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Transcript of Enforcement: the Interaction (and Friction) between …€¦ · Enforcement: the Interaction (and...
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
Matteo De Poli
University of Padua
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)
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
The Pillars of the Investigatory
Powers are Three (cntd)
• Request for information
All information necessary
to The ECB
The Pillars of the Investigatory
Powers are Three (cntd)
• General investigations
To request information, to
examine books and records,
to interview any person who
consents to be interviewed,
etcetera
The Pillars of the Investigatory
Powers are Three (cntd)
• On-site Inspections
More detailed and invasive
activity at the premises of
the supervised entity or
supervised group
The Pillars of the Investigatory
Powers are Three (cntd)
• 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
The Pillars of the Investigatory
Powers are Three (cntd)
• 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
Penalties of the ECB against
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
Penalties of the ECB against
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
Penalties of the ECB against
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)
Penalties of the ECB against
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
Penalties of the ECB against
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)
Penalties of the ECB against
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
Penalties of the ECB against
Banks: Procedures (cntd) • Decisions of the Supervisory Board
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
Penalties of the ECB against
Banks: Procedures (cntd) • Decisions of the Supervisory Board
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)