EU court jurisdiction over prudential oversight of the banking sector in the Eurozone

PartiesCourtChamberJudge RapporteurAdvocate GeneralSubject-matter
Preliminary rulingSilvio Berlusconi, Finanziaria d’investimento Fininvest SpA (Fininvest)
Banca d’Italia, Istituto per la Vigilanza Sulle Assicurazioni
Court of JusticeGrand ChamberJ.-C. BonichotM. Campos Sánchez-BordonaSupervision of credit institutions – Judicial review of preparatory acts adopted by national authorities for ECB decisions
KeywordsReference for a preliminary ruling – Approximation of laws – Prudential supervision of credit institutions – Acquisition of a qualifying holding in a credit institution – Procedure governed by Directive 2013/36/EU and by Regulations (EU) No 1024/2013 and No 468/2014 – Composite administrative procedure – Exclusive decision-making power of the European Central bank (ECB) – Action brought against preparatory acts adopted by the national competent authority – Claim that the force of res judicata attaching to a national decision has been disregarded
Significant pointsOn 19 December 2018, the Court of Justice of the European Union (CJUE), in a Grand Chamber judgment, held in case C-219/17 that the EU courts had exclusive jurisdiction to review the legality of decisions to initiate procedures, preparatory acts and non-binding proposals adopted by national competent authorities (NCAs) in order to enable the European Central Bank (ECB) to rule on proposed acquisitions of qualifying holdings in a credit institution under the Single Supervisory Mechanism (SSM).

As a reminder, by way of derogation from the principle that it only supervises major banks, the ECB has three exclusive decision-making powers with regard to all banks in Member States that are part of the SSM (at the moment the Member States of the Eurozone). The ECB exercises this competence after preparatory work by the relevant NCA: authorisation, withdrawal, nihil obstat or opposition to the acquisition or reinforcement of a qualifying holding in the capital of a credit institution.

Following a restructuring, the holding company controlled by Silvio Berlusconi became the owner of a qualifying holding in a credit institution. In view of Silvio Berlusconi's previous conviction for tax fraud, the National Bank of Italy raised objections as regards his honourability. The holding company then sought the annulment of the National Bank’s decision before the Italian Council of State, which questioned the CJEU on the respective areas of competence of national and EU courts to hear such an appeal.

The CJEU notably based the exclusive jurisdiction of the EU courts to hear such a dispute on the exclusive decision-making power of the ECB and the exclusive jurisdiction of the EU courts to review the legality of acts of EU institutions. In this respect, it stressed that these acts include acts where national authorities are involved provided that the final decision is adopted by an EU institution and that the latter is not bound by the preparatory acts or proposals of the national authorities and does not have only limited discretion.

The principle of effective judicial protection requires EU courts to also examine potential defects in the preparatory acts or proposals made by the national authorities which might affect the validity of the EU institution's final decision.

According to the CJEU, the effectiveness of the decision-making process chosen by the legislator, which involves close collaboration between national authorities (NCAs) and an EU institution, necessarily requires a single judicial review, which can only be exercised once the final decision of the EU institution has been adopted and by the EU courts. Indeed, only this type of decision may produce binding legal effects capable of affecting the applicant's interests, by changing his or her legal situation in a significant way. By contrast, the acts adopted by the NCA are merely preparatory. In addition, the coexistence of national remedies against preparatory acts of NCAs in this type of procedure would be likely to lead to divergent assessments in the same procedure and, consequently, to compromise the exclusive competence of the EU courts to rule on the legality of the final decision.

On the other hand, where the acts of the national authorities are binding on the EU institution or leave it only limited discretion, it falls upon national courts to review these acts. In this respect, the right to effective judicial protection requires that national remedies be admissible, even if national procedural rules do not provide for it.
CommentaryThis judgment fills a gap in the SSM: the impact of the ECB's powers on the judicial review of NCAs’ preparatory acts for ECB decisions. The SSM is largely based on an allocation of tasks between the NCAs and the ECB, the former being in charge of the preparatory work when the latter is set to act. In this way, the ECB, which is a young prudential authority, can benefit from the NCAs’ expertise, not to mention their specific competence in terms of knowledge and understanding of national law transposing banking directives.

The consequences of this judgment - the solution of which is to be approved in principle - are substantial. A series of preliminary interventions by NCAs in the supervision of major banks or relating to the procedure for granting, withdrawing or opposing qualified equity investments in all banks in the euro area will now fall within the exclusive competence of the General Court and, on appeal, of the CJEU. They will therefore no longer be subject to actions for annulment or reversal before national administrative courts. However, a case-by-case analysis will be required to determine the scope of these preliminary acts. For example, with regard to the accreditation procedure, the Advocate General made it clear that the situation was different as the NCAs could decide not to submit an application for accreditation when it considered it contrary to national law. Such a position is final.

It will therefore be necessary to carry out a case-by-case analysis of the scope of the preparatory acts adopted by the NCAs for ECB decisions, which, at first sight, is not a guarantee of legal certainty. It is not excluded that new preliminary questions be referred to the CJEU regarding the respective fields of competence of EU and national courts within the framework of the SSM and that the Court will have to continue to complete the work of the legislator, which had to be drawn up in a short period of time and under conditions of acute crisis.

While this may be due to the political sensitivity of the issue (i.e. the exclusion of the jurisdiction of national courts over purely preparatory acts of NCAs given the silence of the SSM Regulation), the CJEU seems embarrassed. Its reasoning appears a little convoluted, hesitating between several approaches. It could have simply extended its traditional case law on EU legal acts developed in several phases to this case of particular cooperation between NCAs and the ECB. But it felt obliged to resort to the useful effect of the SSM as well as the principle of effective judicial protection, or even the principle of loyal cooperation between States and institutions. The Advocate General's submissions were more linear and clear. It is true that, unlike the Reporting Judge, the Advocate General does not have to deal with the sensitivities of 12 other judges or even with the irrepressible desire of some to "try to enrich the draft judgment", to use the expression of a former eminent member of the Court.

In addition, the judgment presents some culpable weaknesses. The principle of exclusive jurisdiction of EU courts is only envisaged in the sole case of a final act adopted by an EU institution. This omits the acts of EU bodies which are subject to the same system of judicial control. The question is far from theoretical, for example, as regards the European Supervisory Authorities. Moreover, the claim that Article 22 CRD IV provides for the prior authorisation of any acquisition or increase in qualifying holdings in credit institutions in the name of the proper functioning of the Banking Union may also be criticised. The proposal contains a fundamental error and is marked by an anachronism. First, the mechanism is not an authorisation but a prior opposition. Secondly and above all, this provision was already included in the Second Banking Directive in 1989, almost a quarter of a century before the birth of the Banking Union. The use of the latter as justification for this judicial control is an anachronism and a superfluous statement whose added value can be questioned. The invocation of the principle of loyal cooperation has already been mentioned.