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: The specific sanctioning power of the ECB in the prudential supervision area

Article 132 TFEU makes no distinction according to the area where the ECB exercises its regulatory powers and its general sanctioning power. The ECB may thus impose fines or periodic penalty payments on undertakings which do not comply with its regulations or decisions adopted in the prudential supervision area.[1] As in the monetary area - albeit for different reasons - the ECB exercises little regulatory power in the area of prudential supervision. Under SSM Regulation, the ECB shall mainly apply the single rule book, thereby limiting the use of its regulatory power: 1) to the exercice of the options open in the CRR; 2) and to the functioning of the SSM, especially the definition of the procedural rules to be followed by national supervisors when they supervise less significant credit institutions. It is worth mentioning that the ECB may also take individual decisions in supervisory procedures and infringement proceedings. In 2019, the Supervisory Board (see infra) of the ECB took 1,924 decisions, most of which were on fit and proper assessments (1,006), internal models (160) and own funds (153).

Article 64(1) CRD IV requires that “the competent authorities shall be given all supervisory powers to intervene in the activity of institutions that are necessary for the exercise of their function”. According to paragraph 2, “Competent authorities shall exercise their supervisory powers and their powers to impose penalties in accordance with this Directive and with national law”. The Member States shall thus lay down rules on administrative penalties and other administrative measures in respect of breaches of national provisions transposing the CRD IV and of the CRR. According to Article 65(2) CRD IV, the administrative sanctions regime must be applicable to financial conglomerates, holding companies and, for these entities, provide for sanctions against their management bodies or other natural persons who are responsible for the infringement. Finally, the Directive details a set of administrative sanctions and other administrative measures for breaches of a series of key provisions of CRD IV (Article 66) and CRR (Article 67). All these requirements enshrined in the CRD IV are primarily addressed to the Member States.[2] As the ECB has been regarded primarily as a monetary authority, it lacks the powers of prudential supervision of the NCAs. Ensuring the highest prudential standards in the participating Member States implies that the ECB’s sanctioning power is at least similar to those of national supervisors. This is the purpose of the second paragraph of Article 9(1) of the SSM Regulation, the key provision for the conferral of powers on the ECB in the prudential field:

“For the same exclusive purpose, the ECB shall have all the powers and obligations set out in this Regulation. It shall also have all the powers and obligations, which competent and designated authorities shall have under the relevant Union law, unless otherwise provided for by this Regulation. In particular, the ECB shall have the powers listed in Sections 1 and 2 of this Chapter.”

This general provision is completed with Article 18 SSM to deal specifically with the sanctioning power in the field of prudential supervision:

“For the purpose of carrying out the tasks conferred on it by this Regulation, where credit institutions, financial holding companies, or mixed financial holding companies, intentionally or negligently, breach a requirement under relevant directly applicable acts of Union law in relation to which administrative pecuniary penalties shall be made available to competent authorities under the relevant Union law, the ECB may impose administrative pecuniary penalties [...]”

Like Article 132(3) TFEU, Article 18 SSMR limits the scope of the ECB’s sanctioning power that it vests on the ECB in several ways. This “specific supervisory power” applies only to breaches of requirements under “directly applicable acts of Union law” - an expression which is commonly interpreted as a reference to the Capital Requirements Regulation. Beyond the CRR, the expression also includes all the delegated and implementing acts adopted by the Commission, the ECB regulations on the exercise of discretion under the relevant provisions of the CRR" and, last but not least, the ECB supervisor}' decisions. Conversely, the infringements of national rules transposing or implementing Union are excluded from the scope of Article 18 SSMR. Although the ECB is responsible for ensuring compliance with these national rules,[3] the sanctioning of non-compliance remain the sole competence of national supervisors. As noted by the Commission in its 2017 report on the application of the SSM Regulation, this obvious asymmetry may have “the potential of impinging on the level playing field and would need to be closely monitored in terms of implications for the effectiveness of ECB’s performance of supervisory tasks”. Article 18(5) SSMR modestly addresses this mismatch by providing that the ECB may request the NCAs to open proceedings in the cases out of the scope of its sanctioning power (see infra). Article 134(1) SSMFR lists the cases where such an assistance from the NCAs is required, but, as noted by an author, misses the potential case of breaches of national legislation exercising options in the CRR.

