Towards banking union : the single supervisory mechanism and its effect on Maltese significant supervised entities

Abstract

Purpose: Following the financial and sovereign debt crises, calls for increased supervision and regulation led to the creation of a Single Supervisory Mechanism that took over the supervision of systemically important banks across the Eurozone. This study looks at the effects of this mechanism on the three Maltese banks that fell under this mechanism. Design: The study achieved its objectives through a literature review and twelve semi-structured interviews carried out amongst eight stakeholders including the Significant Supervised Entities, the National Competent Authority and the financial advisory departments within the big four firms. Findings: The study finds that Significant Supervised Entities, have been affected by the Single Supervisory Mechanism through the need to reorganise their data systems and whereas accounting processes and banking operations remained unchanged, the importance of embedding risk analysis in operations has emerged as a high priority area. From a regulatory perspective there has been a change to the supervisory framework but no accounting changes have been required, although there are clear signs of future convergence between banking and accounting standards. The level playing field that this mechanism seeks to achieve will probably place Maltese banks at a disadvantage on account of their smaller size. Conclusion: Banking regulation will keep changing and Maltese banks will need to keep up with these developments. This is particularly relevant to the Less Significant Institutions carrying out domestic core activities as these may eventually fall under Single Supervisory Mechanism supervision.