Enforcement: the Interaction (and Friction) between …€¦ · Enforcement: the Interaction (and Friction) between ECB and National Supervisory Authorities Glasgow, 29 January 2016

Enforcement: the Interaction (and

Friction) between ECB and

National Supervisory Authorities

Glasgow, 29 January 2016

University of Glasgow – Law

School

Pierre de Gioia-Carabellese

Heriot-Watt University (Edinburgh)

w.ac.uk/staff-directory/pierre-de-gioia-carabellese.htm

[email protected]

Matteo De Poli

University of Padua

http://www.sml.hw.ac.uk/staff-directory/pierre-de-gioia-carabellese.htm









Sources

1) Regulation (EU) 1024/2013

(‘Regulation 1024’ or ‘SSM Regulation’) conferring specific tasks on the European Central Bank concerning policies relating to the prudential

supervision of credit institutions

2) Regulation (ECB) 468/2014

(‘Regulation 468’) establishing the framework for cooperation within the Single Supervisory Mechanism between the European

Central Bank and national competent authorities and with national designated authorities (SSM Framework

Regulation).

Though not a source, ECB Guide to Banking Supervision 2014

is fundamental for practitioners

Regulation 1024/2013

The main supervisor: the ECB

Art. 4

Tasks conferred on the ECB:

Mainly supervision

The Basic Architecture of the SSM

• Two theoretical solutions

The SSM applies exclusively to EUROZONE major banks

However, this would have caused inconsistencies

among the different kind of banks

All banks are part of the SSM, but tasks are delegated to

each national authority

However, in this case the supervision would have

been less effective and, to a certain extent, affected

by national interests

• Compromise Solution: all banks are included in the SSM

Both ‘significant banks’ and ‘less significant banks’ in the

Eurozone

However, tasks are divided between ECB (significant

banks) and NCA (less significant banks)

Regulation 1024/2013

Supervisory Powers,

Investigatory Powers and

Sanctions

The Pillars of the Investigatory

Powers are Three:

Art. 10 of Regulation 1024

Request for information

Art. 11 of Regulation 1024

General investigations

Art 12 of Regulation 1024

On-site Inspections


Powers are Three (cntd)

• Request for information

All information necessary

to The ECB



• General investigations

To request information, to

examine books and records,

to interview any person who

consents to be interviewed,

etcetera



• On-site Inspections

More detailed and invasive

activity at the premises of

the supervised entity or

supervised group



• The ECB investigatory powers are three

• In the past, each national authority used to

have both investigatory and regulatory

powers, the latter now essentially conferred

upon EBA

• ECB regulatory powers are of less

importance



• To whom/which entity these powers apply

• Art 10 Credit institutions

Financial holding companies established in the participating MS;

Mixed financial holding companies established in the

participating MS;

Mixed-activity holding companies established in the participating

MS;

Persons belonging to the entities above;

Third parties to whom the entities referred to above have

outsources functions or activities

Penalties in the SSM

• What are they?

• To which entities do they apply?

• How are they applied (procedures)?

• Dilemmas?

Penalties of the ECB against

banks: their nature • Administrative penalties (art 18(1) of the

SSM Regulation)

• Fines and periodic penalties (art 2 of

Regulation no 2532/98)

• For both the categories, Regulation 468

provides the details


banks: their nature • Administrative penalties

• They are pecuniary

• Quantum

Up to twice the amount of the profits

gained or losses avoided because of

the breach

Up to 10% of the total turnover

• General principle (art 18(3))

Effective, proportionate and

dissuasive


banks: their nature • Fines and periodic penalties

• Art 2 of Regulation no 2532/98

• Pecuniary

• Fines

Up to Euro 500,000

• Periodic penalties

Up to Euro 10,000 for day of

infringement


banks: the entities to which they

apply • Significant supervised entities (art 49 of

Regulation 468)

• The list has already been published

• The demarcation line between significant

supervised entities and entities left to the

national authority (size)

• Art 50 (supervised entity or supervised

group is under the ‘control’ of the ECB is the

total value of the assets exceeds Euro 30

billion (art 50 of Regulation 468)


Banks: Procedures • The internal investigating unit (art 123 of

Regulation 468)

• Composed of ‘investigating officers’

• Requisite of independence: in the previous

two years never involved in the direct or

indirect supervision or authorization of the

relevant supervised entity


Banks: Procedures (cntd) • The investigation is the core of the activity of

the investigating unit

• The investigating unit prepares a report (art

126 of Regulation 468)

• Examination of the file by the supervisory

board (art 127 of Regulation 468)


