QuickTake
The European Central Bank (ECB) frequently provides legal opinions either on its own initiative or at the request of EU institutions or national authorities with respect to proposed new laws that could have an impact on the ECB's central banking tasks or those of the Eurosystem as well as the Banking Union supervisory tasks carried out by the ECB at the helm of the Single Supervisory Mechanism (SSM). On 16 August 2024, the ECB's opinion1, which was delivered on its own initiative, along with a "technical working document"2, showing targeted drafting changes to the proposed Regulation (defined below), was published in the EU's Official Journal (collectively for ease of reference herein the ECB opinion and technical working document referred as the Opinion).
The Opinion provides the ECB's assessment on a legislative proposal, first launched 17 October 2023, for an EU Regulation on greater streamlining information sharing (the proposed Regulation) amongst participating authorities. On 12 March 2024 the European Parliament adopted a report on the proposed Regulation (the EP Report)3.The ECB notes that the EP Report further expanded the scope of the proposed Regulation with respect to (1) the information to be shared; (2) the participating authorities and (3) the creation of a Single Integrated Reporting System (SIRS), within two (in the proposed Regulation) to three (favoured by the EP Report and the ECB Opinion) years from the date of entry into force of the proposed Regulation4. Given the significant expansion proposed by the EP Report, which the ECB notes is set to be included, the ECB Opinion analyses and expresses its views on is referred to herein as the SIRS Regulation.
The proposed Regulation and ultimately now the SIRS Regulation aims to ease the burden supervised financial services firms and other entities active on financial markets (collectively financial market participants or FMPs) face when having to report the same supervisory information multiple times in the EU. Instead, relevant authorities participating in SIRS should have access to the data that has been submitted by such reporting firms once. The SIRS Regulation is deemed non-controversial in its content and is expected to complete legislative steps to adoption by the end of 2024. Nevertheless, the ECB Opinion, while generally welcoming of the SIRS Regulation's aims and objectives, sets out some additional measures that may well be reflected in the final version of the SIRS Regulation, once adopted and published in the Official Journal. This Client Alert assesses the scope of the SIRS Regulation and the ECB's own expectations expressed in its Opinion. Even if the SIRS Regulation has yet to complete its final steps to become binding law, FMPs and specifically financial services firms may want to take preparatory action to assess how SIRS may simplify their own reporting obligations but equally how it may streamline how supervisors have easier access to and better ability to assess reported information and translate this into possibly more intrusive supervisory engagement and scrutiny.
The EU's SIRS Regulation and its key aims
In the views of policymakers and legislators, supervisory reporting is a cornerstone of ensuring correct enforcement and proper monitoring of legislative and regulatory rulemaking instruments. The cost of reporting is, in the view of policymakers, generally offset by the benefits they bring authorities in particular in monitoring and ensuring compliance of FMPs and specifically financial services firms with key policy measures. Reporting requirements however can pose administrative burdens for all FMPs (in particular smaller non-complex firms).
The proposed Regulation and now the SIRS Regulation have a simple approach. The drafting amends several existing EU regulations concerning reporting requirements in the financial services sector and for the InvestEU Programme. The primary objective is to streamline and reduce the administrative burden associated with reporting requirements, thereby facilitating a more efficient exchange of information between authorities and enhancing the utility of reported data for research and innovation purposes. Ultimately, the SIRS Regulation is aimed at modernising EU supervisory reporting and ensuring the system delivers accurate, consistent and timely data to supervisory authorities at the EU and national competent (as well as resolution) authority (collectively NCA) level while minimising the aggregate reporting burden for all relevant parties.
The legal basis for the proposed amendments set out in the SIRS Regulation lies in Article 114 TFEU for measures related to financial services and Articles 173 and 175(3) TFEU for the InvestEU measure. The proposal aligns with existing policy provisions, including the EU's Better Regulation Agenda, the Digital Finance Strategy and the Data Governance Act. It also fits within the broader context of the European Commission's regulatory fitness and performance (REFIT) programme, which aims to ensure that EU legislation is efficient and minimises burdens.
