Category Archives: ECB

Bank in liquidation: what judicial protection against the ECB ?

Judgment
C-663/17, C-665/17 and C-669/17
05.11.2019
PartiesJurisdictionFormationJudge RapporteurAdvocate GeneralSubject-matter
Appeal European Central Bank, European Commission and
Trasta Komercbanka among others
Court of JusticeGrand ChamberM. Vilaras J. KokottAdmissibility
KeywordsAdmissibility — Representation of a party before the Court — Power of attorney given to the lawyer — Power of attorney withdrawn by the liquidator of the appellant company — Further steps in the proceedings by the decision-making body of the appellant company — Charter of Fundamental Rights of the European Union — Article 47 — Right to an effective remedy — Regulation (EU) No 1024/2013 — Prudential supervision of credit institutions — Decision to withdraw a credit institution’s authorisation — Action for annulment before the General Court of the European Union — Admissibility — Whether the shareholders of the company whose authorisation has been withdrawn are directly concerned
Significant pointsTrasta Komercbanka is a credit institution which was licensed in Latvia by the Financial and Capital Market Commission (the ‘FCMC’).

On FCMC's request, the European Central Bank withdrew this approval on the basis of the Single Supervisory Mechanism Regulation.

Subsequent to the action for annulment brought before the EU General Court against this withdrawal by Trasta Komercbanka and certain of its shareholders, the liquidator of the credit institution appointed at the request of the FCMC revoked all the mandates that had been issued by Trasta Komercbanka, including that of the lawyer representing it before the EU General Court.

By an order rendered on 12 September 2017, the EU General Court held that it was not necessary to rule on the credit institution’s appeal given the invalidity of the representative's power of attorney but accepted the appeal of the shareholders of the credit institution.

In a judgment on 5 November 2019, delivered in Grand Chamber, the EU Court of Justice annulled the General Court’s order on both counts.

First, it noted that the relationship between the FCMC and the liquidator placed the latter in a situation of conflict of interest that could affect the credit institution’s right to an effective judicial remedy. In this regard, it also referred to the case law of the European Court of Human Rights, more specifically its judgment on 9 September 2004, Capital Bank AD v. Bulgaria. Consequently, the action for annulment of the credit institution was deemed admissible.

On the other hand, the CJEU ruled that the shareholders of the credit institution were not directly concerned by the withdrawal of the authorization from the legal point of view. In particular, the liquidation of Trasta Komercbanka did not constitute implementation of the ECB’s withdrawal decision which was ‘purely automatic and [results] from EU rules alone’. Consequently, the action for annulment of the credit institution's shareholders was not admissible and the plea of inadmissibility of the ECB was well founded.
NoteworthyThe judgment of the Court of Justice is to be approved. It rectifies an order of the Tribunal of the European Union which was slightly bizarre.

On the one hand, one can approve the proactive interpretation of the right to an effective judicial remedy based on an in concreto approach, as required to render effective this fundamental right, as well as the convergence of approach with the European Court of Human Rights on this issue.

On the other hand, in assessing the conditions for the admissibility of an action for annulment, the Court of Justice remains committed to a strict or even literal interpretation of the notion of direct interest. While it is true that the liquidation of the credit institution did not derive directly from the decision to withdraw the authorization of the European Central Bank, the Latvian authorities were forced to implement this withdrawal decision and they had limited options in this respect.

La Cour de justice apporte des éclaircissements sur l’intérêt à agir contre des décisions de la BCE dans le cadre du règlement MSU

Judgment
C-663/17, C-665/17 et C-669/17
05.11.2019
PartiesJurisdictionFormationJudge RapporteurAdvocate GeneralSubject-matter
Appeal Banque centrale européenne, la Commission européenne et
Trasta Komercbanka e.a

V

European Commission
Cour de JusticeGrande ChambreM. Vilaras J. KokottRecevabilité
KeywordsRecevabilité – Représentation d’une partie devant la Cour – Mandat délivré à l’avocat – Retrait du mandat par le liquidateur de la société requérante – Poursuite de l’instance par l’organe de direction de la société requérante – Charte des droits fondamentaux de l’Union européenne – Article 47 – Droit à un recours effectif Règlement (UE) no 1024/2013 – Surveillance prudentielle des établissements de crédit – Décision de retrait de l’agrément d’un établissement de crédit – Recours en annulation devant le Tribunal de l’Union européenne – Recevabilité – Affectation directe des actionnaires de la société dont l’agrément a été retiré
Significant pointsTrasta Komercbanka est un établissement de crédit qui était agréé en Lettonie par la Commission des marchés financiers et des capitaux (« CMFC »).
Sur la proposition de la CMFC, la Banque centrale européenne a retiré cet agrément sur le fondement du règlement MSU.