Banks: Procedures (cntd) • Decisions of the Supervisory Board

The file submitted is incomplete: in

this case the Supervisory Board

return the file for a request of

additional information

The supervisory Board totally agrees

on the finding about breaches by the

supervised institution, then the draft

decision is adopted in its entirety



The facts described in the complete

report do not reveal any breach, then

the case is closed is adopted in its

entirety

The report reveals a breach but the

SB does not agree on the kind of

administrative penalty, the draft shall

be adopted but the SB suggests the

administrative penalty that is

opportune



The Supervisory Body deems that

other facts have emerged or other

breaches have occurred and these

emerge from the report, then the SB

steps to the plate and they will adopt

any required penalty to the supervised

bank

From Inspection to Sanctions

• Inspection

It ends up with a ‘on site inspection report’

containing some ‘findings’ related to emerged

weaknesses and shortcomings

• ECB

On the basis on the inspection – issues a draft

‘supervisory decision’ (art 16 of Regulation 1024)

The supervised entity may present to ECB

‘written submissions’ (art 22 of Regulation 1024

and art. 31 Regulation 468)

• ECB may confirm, amend or revoke its draft decision

From Inspection to Sanctions (cntd)

• Inspections usually highlight breaches by the

inspected credit institution

– breaches of regulations sanctioning

power is on the ECB (art 4.3 Regulation

1024)

– breaches of Directives and national legislation

transposing Directives sanctioning

power is on the NCA (art 4.3 Regulation

1024) and the ECB may require the NCA to

open proceedings in order to ensure that

appropriate penalties are imposed

Judicial Challenges of the

Decisions of the ECB

• Art 13

The lawfulness of the ECB’s decision shall be

subject to the review only by the CJEU

Expropriation of national courts

See previously, in Italy, the power of the

Court of Appeal of Rome as regards the

sanctions inflicted by the Ministry of Treasury

upon proposal of the Bank of Italy

A comment/concern

Some Issues and Dilemmas

The sanction is adopted by the ECB but the

breaches occurred before the time when the

ECB started being empowered to act

according to the Regulation 1024

A recent practical case

Probably the ECB is not competent in this

case, the competence falls within the remit of

the national authority

Principle of tempus regut actum

The Regulation should have specified this

There is a lacuna in the current EU

legislation

General Analysis on the New

Enforcement System in the SSM • The system reflects the civil law tradition of

the main jurisdictions in the Continent

(France; Italy)

Significant formalisation of rules and

procedures

Eg the Italian Legge Bancaria of

1936

Strong power conferred on the

supervisory authority (Banca d’Italia)

General Analysis on the New

Enforcement System in the SSM • The structure of the supervision is strongly hinged

upon the tripartite system (information, on-site

investigations)

• The on-site inspections, legacy of the tradition of

some countries (France; Italy) have been softened

• Eg Art 145 of Regulation 1024

Previous notification of five working days

In the tradition of some countries, the on-site

were secret to the investigated authority until

the same starting day

The SSM and Britain

• The SSM does not apply to Britain;

• Britain is a country whose currency is not

the Euro

• According to art 7 of Regulation 1024/2013,

Britain could have requested to establish a

close cooperation with ECB

• This option has not been exercised yet

• Ergo, no British bank is in the list of the

relevant supervised entities

The SSM, Enforcement and its

Philosophy

• The enforcement regime in the new EU

legislation is based on the deterrence;

• Metaphorically speaking, the system is the

successor of the legal tradition of

Continental traditions

• France and its administrative law

tradition

• Italy and Germany and their

detailed norms, including the

procedural ones

The SSM, Enforcement and its

Philosophy (cntd)

• The new regime is quite different from the

British tradition;

• Some modalities of operation of the

supervision (such as the on-site

investigations) would be against the British

enforcement philosophy of mere

compliance

Conclusion

•The SSM has created within the Euro area a coordinated mechanism of

supervision

A compromise solution

De facto, the ECB is the architect, the national central banks the

branches

•The is a slight demarcation line between investigatory powers and sanctions

(but not so much!)

•Dichotomy between regulatory powers (EBA) and investigatory powers (ECB)

•The traditional framework of supervision existing in some countries, such as

Italy, and the administrative law concepts existing in major jurisdictions, such as

France, are reflected in the new framework of the SSM

•In general terms, the underpinning ideology is a strong deterrence (strong

unfettered power of the supervisor) rather than the British tradition of compliance

Secondary Sources

• I MacNeil, Enforcement and Sanctioning, in N Maloney, E Ferran and J

Payne, The Oxford Handbook of Financial Regulation (Oxford

University Press, Oxford 2015)

• D Busch and G Ferrarini, European Banking Union (Oxfrod University

Press, Oxford 2015)

• C Barbagallo, Il Rapporto tra BCE e Autorita’ Nazionali nell’Esercizio

della Vigilanza (Conference Paper, Rome, LUISS, 26 febbraio 2014)

• M Haentjens, Financial Markets, in Kapteyn, VerLoren Van Themaat

(eds), The Law of the European Union (forthcoming)

• M Hantjens and P de Gioia-Carabellese, European Banking and

Financial Law (Routledge 2015)

Documents

Enforcement: the Interaction (and Friction) between …€¦ · Enforcement: the Interaction (and Friction) between ECB and National Supervisory Authorities Glasgow, 29 January 2016