Category Archives: Economic and monetary policy

A three party card scheme involving a co-branding partner is subject to the same restrictions as those applicable to four party schemes with respect to interchange fees. However, the mere fact that a three party payment card scheme uses a co-branding partner does not necessarily mean that it is subject to the access obligation in favour of payment services providers.

Judgment
C-643/16
07.02.2018
PartiesJurisdictionFormationJudge RapporteurAdvocate GeneralSubject-matter
Non-contractual liabilityAmerican Express Company v The Lords Commissioners of Her Majesty’s Treasury Court of Justice1st ChamberE. ReganM. Campos Sánchez-BordonaPayment services in the internal market
KeywordsReference for a preliminary ruling — Directive (EU) 2015/2366 — Payment services in the internal market — Article 35(1) — Obligation to provide authorised or registered payment service providers with access to payment systems — Point (b) of the first subparagraph of Article 35(2) — Inapplicability of that obligation to payment systems composed exclusively of payment service providers belonging to a group — Applicability of that obligation to three party payment card schemes that have entered into co-branding or agency arrangements — Validity
Significant pointsIn this request for a preliminary ruling, the High Court of Justice of England and Wales refer a question to the Court of Justice concerning the interpretation of Article 35 of the Directive (EU) 2015/2366 on payment services in the internal market (the “Directive”) and the conditions for the application to three party payment card schemes of the rules governing the access of authorized or registered payment service providers to payment systems.

American Express, an international undertaking of payment, travel exchange and loyalty rewards platforms services, also carries out activities relating to the issuing and acquisition of cards worldwide, including in the European Union.

American Express operates, with its subsidiaries, the American Express payment cards scheme (‘Amex’), which is a three party payment card scheme. Amex has entered into co-branding and service provision arrangements within the European Union.

According to the Court, the participation of payment service providers or of another third party the role of which can be treated as equivalent to that of such a provider (agent) that do not belong to the same group in one and the same payment system deprives that system of the benefit of the exception laid down in Article 35(2) (b) of the Directive, which is applicable only to three party or closed schemes (schemes where there is no other financial institution than the very card-issuing scheme). Consequently, the system is subject to the access obligation, laid down in Article 35(1) of the Directive, which is, in principle, applicable to four party or open schemes (schemes where there are the issuing bank and the acquiring bank in addition to the entity managing the payment scheme), and aims at enabling any payment service provider to access to such payment systems.

A payment service provider can be namely credit institutions, electronic money institutions, post office giro institutions (entitled under national law to provide payment services), payment institutions, the ECB and national central banks (not acting as a monetary authority) and Member States or regional or local authorities. The Court found that it cannot be inferred from the terms “Co-branding partner” (as defined by Article 2(32) of regulation 2015/751) or “agent” (as defined by Article 4(38) of the Directive), that they should be considered as “payment service provider”.

The Court judged that a three party payment card scheme, such as Amex, is composed exclusively of payment service providers belonging to a group, and are not subject to the access obligation laid down in Article 35(1), unless a third party takes part in its operation in such a way that it can no longer be considered to be composed exclusively of payment service providers belonging to the same group (as meant in Article 35(2) of the Directive).

However, where a three party payment card scheme decides to open up, making use of a payment service provider or an agent that are outside the group, its operation becomes similar to that of a classic four party payment system, with the result that the need to stimulate the competition created in the market no longer justifies the exemption from the access obligation.

The Court also stated that it was clear that such an obligation was applicable to a three party payment card scheme that has entered into a co-branding agreement where the co-branding partner concerned is a payment service provider, even though that partner does not itself provide, within the framework of that agreement, any payment service with respect to the co-branded products. By contrast, a three party payment card scheme that has entered into a co-branding agreement with a co-branding partner does not lose the benefit of the exception proved for by the provision and, therefore, is not subject to the obligation laid down in Article 35(1) of that directive in a situation where that co-branding partner is not a payment service provider and does not provide payment services within that scheme with respect to the co-branded products. It also stated that where a three party payment card scheme has entered into an agreement with an agent, such an obligation was necessarily applicable, due to the role of an agent, which is to act on the behalf of a payment institution in providing payment services.

In addition, the Court recalled that the aim of Article 35 is to ensure that all payment service providers can have access to the services of the technical infrastructures of payment systems in order to ensure, throughout the European Union, equal treatment of the various categories of payment service providers and, thereby, to maintain effective competition in payment markets. The Court found that the EU legislature was not required to set out in the Directive specifically, the reasons why in each of the situations concerned, a three party payment card scheme should be subject to the access obligation. The Directive was not vitiated by a failure to state reasons in that regard, nor rendered invalid.
NoteworthyIn this case, the Court has specified the conditions in which the obligation to provide authorised or registered payment service providers with access to payment systems applies. The Court recalled the definition of the notion of “group” and affirmed that a three party payment card scheme that is composed exclusively of payment service providers belonging to a group is not subject to the obligation laid down in Article 35(1) of the Directive 2015/2366. The sole exceptions are if the scheme makes use of an agent or a co-branding partner for the purposes of supplying payment services. In the first case, it will lose the benefit of the exception as granted to a classic three party payment card scheme and become, therefore, subject to the obligation laid down in Article 35(1) of the Directive. In the second case, the same solution will prevail, unless the co-branding partner is neither a payment service provider nor provides actually payment services.

