Discussion – Addressing the criticism

However, the hurdles created seem to stand out within the academic debate, as the author also notes that despite the efforts of the JSTs, national discretions remain an outstanding concern.

Notwithstanding the above, Cappiello³⁸⁴ concludes that the EBA and the BU ‘do not have overlapping goals, they rather operate complementary levels’³⁸⁵. The EBA has a horizontal function by working on the common regulatory ground, and the BU (SSM) delivers a vertical integration mechanism for the supervisory and resolution arrangements that once were under the national remit. Additionally, according to Recital 32 of the SSM Regulation, the ECB cannot take on the EBA’s tasks³⁸⁶; Babis³⁸⁷, in this regard, also adopts a more contained view, assessing the EBA-SSM interactions as mostly positive and mutually beneficial so far. This, however, does not discard the validity of the abovementioned criticism and the urge for permanent coordination efforts between the two Union bodies, especially to avoid duplication of work or contradicting rules, and ensure the smooth implementation of the Single Rulebook. Babis also hints that the fact that the ECB has no formal voting powers within the EBA does not rule out the possibility of influencing the agency’s decisions through national authorities, which is a point of concern.

Finally, we browse shortly through Beroš’³⁸⁸ position who, although acknowledging the possibility of the EBA’s marginalisation due to its institutional reorganisation, overall, considers that its role of being the ‘glue’ between the SSM-participating and non-participating MSs denotes that the EBA is far from irrelevant³⁸⁹ and that it continues to be a pivotal regulatory apex. In any case, in the near future, the EBA might be confronted with choosing between exercising mutual understanding or competition with the SSM/ECB while dealing with the NCAs’ internal dynamics.

some concepts and bringing to the scene the EBA’s stance on the debate instigated at the academic level. For that, we will dwell on specific points and levels of criticism gathered in different clusters³⁹⁰.

i. The EBA’s ‘shallow institutional memory’ places the agency in an unfavourable position in relation to the NCAs, which are still considered the core venues to establish contact with the credit institutions

This critical aspect deserved our undivided attention. Accordingly, we have made sure that we would seek the input of SNEs, which are apt to comment in their capacity as EBA and CAs staff.

When confronted with the literature’s angle in this regard, the respondents clarified that with respect to engagement, the EBA has limited contact within the banking industry, namely with credit institutions³⁹¹. As a result, this may lead to a potential issue of credibility or transparency from the credit institutions’ standpoint. On the other hand, all staff interviewed in this respect, especially the SNEs, have flagged that it is absolutely paramount to distinguish the roles of the EBA and the NCAs, which are completely different. The NCAs will be invariably favoured as venues for interaction, mainly due to the fact that an overwhelming majority of the EBA’s activity targets national supervisors, which then liaise with the credit institutions³⁹². Even though the EBA develops regulatory instruments applicable to banks, the EBA does not engage directly with them, as the Agency possesses an oversight role towards the market actors, rather than a supervisory one³⁹³. Thus, it should not be expected that the EBA will take the NCAs’ place as the core venues for interaction³⁹⁴.

Furthermore, when inquired about the EBA’s so-called ‘shallow institutional memory’³⁹⁵, the SNEs have acknowledged to be natural that some procedural aspects are better handled at the national level, due to the EBA’s limited existence in time. Whereas the respondents agreed that some procedures could benefit from some improvements³⁹⁶, they also mentioned

390 Cluster I: High Authorities (EBA’s Chairperson; Department Directors; Line Managers); Cluster II:

Seconded National Experts (from NCAs and other ESAs); Cluster III: (senior) Policy and Bank Experts.

391 Respondent E, 17 June 2022.

392 Respondent D, 17 June 2022.

393 We add that in fostering convergence across the EU internal market (Recital 40, EBA’s Founding Regulation), the EBA possesses a mandate on banking supervision. However, that concerns strictly the supervision of the practices implemented across NCAs.

394 Respondent H, 24 June 2022.

395 Salter (2015), p. 242.

396 For instance, regarding the interaction with ESMA and EIOPA, the procedure to approve joint measures could benefit from the introduction of clearer steps to take. (Respondent D, 17 June 2022)

that regardless of the notorious distinction in terms of institutional memory, there are individuals coming from NCAs that praise the EBA’s working practices and drafting procedures, compared to their home authorities³⁹⁷. In this regard, a particular respondent has referred that having less staff can actually work as a strength for the Agency, as the organisational structure is much leaner compared to the national level (and even other important institutions such as the ECB), hence the dialogue and approval are more easily obtained than in institutions with more complex institutional structures³⁹⁸.

