1 Introduction

The establishment of the Single Supervisory Mechanism (SSM) in the EU represents a milestone in the European integration process. Council Regulation No. 1024/2013 (the SSM Regulation)Footnote 1 confers on the European Central Bank (ECB) a wide set of tasks and powers related to the prudential supervision of credit institutions, financial holding companies and mixed financial holding companies established in the Euro Area, with the main purpose of enhancing the safety and soundness of credit institutions within the Eurozone and safeguarding the financial stability in the EU and in each Member State.Footnote 2 To this end, the ECB has been empowered—inter alia—to grant and withdraw the banking license, to assess notifications of the acquisition of qualifying holdings in credit institutions, to ensure compliance with prudential requirements set out in the relevant EU law and to carry out supervisory reviews, including stress tests.Footnote 3 Moreover, the ECB may impose early intervention measures and administrative pecuniary sanctions on the supervised entities.

In order to carry out its tasks, the ECB applies not only the relevant Union law (the ‘Single Rulebook’),Footnote 4 but also national legislation transposing EU directives.Footnote 5 Moreover, Article 9(1), second sub-paragraph, of the SSM Regulation entrusts the ECB with all the powers and obligations that EU law confers on the public authorities empowered by national law to supervise institutions (competent authoritiesFootnote 6) and designated authorities.Footnote 7

The institutional framework underpinning the new supervisory mechanism is rather complex and presents a number of original features. Among them, little attention has been paid so farFootnote 8 to the review mechanism established by Article 24 of the SSM Regulation which purpose it is to carry out an internal administrative review of the decisions taken by the ECB within the framework of the SSM. This paper intends to investigate the administrative remedy provided by the Administrative Board of Review (ABoR) of the ECB, as part of the broader issue of the right of defense of natural and legal persons vis-à-vis the new European supervisor.Footnote 9

The article is structured as follows: Sect. 2 presents an overview of the review panels established in the financial sector in the EU. Section 3 describes the experience with the ABoR and analyses its composition, its mandate and scope of review, the rules of procedure and the functioning as set out in the ECB Decision of 14 April 2014 (the ABoR Decision).Footnote 10 Section 4 gives an overview of the main issues dealt with by the ABoR in its case law and highlights some of the major challenges. Section 5 concludes.

2 Review Panels in the Financial Sector: An Overview

The establishment of an internal board in charge of carrying out an administrative review of the acts adopted by EU bodies is not a novelty itself.Footnote 11 Indeed, within the European legal framework, review panels providing quasi-judicial review have been introduced in a number of European agencies (e.g. the Board of Appeal of the European Chemical Agency (ECHA),Footnote 12 the Boards of Appeal of the Office for Harmonization in the Internal Market (OHIM),Footnote 13 and the Board of Appeal of the Agency for the Cooperation of Energy Regulators (ACERFootnote 14). In recent years, the unprecedented shift of responsibilities to supranational bodies and institutions triggered by the financial crisis has been complemented by the creation of review mechanisms entrusted to independent panels of administrative nature. In the financial sector, the first example of administrative review is the Joint Board of Appeal of the three European supervisory authorities (EBA, ESMA, EIOPA, together referred to as the European Supervisory Authorities, ESAs), established pursuant to Articles 58–61 of their respective founding regulations.Footnote 15 The second example is, as already anticipated, the Administrative Board of Review of the ECB, in the framework of the SSM. The third is the Appeal Panel of the Single Resolution Board (SRB), in the framework of the Single Resolution Mechanism (SRM), established in accordance to Article 85 of Regulation (EU) No 806/2014Footnote 16 (the SRM Regulation). The three review mechanisms present many similarities, but also some significant distinctive features.

The founding regulations provide that, from a structural perspective, the three boards are independent administrative bodies entrusted with the task of reviewing the decisions adopted by the respective authority. These bodies shall act independently and in the public interestFootnote 17 and shall have sufficient resources and expertise to perform their tasks.Footnote 18 Moreover, from a functional perspective, they represent an important tool aimed at fostering the protection of natural persons and legal entities, in line with the due process requirements, while at the same time enhancing the accountability regime of the respective administrative authorities.