The idea underlying such a distinction seems to be logical. The typical three party schemes with a co-branding partner or agency extensions are those concluded with undertakings which do not provide financial services. Those extensions constitute a joint marketing exercise by means of which the two entities share their customer bases with each other and encourage the consumption of the goods and services they provide. However, in light of such an assumption, perhaps for fear of any risk of bypassing the obligation laid down in Article 35(1) of the Directive, the Court has retained a fairly restrictive interpretation of the exemption set in Article 35(2).

A three party card scheme involving a co-branding partner is subject to the same restrictions as those applicable to four party schemes with respect to interchange fees. However, the mere fact that a three party payment card scheme uses a co-branding partner does not necessarily mean that it is subject to the access obligation in favour of payment services providers.

Judgment
C-304/16
07.02.2018
PartiesJurisdictionFormationJudge RapporteurAdvocate GeneralSubject-matter
Non-contractual liabilityAmerican Express Company v The Lords Commissioners of Her Majesty’s TreasuryCourt of Justice1st ChamberE. ReganM. Campos Sánchez-BordonaPayment services in the internal market
KeywordsReference for a preliminary ruling — Regulation (EU) 2015/751 — Interchange fees for card-based payment transactions — Article 1(5) — Three party payment card scheme treated as equivalent to a four party payment card scheme — Conditions — Issuance by a three party payment card scheme of card-based payment instruments ‘with a co-branding partner or through an agent’ — Article 2(18) — Concept of ‘three party payment card scheme’ — Validity
Significant pointsThis preliminary ruling related to a question asked by the High Court of Justice of England and Wales concerning the respect of the obligations laid down in Regulation (EU) 2015/751 on interchange fees for card-based payment transactions (the “Regulation”). This Regulation aims to regulate interchange fees, notably by imposing maximum interchange fees for debit and credit card transactions.

American Express, an international undertaking of payment, travel exchange and loyalty rewards platforms services, also carries out activities relating to the issuing and acquisition of cards worldwide, including in the European Union.

American Express operates, with its subsidiaries, the American Express payment cards scheme (‘Amex’), which is a three party payment card scheme. Amex has entered into co-branding and service provision arrangements within the European Union and the question in this case raised was whether or not these arrangements fell under the scope of the Regulation.

The Court recalled that, as a general rule, a three party payment card scheme is not subject to the obligations stemming from Articles 3 to 5 and 7 of the Regulation, unless it falls under one of the three situations described in Article 1(5) of the Regulation, namely: (i) if it has licensed another payment service provider for the issuance and/or acquiring of card-based payment instruments, (ii) if it has issued a card-based payment instruments with a co-branding partner, or (iii) if it has issued payment instruments through an agent.

The Court stated that in interpreting a provision of EU law, it is necessary to consider not only the precise wording involved but also the context in which it occurs and the objectives pursued by the rules of which it is part. Thus, having regard to the relevant definition of “co-branding” partner (defined at Article 2(32) of the Regulation) and “agent” (defined in Article 4(38) of Directive 2015/2366), the Court judged that such a co-branding partner or agent does not necessarily act within that scheme as an “issuer”, as defined in Article 2(2) of the Regulation.

Moreover, the Court referred to the objectives of the Regulation as stated in the recitals of the Regulation, which are to lay down uniform requirements for card-based payment transactions and internet and mobile payments based on cards, improve the functioning of the internal market and contribute to reducing transaction costs for consumers. In particular, recital 28 stipulates that, in order to acknowledge the existence of ‘implicit interchange fees’ and to contribute to the creation of ‘a level playing field’, it is necessary that, in certain circumstances, three party payment card schemes should be considered as four party payment card schemes and be subject to the same rules as the latter.

Considering this, the Court judged that it was not inconceivable that some types of consideration or benefit might be identified as constituting an implicit interchange fee, even though the co-branding partner or agent with which the three party payment card scheme concludes an arrangement is not necessarily involved in the issuing activity of that scheme.
The Court found, therefore, that it might prove difficult to achieve the objectives of the Regulation, in particular that of Article 1(5), of ensuring a level playing field in the market, if situations where a co-branding partner or agent does not act as an issuer, within the meaning of Article 2(2) of that regulation, were to be exempted from the rules laid down in Articles 3 to 5 and 7 of the Regulation.

Consequently, where a three party payment card scheme enters into a co-branding arrangement within the meaning of Article 2(32) of the Regulation, or an arrangement with an agent within the meaning of Article 4(38) of Directive 2015/2366, that scheme must be considered to be a four party payment card scheme, pursuant to Article 1(5) of that Regulation. The result of this classification is that the obligations stemming from Articles 3 to 5 and 7 of that regulation are applicable to it.

In light of the foregoing, the answer to the first question is that Article 1(5) of Regulation 2015/751 must be interpreted as meaning that, in the context of an arrangement between a co-branding partner or an agent, on the one hand, and a three party payment card scheme, on the other, it is not a prerequisite of that scheme being regarded as issuing card-based payment instruments with a co-branding partner or through an agent and therefore being considered to be a four party payment card scheme, within the meaning of Article 1(5) of Regulation 2015/751, that that co-branding partner or agent act as an issuer, within the meaning of Article 2(2) of that regulation.