« The EBA has been able to adapt to the novelties of the EU’s internal market and change of circumstances, being able to move forward. One of the perks of being a young Agency is precisely the easiness of adjusting to the change. The EBA is not so large, entrepreneurial, and it can change quite easily and accommodate its operation when issues arise. The EBA’s staff is young which also contributes to achieve this. » (Respondent A, 20 June 2022)

ii. The EBA’s working procedures rely excessively on short-term working groups and on the basis of Standing Committees, which helps build the general assumption that the national regulators are stronger and more capable than the EBA

As referred to in Chapter IV, Section 3, we have interviewed staff involved and interacting in different working group structures and standing committees, namely the ones impacted by the recent streamlining process carried out by the EBA in December 2021, propelled by the EBA’s 10-years anniversary³⁹⁹.

In fulfilling its tasks and mandates in an effective manner, the EBA is quite transparent regarding the fact that the Authority relies on technical working groups and standing committees in order to keep all interested parties informed and be able to provide inputs, as the EBA’s modus operandi is to develop regulatory instruments to the BoS, thus relying on the significant engagement with NCAs.

The EBA’s current standing committee and working group structures have evolved organically since 2011 and focus mostly on the i. technical preparation of the EBA’s

397 Respondent E, 17 June 2022.

398 Respondent D, 17 June 2022.

399 The EBA’s 10-years anniversary was a useful opportunity to take stock of the existing infrastructure and assess whether any changes are needed.

instruments based on a wide range of technical inputs; ii. settle a forum for exchanging views and experiences amongst all EU NCAs, and iii. conduct the discussion at a more senior level to iron out as many issues as possible and thus facilitate the decision at the BoS level, which will only focus on the most pressing issues.

Stemming from the literature’s criticism points in this regard, we have inquired the EBA’s staff with respect to the efficiency and importance of keeping such working structures. All interviewees have referred that those are important technical structures, where the more the participants are acquainted with the topics under discussion, the livelier and more dynamic the interactions will be⁴⁰⁰. Ultimately, the viability and efficiency of the working groups/standing committees depend on the skill set and qualifications possessed by the representatives set by the NCAs⁴⁰¹.

All interviewees have made clear that these structures are crucial to attaining the EBA’s legal mandates and tasks, and they also constitute an attempt to harmonise NCAs’ views, which is one of the most prominent roles undertaken by the EBA⁴⁰². Additionally, the EBA’s staff commend the working group and standing committee structures for not getting political and remaining at a good technical level at all times.

Albeit regarded as absolutely vital, the respondents agreed that having a good working structure (either in a working group or standing committee format), depends heavily on the quality of the Chair of such working structures and the level of preparedness/acquaintance of the NCAs’ deputies with the topics discussed⁴⁰³. In light of this, some have clarified that it is quite difficult to experience lively discussions when the working group/standing committee contemplates a vast array of topics, which makes it difficult for NCAs to keep up⁴⁰⁴. It was also shared that it is rare to have NCAs’ representatives that are proficient in many topics and, should the case be that a sub-group discusses a variety of items, it hinders the NCAs’ response capacity⁴⁰⁵. However, this is an issue that, when arises, is not under the EBA’s control, as the EBA does not have a say in selecting the NCAs’ members.

400 Respondent I, 23 June 2022.

401 One respondent (Respondent M, 24 June 2022) has added that the participation of the NCAs can depend on the size of the Authority in question, i.e., smaller MSs tend to have less active representatives. The major contributions come from the bigger jurisdictions and the SSM, however, it also depends on the matter at hand.

Another respondent (Respondent G, 17 June 2022) referred that the EBA should put in place a monitoring mechanism in order to guarantee that the participants in such groups are fit for the discussion.

402 Respondents D and F, 17 June 2022.

403 Respondent I, 23 June 2022; Respondent M, 24 June 2022.

404 It is noteworthy that the EBA has been put forward efforts to overcome this issue.

405 Respondent M, 24 June 2022.

Furthermore, the EBA’s staff also factored in the impossibility of having physical meetings as an obstacle to experiencing more dynamic discussions⁴⁰⁶.

We have also inquired with the EBA’s personnel about the ephemeral nature of the working groups, claimed by the literature. In this respect, all respondents referred that this is the way all ESAs work, which was also confirmed by an SNE from one of the other ESAs. It is important to comprehend that a ‘group needs to have a purpose. The EBA’s working groups are ad-hoc and created as the Authority has a need for them. When the purpose is achieved, the group dies’⁴⁰⁷. Thus, this does not constitute an issue for the EBA’s staff, and it is actually important to maximise efficiency. Creating groups as needed provides the EBA with better odds that the NCAs’

representatives will be more involved in the topic. On the contrary, if the EBA would get stuck with permanent working structures, the staff turnover would be more difficult to achieve and, therefore, the discussion would be dull and less fruitful.