However, one may argue that the three tools show different approaches to legal challenges. Indeed, while the Joint Board of Appeal and the Appeal Panel are ‘appeal bodies’ issuing a ‘decision’ which is legally binding for the respective administrative authority, the ABoR carries out an ‘internal review’ of the ECB decisions and adopts a non-binding ‘opinion’ addressed to the Supervisory Board of the ECB. The first two appeal bodies may either confirm the decision taken by the competent authority, or remit the case to the latter which, in turn, is bound by the decision of the appeal body. Conversely, the ABoR can only propose to the Supervisory Board to approve a new draft decision abrogating the initial decision, replacing it with a decision of identical content, or with an amended one. As will be further examined in the next paragraphs, the Supervisory Board has to take the ABoR opinion into account before submitting a new draft decision to the Governing Council, for the adoption under the non-objection procedure, following the decision-making process set out in Article 26 of the SSM Regulation.Footnote 19 Moreover, while the use of the term ‘appeal’ highlights the intent to refer to a ‘quasi-judicial’ body with adjudicative function,Footnote 20 the name of the ABoR illustrates the administrative nature of the panel which cannot be compared, from a structural and functional perspective, to a court or a tribunal.

Secondly, while the SSM Regulation makes it clear that the scope of review of the ABoR shall pertain to the procedural and substantive conformity of the ECB decision to the applicable legal framework, in the case of the Joint Board of Appeal and the Appeal Panel the relevant regulations do not clearly specify whether the scope of the review is limited to the legality of the contested decision or is extended to its merit. The original Commission proposalFootnote 21 conferred on the Joint Board of Appeal ‘any power which lies within the competence of the Authority’, thus granting it the power to take new substantive decisions. However, the final version adopted by the Parliament and the Council no longer contains this provision and leaves the Joint Board of Appeal only with the option of confirming the contested decision or remitting the case before the relevant authority. Therefore, when taking into consideration the structure of the review process, with its lack of explicit substitutive powers conferred on the appeal panel, it is argued that the review is limited to questions of legalityFootnote 22 and does not encompass a different evaluation of the opportunity of the discretionary choices taken by the authorities.

Another significant difference concerns the allocation of the power to suspend the effects of the contested act. In principle, the simple submission of the request for appeal/review does not have automatic suspensory effect. However whereas the Joint Board of Appeal and the Appeal Panel may directly suspend the application of the contested decision if they consider that circumstances so require,Footnote 23 the ABoR does not have such power, the power being entrusted only to the Governing Council of the ECB, upon a proposal from the ABoR, after having heard the opinion of the Supervisory Board, as appropriate. It is also noteworthy that only the rules of procedure of the ABoR indicate the grounds according to which the suspension may be granted to the applicant. Pursuant to Article 9 of the ABoR Decision, the contested decision may be suspended provided the request for review is admissible, not obviously unfounded and that the immediate application of the contested decision may cause irreparable damage.Footnote 24 In this respect one may argue that these conditions mirror the requirements set out for the suspensive order before judicial bodies (prima facie case or fumus boni juris and periculum in mora); by contrast the Joint Board of Appeal and the Appeal Panel seem to enjoy a broader discretion in the evaluation of the relevant circumstances, as they are not limited by any explicit legal criterion.

Lastly, a further distinction pertains to the relationship between the administrative and the judicial remedy. Indeed, while in principle the availability of an administrative internal review cannot per se prevent the affected person from bringing an action before the Court of Justice, the founding regulations of European agencies often stipulate that the prior recourse to the appeal body constitutes a condition of admissibility of the request for judicial review.Footnote 25 Along these lines, Article 61(1) of the ESAs Regulations and Article 86(1) of the SRM Regulation provide that judicial proceedings may be brought before the Court of Justice contesting a decision taken either by the appeal body or, in cases where there is no such right of appeal,Footnote 26 by the Authority. Although the formulation of these provisions is not entirely clear,Footnote 27 it is submitted that whenever it is possible to bring an appeal before the review panel the party concerned must preemptively exhaust the administrative remedy before filing an action for annulment before the General Court.Footnote 28 Subsequently, if the appeal body confirms the contested decision, judicial proceedings can be brought directly against the decision taken by the appeal body whereas if the appeal body remits the case before the relevant Authority, the party concerned can challenge the new decision adopted by the Authority only before the Court of Justice. In both cases, the action can be brought both on points of law and on questions of fact.

On the contrary, the submission of a request for review of an ECB decision before the ABoR is purely optional, the party affected by the decision being entitled either to seek internal review by the ABoR before appealing to the ECJ or to immediately file an action for annulment before the Court of Justice, under Article 263 TFEU. If the affected party takes the ABoR route, it can subsequently bring the ECB’s decision adopted, or confirmed after the ABoR review, before the General Court. The ABoR Opinion as such cannot be challenged: it does not constitute a justiciable legal act.

The highlighted differences could be explained by reference to the different architectural frameworks underpinning the establishment of the respective administrative authorities. Indeed, while the ABoR is an independent internal review mechanism of an EU institution, whose ultimate decision-making bodies are established in the Treaties, the Joint Board of Appeal and the SRB Appeal Panel are appeal bodies of European agencies, established by EU secondary law, on the basis of Article 114 TFEU.