The personal scope of Article 18 SSMR is quite limited, too, as compared to the scope of the ECB’s general sanctioning power. The prudential policy aims to ensure the stability of the banking and financial sectors. Since the 1990s, the phenomenon of concentration of financial institutions through mergers and take-overs, the formation of financial conglomerates and the despecialisation/diversification of activities exercised by the banking industry and insurance companies have made prudential supervision ever more complex, as it must cover actors whose business extend across several fields. From this perspective, Article 127(6) TFEU looks outdated and anachronistic, as it allows the Council to confer specific tasks upon the ECB “concerning policies relating to the prudential supervision of credit institutions and other financial institutions with the exception of insurance undertakings”. This exclusion is to be regretted,85 but will not disappear anytime soon, since it will require a Treaty revision under Article 48(2) TEU. The Treaties and the Statute do not define “credit institutions”, nor does the SSM Regulation. Being closely related to the prudential regulation, the SSM Regulation contains few definitions on its own, re-fering mostly to the definitions provided for in the CRR (or Directive 2002/87/EC on financial conglomerates, as relevant), as it is the case for “credit institutions”

and the “financial holding companies, or mixed financial holding companies” that Article 18 SSM Regulation includes within the category of “other financial institutions”.[4] By refering only to legal persons, Article 127(6) implicitly excludes natural persons from its scope.

In addition, the ECB exercises its responsibilities within the SSM in cooperation with the NCAs (see supra Section 2.2). The latter shall carry out the direct supervision of less significant credit institutions and are thus responsible for adopting “all relevant supervisory decisions with regard to the credit institutions”. In principle, only NCAs may impose appropriate sanctions on the credit institutions under their direct supervision. The exercise of the ECB’s sanctioning powers under Article 18 SSM Regulation is not applicable to the credit institutions supervised by NCAs, without prejudice of the applicability of the general sanctioning power of the ECB under Regulation (EC) No 2532/98 (see supra Section 3.1). Such an approach is consistent with the principle that responsibility for sanction follows responsibility for supervision.

Finally, the SSM Regulation applies only in respect of credit institutions that are established in participating Member States, i.e. euro area Member States and noneuro area Members States whose NCA has established a close cooperation with the ECB in accordance with Article 7 SSMR and Decision 2014/434/EU of the ECB.

Depending on the nature of the rule of Union law which a credit institution has failed to comply with, the ECB may impose fines or periodic penalty payments under Regulation (EC) No 2532/98 (see Section 3.1 above) or “administrative pecuniary penalties” under Article 18 of the SSM Regulation. Taking over from CRD IV, the qualification of the penalties as “administrative” aims to meet the criteria establised by the case law of the European Court of Human Rights

and of the Court of Justice[5] concerning the criminal or administrative nature of sanctions imposed to economic operators.94 As insisted on in the SSM Regulation, the penalties imposed by the ECB or the NCAs when required by the ECB to open proceedings (see infra), shall be ‘dissuasive’.3 These penalties shall amount “up to twice the amount of the profits gained or losses avoided because of the breach where those can be determined, or up to 10% of the total annual turnover, as defined in relevant Union law, of a legal person in the preceding business year or such other pecuniary penalties as may be provided for in relevant Union law”. Although the SSM Regulation does not explictly mention the possibility of imposing periodic penalty payments, such penalties remain available to the ECB in the prudential field in application of Article 132(3) TFEU.' The implementation of its supervisory powers listed in Articles 14 to 18 SSMR shall give rise to the adoption of decisions by the ECB, non-compliance with which falls within the sanction regime established by Regulation (EC) No 2532/98. The maximum ceiling for periodic penalty payments is set at 5% of the average daily turnover per day of infringement. The duration of the periodic penalty payment is limited to six months, as in the general case. Finally, the SSM Regulation does not provide for the ECB to impose non-pecuniary sanctions.

As a result of the multiple restrictions on its sanctioning power in the field of supervision, the ECB is less well-equipped than national supervisors to ensure the enforcement of prudential rules and to sanction their breach. Article 18(5) of the SSM Regulation, supplemented by Article 134 SSM Framework Regulation, sets out an exhaustive list of cases where the ECB “may require NCAs to open proceedings with a view to taking action in order to ensure that appropriate penalties are imposed”. Such cases may include, for example, the application of any pecuniary or non-pecuniary penalties in the event of a breach by legal or natural persons of any national law transposing relevant Union directives. By acting in the name and on behalf of the ECB in such cases, the NCAs must comply with EU fundamental rights standards.[6] The ECB shall be notified of the completion of a penalty procedure initiated at its request and informed of the penalties imposed, if any.