Once adopted the SIRS Regulation proposal could have the following implications for FMPs:
- Reduction of reporting burdens: FMPs are currently subject to extensive reporting obligations to enable oversight by EU-level and NCAs. The proposed amendments seek to alleviate these burdens by enabling authorities to share information amongst themselves, thus preventing duplicative reporting. This change is expected to reduce the workload for FMPs, particularly benefiting small and medium-sized enterprises (SMEs) and micro-companies that may find compliance with multiple reporting requirements particularly onerous.
- Enhanced data sharing and exchange: The proposal introduces provisions that would allow authorities overseeing the financial sector to share information they have obtained in the course of their duties. This includes sharing enhanced information that has undergone quality checks or other processing. The sharing mechanism is designed to be complementary to existing information exchange frameworks and will not restrict current practices. Instead, it provides an additional channel for sharing, which should lead to more efficient data collection and processing.
- Support for research and innovation: A significant aspect of the proposal is the support for research and innovation in financial services. Authorities will be permitted, under strict conditions, to share information with financial services firms, researchers and other entities with a legitimate interest. This aims to expand the information available for financial sector research and foster greater collaboration between various market participants, including fintech startups and incumbent financial institutions.
- Changes to InvestEU Programme reporting: The proposal also addresses the InvestEU Programme by changing the reporting frequency from biannual to annual. This amendment is designed to reduce the administrative burden on implementing partners and, by extension, on SMEs and other companies that provide data for reporting purposes. The change is not expected to impact the substantive elements of the InvestEU Regulation or the achievement of the Programme's policy objectives.
The overarching aims of the proposed Regulation, as supplemented by amendments set out in the EP Report leading to the SIRS Regulation are then assessed by the ECB in its Opinion as well as further drafting changes set out in the technical working document.
Key takeaways from the ECB's Opinion
The ECB's Opinion is generally welcoming of the proposed Regulation, the EP Report and thus the SIRS Regulation but caveats that some key concepts and objectives would benefit from further clarification. The ECB's Opinion being issued at the ECB's own initiative is a response to the proposed changes to several EU regulations, collectively known as the ESA regulations, and Regulation (EU) 2021/523. The ECB's Opinion is grounded in its competence under Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union (TFEU), which relate to its tasks in collecting statistical information and prudential supervision of credit institutions.
The ECB welcomes the aim to streamline reporting requirements, aiming to reduce administrative burdens on financial institutions and enhance information sharing between supervisory authorities. The ECB acknowledges the benefits of avoiding duplicative reporting and supports the development of a system that provides accurate, consistent, and timely data to supervisory authorities while minimising reporting burdens.
The ECB in its Opinion however provides the following comments:
- ECB has developed a number of information sharing tools: The ECB has developed various tools and fora for sharing information with authorities, including the creation of common data dictionaries. Notable initiatives include the Joint Bank Reporting Committee (JBRC) and the Integrated Reporting Framework, which aim to integrate statistical reporting requirements for Banking Union supervised entities. The ECB Opinion notes that the SIRS Regulation however has not fully clarified the scope of the information to be shared – including whether those existing tools and fora would be folded into or otherwise feed into SIRS. In the ECB's view it is therefore unclear whether SIRS' coverage would be limited to regular reporting, as suggested by the explanatory memorandum accompanying the proposed Regulation, or whether it would also cover vertical, decentralised and unstructured information received by the ECB's supervisory function from banks on an ad hoc basis. The ECB takes the view that "The scope of the information to be shared under the proposed [R]egulation should therefore be further specified, for instance by limiting its scope to structured, regular supervisory reporting using standard reporting templates, thus excluding ad hoc supervisory information requests and analysis and processed data. This would also make it clear that the proposed regulation is without prejudice to other regulatory regimes that govern access by supervisory authorities to sources of information other than supervisory reporting, such as statistical information collected by the ESCB or the European Statistical System."