Lastly, in response to the second question raised by the referring court, the Court considered that the Regulation is not vitiated by any failure to state reasons, neither a manifest error of assessment, nor a breach of the principle of proportionality.
NoteworthyThis is the first Court of Justice judgment dealing with Regulation 2015/571 on interchange fees between banks for debit and credit card payments. This regulation followed European Commission investigations into Visa and Mastercard interchange fees whereby the Commission found that the arrangements restricted competition between banks.

The Court’s judgment is a logical interpretation of EU legislation by the Court in which it has strived to look at the objectives of the Regulation on Interchange Fees and give it practical effect. The Court emphasised that one must look at the circumstances in which a three party payment card scheme operates in order to see whether it should be considered to be a four party payment card schemes.

Prudential supervision of Banking Groups by the ECB: The Crédit Mutuel Arkéa case. Judgment of the General Court of 13 December 2017 in cases T-712/15 and T-52/16.

Judgment
T-712/15
13.12.2017
PartiesJurisdictionFormationJudge RapporteurAdvocate GeneralSubject-matter
Non-contractual liabilityCrédit Mutuel Arkéa v European Central BankGeneral Court 2nd ChamberM. Prek-Economic and monetary policy - Single Supervisory Mechanism
KeywordsEconomic and monetary policy – Prudential supervision of credit institutions – Article 4(3) of the Regulation (EU) No 1024/2013 – Prudential supervision on consolidated basis – Supervised group – establishment permanently affiliated to a central body – Article 2(21)(c) of the Regulation (EU) No 468/2014 – Article 10 of the Regulation (EU) No 575/2013 – Capital requirements – Article 16(1)(c) and (2)(a) of the Regulation No 1024/2013
Significant pointsCredit Mutuel is a non-centralised French banking group, made up of a network of local credit unions having the status of cooperatives. Each local mutual credit union must be affiliated with a regional federation and each federation must be affiliated with the Confédération nationale du Crédit mutuel (CNCM), the central, national body of the network.

The Crédit Mutuel Arkéa is a variable-capital cooperative finance company, certified as a credit institution. It was founded in 2002 through the merger of a number of regional mutual credit federations. By decision adopted within the framework of the Single Supervisory Mechanism (SSM), the European Central Bank (ECB) asserted its prudential supervision of the entities in the Groupe Crédit Mutuel – including the Crédit Mutuel Arkéa. This was done on a consolidated basis (likely because the group reached the thresholds laid down in the basis Regulation N° 1024/2013 setting up the SSM triggering the direct supervision by the ECB) through the CNCM as it constituted a group of credit institutions permanently affiliated to a central body. It also considered that the Crédit Mutuel Arkéa had to possess additional tier 1 equity capital.

In its appeal before the General Court against this ECB decision, the Credit Mutuel Arkéa first argued that, since it is not a credit institution, the CNCM could not fall within the scope of the prudential supervision of the ECB. Second, it argued that the ECB wrongly considered the existence of a group for the purposes of prudential supervision. Finally, it alleged that it was unduly imposed an additional prudential requirement, which was akin to a hidden sanction.

On the first ground of appeal, the General Court considered following a teleological interpretation of the SSM rules that the notion of “supervised group” as foreseen by Article 2(21)(c) of the SSM Framework Regulation pursues the aims of allowing the ECB to grasp the risks capable of affecting a credit institution which does not result from this entity itself but from the group to which it belongs and avoiding a segmentation of a prudential supervision of the entities within a group between the different supervisory authorities. In light of these objectives and also in accordance with the wording of both Article 2(21)(c) of the SSM Framework Regulation and Article 10 of the Regulation (EU) n° 575/2013 (to which Article 2(21)(c) of the SSM Framework Regulation refers), the General Court found that the CNCM did not necessarily need to be qualified as a credit institution for its group to come under ECB supervision.

On the second ground of appeal, the General Court verified whether the conditions set out in Article 10(1) of Regulation No 575/2013, to which Article 2(21)(c) refers, were met. Thus, the General Court considered, first, that there was an obligation between the CNCM and its members to transfer the capital/equity and liquidity in order to ensure the solvability of its various entities. Second, it considered that the CNCM was responsible for the solvability and the liquidity of the group, as well for the accounting consolidation. Third, the CNCM was entitled to give instructions to its affiliate in order to ensure the respect of regulatory requirements.
As the requirements of Article 10(1) of Regulation No 575/2013 were fulfilled, the General Court considered that the ECB had correctly acknowledged the existence of a group.

On the third ground of appeal, the General Court explained that the risk profile analysis conducted by the ECB involves a complex assessment which takes into account current and future factors. Given this complexity, the ECB should be afforded a margin of discretion and the General Court is therefore allowed to overturn the ECB’s assessment where there has been a (i) procedural irregularity, (ii) lack of reasoning, (iii) material inaccuracy, (iv) manifest error of assessment or (v) misuse of powers.

The General Court considered that the ECB had not commited any mistake in establishing the risk profile of Groupe Crédit Mutuel and in imposing a capital ratio, and had not exceeded its power in doing so. Notably, the General Court takes the view that the ECB did not err in basing its assessment on the potential departure of the Crédit Mutuel Arkéa from the Groupe Crédit Mutuel. Such a hypothesis was in fact not so improbable that the ECB should not have taken it into account.

Consequently, the General Court dismissed Crédit Mutuel Arkéa.
NoteworthyEven though a bit overcomplicated, this judgment provides several valuable points to keep in mind.

First, the competence of the ECB in the matter of supervision of banks has to be construed notably in light of the objectives pursued by the SSM rules, among which the goal of ensuring an efficient and non-fragmented supervision of banks active within the Eurozone.

