The National Audit Office (NAO) has taken part in a parallel audit in which the impacts of the single supervisory mechanism on the audit of banking supervision were examined.
The supreme audit institutions of Austria, Cyprus, Finland, Germany and the Netherlands as well as the European Court of Auditors were represented in the working group. The following three areas were examined in the audit: the regulatory field, supervisory structures and the application of standards. In the audit, the focus was on the supervision of small and medium-sized banks.
The National Audit Office does not have the right to audit the activities of the Financial Supervisory Authority. Only those audit issues to which answers could be found in publicly available information sources were selected. The working group prepared a joint report on the basis of the individual reports produced by the participating countries.
As referred to above, NAO does not have the right to audit the Financial Supervisory Authority but it also emerged that the Credit Institutions Directive of the EU has not been fully incorporated into the Finnish legislation. This may mean that in certain situations the banking supervisor may only have a limited range of measures available when dealing with other Banking Union member states.
The key observation in the joint report was that regulation has not been implemented in a uniform manner in all Member States. There are also differences between the structures and practices of the banking supervision at national level. The audit gaps identified in previous reports still exist and have become more numerous in some areas.
Recommendations of the working group
The European Court of Auditors and the European Central Bank should prepare an agreement on the procedures for the sharing of information.
Member States should allow specific information concerning the prudential supervision of in-stitutions to be communicated to the supreme audit institutions in the countries concerned or authorise such a procedure.
National governments and parliaments should review whether their supreme audit institutions have the mandate to audit banking supervision and, if necessary, expand the audit mandate so that it is in accordance with Article 59(2) of the Credit Institutions Directive.
The right of the European Court of Auditors to audit European Central Bank has aroused debate
After the establishment of the single supervisory mechanism, there has been some debate on to what extent the European Court of Auditors may audit the banking supervision tasks performed by the European Central Bank (ECB). In the audit of the single supervisory mechanism, the European Court of Auditors did not get access to all documents that it had requested for the audit. In March 2017, Yves Mersch, Member of the ECB’s Executive Board, delivered a speech, in which he stated that secondary legislation applies to the banking supervisory duties performed by the ECB and for this reason the principle of independence laid down in Article 130 of the Treaty on the Functioning of the European Union should not apply to them. Thus, the independence of the ECB and the right of the European Court of Auditors to audit its activities should not be interpreted in the same manner for all tasks (monetary policy vs banking supervision).
There are differences between supreme audit institutions with regard to their right to audit banking supervision
Some of the supreme audit institutions are not authorised to audit banking supervision. This is also the case in Finland: Financial Supervisory Authority is part of the Bank of Finland, whose activities the National Audit Office is not authorised to audit. Some of the supreme audit institutions have also faced problems when trying to access documents essential for performing audits. This is because an increasing proportion of the banks’ supervisory guidelines are laid out in documents classified as secret by the European Central Bank. This type of audit gap is expected to become more serious in the future as the ECB is also harmonising supervision guidelines and methodologies for less significant banks.
Financial Supervisory Authority is the Finnish body taking part in the Single Supervisory Mechanism
Under the Single Supervisory Mechanism, which was established in November 2014, the European Central Bank is responsible for supervising banks in the euro area. The mechanism comprises the European Central Bank and the competent national authorities of the Member States taking part in the mechanism. The Financial Supervisory Authority, which is administratively part of the Bank of Finland, serves as the financial and insurance supervisory authority in Finland. Competent national authorities are responsible for the direct supervision of small and medium-sized banks. The European Central Bank also supervises less significant banks at general level and may also put them under its direct control.
The parallel audit was carried out under the mandate of the Task Force of the European Banking Union, which comes under the Contact Committee of the Supreme Audit Institutions of the European Union. A summary of the parallel audit can be viewed at the website of the Contact Committee.