European System of Financial Supervision
During the financial crisis that hit Europe in 2008, which was followed by the sovereign debt crisis in the euro area, it became clear that the EU financial sector, particularly in the euro area, needs better regulation and supervision. Euro area countries therefore decided to deepen the integration of their banking systems, with the aim of increasing the solidity of European banks and improving confidence in the European financial system on the part of businesses, investors and the general public.
The Council of the European Union, the European Commission and the European parliament agreed to set up mechanisms to ensure effective financial supervision of the EU single market. This saw the establishment of the European System of Financial Supervision (hereinafter ESFS) in September 2010.
The ESFS is a multi-layered system of microprudential and macroprudential authorities that aims to ensure consistent and coherent financial supervision in the EU. The ESFS consists of:
the European Systemic Risk Board (ESRB),
three European supervisory authorities: the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA), and the European Insurance and Occupational Pensions Authority (EIOPA), and
the national supervisory authorities.
The new European supervisory authorities began working on 1 January 2011.
The ESFS is continually evolving to take account of the changing circumstances in which it operates, most notably the creation of the banking union, the objective of developing a capital markets union, and Brexit.
Working with the national supervisors, the aforementioned authorities provide for strong, coherent financial supervision inside the EU single market.
Microprudential and macroprudential supervision
The ESFS’s primary objective is to ensure that the regulations appliccable to the financial sector are consistently and correctly applied. In this way, the ESFS maintains financial stability and ensures confidence in the financial system as a whole, and adequate consumer protection.
The ESFS concept is based on two pillars: macroprudential supervision by the ESRB on one hand, and microprudential supervision by networks consisting of the European supervisory authorities (ECB, ESMA, EIOPA) and the national supervisors (Banka Slovenije, the Insurance Supervision Agency and the Securities Market Agency in the case of Slovenia) on the other.
Within the framework of macroprudential supervision the ESRB oversees the stability of the financial system as a whole. The microprudential authorities are concerned with overseeing the solvency of financial institutions and supervising the market. The microprudential and macroprudential supervisory pillars of the ESFS work closely together, and provide relevant information to one another. To ensure better intersectoral coordination, the EBA, the EIOPA and the ESMA regularly meet and work closely together on their joint committee.
The national supervisory authorities in Slovenia work closely together and exchange information on the basis of the Rulebook on the mutual cooperation of supervisory authorities in the area of microprudential supervision.
Together with the ECB, Banka Slovenije carries out microprudential supervision over systemically important banks established in Slovenia, and independently supervises less significant banks, in accordance with the rules and methodology of the ECB and the Single Supervisory Mechanism (SSM).
The SSM is one of the pillars of the new banking union, whose objective is safer, transparent and unified European banking. In November 2014, the SSM placed significant institutions in participating countries under the direct supervision of the ECB.
In addition to microprudential and macroprudential supervision, Banka Slovenije is also responsible for supervising AML/CFT and implementing restrictive measures in the entire banking system, and for supervising consumer lending.