« With regard to the staff turnover, I believe that it could be actually something that preserves the independence of the Agency. » (Respondent D, 17 June 2022)

Finally, on the argument that the ‘national regulators are stronger in capacity, continuity, and credibility than the EBA’⁴⁰⁸, all respondents have made clear, once more, that the EBA is at a different level and has unique responsibilities. The national supervisors are tasked with supervising the credit institutions (outside the SSM’s remit); the EBA is tasked with ensuring the necessary legal regulatory instruments, driving convergence, and facilitating the consistent functioning of the supervisory/resolution colleges⁴⁰⁹. At the moment, convergence is key for the EBA, as convergent supervisory practices are the only way to guarantee that all national supervisors behave the same. For that, the EBA carries out its mandate of drafting the Single Rulebook to make sure that convergence is achieved and that the regulations are applied consistently.

In light of the above, it is not logical to compare the EBA with the ‘national regulators’, as they operate at different levels. In the same vein, it is not conceivable to consider one stronger or superior to the other.

406 Respondent G, 17 June 2022; Respondent H, 24 June 2022.

407 Respondents E and F, 17 June 2022.

408 Coen & Salter (2019), p. 13

409 Respondent H, 24 June 2022.

« At the national level, there are cases in which the political environment constraints the national authorities, so it is not fair to demerit the EBA’s credibility and capacity. » (Respondent G, 17 June 2022)

iii. The EBA allegedly possesses difficulty in attracting staff of sufficient calibre and experience which results in relying on SNEs with little experience in drafting standards and little knowledge of the complexities of certain banking markets⁴¹⁰

This line of criticism was presented to some of the EBA’s highest figures, who have considered it completely erroneous. Firstly, it is important to stress that the EBA does not depend on SNEs to develop regulatory instruments, as the proportion of SNEs at the EBA is very limited (9%) and thus insufficient to drive the regulatory process. Additionally, it was stressed by one of the EBA Department Directors that an SNE is not different from statuary staff, it is just expatriate personnel from the EU MSs, who would work locally if not at the EBA’s service. Thus, the qualifications and skills of the people hired by the EBA, in particular the SNEs, are not at stake, as they are subject to the same selection procedures, equally demanding.

In light of the above, the respondents have clarified that it is quite common to observe people working on policy development with less experience than would be expected, and this was indeed the case for the EBA in its early years, but not anymore. However, one should note that this is common both at the EU and national levels⁴¹¹. It was also reinforced by the EBA’s staff that in the particular case of the Agency, this does not constitute a problematic matter as it would be compensated by the governance procedures in place, which demand the inclusion of NCAs’ inputs and that all instruments/measures are discussed, assessed, and debated within all the EBA’s formal structures which encompass all MSs’ participation and subsequent revision by the EBA’s legal team⁴¹². In any case, this is not something that can be easily measured and, not only the majority of regulatory instruments has received good support at the standing committee level (consisting of the NCAs), but also the EBA’s TSs have proven to be positive to financial stability. Some respondents have also clarified that the EBA only hires the very best and brightest and, all staff have a lot of experience either in

410 Coen & Salter (2019).

411 Respondent E, 17 June 2022.

412 Respondent K, 23 June 2022.

the private (banks) or public (NCAs) sectors, which adds a lot of value to a regulatory instrument, especially in identifying the critique points.

« At the moment, we [the EBA] have a lot of senior people occupied with the draft of TSs, and perhaps fewer junior people than expected. » (Respondent M, 24 June 2022)

« If you had your hand on a topic [practically], you can understand better what are the issues there, instead of drafting the regulation that from a theoretical point of view works, but then its applicability is very difficult to achieve in reality. » (Respondent D, 17 June 2022)

Furthermore, we denote that the prevailing opinion is that the way the work is conducted at the EU level is superior to any local agency, as the EU working structures function in a collective manner, which enriches its work quality⁴¹³. So, in order to pursue a collective approach, required to foster standards in a widespread manner and create the momentum for adhesion, the quality of the staff has to be even more enhanced. In the same vein, in case of doubt that the EBA produces regulatory instruments (e.g., Technical Standards) with the appropriate knowledge of the local practices, we have ascertained that this does not constitute a hurdle in any possible way. It was confided during the interview process that, often, the EBA’s Board regards the regulatory instruments as too complex precisely because of the staff endeavours in reflecting all the local situations, and to not incur a one-size-fits-all approach.