Second, the interpretation of EU legislation by administrative bodies, like the European supervisory authorities, EBA, ESMA, EIOPA and their predecessors (CEBS, CESR …), does not bind the EU courts. The latter remain solely competent to interpret EU law. However, guidelines of an administrative body, may be taken into account provided that this body is competent and has adopted them at the request of the EU legislator.

Third, the General Court has refrained itself from encroaching upon the room for manoeuvre of the ECB in its supervisory tasks. Such an approach appears wise and cautious. In the case at hand, the most recent developments confirm that it is well-founded. As a matter of fact, it is highly likely that Crédit Mutuel Arkéa will leave the Groupe Crédit Mutuel soon.

Le Tribunal de l’Union européenne confirme le rôle central de la BCE dans le Mécanisme de Supervision Unique

Judgment
T-122/15
16.05.2017
PartiesJurisdictionFormationJudge RapporteurAdvocate GeneralSubject-matter
Recours en annulationLandeskreditbank Baden-Württemberg c/ BCETribunal de l'Union européenneQuatrième Chambre élargieM. Prek/Politique économique et monétaire
KeywordsPolitique économique et monétaire – Surveillance prudentielle des établissements de crédit – Article 6, paragraphe 4, du règlement (UE) n° 1024/2013 – Article 70, paragraphe 1, du règlement (UE) n° 468/2014 – Mécanisme de surveillance unique – Compétences de la BCE – Exercice décentralisé par les autorités nationales – Évaluation de l’importance d’un établissement de crédit – Nécessité d’une surveillance directe par la BCE
Significant pointsL’arrêt rejette le recours en annulation formé par la Landeskreditbank Baden-Württemberg, une banque allemande d’investissement et de développement, contre la décision de la Banque Centrale Européenne (BCE) qui la qualifiait d’ « entité importante ». De ce fait, la banque allemande a été soumise à la surveillance directe de la BCE dans le cadre du Mécanisme de Surveillance Unique (MSU). Or, elle faisait valoir que, au regard de son profil de risque faible, l’exercice de cette compétence par l’autorité nationale était suffisante.

Le Tribunal a souligné que la BCE s’était vue attribuer une compétence exclusive en matière de surveillance des établissements de crédit dans la zone euro, cette supervision couvrant les missions figurant à l’article 4, paragraphe 1, du règlement 1024/2013. À la lumière des considérants du règlement MSU, le Tribunal a retenu que le Conseil de l'Union européenne envisageait une surveillance prudentielle directe des entités «moins importantes» en tant que simple mécanisme d'assistance à la BCE, plutôt que l'exercice d'une compétence autonome. Ainsi, les autorités nationales agissent dans le cadre de la mise en œuvre décentralisée d'une compétence exclusive de l'Union et n’exerce pas une compétence nationale. En conséquence, le principe de subsidiarité est sans pertinence au sein du MSU, puisqu’il ne s'applique qu'aux compétences non exclusives de l'Union.

Contrairement au principe de subsidiarité, le principe de proportionnalité est applicable aux compétences exclusives de l’Union européenne. Cependant, en l’espèce, la seule compétence des Etats susceptible d’affecter l’exercice d’une surveillance prudentielle directe de la BCE est la compétence de principe des États membres quant à l’exécution du droit de l’Union dans leur ordre juridique, soulignée à l’article 291, paragraphe 1, TFUE. En effet, cette disposition rappelle que, selon le système institutionnel de l’Union et les règles régissant les relations entre l’Union et ses États membres, il appartient à ces derniers, en l’absence d’une disposition contraire du droit de l’Union, d’assurer l’exécution du droit de l’Union sur leur territoire. Cependant, le Tribunal a estimé que l’article 70, paragraphe 1, du règlement-cadre MSU, qui permet à la BCE de dégrader en entité moins importante une banque ne saurait être interprété comme imposant de vérifier in concreto à l’égard d’un établissement relevant de la qualification d’important au regard des critères énoncés par l’article 6, paragraphe 4, du règlement de base si les objectifs de celui-ci peuvent être aussi bien atteints sous la surveillance directe des autorités nationales.

De même, pour ce qui est de la notion de « circonstances particulières », contenue à l’article 70, paragraphe 1, du règlement-cadre MSU, qui permet à la BCE de dégrader en entité moins importante une banque dont les actifs ont une valeur supérieure à 30 milliards d’euros, le Tribunal a retenu qu’elle devait être comprise comme se référant aux seules circonstances factuelles spécifiques impliquant qu’une surveillance prudentielle directe par les autorités nationales est mieux à même d’atteindre les objectifs et les principes du règlement de base et, notamment, la nécessité de garantir l’application cohérente de normes de surveillance prudentielle de niveau élevé. Il ne suffit pas qu’une surveillance directe par les autorités nationales dans le cadre du MSU soit autant à même d’atteindre les objectifs du règlement de base qu’une surveillance exercée par la seule BCE. A cet égard, le Tribunal a estimé que la requérante n’avait pas administré une telle preuve.