  • [1] See in that respect Article 18(7) SSMR. 2 Recital (34) SSMR. 3 Article 4(3) SSMR; also Recital 10 CRD IV. See for example Regulation (EU) No 2018/1845 of the ECB of 21 November 2018 on the exercise of the discretion under Article 178(2)(d) of Regulation (EU) No 575/2013 in relation to the threshold for assessing the materiality of credit obligations past due, OJ L 299/55,26.11.2018. 4 See the ECB SSM Framework Regulation, supra. 5 See for example the reporting of supervisory financial information: Regulation (EU) No 2015/534 of the ECB of 17 March 2015, OJ L 86/13, 31.3.2015; Decision of the ECB of 2 July 2014 on the provision to the European Central Bank of supervisory data reported to the national competent authorities by the supervised entities pursuant to Commission Implementing Regulation (EU) No 680/2014, OJ L 214/34,19.7.2014. 6 ECB, Annual Report on supervisory activities 2018 spec. Section 5.3.1 (Figure 3). Available at: https://www.bankingsupervision.europa.eu/press/ publications/annual-report/ html/ssm.ar2018~927cb99de4.en.html, accessed on 02.12.2019. 7 7i Article 65(1) CRD IV.
  • [2] Article 162 CRD IV. 2 See G. Lassagni, Banking Supervision and Criminal Investigation: Comparing the EU and US Experiences (Springer 2019), 131. 3 The list of directly applicable EU acts adopted on the basis of the CRR is available at: https://eur-lex.europa.eu/legal-content/EN/.ALL/?uri=CELEX: 32013R0575 &qid=1578874 966006, accessed on 02.12.2019. 4 See for example Regulation (EU) 2018/1845 of the European Central Bank of 21 November 2018 on the exercise of the discretion under Article 178(2)(d) Regulation (EU) No 575/2013 in relation to the threshold for assessing the materiality of credit obligations past due, OJ L 299/55, 26.11.2018.
  • [3] See Article 4(3) SSMR. 2 Article 18(5) SSMR. 3 Report from the Commission of 11 October 2017 on the Single Supervisory Mechanism established pursuant to Regulation (EU) No 1024/2013, COM(2017) 591 final, 14. 4 G. Bassani, The Legal Framework Applicable to the Single Supervisory Mechanism: Tapestry or Patchwork? (Kluwer Law International 2019), 192. 5 J. Le Cacheux, 'Réglementation et contrôle prudentiels dans l’espace bancaire et financier européen’ (1993) Revue ECU/EURO25. 6 8> This exclusion is in response to a request made by France during the Maastricht negotiations. 7 According to Article 4(1), point 1, ‘credit institution’ means “an undertaking the business of
  • [4] which is to take deposits or other repayable funds from the public and to grant credits for its own account”. 2 See Article 2, points 3 to 5, SSM Regulation. 3 The personal scope of Article 18 SSM Regulation shall be understood in restrictive terms according to Recital 53. See also C. Gortsos, ‘The power of the ECB to impose administrative penalties as a supervisory authority: an analysis of Article 18 of the SSM Regulation’, Working Paper Series, European Center of Economic and Financial Law, No 2015/11, March 2015, 18. 4 Article 6(6) SSMR. 5 Article 124 SSMFR. 6 Article 122, letter (b), SSMFR. 7 Decision of the ECB of 31 January 2014 on the close cooperation with the national competent authorities of participating Member States whose currency is not the euro, OJ L 198/7, 5.7.2014. 8 See Recitals 35 and 36, Articles 66(1), 66(2), letter (c), 67(2), letter (e) CRD IV. 9 ECtHR, Engel and Others v. the Netherlands, App. No 5100/71, 5101/71, 5102/71, 5354/72, 5370/72, 8 June 1976, §§ 80 to 82, Series A no. 22.
  • [5] ’’Case C-489/10, Bonda, ECLI:EU:C:2012:319, para. 37; case C-617/10, Akerberg Fransson, ECLI:EU:C:2013:105, para. 35; case C-537/16, Garlsson Real Estate and Others, ECLI:EU:C:2018:193, para. 37. 2 Article 18(3) SSMR; Article 1, point 6, Regulation (EC) No 2532/98; ECB (2018), SSM Supervisory Manual, cit., para. 4.11.3, 103. For a discussion, see R. D’Ambrosio, ‘Due process and safeguards of the persons subjects to SSM supervisory and sanctioning proceedings’ (2013) 74 Quaderni di Ricerca Giuridica, Banca d’Italia, 17-18. 3 Recital 36, Article 18(3), and Article 18(5) SSMR. 4 Compare Article 66(2), letters (c) and (e), and Article 67(2), letters (g) and (e), CRD IV. 5 Article 129(1) SSMFR. 6 Article 22 SSMR; Article 25 SSMFR. 7 "Article 18(7) SSMR; Article 129 SSMFR. 8 See also Recital 35 SSMR.
  • [6] R. D’Ambrosio, supra note 94, 11. For a general overview of fundamental right issues in relation to the exercise of EU sanctioning powers, see the chapter by N. Lazzerini in this book. 2 Article 135(3) SSMFR. 3 105 Article 11 Regulation (EC) 2157/1999. 4 The amount of the penalty must be less than EUR 25 000. See Article 10 Regulation (EC) 2157/1999. The simplified procedure shall not apply to sanctions imposed for infringements of ECB regulations and decisions in the field of oversight of systemically important payment systems.
 
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