Public funding of failing banks in the European Union (LBF vol. 19) 2020/2.4.7.3:2.4.7.3 Enforcement measures

Public funding of failing banks in the European Union (LBF vol. 19) 2020/2.4.7.3

2.4.7.3 Enforcement measures

Documentgegevens:

M. Louisse, datum 01-06-2020

Datum: 01-06-2020
Auteur: M. Louisse
JCDI: JCDI:ADS213957:1
Vakgebied(en): Financieel recht / Europees financieel recht
Staatssteun (V)

If a significant bank in the Eurozone fails to comply with the regulatory capital requirements or with measures adopted to address the failure, the ECB can impose enforcement measures to compel the bank to comply with the requirements. These enforcement measures include periodic penalty payments or other enforcement measures available in the national implementing legislation in the participating Member States.1 It can also instruct the national competent authorities to adopt purely nation al enforcement measures.

Where significant banks in the Eurozone intentionally or negligently breach the regulatory capital requirements, the ECB has the power to impose administrative pecuniary penalties.2 In accordance with Article 18(5) SSMR and Article 134 SSM Framework Regulation, the ECB may also ask the relevant national competent authorities to open proceedings with a view to imposing penalties, if appropriate.

For example, the ECB imposed a penalty of EUR 1.6 million on Banco de Sabadell for repurchasing its CET 1 instruments from 1 January 2014 to 7 November 2016 without the prior permission of the ECB. This constituted a continuous breach of regulatory capital requirements in that period.3 In addition, the ECB imposed a penalty for an overall amount of EUR 2.5 million on Permanent TSB for breach of the specific liquidity requirements that were imposed by the ECB.4 Also Crédit Agricole was fined by the ECB for an amount of EUR 4.3 million, because the bank classified capital instruments as CET 1, without having obtained the prior permission of the competent authority.5

The ECB can as an ultimum remedium also revoke the license of a bank in the Eurozone when it does not meet the regulatory capital requirements.6

For example, the ECB revoked the license of Trasta Komercbanka AS by decision of 3 March 2016 following the proposal submitted to the ECB by the Financial and Capital Market Commission of Latvia (the FKTK). One of the reasons to revoke the license was the inability of the bank to realize a capital increase in order to end the failure to comply with the regulatory capital requirements. In addition, there were ongoing shortcomings with the bank’s operations regarding prevention of money laundering and terrorist financing. After the license was revoked, it was put in liquidation. 7

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Article 18(7) SSMR and Article 129 Regulation (EU) 468/2014 of the ECB (SSM Framework Regulation). Pursuant to Article 122 of the SSM Framework Regulation, the ECB can also impose penalties on less significant banks in certain cases.

Article 18(1) SSMR. National competent authorities have the same power in relation to less-significant banks or banks outside the Eurozone based on the national implementation of Article 66 and 67 CRD IV. See also Article 122 SSM Framework Regulation.

ECB, Imposition of an administrative penalty on Banco de Sabadell, S.A., 14 March 2018.

ECB, Imposition of administrative penalties on Permanent tsb Group Holdings plc, 13 July 2017.

Crédit Agricole lodged legal proceedings before the EU Courts (CI, T-576 - 578/18, Action brought on 25 September 2018 (Crédit Agricole, Crédit agricole Corporate and Investment Bank and CA Consumer Finance v ECB).

Article 14(5) and (6) SSMR in combination with Article 18 CRD IV. On the basis of the national implementation of Article 18 CRD IV national competent authorities have the same power to withdraw the license of banks outside the Eurozone.

Financial and Capital Markets Commission, ‘Press Release – Withdrawal of author isation of JSC “Trasta Komercbanka”’, 3 March 2016. The withdrawal of this authorisation has been contested before the GC. The GC held that there was no need to adjudicate on Trasta Komercbanka’s action for annulment of the decision of the ECB (GC, 12 September 2017, T-247/16, not published, EU:T:2017:623 (Fursin and Others v ECB). The ECB, Commission, Trasta Komercbanka and its shareholders lodged appeals against the decision of the GC. In a judgment of 5 November 2019, the ECJ set aside the order of the GC, judged that Trasta Komercbanka is admissible in its plea and referred the case back to the GC so that it may give a ruling on the action brought by Trasta Komercbanka (ECJ, 5 November 2019, Joined Cases C-663/17 P, C-665/17 P and C-669/17 P, ECLI:EU:C:2019:923 (ECB and Others v Trasta Komercbanka and Others). See Smits European Law Blog 2019 for a more elaborate discussion of this case.