Sur la violation de l’obligation de motivation, les juges ont soulevé que l’avis de la commission administrative de réexamen fait partie du contexte dans lequel s’inscrit la décision attaquée et peut être pris en compte aux fins d’apprécier le caractère suffisamment motivé de ladite décision.
NoteworthyLe Tribunal a opté pour une interprétation large des compétences de la BCE. Il a donné la préférence à la déclaration de principe figurant à l’article 4, paragraphe 1, du règlement MSU selon laquelle la BCE dispose d’une compétence exclusive pour exercer une série de missions de surveillance prudentielle vis-à-vis de tous les établissements sur l’article 6 de ce règlement qui, au moins dans les versions française et allemande, fait référence aux compétences des autorités nationales à l’égard des établissements moins importants pour réduire ces dernières à une modalité d’assistance à la BCE (sur cette question, voir Ph.-E PARTSCH, “Droit bancaire et financier européen”, Larcier 2016, 2nd ed., pp. 516-517, n°s 901-903).

Ce jugement est une prise de position de principe en faveur d’une conception européenne et centripète du MSU dans lequel la BCE joue le rôle essentiel. Cet arrêt ouvre la porte à une centralisation grandissante de la supervision prudentielle. Il est probable que la BCE s’en prévaudra lorsqu’elle entendra préciser davantage, par voie d’orientations ou d’instructions générales, les modalités selon lesquelles les autorités nationales doivent accomplir des missions vis-à-vis des banques moins importantes.

Cependant, l’arrêt doit être lu avec prudence dans la mesure où la requérante n’a pas invoqué l’illégalité du règlement-cadre MSU, ni même, a fortiori et plus fondamentalement, du MSU lui-même, au regard des sources supérieures du droit européen. Cela étant, le Tribunal a veillé à interpréter les dispositions du règlement à lumière du Traité des principes généraux du droit de l’UE et dans le sens de leur conformité à ceux-ci. En outre, l’arrêt peut toujours faire l’objet d’un pourvoi devant la CJUE. Sous ces deux réserves, il constitue néanmoins un signal clair en faveur d’une conception large des compétences prudentielles de la BCE et étroitement subordonnée de ce qui apparaît comme constituer d’abord des obligations des autorités nationales.

The General Court confirms the central role of the ECB in the Single Supervisory Mechanism

Judgment
T-122/15
16.05.2017
PartiesJurisdictionFormationJudge RapporteurAdvocate GeneralSubject-matter
Action for annulment Landeskreditbank Baden-Württemberg v. ECBGeneral Court4th Chamber, Extend CompositionM. Prek/Economic and monetary policy
KeywordsEconomic and monetary policy — Prudential supervision of credit institutions — Article 6(4) of Regulation (EU) No 1024/2013 — Article 70(1) of Regulation (EU) No 468/2014 — Single supervisory mechanism — Competences of the ECB — Decentralised exercise by the national authorities — Assessment of the size of a credit institution — Need for direct supervision by the ECB
Significant pointsThe case dealt with the action for annulment, under Article 263 TFEU, brought by Landeskreditbank Baden-Württemberg, a German investment and development bank, against the decision of the European Central Bank (ECB) which classified it as a ‘significant entity’ (ie whose value of assets exceeds €30 billion) with the result that it found itself subject to the direct supervision of the ECB in the framework of the single supervisory mechanism (SSM). The applicant argued that, given its low risk profile, it could have been properly supervised by the competent national authorities.

The GC outlined that the ECB had been transferred the exclusive competence regarding the supervision of credit institutions in the Eurozone, in respect with the tasks set out in Article 4(1) of Council Regulation (EU) No 1024/2013. In the light of the recitals of that regulation, direct prudential supervision of ‘less significant’ entities by the national authorities was envisaged by the Council of the European Union as a simple mechanism of assistance to the ECB rather than the exercise of any autonomous competence by the national authorities. Thus, the national authorities are acting within the scope of decentralised implementation of an exclusive competence of the Union, not the exercise of a national competence. As a result, the principle of subsidiarity was irrelevant to the SSM, as this principle only applies to non-exclusive EU competences.

Unlike the principle of subsidiarity, the principle of proportionality is applicable to exclusive EU competences. However, in the case at issue, the sole national competence liable to be affected by the exercise of direct prudential supervision by the ECB is the Member States’ competence for the implementation of EU law in their legal orders as laid down in Article 291(1) TFEU. That provision recalls that, according to the institutional system of the Union and the rules governing relations between the Union and the Member States, it is for the latter, in the absence of any contrary provision of EU law, to ensure that EU law is implemented within their territory. Nevertheless, for the purpose of the preservation of that competence, the GC found that it cannot be held that Article 70(1) of the SSM Framework Regulation requires ascertaining on a case-by-case basis in respect of an institution classified as significant under the criteria laid down in Article 6(4) of the Basic Regulation whether its objectives may be just as well attained through direct supervision by the national authorities.

Furthermore, the GC stated that the declassification of a credit institution as ‘significant’ could be possible if there were ‘particular circumstances’, entailing that direct prudential supervision by the national authorities is better able to attain the objectives and safeguard the principles of the relevant rules. This includes in particular the objectives related to the need to ensure the consistent application of high supervisory standards. Then, by a literal interpretation of Article 70(1) of the SSM Framework Regulation, the GC found that that provision did not suggest that reclassification of a ‘significant entity’ as ‘less significant’ on the grounds that direct supervision by the national authorities under the SSM is just as able to achieve the objectives of the Basic Regulation than supervision by the ECB alone. As a result, the GC found that the applicant had not proved that the national authorities would be better able to achieve those objectives and safeguard those principles, but had merely attempted to establish that supervision by the German authorities was sufficient.