In other words, in order to understand the peculiar position of the ABoR it is important to consider that its establishment has been framed within the governance structure of the ECB, as designed by the Treaties and by the Statute of the ESCB and of the ECB, as well as in the framework of the peculiar decision-making process introduced by the SSM Regulation. Accordingly, the non-binding nature of the ABoR’s opinion can also be explained by the necessity to respect the primary law laying down that the Governing Council and the Executive Board are the only decision-making bodies of the ECB.

Moreover, Article 263(5) TFEU, which provides that ‘acts setting up bodies, offices and agencies of the Union may lay down specific conditions and arrangements concerning actions brought by natural or legal persons against acts of these bodies, offices or agencies intended to produce legal effects in relation to them’, only applies to the Joint Board of Appeal and the SRB Appeal Panel, but not the ABoR, as an internal body of an EU institution.

Such differences in the physiognomy of the administrative remedies are also reflected in a different outcome of the review procedures. Opinions of the ABoR are only notified to the applicant together with the new decision adopted by the Governing Council. The proceedings of the ABoR are confidential and its opinions are not published, unless the Governing Council authorises the President to make the outcome of such proceedings public.Footnote 29 By contrast, the Joint Board of Appeal publishes its decisions in full on the agencies’ websiteFootnote 30 and the Appeal Panel publishes only an extract of the grounds of its decision, taking into account the need to protect the confidentiality of sensitive information.Footnote 31 Furthermore, as mentioned above, only the decisions of the Joint Board of Appeal and the SRB Appeal Panel may end up in court and may be subject to an action for annulment, whereas the opinions issued by the ABoR cannot be directly challenged before the ECJ.

In conclusion, the Board of Appeal of the ESAs and the Appeal Panel, having an adjudicative function, can be considered quasi-judicial bodies while the ABoR is an organ that carries out an internal administrative review of the decisions of the ECB in the supervisory field.

3 The Experience with the ABoR

3.1 Figures on the First 2 Years

Within the SSM, the ECB is directly competent for the ongoing supervision of significant institutionsFootnote 32 established in the Eurozone, as well as for granting and withdrawing banking licenses and assessing the acquisition of qualifying holdings for all Euro Area credit institutions, irrespective of whether or not they are significant. This means that the ECB adopts a high number of individual decisions addressed to the supervised entities which may potentially affect their legal position. So far, 20 proceedings,Footnote 33 coming from nine Member States, have been brought before the ABoR.Footnote 34 In 15 cases, the ABoR has completed its internal review and issued an opinion, one proceeding is still pending, while in the other four cases the application has been withdrawn before the ABoR delivered an opinion. In these cases, as revealed by the ECB Annual Report 2015, ‘the Board, including its Secretariat, contributed to the resolution of issues to the satisfaction of both the applicant(s) and the ECB, by playing a mediation role between the ECB and the applicant(s)’.Footnote 35 As a result of the review process, only few casesFootnote 36 have been brought before the European Court of Justice, thereby confirming that the administrative review also pursues procedural economy purposes,Footnote 37 in addition to its main function of protecting of individual rights.

3.2 Composition: Competence, Professional Expertise and Independence

In order to understand the concrete functioning of the board of review and its role within the decision-making process of the ECB, it is essential to first examine its composition and the independence requirements set up by the SSM Regulation. The ABoR is composed of five members and two alternatesFootnote 38 which are appointed by the ECB for a term of 5 years, renewable only once. In particular, following a public call for expressions of interest published in the Official Journal of the EU, the Executive Board, after hearing the Supervisory Board, submits the nominations to the Governing Council which formally appoints the members of the ABoR. The members have the duty to act independently and in the public interest, and cannot be bound by any instructions. For that purpose, they submit a public declaration of commitments and a public declaration of interests, which indicate any direct or indirect interest which might be considered prejudicial to their independence, or the absence of any such interest. Moreover, Article 24 of the SSM Regulation establishes an incompatibility regime for the ABoR members and provides that they cannot be concurrently staff of the ECB, as well as current staff of competent authorities or other national or Union institutions, bodies, offices or agencies that are involved in tasks related to the ECB within the SSM. In addition, when a member is in a conflict of interest situation, arising from a private or personal interest which may influence, or appear to influence, his/her impartiality and objectivity, this member is to be replaced by one of the alternate members.

In order to further strengthen the independence of judgement of the body, the SSM Regulation requires the members to be of high repute and to have relevant knowledge and professional experience, including supervisory experience, in the fields of banking or other financial services. The appointment of the board’s members and the alternates is to be conducted so as to ensure, to the extent possible, the respect of the principles of geographical and gender balance, as well as experience and qualification.

