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The banking union’s single supervisory mechanism and the securities business
The European Union (EU) Commission decision to centralise prudential supervision — the so-called single supervisory mechanism (SSM) — only relate to banks, or technically ‘credit institutions’. Other financial institutions, eg investment firms, investment managers, central clearing counterparties (CCPs) or central securities depositories (CSDs), will not be included, except if they have adopted the legal form of a bank. The paper investigates to what extent prudential supervision will affect the securities side of financial activity, both in integrated banking groups and, indirectly, in non-banking financial entities. It concludes that the outcome will not be very different from the present situation, at least in some member states, where prudential supervisors have been actively paying attention to securities activities to the extent that these may affect the risks at the banks they supervise. The new model in fact follows the path of the previous ‘twin peaks’ models that exist in most EU member states, the UK and the Netherlands being two examples. As is evidenced in these states, there is a strong need for cooperation and coordination between the two lines of supervision. As far as the SSM is concerned, provision for cooperation is made in several EU regulations — the Capital Requirements Directive IV and European Supervisory Authorities regulations — but these may need to be adapted to the new setting.
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Eddy Wymeersch is Professor Emeritus for the Ghent Law Faculty. He is a former financial supervisor in Belgium (CBFA), Europe (CESR) and internationally (PIOB). He studied at Ghent University and Harvard Law School and has written extensively on company law and financial regulation.