The Bank of Greece is being given a substantial upgrade to its supervisory arsenal, with a raft of new responsibilities and powers to oversee servicers, banks and bank executives.
The new bill from the Ministry of National Economy and Finance, which transposes EU directives into Greek law, gives the Bank of Greece broader powers, ranging from overseeing the management of private debt to assessing the suitability of bank executives and addressing emerging risks from crypto-assets and climate change.
However, the big question the Bank of Greece will have to answer in the future is whether it can actually exercise all its supervisory powers effectively, given its well-documented shortage of specialist staff in several areas of oversight. The IMF, for example, noted in a recent report that the Bank of Greece oversees the servicer sector with fewer than ten specialist staff.
Tighter oversight of servicers
The activities of Loan and Credit Claims Management Companies (servicers) will be subject to continuous and stricter monitoring. For example, servicers must now submit an annual strategy for the management of claims to the Bank of Greece, which will use it to assess their effectiveness.
For securitisations backed by a Greek government guarantee (the Hercules scheme) or another form of public support, the full report of the independent audit must now also be submitted to the Bank of Greece.
The Bank of Greece is authorised to set the details of the information companies must disclose, including their financial performance, corporate governance and handling of complaints.
Oversight of the new bilateral debt-settlement process
Under the new special procedure for bilateral negotiations between borrowers and creditors, the Bank of Greece will play a key role in overseeing the process. It is designated as the competent authority for checking compliance with statutory deadlines, communication requirements and the adequacy of creditors’ responses.
The digital platform used to conduct the process automatically sends the Bank of Greece details of cases classified as “overdue”, such as when a creditor fails to respond to a complete request within three months. The Bank of Greece imposes administrative sanctions and corrective measures for systemic breaches by creditors. However, it is made clear that it does not intervene in resolving individual disputes between debtors and creditors.
Stricter oversight of banks and bankers
The transposition of EU directives strengthens the Bank of Greece’s supervisory independence and widens the scope of inspections across the financial system.
The Bank of Greece assesses and approves every significant acquisition or transfer of assets, liabilities and branches, as well as any merger or division of financial institutions.
Suitability criteria for bank executives are being strengthened. The Bank of Greece’s (fit & proper) assessment will no longer be limited to an executive’s initial appointment, but will be ongoing. This means the Bank of Greece will be able to withdraw its suitability approval during an executive’s term and remove them from the bank.
Suitability assessments will extend beyond board members to include the heads of institutions’ “critical functions”, such as finance directors.
Branches of third-country banks
The bill introduces a significantly stricter framework for the licensing and operation of branches of credit institutions from countries outside the EU.
The Bank of Greece will classify these branches by size and risk, impose strict liquidity requirements on them, and gain the power to require a branch to convert into a standalone subsidiary in order to safeguard financial stability.
New risks: Crypto-assets and ESG
The supervisory framework is being adapted to address emerging market threats. Credit institutions will be required to assess in advance the risks arising from any exposure to crypto-assets.
Environmental, social and governance (ESG) risks are being formally incorporated into the Supervisory Review and Evaluation Process (SREP), which is used to calculate capital requirements. The Bank of Greece may require banks to conduct special stress tests.
A new arsenal of sanctions
To ensure the new rules are enforced effectively, the bill gives the Bank of Greece a revamped, harmonised and exceptionally strict sanctions framework, focused on speed, deterrence and individual accountability.
The Bank of Greece will be able to impose “periodic administrative fines”—in addition to one-off penalties—for continuing breaches of licensing requirements, rules on the acquisition of qualifying holdings and requirements for significant corporate changes. It will also be able to combine measures.
In addition, the Bank of Greece’s power to impose sanctions is clarified and strengthened: penalties may be imposed not only on the financial institutions themselves (legal entities), but directly on members of management and other individuals responsible for the breaches identified.
The “three violations” rule for servicers
As part of efforts to protect borrowers who keep up with their repayment arrangements (for example, prohibitions on loan termination or auctions), a strict system of escalating penalties is being introduced. If the competent body of the Ministry of National Economy and Finance finds that the same servicer has committed a third violation within a three-year period, the Bank of Greece will step in and may impose strict penalties by means of a reasoned decision:
- Temporary suspension, for between 1 and 12 months, of the ability to take on new receivables-management mandates.
- A requirement to submit and faithfully implement a compliance plan with specific organisational measures.
- Public announcement of the decision imposing sanctions.
The Bank of Greece is also explicitly empowered to impose sanctions if servicers fail to submit information or submit inaccurate or incomplete data, with provision for the penalties to be made public. Similarly, where creditors breach the deadlines and obligations under the new bilateral settlement process, the Bank of Greece will activate the sanctions framework applicable to each entity, depending on whether it is a bank or a management company.
Wider inspection powers
Finally, the Bank of Greece’s inspection powers are being substantially expanded to cover the collection of information, investigations and on-site inspections, including at third-party providers to which institutions have outsourced functions.
This is a significant expansion of the Bank of Greece’s remit, given that banks are increasingly transferring more of their functions to external providers.