3.3 Scope of Review

The ABoR’s scope of review is defined by Article 24 of the SSM Regulation which provides that any natural or legal person may request a review of a decision taken by the ECB in the exercise of the powers conferred on it by the SSM Regulation, and which is either addressed to that person, or is of a direct and individual concern to that person. This provision mirrors the locus standi conditions set out in Article 263(4) TFEU for the action for annulment before the Court of Justice. Despite the structural differences between the two procedures, it is submitted that the ABoR should interpret and apply the admissibility requirements in light of the relevant case law of the ECJ.Footnote 39 Accordingly, if the applicant is not the addressee of the contested decision, the ABoR should apply the scrutiny test developed by the Court of Justice, entailing an assessment of whether the contested act itself affects the situation of the individual and does not require any implementing measure, and whether that decision affects the applicant by reason of certain peculiar attributes or by reason of factual circumstances in which they are differentiated from all other persons.Footnote 40 In addition to the standing requirements, the applicant has to demonstrate a present and vested interest in bringing proceedings before the ABoR, meaning that it must show that it would benefit from a contested act being annulled as a result of its request for review.

Differently from the Joint Board of Appeal of the ESAs and from the Appeal Panel of the SRB, national competent authorities forming part of the SSM cannot file a request for review before the ABoR.

As for the material scope of review, pursuant to Article 24(1) of the SSM Regulation, the ABoR is empowered to review ‘decisions taken by the ECB in the exercise of the powers conferred on it’ by the SSM regulation. One relevant question is whether the term ‘decision’ has to be understood in a formal way, meaning that only legal acts set out in Article 132(1), second indent, of the TFEU qualify as a decision, or in a substantial one, thus reflecting the interpretation of the ECJ according to which any measure which definitively determines the position of the authority upon the conclusion of an administrative procedure, and which is intended to have binding legal effects capable of affecting the interests of the applicant is open to challenge.Footnote 41 A broader understanding of the scope of review is favored, as it appears more in line with the material interpretation applied by the courts, as well as with the fundamental principle of rule of law according to which any act of Union law capable of having legal effect can be reviewed.Footnote 42 Accordingly, the ABoR should assess whether the contested act is capable of having legal effects vis-à-vis its addressees, irrespective of its legal form. Therefore, in principle, internal documents and acts of a preparatory nature, like for instance intermediate acts in a multi-step procedure, are not directly challengeable before the ABoR.

As for the extent of the review, Article 24 of the SSM Regulation specifies that the ABoR carries out an internal administrative review pertaining to ‘the procedural and substantive conformity with this Regulation’. One may argue that the scope of the review is not limited to the conformity of the contested act with the SSM Regulation stricto sensu, but instead has to be understood as a broader reference to all the applicable substantial and procedural law, as referred thereto.Footnote 43 This means that, by virtue of Article 4(3) of the SSM Regulation, the ABoR will be confronted with the assessment of the substantive conformity of the ECB decisions not only with the EU legislation, but also with national laws implementing EU directives. As the next section clearly demonstrates, this is a novel situation and represents one of the biggest challenges for the ECB within the new integrated system of banking supervision.

Moreover, the board verifies whether the relevant procedural rules were fully respected. Due process guarantees are set out in detail in the ECB Regulation No. 468/2014Footnote 44 (the SSM Framework Regulation). This Regulation encompasses the right of the parties to an ECB supervisory procedure to be granted the opportunity of commenting in writing on the facts, objections and legal grounds relevant to an ECB supervisory decision which would adversely affect their rights (right to be heard),Footnote 45 the right to have access to the ECB’s file, and the right to receive an accurately motivated decision, containing all the material facts and legal reasons on which the ECB supervisory decision has been based. It can be also argued that in the assessment of the procedural legality of the decision, the ABoR also checks the compliance with the general principles of EU law, as enshrined in the case law of the ECJ and recalled by the SSM Regulation.Footnote 46 Among them, of particular relevance, is the correct application of the principles of equal treatment, non-discrimination and proportionality.Footnote 47

However, the SSM Regulation makes it clear that the administrative review shall respect ‘the margin of discretion left to the ECB to decide on the opportunity to take those decisions’.Footnote 48 In other words, the internal review is limited to the legality of the contested decision and cannot question its merit. Moreover, as in court proceedings, when the decision taken by the ECB involves a broad margin of discretion or a ‘complicated economic assessment’, it is submitted that also the review of the ABoR is confined to a ‘limited standard of review’. Accordingly, the board’s review is limited as to whether the due process requirements were complied with and, in particular, whether the statement of reasons was sufficient, whether the facts were correctly reproduced and whether there was any manifest error in the assessment, and whether the decision is manifestly disproportionate or vitiated by a misuse of powers.Footnote 49

3.4 Procedural Rules

The review procedure can be divided in three phasesFootnote 50: (a) the preparatory phase, which includes the assessment of the admissibility of the request, (b) the examination phase, which may also entail an oral hearing and the collection of the relevant evidence, and (c) the deliberative phase, ending with the adoption of the opinion and its submission to the Supervisory Board.