- Willingness to extend cooperation: The ECB expresses its willingness to extend information sharing to other authorities, emphasising the importance of efficient information flow. Access to data collected by European authorities is beneficial for the ECB (the same view might of course be shared by non-ECB EU-level and national-level authorities), particularly in the context of anti-money laundering (AML) and countering the financing of terrorism (CFT). The ECB specifical notes that given the EU's new AML Regulation and the Regulation establishing the AML Authority (AMLA) (see separate coverage on that development) the SIRS Regulation's information sharing arrangements in the SIRS Regulation should also ensure that AMLA has a general duty to apply "a proportionate and efficient use of cooperation tools to facilitate information exchanges between AML/CFT and prudential supervisors" i.e., a move that would bring AML/CFT considerations, typically within a conduct of business supervisory mandate, into the easier scope of the ECB-SSM's mandate as a prudential supervisor. The ECB-SSM had, prior to the agreement to establish AMLA, had brought AML/CFT failings into its supervisory remit when scrutinising Banking Union supervised institutions governance standards.
- Overarching clarifications suggested by the ECB: The ECB suggests that the proposed SIRS Regulation could benefit from further overarching clarifications regarding its scope to fully achieve its objectives. It raises concerns about potential unintended consequences that may threaten the efficacy of the supervisory toolkit. As with the observations summarised above, the ECB The ECB Opinion however notes that statistical information collected by the European System of Central Banks and the European Statistical System should remain outside the scope of SIRS. The ECB Opinion however also goes on to state that any move to build SIRS should also reflect principles and efforts already agreed on and underway in furtherance of the European Commission's strategy on supervisory data on EU financial services [Available here.], which unless reflected, could otherwise overlap with SIRS.
- ECB's observations on specific aspects of the
proposed SIRS Regulation: this includes:
- Scope of information covered: The ECB notes ambiguity in the scope of information to be shared, suggesting that it should be limited to structured, regular supervisory reporting using standard templates, excluding ad hoc supervisory information requests.
- Impact on supervisory effectiveness: The proposed SIRS Regulation may impact supervisory effectiveness by requiring authorities to check if information is already available before seeking it from financial institutions. The ECB recommends exemptions for time-sensitive requests.
- Operational burden: The requirement to inform supervised entities whenever information is shared could increase operational burdens and affect confidential exchanges of information during investigations.
- Legal certainty: The ECB points out conflicts with existing provisions on professional secrecy and information exchange, calling for clarity and harmonisation in cross-references within the proposed regulation.
- Information sharing with ESRB: Ambiguities exist regarding the obligation to share information with the European Systemic Risk Board (ESRB), which should be clarified.
- Timeline on SIRS: The ECB comments on the ambitious timeline for establishing SIRS and recommends consolidating ongoing projects before initiating new ones.
- Amendment of the SSM Regulation: The ECB notes that any amendment to the SSM Regulation should follow a different legislative procedure and should only affect the ECB's supervisory function, not its central banking functions.
While the ECB's Opinion are of course warranted perhaps even welcome in their own right financial services firms can expect a more integrated approach to reporting, with potential benefits from reduced duplicative requests and a centralised data collection tool in the future. Those benefits however come with supervisors (not just ECB-SSM) being able to apply the supervisory toolkit with sharper scrutiny.
Although ECB Opinions are not legally binding, the ECB's competence to deliver opinions is enshrined in EU primary law. It will remain to be seen how the EU's co-legislators reflect the ECB's views in the finalisation of the proposed SIRS Regulation.
Outlook and next steps
In short, the proposed SIRS Regulation, while still to be finalised, represents a significant step towards reducing regulatory complexity and administrative costs associated with reporting requirements. By fostering a more streamlined reporting environment and promoting data sharing for research and innovation, the proposal has the potential to enhance competitiveness and support the digital transformation of the financial sector well beyond reporting. FMPs and financial services firms specifically should prepare for these changes by reviewing their current reporting processes and anticipating adjustments that will align with the new regulatory framework once adopted.
In any event, once finalised, FMPs can expect a more integrated approach to reporting, with potential benefits from reduced duplicative requests and a centralised data collection tool in the future. The fact however that such authorities are going to find it easier to share and otherwise have access to centralised data may ease the ability for supervisors to sharpen where and how they direct their scrutiny. FMPs should also prepare for potential operational changes related to how they share information with supervisory authorities, including possible obligations to be informed when their data is shared with other entities.
Footnotes
1. Text of the Opinion as in the Official Journal available here.
2. Available here.
3. Available here.
4. Text of the proposed EU Regulation (in its original version prior to the amendments proposed in the EP Report) available here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.