Postérieurement au recours en annulation introduit devant le Tribunal de l’Union européenne contre ce retrait par Trasta Komercbanka et certains de ses actionnaires, le liquidateur de l’établissement de crédit nommé à la demande de la CMFC à révoquer tous les mandats qui avaient été émis à Trasta Komercbanka dont celui de l’avocat le représentant devant le Tribunal de l’Union européenne.

Par une ordonnance du 12 septembre 2017, le Tribunal de l’Union européenne a, d’une part, jugé qu’il n’y avait pas lieu de statuer sur le recours de l’établissement de crédit, compte tenu de la disparition du pouvoir de représentation de l’avocat et, d’autre part, a jugé recevable le recours des actionnaires de l’établissement de crédit.

Par un arrêt du 5 novembre 2019, rendu en grande chambre, la Cour de justice de l’Union européenne annuler cette ordonnance sur les deux volets.

D’une part, elle a relevé que les liens entre la CMFC et le liquidateur mettait ce dernier dans une situation de conflit d’intérêts de nature à porter atteinte au droit de l’établissement de crédit à un recours juridictionnel effectif. À cet égard, elle s’est également prévalue de la jurisprudence de la Cour européenne des droits de l’homme, plus précisément de sa décision du 9 septembre 2004, Capital Bank AD c. Bulgarie. Par conséquent, le recours en annulation de l’établissement de crédit était recevable.

D’autre part, la CJUE a statué que les actionnaires de l’établissement de crédit n’étaient pas directement concernés par le retrait de l’agrément sur le plan juridique. En particulier, la liquidation de l’établissement de crédit ne constituait pas la mise en œuvre « purement automatique et découlant de la seule réglementation de l’Union » de la décision de retrait de la Banque centrale européenne.

Par voie de conséquence, le recours en annulation des actionnaires de l’établissement de crédit n’était pas recevable et l’exception d’irrecevabilité de la BCE était fondée.
NoteworthyL’arrêt de la Cour de justice est à approuver. Il redresse une ordonnance du Tribunal de l’Union européenne pour le moins baroque.

D’une part, on soulignera l’interprétation volontariste du droit à un recours juridictionnel effectif, fondée sur une approche in concreto comme l’exige l’effectivité de ce droit fondamental de même que la convergence d’approche avec la Cour européenne des droits de l’homme sur cette question.

D’autre part, dans l’appréciation des conditions de recevabilité d’un recours en annulation, la Cour de justice demeure attachée à une interprétation stricte voire littérale de l’intérêt direct. S’il est vrai que la liquidation de l’établissement de crédit ne découlait pas directement de la décision de retrait de l’agrément de la Banque centrale européenne, force est toutefois de constater que les autorités lettonnes devaient tirer les conséquences de ce retrait. À cet égard, elles disposaient de peu d’options pour donner plein effet à la décision de retrait de la BCE.

The ECB’s growing interpretation of EU banking regulation. The same person may not occupy at the same time the post of chairman of the board of directors and that of ‘effective director’ in credit institutions subject to prudential supervision.

Judgment
T-133/16
24.04.2018
PartiesJurisdictionFormationJudge RapporteurAdvocate GeneralSubject-matter
Preliminary rulingCaisse régionale de crédit agricole mutuel Alpes ProvenceGeneral CourtSecond ChamberM. Prek /Economic and monetary policy — Prudential supervision of credit institutions
KeywordsPrudential supervision of credit institutions — Person effectively directing the business of a credit institution — Article 13(1) of Directive 2013/36/EU and the second paragraph of Article L. 511-13 of the French monetary and financial code — Prohibition on combining the role chairman of the management body of a credit institution in its supervisory function with the role of chief executive officer of the same establishment — Article 88(1)(e) of Directive 2013/36 and Article L. 511-58 of the French monetary and financial code
Significant pointsCrédit Agricole is a non-centralised French banking group which is comprised, inter alia, of regional agricultural credit union branches. Four of those regional branches wished to appoint the same persons as chairman of the board of directors and as ‘effective directors’. The European Central Bank (ECB), which is responsible for the prudential supervision of Crédit Agricole, approved the appointment of the persons concerned as chairmen of the board of directors but objected to them carrying out at the same time the function of ‘effective directors’.

The ECB considered that the functions enabling a person to obtain approval as ‘effective directors’, in accordance with French and EU law, were executive functions (such as those of the chief executive officer), distinct from the functions entrusted to the chairman of the board of directors. In principle, according to the ECB, there has to be a separation between the exercise of executive and, non-executive functions within a management body.