As for the first phase, the review process is triggered by a written request submitted by a natural or legal person to the Secretary of the Administrative BoardFootnote 51 within 1 month of the date of notification of the decision or, in the absence thereof, of the day on which it came to the knowledge of the applicant. Despite a certain margin of flexibility, the ABoR assesses the admissibility of the application before examining whether the request is legally founded. If the request is held inadmissible wholly or in part, the assessment is recorded in the opinion and submitted to the Supervisory Board. If the request is admissible, the ABoR may propose to the Governing Council to suspend the effects of the contested decision, subject to the conditions mentioned above. It is worth noting that the power to suspend the decision is granted to the same body that shortly before adopted the contested decision, not exercising its power to object in accordance with Article 26(8) of the SSM Regulation.

In the second phase, the ABoR examines whether the substantial and procedural grounds raised by the applicant are well-founded. Pursuant to Article 10 of the ABoR Decision,Footnote 52 establishing the Rules of procedures of the board, the internal review is limited to the examination of the grounds set forth in the notice of review and the ABoR cannot raise ex officio new grounds for review or complement the submissions filed by the applicant. In this respect, the ABoR acts similarly to a Court within the review of legality. Quite interestingly, however, the Supervisory Board, after the review of the ABoR, may also take other elements into account when preparing its proposal for a new draft decision, thus acting in the pursuit of the general objectives entrusted to it by the SSM Regulation. This provision shows quite clearly the different nature and function of the two bodies within the decision-making process designed by the SSM Regulation.

In this phase, the ABoR collects and analyses all the relevant information for its final deliberation. In particular, in order to carry out an efficient conduct of the review, the Chair may give directions to the parties, including directions to produce documents or provide information.Footnote 53 Moreover, the ABoR may call for an oral hearingFootnote 54 where it considers it necessary for the fair evaluation of the case. It is important to highlight that the oral hearing is normally scheduled by the board as it represents a fundamental step in the review process. Indeed, the hearing is an important source of information for the board itself; it provides the applicant with the opportunity to present its view and to make oral representations before an independent panel, to hear the reasons of the ECB and to have a direct confrontation with it. The hearing is also essential for the ECB which has the possibility to provide a more extensive reasoning of the contested decision, to achieve a different evaluation of its conduct or even to reconsider its discretionary choices. The hearing is held at the ECB’s premises in Frankfurt with the applicant (or its legal representative) and the ECB staff on different sides of the table, and is not open to third parties, thus confirming the confidential nature of the ABoR proceedings.

Another tool ensuring the right of defence of the parties is the possibility to request to the ABoR the permission to adduce witness or expert evidence in the form of a written statement or to call a witness or expert who has given a written statement to give oral evidence at the hearing.Footnote 55 In these cases, the applicant is entitled to cross-examine the witnesses or experts when the latter has been called on by the ECB. However, the ABoR Decision makes it clear that such permission can only be given if the panel considers it necessary for the just determination of the review.

Finally, Article 6(3) of the ABoR Decision sets out that ‘the ECB shall provide the Administrative Board with appropriate support including legal expertise to assist in the assessment of the exercise of the powers of the ECB’. This provision must be read in conjunction with the independence status granted to the board and with Article 24(2) of the SSM Regulation which stipulates that the ABoR ‘shall have sufficient resources and expertise to assess the exercise of the powers of the ECB’. Accordingly, it is argued that the ABoR can request the ECB to provide its legal opinion, whenever the board might consider it beneficial for the accurate evaluation of the case at hand, without prejudice to the final autonomous assessment of the ABoR.

The last step of the procedure is the deliberation phase. In this phase the ABoR adopts an opinion and submits it to the Supervisory Board. The ABoR has to deliver its opinion within an appropriate time period, and no later than 2 months from the receipt of the request. The opinion is adopted by a majority of at least three members; the alternates do not take part in the deliberation. As anticipated above, the opinion is not binding on the Supervisory Board and can only propose to either abrogate the contested decision, to replace it with a new decision of identical content, or to replace it with an amended one.Footnote 56 However, one should not underestimate the influence that the opinion issued by the ABoR has on the Supervisory Board. Indeed, the latter has to ‘take into account’Footnote 57 the opinion of the ABoR, meaning that when presenting the new draft decision to the Governing Council for the adoption under the non-objection procedure, the Supervisory Board will have to explain why it decided to follow or not follow the opinion. In the latter case, the Supervisory Board is subject to an enhanced motivation obligation. Moreover, by deciding not to follow the ABoR’s opinion, if it were to suggest abrogating or amending the original decision, the Supervisory Board would accept a higher litigation risk in case an action is brought before the ECJ.

