Confidentiality duty of national supervisory authorities: rights of defence and right to a fair trial as safeguards against arbitrary conduct

Judgment

C-358/16

13.09.2018

Parties

Jurisdiction

Formation

Judge Rapporteur

Advocate General

Subject-matter

UBS Europe SE, formerly know as UBS (Luxembourg) SA, Alain Hondequin e. a.

CJEU

5th Ch.

R. Silva de Lapuerta

J. Kokott

MiFID

– Profesionnal secrecy

 

Key-words

Reference for a preliminary ruling — Directive 2004/39/EC — Article 54(1) and (3) — Scope of the obligation of professional secrecy on national financial supervisory authorities — Finding of the absence of good repute — Cases covered by criminal law — Charter of Fundamental Rights of the European Union — Articles 47 and 48 — Rights of the defence — Access to the file

Summary

In this judgment on preliminary questions referred by the Luxembourg Administrative Court of Appeal, the Court of Justice of the European Union (the “Court”) interpreted the concept of “criminal law cases”, in which national financial supervisory authorities are released from their obligation of professional secrecy, provided for by Article 54 of Directive 2004/39/EC on markets concerning financial instruments (“MiFID”). The Court also ruled on another potential derogation from this obligation of professional secrecy, based on the right to an effective judicial remedy and respect for the rights of defence, provided for by Articles 47 and 48 respectively of the Charter of Fundamental Rights of the European Union.

The Commission de Surveillance du Secteur Financier (the “CSSF”), which is the Luxembourg authority competent for supervision of the financial sector, considered that Mr DV lacked good repute, following his participation in the formation and management of Luxalpha (involved in the Madoff scandal). It therefore forced him to resign from all his mandates as director of companies in the financial sector subject to the approval of the CSSF.

Mr DV requested that the CSSF withdraw this decision. He also asked the CSSF to grant him access to certain documents in its possession, which, according to Mr DV, were exculpatory and likely to support his appeal against the contested decision. As the CSSF raised its obligation of professional secrecy provided for by Article 54 of MiFID, Mr DV lodged an appeal against that decision before the Luxembourg courts. Both the Luxembourg Administrative Court and the Luxembourg Administrative Court of Appeal have ruled in his favour. In particular, according to the Administrative Court of Appeal, such a refusal relates to an administrative sanction which falls within the criminal field within the meaning of the European Convention on Human Rights (ECHR). However, following a third party opposition from UBS, which considers that the Court’s decision violated Article 54 of MiFID, the Luxembourg Administrative Court of Appeal decided to stay the proceedings and to refer the two preliminary questions mentioned above to the Court.

With regard to the first question referred for preliminary ruling, in the absence of a definition in MiFID of the terms “criminal law cases”, the ECJ referred to the context and objectives of the Directive.

In this respect, it explained that, in the context of increasing cross-border activities, MiFID has set up a mechanism for the exchange of information between the competent authorities of the Member States. As underlined in the recent Baumeister judgment (19 June 2018, C-15/16), such a mechanism requires, for its proper functioning, the guarantee of confidentiality.

Consequently, the purpose of the professional secrecy obligation incumbent upon supervisory authorities is, according to the Court, to protect, on the one hand, the interests of the undertakings concerned and, on the other hand, “the general interest linked to the normal functioning of the Union’s markets in financial instruments” (§38). Consequently, the Court considered that professional secrecy is a general principle which is subject only to the exhaustive exceptions set out in Article 54; as will be explained below, however, it tempered this statement in the answer to the second question.

In addition, as an exception to the principle of confidentiality, the reservation of “criminal law cases” must be strictly interpreted. According to the Court, the purpose of this derogation from the principle of confidentiality is to enable the supervisory authorities to transmit all the information necessary for the purposes of criminal proceedings and criminal sanctions, in accordance with national criminal law.

Furthermore, as an exception to the principle of confidentiality, the reservation of “criminal law cases” must be strictly interpreted. According to the Court, the purpose of this derogation from the principle of confidentiality is to enable the supervisory authorities to transmit all the information necessary for the purposes of criminal proceedings and criminal sanctions, in accordance with national criminal law.

Thus, the derogation from professional secrecy provided for by Article 54 does not apply in the present case, contrary to what had been decided by the national courts, and must be limited to cases involving the transmission of information in the context of criminal proceedings or sanctions, in accordance with national criminal law.

Regarding the second question referred for preliminary ruling, the Court considered that it is necessary to determine to what extent the obligation of professional secrecy of national supervisory authorities can be mitigated by the requirements stemming from the rights to an effective remedy, a fair trial and of defence under Articles 47 and 48 of the Charter of the European Union of Fundamental Rights in conjunction with Articles 6 and 13 of the ECHR.