On the alleged infringement of the obligation to state reasons, the judges considered that the ECB’s Administrative Board of Review’s Opinion was part of the context of which the contested decision forms a part and may, therefore, be taken into account for the purpose of determining whether or not that decision contained a sufficient statement of reasons under the relevant case-law (see paragraphs 124-125).
NoteworthyThe GC adopted a broad interpretation of the competences of the ECB under the SSM. Indeed, the judges preferred to refer to the declaration of principle held in Article 4 of the SSM. According to this provision, the ECB has exclusive competence to carry out a series of supervisory tasks vis-à-vis all credit institutions than to Article 6 of the SSM, which, at least in the French and German versions, refers to the competences of the national authorities regarding less significant entity in order to declassify them as a form of assistance to the ECB (on this issue, see Ph.-E PARTSCH, “Droit bancaire et financier européen”, Larcier 2016, 2nd ed., pp. 516-517, n°s 901-903). The judgment is clearly in favour of a European and centrifyingl conception of the SSM where the ECB plays a key role. It therefore opens the door to a growing centralization of prudential supervision. The ECB will probably take advantage of the ruling in order to clarify, by further guidelines or general instructions, the way in which the national authorities have to carry out its missions imposed by EU law.

Of course, the judgement must be read carefully since the applicant did not invoke the illegality of the SSM Framework Regulation, nor, a fortiori and more fundamentally, the SSM itself in light of the Treaty (notably Article 127, paragraph 6, of the TFEU), the Charter of the fundamental rights of the EU and the general principles of EU law. Nonetheless, the GC interpreted the regulation in light of the Treaty and the general principles of EU law and found it was compliant with them. In addition, any step taken by the ECB within the SSM must comply with the principle of proportionality, the scope of which is not limited to the way national competences are impacted, as contemplated by the GC in the case at hand.

Finally, it is worth noting that the judgement could still be appealed before the ECJ. In any event, the judgment is clearly favorable to the ECB and detrimental to the national supervisory authorities.

Economic and monetary policy – Eurosystem Oversight Policy Framework – Oversight of payment and securities settlement systems

Judgment

T-496/11

04.03.2015

Parties

Jurisdiction

Formation

Judge Rapporteur

Advocate General

Subject-matter

Appeal

United Kingdom

v

European Central Bank

General Court

4th Ch.

M. Prek

/

Economic and monetary policy

Keywords

Economic and monetary policy — ECB — Action for annulment — Eurosystem Oversight Policy Framework — Challengeable act — Admissibility — Oversight of payment and securities settlement systems — Application to central counterparty clearing systems of a requirement to be located in a Member State party to the Eurosystem — Competence of the ECB

Significant points

I. Admissibility

  1. The argument put forward by the ECB, according to which the Policy Framework does not fall within one of the categories of binding acts which the ECB may adopt, should be rejected as irrelevant. That argument is directly at odds with the settled case-law that an action for annulment is available in the case of all measures adopted by the institutions, whatever their nature or form, which are intended to have legal effects (see, to this effect, judgments of 31 March 1971 in Commission v Council, 22/70, ECR, EU:C:1971:32, paragraph 39, and of 17 July 2008 in Athinaïki Techniki v Commission, C‑521/06 P, ECR, EU:C:2008:422, paragraphs 43 and 45). That case-law is intended specifically to prevent the form or designation given to an act by its author from resulting in its escaping assessment of its legality in an action for annulment, even though it in fact has legal effects.
  2. It is to be inferred from the analysis of the Policy Framework’s wording and context, of its substance and of the intention of its author that it has legal effects and accordingly constitutes an act against which an action for annulment may be brought under Article 263 TFEU.
  3. Notably, the statement of location policy in the Policy Framework is particularly specific, rendering it readily applicable. Thus, far from displaying the nature of a mere hypothetical statement, the Policy Framework is in fact intended to impose compliance with a location requirement for CCPs [central counterparties] whose activity exceeds the thresholds that it sets and therefore, in the absence of indications to the contrary in the text of the Policy Framework, constitutes the ECB’s definitive position.
  4. Whilst under Protocol No 15 to the FEU Treaty certain provisions of the FEU Treaty and the Statute [of the European System of Central Banks and of the ECB] do not apply in relation to the United Kingdom, the latter may still bring an action seeking review by the EU judicature of whether the ECB has exceeded its powers.