The four regional branches brought proceedings before the General Court for the annulment of the ECB’s decisions. In essence, they argued that the ECB had not correctly interpreted the concept of ‘effective director’ by limiting it to members of the senior management with executive functions.

In its judgment, the General Court rejected the appeals of the four regional branches and confirmed the approach taken by the ECB.

The General Court analysed the concept of ‘effective director’ of a credit institution in the light of Article 13 of Directive 2013/36/EU on the prudential supervision of credit institutions (CRD IV). On the basis of a textual, historical, teleological and contextual interpretation of Article 13 of Directive 2013/36/UE, the General Court ruled that the concept of « effective director » refers to the members of the management body who are part of the senior management of the credit institution. In particular, the General Court referred to the objective pursued by the EU legislature concerning good governance. That objective involves effective oversight of the senior management by the non-executive members of the management body, necessitating checks and balances within the management body. The effectiveness of this supervision could be jeopardised if the chairman of the board of directors in its supervisory function, while not formally occupying the role of chief executive officer, was also responsible for the effective direction of the business of the credit institution.

The General Court considered that the ECB also correctly applied Article 88 of Directive 2013/36/EU, which provides that the chairman of the management body in its supervisory function of a credit institution (such as the chairman of the board of directors) may not exercise at the same time, unless by express authorisation of the competent authorities, the function of chief executive officer in the same institution.

Lastly, the General Court observes that the ECB also correctly applied the provisions of the Code monétaire et financier français (French monetary and financial statute), as interpreted by the French Conseil d’État. In that regard, the General Court noted that Article L. 511-58 of the CMF is broader in scope than Article 88(1) (e) of Directive 2013/36 in that it precludes not only the ‘chief executive officer’ but also ‘a person carrying out equivalent management duties’ from chairing the board of directors. It stressed that the broader scope of Article L. 511-58 of the CMF does not mean that it is incompatible with Article 88(1)(e). As the ECB correctly pointed out in the contested decisions, recital 54 of Directive 2013/36, allows the Member States to introduce extra principles and standards to ensure effective oversight by the management body. Furthermore, the extension of the prohibition on combining the functions of chairman of the board of directors with those of chief executive officer to a ‘person carrying out equivalent management duties’ was judged consistent with the objectives of Directive 2013/36, namely, the objective of effective oversight of the senior management by the non-executive members of the management body, which involves a balance of powers within the management body.
NoteworthyThis case shows how the ECB is progressively developing its interpretation of various provisions of EU banking law when exercising its supervisory powers and under the judicial review of the EU courts.

In this case, the ECB considered that the same person may not occupy at the same time the post of chairman of the board of directors and that of ‘effective director’ in credit institutions subject to prudential supervision. Its view has been confirmed by the EU General Court.

By finding this, the ECB has complied with the clear wording of Article 88 (1) e) of the CRD IV Directive. I fully agree with this interpretation as stated in my book on EU banking and financial law (Droit bancaire et financier européen, 2e éd., Larcier, 2016, p. 437, paragraph 734). Such requirement has been implemented into Luxembourg law in advance by the CSSF Circular 12/552 on central administration, internal governance and risk management in 2012 (see point 32).

The ECB has also supported the idea that CRD IV is, as a general rule, a directive of minimal harmonization and that the Home Member State of a credit institution is allowed to impose more stringent requirements, therefore. This was the case here as French Law extended the incompatibility prohibition laid down in CRD IV to any executive mandate for the chairman of the board of directors within the same bank.

Beyond these two statements, the case sheds some light on the ECB’s power of interpretation of EU banking and financial law. This is of relevance not only for banks subject to its direct supervision but also to banks of EU Member States not belonging to the EUROZONE as well to other financial operators. For example, the governance rules laid down in CRD IV under Article 88 (1) e) are applicable not only to credit institutions but also to investment firms. In addition, some provisions applicable to banks and thereby falling within the scope of the powers of supervision of the ECB have inspired rules applicable to other financial institutions.

The judgment of the General Court is excessively long in light of the clear wording of Article 88 (1) e) of CRD IV. The long developments on the alleged ratio legis of Article 13 could have been avoided. For reasons of clarity and simplicity, the judgment could have been limited to two statements, one on the scope of Article 88, paragraph 1, under e) of CRD IV and one on the possibility for the home member State to set requirements going beyond those of the Directive.

However, the stress put by the General Court on the good governance of credit institutions and investment firms shows that those new rules must be considered as of the utmost importance for credit institutions. It can thereby be deducted that violations of those rules could justify severe administrative sanctions and ever result in civil liability for banks and investment firms.