As a preliminary remark, the Court recalled that Articles 47 and 48 have the same scope and offer the same protection as the one provided for by Articles 6 and 13 ECHR and that Articles 47 and 48 should therefore be applied. In addition, the Court recalled that the Charter is fully applicable in all matters governed by European Union law, such as the one in the main proceedings, regarding the application of MiFID.

The Court then recalled the principle of consistent interpretation according to which a Union act must be interpreted in a manner which does not call into question its validity and conformity with fundamental rights (judgments of 15 February 2016, N., C-601/15 PPU, EU:C/2016;84, paragraph 48).

Referring to Article 47 of the Charter, which concerns the right to an effective remedy, the Court recalled that its purpose is to protect individuals from “arbitrary or disproportionate interventions by public authorities in the private sphere” and that “this protection may be invoked by a citizen against an act adversely affecting him” (§56). The Court also explained that the right to a fair trial implies the obligation to respect the rights of defence, which in turn implies access to the file in order to guarantee an effective exercise of those rights.

However, the Court pointed out that fundamental rights are not absolute and can be tempered in order to reconcile objectives of general interest, such as the proper functioning of markets, without depriving these rights of their substance.

Finally, the Court stated that the right of access to the file must be implemented in such a way as to reconcile it with the protection of confidential information (in this case, (i) non-public information or (ii) information whose disclosure would harm the person concerned or the proper functioning of the financial markets). It made this statement after having pointed out that the right of access to the file implies access to all the information in the file and that it is not for the authority to determine the documents relevant to the defence despite also saying that it may exclude irrelevant elements from the file (this is rather sitting on the fence).

To that end, the Court stated that it is for the national court to determine whether the information requested has an objective link with the objections raised and to strike a balance between on the one hand the need to guarantee the rights of the defence and subsequently to grant access to file and on the other hand the protection of the general interest linked to the proper functioning of financial markets.

Noteworthy

While the Court considered that the Luxembourg Administrative Court has failed to achieve legal correctness by adopting an overly broad concept of criminal law case, it nevertheless considered that the decision of the Luxembourg Administrative Court is correct from a substantive justice point of view.

Indeed, the Court accepted that fundamental rights may justify a derogation from the confidentiality obligation if the interest of the citizen concerned must prevail over the general interest linked to the proper functioning of cooperation between supervisory authorities, in litigation which does not fall within the scope of criminal law, stricto sensu.

The Court therefore places the national judge in the role of arbitrator between, on the one hand, the fundamental rights which protect the citizen against the arbitrariness of public power and, on the other, the general interest in this case that linked to the proper functioning of financial markets.

The national courts, in accordance with the principles established in this judgment and those established in the Baumeister judgement (19 June 2018,C-15/16), recently commented on this blog, must follow the following reasoning:

  1. Is the information confidential (is it a non-public; will its disclosure harm the person concerned or the proper functioning of financial markets)?
  2. If so, is there an objective link between the information requested and the harmful decision involved?
  3. If so, does the balance of interests in the individual case lean towards professional secrecy or the rights of the defence?

In this respect, it is regrettable that the Court did not give further guidance to the national court on how to carry out this balancing act. However, the same caution and blurring can be observed by the Court with the regard to the access of victims of competition law infringements to a competition authority’s time for the purposes of damages actions (a search for a balance between private and public enforcement). It is therefore for the national court to make its own opinion and to take into consideration the factors which it considers most appropriate such as the seriousness of the sanction, facts, extent to which good cooperation between the supervisory authorities could be impaired by the communication of a document etc.

It will therefore be for the Luxembourg Administrative Court of Appeal to extend the Praetorian work of the Court in weighing up the interests at stake, taking into account all the circumstances of the case and even refining the Court’s guidelines. The dialogue between the national judge and the Court therefore takes the form of a three-beat waltz pending the next preliminary ruling or a revision of Article 54 MiFID.

Although this reasoning must be applied by national judges, national supervisory authorities must also bear it in mind when making their own analysis and justify their decisions taking into account this objective. Otherwise their decisions will be overruled by the courts upon judicial review.

Finally, it is important underline the reaffirmation of the applicability of the Charter to EU-related law, such as almost all banking and financial law even when EU law has been implemented by national law and at national level. In particular, Article 47 Charter applies to all rights arising from the EU law. In contrast, Article 48 Charter applies only to the fields which fall under criminal law within the meaning of the ECHR.