Lastly, the ABoR opinion is notified to the applicant only together with the new draft decision prepared by the Supervisory Board and adopted by the Governing Council.Footnote 58 As already mentioned, the opinions of the ABoR are not public. Indeed, in the peculiar frame of the banking supervision, the confidentiality regime is also intended to protect the interests of the applicant in not having ‘non-public’ information on its financial situation or on its relationship with the supervisory authority disclosed.

It is not possible to file a request for review against the new decision. The applicant can only appeal it before the General Court within 2 months from its notification, in accordance with Article 263 TFEU. It is important to highlight that in such cases the initial ECB decision cannot be challenged before the Court since, following the ABoR opinion, it has been either repealed or replaced by a new ECB decision. Also, the ABoR opinion as such cannot be challenged before the Court; however, the arguments put forward by the ABoR will be disclosed in Court and the ECJ may take them into account within the judicial review process.

This means that, in principle, it is always possible to choose between the administrative way and the judicial one when opposing an ECB decision. However, after the ABoR has delivered its opinion and the Governing Council has adopted a new decision, the affected party can only pursue the judicial remedy. This way is not barred by time-limit requirements as the new period starts running after the new ECB decision replacing the first one is notified to the applicant.

4 Issues and Challenges Faced by the ABoR

4.1 Overview of ABoR Experience

The ABoR is a body established by the SSM Regulation to carry out an internal review of the ECB decisions in the supervisory field. It is a remedy, in addition to the judicial one, that the legal system grants to persons affected by an ECB decision in the area of prudential supervision.

Compared to the judicial route, proceedings before the ABoR present some important advantages. First, the ABoR offers a qualified assessment of the case, as the review is carried out by persons with a particular knowledge and experience in the field of banking supervision. Moreover, proceedings before the administrative board are concluded in a short time, i.e. within maximum 2 months, and are less costly than proceedings before courts.Footnote 59 Finally, the ABoR ensures the protection of confidential information whereas judicial proceedings are generally public.

The ABoR also serves to protect the interest of the public administration operating in full compliance with the law; its reviews may help avoid to see acts voided in court.

4.2 Issues

In its practice thus far, the ABoR has had to deal with a number of issues. Notably, it was confronted with applications concerning the determination of the ‘significance’ of a supervised entityFootnote 60 (which invariably requested to be labelled as ‘less significant’ and to remain under the supervisory umbrella of its national supervisor); issues of corporate governanceFootnote 61; the outcome of the Supervisory Review & Evaluation Process (SREP),Footnote 62 under which the competent authority reviews the arrangements, strategies, processes and mechanisms implemented by the supervised entity in order to comply with the requirements set out in the CRR and CRD IV and, as a result, may impose higher capital and liquidity requirements than statutorily prescribed in view of the riskiness of a bank’s business, as well as other supervisory measuresFootnote 63; the fit and proper assessment of members of the management bodyFootnote 64; and withdrawals of the authorisation.Footnote 65 As stated before, authorisationFootnote 66 and withdrawal of authorisation is a Euro Area-wide competence of the ECB in respect of all credit institutions, as is the assessment of acquisition of qualifying holdings.Footnote 67

4.3 Challenges

Among the challenges faced by the ABoR is the assessment of the correct application of national variations on implementing EU legislation by the ECB. As previously mentioned, the ECB is bound to apply national laws transposing EU directives and national legislations exercising options granted to the Member States in EU regulations. As the Single Rulebook consists of regulations and directives, the State legislator and NCAs may vary in their reading and application of EU prudential standards. This execution mode can be regarded as an original solution to the issue of the still highly fragmented supervisory legislation throughout Member States.Footnote 68 At the same time, the uneven transposition of EU directives constitutes one of the major obstacles to the achievement of a genuine level playing field in the banking sector.

Although the ECB has undertaken steps towards a higher harmonisation, notably through the development of single methodologies, such as the one applied to the SREP,Footnote 69 and via the adoption of binding legal acts, such as the ECB Regulation on the exercise of options and discretions available in Union law,Footnote 70 there are still many relevant divergences among national laws and supervisory practices underpinning more or less stringent prudential approaches.