We have also confronted some SNEs with these critiques. It was unanimously recognised that the opportunity to have experts on secondment is a ‘win-win situation’⁴¹⁴ — they bring significant benefits to the EBA with their expertise and understating of the national practices and, similarly, the SNEs return to their home authorities better equipped to develop their previous tasks.

iv. The EBA’s allegedly dependence on the NCAs’ policy expertise and manpower to develop regulatory instruments and meet the legislator’s expectations

413 Respondent B, 18 July 2022.

414 Respondent F, 17 June 2022.

The prominence of this specific line of criticism led us to take this argument to the EBA’s senior staff, who have fully disagreed with the literature’s stance. As we have been observing, the EBA personnel’s selection is perceived as quite impressive and prone to apprehend highly intellectual people driven to making Europe better, and willing to work hard.

« In my personal experience, the work carried out previously at a national authority back home was demanding, but not as nearly as challenging as at the EBA’s level. » (Respondent H, 24 June 2022)

All respondents confirmed that the EBA counts on the NCAs’ support, especially with their valuable inputs (stemming from their practical expertise) in the Agency’s working groups/standing committees structures, as the EBA is permanently concerned with not writing regulations from an ‘ivory tower’. However, it is not common to have the NCAs’

assistance during the drafting process. If deemed appropriate, the NCAs put on a supporting role after the regulatory instrument is launched for public consultation (following the development and drafting periods) in order to seek feedback. However, calling for national advisors to collect and allocate the input received is not procedural and is not always channeled. In light of this, it is not fair to state that the EBA relies on the NCAs’ expertise and manpower to meet its regulatory commitments.

Some interviewees went further with their comments by strengthening the view as per above that the most qualified people are indeed at the EU level (either at the EBA or ECB).

Moreover, the EBA’s selection procedure has a unique feature that does not exist at the national level. At the EBA, one does not become permanent when first hired. In order to become permanent, there is the need to go through a reevaluation process at the end of the contract term and successive performance appraisals. As a result, this encourages the EBA’s staff to have a more aggressive mentality in terms of continuous preparation, in order to prove to be valuable on a daily basis and get a permanent contract. Although the EBA’s selection procedure is extremely thorough, the EBA still accounts for the possibility of having selected people that do not fit the Agency and the work in the best manner, which is not common at the national level. This line of thought reinforces the EBA’s position on their autonomy in developing regulatory instruments which, although counting on the NCAs’

precious buy-ins, does not depend on them in any conceivable way, especially because these

texts are extremely technical and of a legal character, which most of the time does not come easily for the national supervisors.

« In most cases, the essentiality of the NCAs is quite limited to the EBA, especially when it comes to the drafting part. » (Respondent M, 24 June 2022)

Finally, one particular respondent has referred that, when the EBA resorts to the NCAs’

support, it is not always executed in the most efficient manner.

v. The EBA does not come any close to a supranational regulator at the EU level due to limited decision-making functions, powers, and responsibilities that place the EBA in a shifting zone of discretion

This line of argument is intimately related to the EBA’s governance arrangements. The staff interviewed in this regard stressed that when the EBA has to develop regulatory instruments (producing or not a binding effect), the procedure is highly structured and it is mandatory to seek the views of the Banking Stakeholder Group and NCAs at all the formal existing levels (working group, standing committee, and BoS). Afterward, there’s still a consultation process, as abovementioned. This entails that the EBA has to have in place a strong arbitration process which is perceived as quite challenging at times, as ‘every word counts’⁴¹⁵, yet, the EBA has proven to achieve a good balance.

We now retrieve a central idea, which concerns the EBA’s role. We stress again that the EBA is distinct from the national supervisors and, therefore, it is not a supervisor.

In line with the above, the EBA’s staff has made clear that the EBA can pursue its mandate in two different manners — rule-based or principal-based⁴¹⁶. This argument sustains that if the EBA implements a rule-based approach, it needs to be quite precise, which carries the downside that the rules will not serve all specific circumstances, so the regulation will not fit certain cases, which will be detrimental at some point. On the other hand, with a principal-based approach, the EBA, in its role as regulator, is able to leave some level of flexibility in order to accommodate divergent cases. Then, the supervisors, at the national level, can go into higher detail in their national implementing frameworks and make the necessary

415 Respondent K, 23 June 2022.

416 Respondent J, 23 June 2022.