European Commission and was published it on 12 September 2012. The European Parliament and Council agreed on the specifics of ECB supervising of Eurozone banks on 19 March 2013. The European Parliament voted in favor of the SSM Regulations on 12 September 2013 and the Council of the European Union gave their approval on 15 October 2013. The SSM Regulation set 4 November 2014 as the date when the ECB would begin its supervisory role.

Within the Eurozone, the regulation specifics gives the ECB responsibility for a total of 122 banks, representing assets worth €22 trillion, equal to 82%, of total banking assets Other smaller banks in the SSM (more than 6,000 in the Eurozone alone) will be supervised by its National Supervisor, central (or National) Banks, although the ECB will keep final supervisory authority over these banks.

The SSM operates as a system of common bank supervision in the EU that involves national supervisors and the European Central Bank. The ECB is empowered with final supervisory authority while national supervisors are in a supporting role. The ECB's monitoring regime includes conducting stress tests on financial institutions. If problems are found, the ECB will have the ability to conduct early intervention in the bank to rectify the situation, such as by setting capital or risk limits or by requiring changes in management. However, if a bank is found to be in danger of failing, the responsibility for resolving it will rest with the Single Resolution Mechanism.

For Anti-Money Laundering, Fraud Management and Compliance Solutions please visit
For more information on CubeIQ solutions and services please visit


Back to content