Against this background, this paper claims that diversity in national law represents a major challenge also for the ABoR. The latter, indeed, is constantly faced with the interpretation and the application of divergent national laws throughout its review procedures. This means that the legal standards against which the ABoR is called to assess the legality of the contested decision may vary depending on the State of establishment of the supervised entity concerned. Moreover, the ABoR may face a situation in which the applicable national law appears in contrast with EU law, thus raising the delicate question of which are the possible tools for the ABoR to address a potential mismatch between national and EU law.

On the basis of the ABoR experience as well as from an academic perspective, two issues may be highlighted as giving rise to the most pressing concerns in this respect: (1) the assessment of the suitability of the members of management bodies and (2) the supervision of bank holding companies. As will be shown below, these two issues are deemed to be ripe for legislative action.

4.3.1 Fit and Proper Assessment

Pursuant to Article 4(1)(e) of the SSM Regulation, the fit and proper (FAP) assessment of the persons responsible for the management of credit institution is now to be considered as part of the ECB’s task of ensuring compliance with the governance requirements by credit institutions. The ECB is therefore the competent authority in charge of taking decisions regarding the suitability of the members of the management bodies of significant credit institutions in the SSM perimeter.Footnote 71

Under the CRD IV, both executive and non-executive directors of banks,Footnote 72 and of bank holding companies,Footnote 73 need to be assessed by the supervisory authorities against a number of substantive criteria. The ECB’s Draft Guide to FAP assessment mentions five criteria: experience; reputation; conflicts of interest and independence of mind; time commitment; and collective suitability.Footnote 74 Knowledge and experience are one element, reputation is another one. ‘Sufficiently good repute and […] sufficient knowledge, skills and experience’ is how the CRD IV describes the requirements.Footnote 75 To these requirements it adds a number of further standards, such as range of experiences and diversity in the board (collective suitability), sufficient time to devote to board membership, and ‘honesty, integrity and independence of mind’ to assess and challenge senior management decisions. Furthermore, members of the management body should be provided with adequate training, an element which the supervisor may take up when someone is proposed whose background is as of yet insufficient in expertise.Footnote 76 If these standards are not met at inception, no banking authorisation is to be given.Footnote 77 The FAP criteria need constant observance: the CRD IV provides for supervisory measures and administrative sanctions if directors do not meet these criteria on an on-going basis.Footnote 78 Notably, the bank’s authorisation may be revokedFootnote 79 and the supervisor may make a public statement on non-compliance,Footnote 80 impose pecuniary sanctionsFootnote 81 and temporarily ban a credit institution’s director or another natural person from exercising functions in a bank.Footnote 82 However, the fit and proper assessment of directors is exercised in notably varied manners across Member States. On the basis of limited research into a few jurisdictions only,Footnote 83 relevant differences can be observed in the assessment of the suitability of bank directors and senior management as ‘fit and proper’.

The differences observed relate to national supervisory practices of FAP testing. In particular, many divergences have been identified in supervisory policies and processes, as well as in the transposition of the substantive fit and proper requirements. Some NCAs accept appointments of directors and assess ex post whether they are suitable, others insist on prior vetting by the competent authority. In some Member States, allowing an ex post assessment, the verification of fit and proper requirements has to be performed before the appointee can be registered and take up the appointment; in others the appointed members can immediately start performing their functions. Furthermore, in a number of Member States the competent authority can raise an objection to the appointment only within a given time period whereas, in others, there is no legal deadline for the rejection of the appointee.

Informal procedures, entailing a pre-screening of the candidates, may apply which, in the Netherlands, have been criticised as leaving the candidate without recourse if the credit institution withdraws the application for an informal FAP test once the supervisor has expressed disapproval. Also in the Netherlands, an external review of the process of assessing the fit and proper nature of directors by the prudential authorityFootnote 84 and conduct-of-business authorityFootnote 85 was carried out in the second half of 2016.Footnote 86 Its findingsFootnote 87 were submitted to the Dutch parliament,Footnote 88 together with the response of the two authorities. The review found that the process of assessment was generally adequate in terms of the statutory requirements but could be improved. The transparency of the assessment vis-à-vis the prospective candidates may be improved (the criteria applied; the process followed), while assessment against other criteria than financial expertise may be relevant for boardroom diversity. A candidate’s position was considered precarious (‘very vulnerable’), with the relationship between the supervisors and the financial institutions embedded in administrative law, whereas the candidate, whose reputation is at stake, is not formally involved. Negative results of assessments should be given in writing, instead of orally. The interaction between FAP assessment and on-going supervision was also a matter of concern.Footnote 89 In the context of the SSM, the review report remarks that there are ‘various national surveillance systems’ which include, ‘in addition to the ex-ante system like the Dutch system, an ex-post evaluation system in most [Member States]’.

