The first year of the Single Supervisory Mechanism (SSM) was a busy one for banks – and for supervisors. There is much still to do, but even as they continue to tackle the near-term challenges, many banks are asking what the SSM will look like in the future, and what the implications will be for their business models, and for the banking industry more broadly.
Predictions are inherently uncertain, but there is plenty of information banks can use to piece together a view of the future. For example, what still needs to be done to realise the vision for the SSM that the ECB set out to achieve? How will the development of the other elements of the Banking Union affect the SSM?
Banks also need to take a broader perspective. They have to manage regulatory change at the same time as coping with business disruption from other factors, such as changes in technology, increased competition, and macro-economic factors driving changes in customer behaviour.
Banks need to consider the strategic implications of these changes, and take a view of all the factors in order to be successful. The changes will necessitate careful planning by the board, and determination to take action. There are also important implications for supervisors. Even if their objectives remain fixed, how they seek to achieve them and prioritise between them should reflect the changing environment and how banks are responding to it.
What does the future hold?
Amongst the factors we expect to see shaping supervision in the SSM are:
- Supervisory approach – The ECB will further refine its supervisory approach. It will be more intrusive, but at the same time its approach will be applied with greater consistency across the Eurozone. This will include placing growing reliance on 'horizontal' or cross-bank reviews, as well as onsite inspections at banks. Business model analysis and stress testing will play a growing role.
- Supervisory guidance – To date we have seen little published supervisory guidance for the SSM, even though greater transparency would give banks a better chance to understand the criteria on which they are being judged.
- Global regulator – The ECB will have a powerful voice in the global debate on supervision, but will also be influenced by developments in other jurisdictions.
- Technology – the ECB and national supervisory authorities will have to adapt to the changing technology environment. The importance of IT audits and cyber resilience will rise in the supervisory agenda.
Banks will have to adapt to the changing supervisory approach and need resources that follow the SSM closely to understand it fully, particularly in the absence of published guidance.
At the same time as the regulatory environment is changing, the composition of the SSM will evolve. The number of banks under direct supervision in the SSM may grow due to new entrants joining and consolidation in the sector: it seems probable that the share of bank assets under direct ECB supervision will increase. This may have implications for the numbers of staff in the SSM.
Beyond the SSM, other institutions within the Banking Union such as the Single Resolution Board will be competing for banks' attention. Banks will also need to look at the wider context in which the SSM works and keep track of the large number of legislative initiatives that are re-shaping the regulatory landscape.
Innovation and disruption in financial services
More fundamentally, new entrants to banking, and innovation in banking products, in particular through technology, will affect opportunities for all banks. Rapid technological change and shifting consumer preferences are key disruptive forces. To understand these factors banks have to look at the broader environment for banks including competition and innovation and the macroeconomic (and social and political) environment. These will also influence the way that supervision itself is carried out in the next few years.
These topics are tackled in more detail in Deloitte's paper, 'The SSM and banking in the Eurozone | Looking to the future'.
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