- Question ID
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2015_2074
- Legal act
- Directive 2014/59/EU (BRRD)
- Topic
- Other topics
- Article
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3
- Paragraph
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3
- COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
- Not applicable
- Article/Paragraph
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n.a.
- Type of submitter
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Competent authority
- Subject matter
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Interpretation of the requirement of structural separation of the competent (supervisory) and resolution functions
- Question
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In case both functions, supervisory as well as resolution authority, were to be held by the Central Bank, what is the level of structural separation needed?
- Background on the question
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Article 3 (3) of Directive 2014/59/EU (BRRD) requires to have structural arrangements in place to ensure operational independence and avoid conflicts of interests between the supervisory (both macro and micro) and resolution functions. Thus, the staff of the two functions must be structurally separated. Two aspects have to be considered in this context: 1. If the supervisory and the resolution functions will be integrated in one authority, how should the requirements of the structural separation and separation of powers be implemented? Can the resolution authority operate as an individual department within the same decision line as the supervisory and macroprudential authority (regarding the decision makers)? At which level of the hierarchy the separation is needed as the final decision will eventually be taken by the governor of the central bank? 2. The supervisory authority, the macroprudential authority and the resolution authority are defined separately from a legal point of view with regard to their different tasks, functions and powers based on the determination of e.g. consultation with the authority, confidentiality, exchange of information etc. What is your opinion related to the dividing the powers and functions inside the central bank having all these different functions? The possibility of the communication, the consultation and the exchange information would stay feasible in a regulated way. For reference, here the exact text related to the issue: "In particular, Member States shall ensure that, within the competent authorities, national central banks, competent ministries or other authorities there is operational independence between the resolution function and the supervisory or other functions of the relevant authority. The staff involved in carrying out the functions of the resolution authority pursuant to this Directive shall be structurally separated from, and subject to, separate reporting lines from the staff involved in carrying out the tasks pursuant to Regulation (EU) No 575/2013 and Directive 2013/36/EU or with regard to the other functions of the relevant authority. For the purposes of this paragraph, the Member States or the resolution authority shall adopt and make public any necessary relevant internal rules including rules regarding professional secrecy and information exchanges between the different functional areas.” As the final decision maker (the governor) is common in both functions, the question is about defining the exact meaning of the „staff”, „reporting lines” and „operational independence”. Shall this provision be understood in the sense that only the governor can be common, but nobody else down the line of decision making (directors for example)? Should it be controlled by a separate deputy governor, or director, or head of department?
- Submission date
- Final publishing date
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- Final answer
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By "operational independence" between the resolution function and the "other functions", it is meant that the resolution authority should be able to operate in an independent manner from the other functions carried out by the relevant authority. Whilst the resolution function can use information from other functions and give information to other functions (in both cases subject to the relevant confidentiality requirements), it should not be constrained in its actions by decisions that are taken by other functions of the relevant authority, e.g. if the resolution function is situated in the same institution that is also the supervisory function, decisions of the supervisory function should not constrain the decisions of the resolution function. By "structurally separated" it is meant that the staff working on the resolution function must be separate from the staff working on other functions (e.g. they are not the same people, have their own structure, separate departments or units, etc.). The separate structuring, however, does not mean that the different functions should not exchange information, consult each other and cooperate, whenever such exchange, consultation or cooperation is required by Directive 2014/59/EU (BRRD) or is otherwise necessary in the circumstances.
Article 3 of Directive 2014/59/EU (BRRD) also requires that the staff employed in the different functions have "separate reporting lines". This means that the staff engaged in the different functions should report to the hierarchy of the relevant authority through a different reporting line than those staff who work on other issues. In this respect, it does not seem compatible with Article 3 that the resolution function should be in the same reporting line as the supervisory or the macro-prudential functions. It should have its own reporting line to the hierarchy. However, both the requirements of structural separation and separate reporting lines need to be interpreted in a manner which is consistent with the allowance of the resolution authority to be placed within a single organisation such as a Central Bank. In practice, this means that the decision making bodies of the Central Bank, the Governor and the Executive Board, will likely oversee and carry out all functions of the Central Bank.
However, the reporting lines to the hierarchy should be separate and the staff working on resolution issues should be separate from the staff working on other functions. The reporting lines may join at a certain level of management (ideally the level immediately below the highest decision making body, but this depends on the structure and internal organisation of the authority), so that the highest decision making body can receive a draft decision on resolution issues, which is the outcome of the consultation and coordination process between the relevant separate internal functions.
Disclaimer:
This question goes beyond matters of consistent and effective application of the regulatory framework. A Directorate General of the Commission (Directorate General Financial Stability, Financial Services and Capital Markets Union) has prepared the answer, albeit that only the Court of Justice of the European Union can provide definitive interpretations of EU legislation. This is an unofficial opinion of that Directorate General, which the European Banking Authority publishes on its behalf. The answers are not binding on the European Commission as an institution. You should be aware that the European Commission could adopt a position different from the one expressed in such Q&As, for instance in infringement proceedings or after a detailed examination of a specific case or on the basis of any new legal or factual elements that may have been brought to its attention.
- Status
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Final Q&A
- Answer prepared by
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Answer prepared by the European Commission because it is a matter of interpretation of Union law.
- Note to Q&A
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Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Directive 2014/59/EU (BRRD) and continues to be relevant.