On its Banking Supervision website, the ECB deplores the lack of uniformity of FAP assessment across Europe and argues for this element to be included in the update of the CRD IV, after the CRR and CRD IV review which closed early October 2016.Footnote 90 This is a call we wholeheartedly subscribe to. On 23 November 2016, the Commission published a package containing proposed amendments to the capital requirement directive and regulation.Footnote 91 However, no reference is currently made to an amendment of the FAP assessment and the substantive fit and proper requirements remain subject to the minimum harmonisation provisions set out in the CRD IV.

In the meanwhile, the ECB has recently launched a public consultation on a draft guide to fit and proper assessment,Footnote 92 a non-binding document aiming at harmonising the supervisory practice in the assessment of the substantial criteria laid down in the binding national law implementing Article 91 of the CRD IV. The EBA and ESMA are currently consulting on guidelines on the assessment of the suitability of directors and senior management.Footnote 93

4.3.2 Bank Holding Company Supervision

Bank holding companies (BHCs) are considered supervised entitiesFootnote 94 to be included in the supervisory reach of the ECB, though they are named differently. Financial Holding Companies (FHCs)Footnote 95 and Mixed Financial Holding Companies (MFHCs)Footnote 96 are subject to a whole range of standards in the context of consolidated supervision. Dominant supervisory practices in the EU thus far seem to address the licensed bank when consolidated supervision requirements are at issue,Footnote 97 rather than the (M)FHCs directly. Several Member States go beyond this and require BHCs to be authorised and to report directly to the supervisory authorities.Footnote 98 BHCs are to comply with consolidated requirements and to ensure compliance by group members. Other Member States rely solely on implementing the relevant provisions of the CRR, CRD IV and FICOD. None of these three legal acts requires bank holding companies to register and be authorised, whereas certain national laws do require the (M)FHCs as such to be supervised.

An approach which does not fully include (M)FHCs in the scope of supervision as addressees of prudential requirements and as the agencies within a financial group that need to ensure compliance with supervisory norms by the entire group is, we submit, flawed. Since the presentation was given upon which this publication rests, the European Commission has adopted proposed changes to correct the current approach.Footnote 99 However, even now, under the legal provisions currently applicable, one may argue that (M)FHCs are to be treated as addressees of norms and need to ensure compliance with consolidated standards by the entire group. This is in line with more recent legal acts, such as Directive 2014/59/EU (the BRRD), which allows for resolution tools to be used for financial holding companies and mixed financial holding companies, and the SSM Regulation, as well as with our reading of legislative intentions and, crucially, with business practice. Such a broader reading of the current supervisory law is also in line with the approach followed in many Member States. It is in fact the parent that directs the functioning of the group, not the other way around. A joint approach to BHCs is called for, which holds (M)FHCs accountable for adequacy of capital, liquidity provisioning, risk management and supervisory relationships, and treats them as if they are subject to authorisation. Treating BHCs as core entities in the supervision of banking groups is also crucial for the single point of entry of the resolution of a banking group.

The Commission’s proposed amendment to the CRD IV and CRRFootnote 100 modifies several Articles in order to bring financial holding companies and mixed financial holding companies directly within the scope of the EU prudential framework. In particular, ‘an authorisation requirement is introduced along with direct supervisory powers over financial holding companies and mixed financial holding companies (Article 21a of the CRD). Article 11 of the CRR is amended to clarify that—where requirements are applied on a consolidated basis at the level of such holding companies—it will be the holding company which is directly responsible for compliance, not the institutions that are subsidiaries of such holdings. Articles 13 and 18 of the CRR are adjusted to reflect direct responsibility of the financial holding companies or mixed financial holding companies’.Footnote 101

Such proposed amendments provide a welcome opportunity to bring Europe in line with decades long law and practice across the AtlanticFootnote 102 and with several African prudential regulations which unequivocally subject bank holding companies to authorisation and make clear that they need to abide by capital and other prudential standards.Footnote 103 Looking south, rather than (only) westwards, is what Europe may fruitfully do here.

5 Outlook

One may expect the role of ABoR to continue: as a fast, cheap and expert first route to challenge prudential decisions adopted by the ECB. Although there are cases pending before the European Courts in this area that have not previously been the subject of an ABoR review, wider experience with the review process may lead to more cases coming before the ABoR. How the interplay between administrative review and judicial proceedings evolves will be an area of acute interest, to the supervised entities, to the supervisors and the panels and courts involved, and to academics. The various review channels in the financial sector we have discussed all serve to protect the rule of law in an area of acute importance to the economic and social well-being of the people of Europe.