Category Archives: Financial services

EU banking and financial law: the EUCJ opens the way to accessing certain information held by national competent authorities

PartiesJurisdictionFormationJudge RapporteurAdvocate GeneralSubject-matter
Preliminary rulingBundesanstalt für Finanzdienstleistungsaufsicht
Ewald Baumeister
Court of JusticeGrand ChamberJ.L. da Cruz VilaçaY.BotFinancial Services (MiFID) –
Scope of the obligation of professional secrecy on national financial supervision authorities
KeywordsDirective 2004/39/EC (MiFID) — Article 54(1) — Scope of the obligation of professional secrecy on national financial supervision authorities — Concept of ‘confidential information’
Significant pointsA reference for preliminary rule by the EUCJ was made by the Bundesverwaltungsgericht (Federal Administrative Court, Germany) in a case concerning the access to documents related to a financial operator contained in the file of the German Financial Supervisory Authority.

Mr. Baumeister was a client of Phoenix, a financial operator whose business model took the form of a Ponzi scheme. As a result, he suffered loss. In the context of the judicial liquidation of Phoenix, Mr. Baumeister requested the Federal Financial Supervisory Authority of Germany (the “FFSA”) to grant him access to the documents concerning Phoenix. The FFSA refused, arguing that such documents were confidential pursuant to Article 9(1) of the KWG implementing Article 54(1) of Directive 2004/39/EC (MiFID I). Mr. Baumeister then brought an action against this refusal before the Administrative Court of Frankfurt. The Administrative Court duly granted access to the documents except those containing trade secrets and documents from the Financial Supervisory Authority. The FFSA appealed the judgement before the Higher Administrative Court of Hesse, which dismissed the appeal. The FFSA then appealed the judgment of the Higher Administrative Court on a point of law before the Federal Administrative Court. The Federal Administrative Court decided to refer the case to the EUCJ in order to have its interpretation of Article 54(1) MiFID I.

By its first question, the Federal Administrative Court wanted to know if, pursuant to Article 54(1) MiFID, information in possession of the national competent authority (“NCA”) relating to a financial operator must be regarded automatically as confidential and if this is not the case, what are the criteria to assess whether information is confidential or not.

After having pointed out the lack of a definition of what amounts to confidential information under Article 54(1) MiFID I, the EUCJ stated that, due to the absence of any reference to national law to provide guidance on its interpretation (paragraphs 22-23), this notion should be interpreted independently and uniformly throughout the EU (paragraph 24).

In this respect, the EUCJ observed that Article 54(1) MiFID I refers to “confidential information” and not to “information” and accordingly deducted that there is information which is confidential and other information which is not confidential (paragraph 25).

Then, the EUCJ set out that MiFID I has created a framework for the supervision of investment firms based on the home country control principle (with all the necessary powers for NCAs to ensure proper supervision, notably the right to have access to any document and to demand information from any person) and for the exchange of information between NCAs. To work properly, such a framework requires that confidential information provided to the NCA by the supervised entities and exchanged between NCAs remains confidential (paragraph 31).

The Court also stated that the general confidentiality obligation on NCAs applies to information which is on the one hand not public and on the other hand would be detrimental to the person who provided the information or a third party or the proper functioning of the market being supervised (paragraph 35). This is to the extent that other information is not covered by a stricter confidentiality provision (paragraph 36), like the confidentiality granted to the information exchanged between NCAs (paragraph 37).

In addition, the Court explained that the aim of Article 54(1) MiFID I is not to create a general rule of access to documents but a general non-disclosure rule for confidential information with strictly applied and limited exceptions (paragraphs 38-39). Consequently, NCAs may grant access to confidential information only in the cases listed in Article 54 MiFID I (paragraph 43).

Finally, the Court stated that Member States are free to extend the confidentiality obligation or to authorise the disclosure of non-confidential information held by NCAs (paragraph 45).

By its second question, the Federal Administrative Court wanted to know if the classification as confidential information depends on the date of transmission and its classification at that time.

The EUCJ explained that the passage of time may influence the assessment on whether or not information held by a NCA must be qualified as confidential (paragraph 49). Therefore, the EUCJ stated that this assessment must be done at the time of the disclosure request, independently of its qualification when it was received (paragraph 50).

By its third question, the Federal Administrative Court wanted to know if a business secret or any other category of confidential information may be disqualified as business secret after a period of five years.

First, the EUCJ recalled that the protection of business secrets is a general principle of EU law (paragraph 53).

Second, the EUCJ referred to its case law (C-162/15 Evonik Degussa v. Commission) where it has already stated that information that constituted a business secret may, due to the passage of time, notably a period of five years, be disqualified as business secret, except if the concerned party shows that this information still constitutes a business secret despite its age.

Nonetheless, the EUCJ specified the passage of time consideration (mentioned above) must not be applied “to information held by the competent authorities the confidentiality of which might be justified for reasons other than the importance of that information with respect to the commercial position of the undertakings concerned, such as, in particular, information relating to the supervision methodology and strategy employed by the competent authorities” (paragraph 56).
NoteworthyThis judgment is important as it clarifies the scope of the confidentiality obligation on the national authorities competent for the supervision of financial services providers.

According to the EUCJ judgement, this confidentiality obligation is not absolute as not all information received is confidential.

The Court also stressed the importance of the time factor as it may have an impact on the qualification of information as confidential or as a business secret. Indeed a period of time of five years may disqualify information initially held by the NCA as confidential, especially a business secret. However, for other information received from another NCA, the passage of time may not be relevant.

As far as confidential information is concerned, its disclosure is restricted to the situations laid down in Article 54(1) MiFID I. The exact scope of the situations which may lead to disclosure will also be clarified by the EUCJ in the case C-358/16, which is still pending. It is interesting to note that AG Kokott has considered in her opinion in that case that access to the file of NCAs may only be granted in the case of a criminal investigation/proceeding, even where such access has been requested in the context of an action for annulment of a NCA decision sanctioning a person and the action has been brought by the sanctioned person in order to obtain exculpatory evidence. It will be interesting to see what will be the decision of the EUCJ in this case.

Member States may not derogate from respecting the confidentiality of the NCA files but may extend the confidentiality principle to information which are not confidential or to information which were confidential but have lost this qualification due to the passage of time.

NCAs, to the extent that their national law does not provide more restrictive rules, may no longer simply refuse access to their file. They will need to assess what information is confidential and what information is non-confidential depending on its nature and age. Such considerations may facilitate the access to information held by NCAs.

Furthermore, this interpretation will also be applicable to Article 76(1) of Directive 2014/65/UE (MiFID II), which has superseded MiFID I, as the wording of Article 76(1) MiFID II and Article 54(1) MiFID are identical. In addition, the interpretation of the EUCJ will also be applicable to other legislation relating the banking and financial sector which contain very similar provisions to Directive 2013/36/UE CRD IV, Directive 2009/138/CE Solvency II, Directive 2009/65/CE UCITS and Directive 2011/61/UE AIFM.

Finally, this is clearly a different approach than the one taken by the Transparency Regulation. Indeed, with Article 54(1) of MiFID I, the EU legislator has established a principle of confidentiality of the NCA files while the Transparency Regulation grants an enhanced right of access to documents of the EU institutions of.