II. Substance

  1. Article 127(1) TFEU, Article 127(2) TFEU, fourth indent and Article 22 of the Statute have a complementary relationship. The power to adopt regulations pursuant to Article 22 of the Statute is one of the means available to the ECB for performing the task, entrusted to the Eurosystem by Article 127(2) TFEU, of promoting the smooth operation of payment systems. That task itself serves the primary objective set out in Article 127(1) TFEU to maintain price stability.
  2. It necessarily follows that the term ‘clearing systems’ in Article 22 of the Statute must be read in conjunction with the ‘payment systems’ to which reference is made in the same article and the smooth operation of which constitutes one of the Eurosystem’s tasks.
  3. A ‘payment system’ within the meaning of Article 127(2) TFEU falls within the field of the transfer of funds. Therefore, whilst such a definition may include the ‘cash’ leg of clearing operations, that is not true of the ‘securities’ leg of the clearing operations of a CCP, since while such securities may be regarded as being the subject-matter of a transaction giving rise to the transfer of funds, they do not, however, in themselves constitute payments.
  4. A similar conclusion is also required in respect of the term ‘clearing and payment systems’ that is used in Article 22 of the Statute.
  5. This term must be interpreted in the light of the task, conferred on the Eurosystem by the fourth indent of Article 127(2) TFEU, of promoting the ‘smooth operation of payment systems’. It necessarily follows that the ability which the ECB is granted by Article 22 of the Statute to adopt regulations ‘to ensure efficient and sound clearing and payment systems’ cannot be understood as according it such a power in respect of all clearing systems, including those relating to transactions in securities.
  6. That option granted to the ECB by Article 22 of the Statute must rather be regarded as limited to payment clearing systems alone. In this regard, it should be noted that a clearing stage may be included in payment systems, such as net settlement payment systems as opposed to a gross settlement payment system.
  7. Consequently, in the absence of an explicit reference to the clearing of securities in Article 22 of the Statute, it must be concluded that the choice of the term ‘clearing and payment system’ is intended to make it clear that the ECB has competence to adopt regulations to ensure efficiency and safety of payment systems, including those with a clearing stage, rather than granting it an autonomous regulatory competence in respect of all clearing systems.
  8. It is necessary to reject the ECB’s line of argument to the effect, in essence, that the carrying out of the task consisting in promotion of the sound operation of payment systems pursuant to the fourth indent of Article 127(2) TFEU means that it necessarily has the power to regulate the activity of securities clearing infrastructures, in the light of the effect that their default could have on payment systems.
  9. It is true that the Court of Justice has acknowledged that powers not expressly provided for by the provisions of the Treaties may be used if they are necessary to achieve the objectives set by the Treaties. Thus, when an article of the Treaty confers a specific task on an institution, it must be accepted, if that provision is not to be rendered wholly ineffective, that it confers on that institution necessarily and per se the powers which are indispensable in order to carry out that.
  10. Nevertheless, the existence of an implicit regulatory power, which constitutes a derogation from the principle of conferral laid down by Article 13(2) TEU, must be appraised strictly. It is only exceptionally that such implicit powers are recognised by case-law and, in order to be so recognised, they must be necessary to ensure the practical effect of the provisions of the Treaty or the basic regulation at issue.
  11. Nevertheless, the existence of those links cannot be sufficient to justify accepting that the ECB has implicit powers to regulate securities clearing systems, since the FEU Treaty envisages the possibility of such powers being conferred explicitly upon the ECB.
  12. Indeed, it must be pointed out that Article 129(3) TFEU provides for a simplified amendment mechanism — derogating from the mechanism in Article 48 TEU — in respect of certain provisions of the Statute, including Article 22. It enables the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, and on a recommendation from the ECB or a proposal from the Commission, to amend those provisions.
  13. In this respect, it is clear that the creation of a requirement to be located within the euro area that is applicable to CCPs providing clearing services for euro-denominated securities beyond certain thresholds goes beyond mere oversight of the infrastructures of securities clearing systems, and partakes regulation of their activity.

Noteworthy

  1. Like the acts of any EU institution or body, the acts of the ECB with legal effects on third parties are subject to judicial review, irrespective of its form. Although foreseeable, that statement by the General Court is of particuliar importance for the ECB, given its strong emphasis on moral persuasion and acts of allegedly soft law. Following this judgment, it cannot be ruled out that more acts of the ECB will be challenged before the European Courts in the future.
  2. In the European Legal Order, the ECB is neither a legislator nor a regulator but an institution assigned with operational responsibilities of monetary policy and, since 4 November 2014, of prudential supervision. To fulfill these responsibilities, the ECB is equipped with limited and specific powers to adopt binding acts of general scope, such as orientations, guidelines, instructions and even regulations.
  3. Even though the reasoning of the General Court underlying its conclusion according to which the ECB is deprived of any power to adopt regulations in connection with the system of clearing and settlement of securities is not fully convincing, it results clearly from the judgment of the General Court that the ECB enjoys regulatory powers only for the proper fulfillment of its main tasks.
  4. Such an approach by the General Court is noteworthy and this case law is also of relevance for the ECB’s missions of prudential supervision. The way the ECB perceives its legislative powers and contemplates exercising them may be excessive and successfully challenged before the EU Courts.
  5. By denying the ECB the power to regulate the activity of the system of clearing and settlement, the General Court managed to avoid addressing the issue as to whether requiring the location of some activities to be within the Euro area, the ECB infringed the freedoms of circulation (freedom to provide services and freedom of establishment).
  6. In my opinion, since the ECB is in charge of policies within only a part of the EU, there is an objective risk that, in the fulfillment of its mission, it does not sufficiently take into account the legitimate interests of the EU Member States which are not part of the Eurozone and of their economic operators. Thus, it is not excluded at all that one day the ECB will be considered as having infringed freedoms of circulation, that is to say by restricting these freedoms in an unjustified or disproportionate manner.

Economic and monetary policy – Validity of the decision of the Governing Council of the ECB of 6 September 2012

Opinion

C-62/14

14.1.2015

Parties

Jurisdiction

Formation

Judge Rapporteur

Advocate General

Subject-matter

Reference for a preliminary ruling

Peter Gauweiler and others / Deutscher Bundestag

Court of Justice

Cruz Villalón

Economic and monetary policy

Key-words

Economic and monetary policy — Validity of the decision of the Governing Council of the European Central Bank of 6 September 2012 — Technical features of Outright Monetary Transactions (OMTs) — National review of the constitutionality of European Union acts — Ultra vires acts — Constitutional identity — Sincere cooperation — Admissibility — Nature of an act open to legal challenge in the context of preliminary ruling proceedings — Communications strategy of the European Central Bank — Powers of the European Central Bank — Price stability — Restoring the monetary policy transmission channels — Articles 119 TFEU and 127(1) and (2) TFEU — Exceptional circumstances — Unconventional monetary policy measures — Principle of proportionality — Article 5(4) TEU — Article 123 TFEU — Prohibition of monetary financing of Member States in the euro area

Significant points

  1. The Outright Monetary Transactions (OMT) programme of the European Central Bank, announced on 6 September 2012, is compatible with Article 119 TFEU and Article 127(1) and (2) TFEU, provided that, in the event of that programme being implemented, the ECB refrains from any direct involvement in the financial assistance programmes to which the OMT programme is linked, and complies strictly with the obligation to state reasons and with the requirements deriving from the principle of proportionality.
  2. For the OMT programme to be classified as a monetary policy measure, it is essential, as has already been pointed out, that the objectives come within the framework of that policy and that the instruments used are those proper to monetary policy. Linking the OMT programme to compliance with financial assistance programmes may be justified by the, undoubtedly legitimate, interest there is in eliminating any hint of ‘moral hazard’ that may result from a significant intervention by the ECB on the government bond market. However, the fact that the ECB plays an active part throughout the course of financial assistance programmes may make the OMT programme, inasmuch as it is unilaterally linked to those programmes, into something more than a monetary policy measure. Unilaterally making the purchase of government bonds subject to compliance with conditions when those conditions have been set by a third party is not the same as doing so when the ‘third party’ is not really a third party. In those circumstances, the purchase of debt securities subject to conditions may become another instrument for enforcing the conditions of the financial assistance programmes. The mere fact that the purchase may be perceived in that way — as an instrument which serves macroeconomic conditionality — may be sufficient in its impact to detract from or even distort the monetary policy objectives that the OMT programme pursues.
  3. However, if exceptional circumstances were to arise which were grounds for activating the OMT programme, it would, for that programme to retain its function as a monetary policy measure, be essential for the ECB to detach itself thenceforth from all direct involvement in the monitoring of the financial assistance programme applied to the State concerned. Nothing would prevent the ECB from being kept informed and even from being heard, but under no circumstances would it be possible for the ECB, in a situation in which a programme such as OMT is under way, to continue to take part in the monitoring of the financial assistance programme to which the Member State is subject when, at the same time, that State is the recipient of substantial assistance from the ECB on the secondary government bond market. Accordingly, this functional distance between the two programmes must be maintained if the OMT programme is to retain its character of a monetary policy measure, aimed exclusively at restoring the monetary policy transmission channels.
  4. The OMT programme is compatible with Article 123(1) TFEU, provided that, in the event of the programme being implemented, the timing of its implementation is such as to permit the actual formation of a market price in respect of the government bonds.
  5. The fact that the ECB might be obliged — in the hypothetical event of a restructuring of a Member State’s debt — to waive, in full or in part, its claims securitised in government bonds, as a result of the OMT programme being activated, does not mean that the programme amounts to a monetary financing measure contrary to Article 123(1) TFEU.
  6. A purchase of government bonds — even ones with a low credit rating — which may expose the ECB to a degree of risk of default, is not as such contrary, in the circumstances described, to the prohibition of monetary financing laid down in Article 123(1) TFEU.
  7. Any implementation of the OMT programme must, if the substance of Article 123(1) TFEU is to be complied with, ensure that there is a real opportunity, even in the special circumstances in issue here, for a market price to form in respect of the government bonds concerned, in such a way that there continues to be a real difference between a purchase of bonds on the primary market and their purchase on the secondary market.

Noteworthy

 This opinion concerned a preliminary reference from the German Federal Constitutional Court hearing a case brought by certain individuals against the German Government’s decision to not contest the European Central Bank’s announcement in September 2012 of its intention to purchase government bonds issued by the Eurozone countries in order to instill stability on the bond market.

 

In this opinion, which will provide guidance for the judgment to be rendered in the coming months, Advocate General Cruz Villalón concludes that the ECB’s announced programme is lawful, as it comes within its monetary policy powers, is suitable and proportionate to the legitimate objective pursued and does not constitute monetary financing of Member States, prohibited under Article 123(1) TFEU.

However, any implementation of the programme would need to be subject to certain conditions being respected. Indeed, if implemented, to be compatible with the ECB’s monetary policy powers, the ECB would need to refrain from any direct involvement in the financial assistance programme that applies to the Member States concerned. In addition, the ECB would need to give sufficient reasoning for adopting an unconventional measure such as the programme concerned, identifying clearly and precisely the extraordinary circumstances that justify it.

Concerning the prohibition of monetary financing laid down in the TFEU, the Advocate General highlights that the TFEU does not prohibit transactions on the secondary market since if it did the Eurosystem would be deprived of a vital tool for the ordinary conduct of monetary policy. However, it does require that, when the ECB intervenes on that market, it does so with sufficient safeguards to ensure that its intervention does not infringe the prohibition of monetary financing. In that regard, if the ECB’s programme is implemented, its timing must be such as to permit the actual formation of a market price in respect of national government bonds.