Effective legal protection in the SSM’s composite administrative procedures, by Laura Wissink

The shared administration put in place for ensuring effective banking supervision in the Eurozone is an interesting example of how EU and national administrations and legal orders may, or may not, smoothly interact. The financial crisis made it clear that more centralised banking supervision was required and that it had to be established rapidly and within the existing legal framework of the treaties. The result is an innovative and far-reaching system of cooperation between the EU and national level (the Single Supervisory Mechanism, SSM), resulting in many different kinds of composite administrative procedures that involve both EU and national administrative authorities. This relatively new system brings forward many new challenges for the EU legal order.

My research focuses on the challenges related to the effectiveness of legal protection in the case of the SSM’s composite administrative procedures. In this blog post, I will briefly discuss the relevant composite procedures, their main legal challenges, and conclude with some recommendations to tackle the challenges we are facing.

The SSM’s composite administrative procedures

The SSM is a system established by the SSM Regulation that consists of both the European Central Bank (ECB) and national banking supervisors (national competent authorities, NCAs). Within the system, the ECB carries out its prudential supervisory tasks of credit institutions.

The ECB is exclusively competent for the prudential supervisory tasks listed in the SSM Regulation and the overall functioning of the SSM, while the direct supervision is divided between the ECB and NCAs based on the credit institutions’ significance. The ECB directly supervises the so-called significant institutions (SI’s) whereas, the NCAs directly supervise the so-called less-significant institutions (LSI’s). For certain procedures, i.e. the procedures for authorisations to carry out the business of a credit institution, the withdrawal of such authorisation, and the approval of a qualifying holding in a credit institution (so-called common procedures), the ECB maintains the ultimate decision-making powers.

These collaboration arrangements result in a wide range of composite procedures within the SSM, which I divided into four categories:

  • common procedures, ending in ECB final decisions and including formalized national intermediate steps, for instance, the procedure for granting an authorization to carry out the business of a credit institution;
  • bottom-up procedures, ending in ECB final decisions and partly based on national preparatory measures, for example, ECB decisions resulting from the annual supervisory review and evaluation process in ongoing supervision (SREP decisions) which can involve supervisory measures such as own funds requirements;
  • top-down procedures, ending in NCA final decisions and partly based on ECB input, for instance, NCA decisions, addressed to an LSI, that is partly based on the ECB’s view; and
  • investigations and sanctions of a criminal nature, bottom-up or top-down procedures, which are subject to stricter requirements of legal protection given their nature.

In my book, each of the above procedures is separately analysed to gain a detailed and in-depth overview of the legal challenges. Below, I will limit myself to a few main results and recommendations.

The first SSM case law

When we look at the first judicial proceedings related to the SSM before the Court of Justice of the European Union, the Court seems to take an approach towards centralisation. In the Landeskreditbank Baden-Württemberg v ECB case, it confirms the ECB’s exclusive competence to carry out the supervisory tasks listed in the relevant regulation to both SIs and LSIs. The Court subsequently concludes that NCAs assist the ECB in carrying out its supervisory tasks by the decentralised implementation of some of these tasks concerning LSIs.  

Furthermore, in the Berlusconi and Fininvest case, the Court ruled it is exclusively competent to review decisions on the acquisition of a qualifying holding. It concluded that the relevant EU law did not aim to establish a division between the EU and national powers but, on the contrary, established the ECB’s exclusive decision-making power in these procedures. The Court continued that the EU Courts have the exclusive jurisdiction to rule on the legality of such ECB decision, including jurisdiction to examine any defects vitiating the NCA’s preparatory acts or proposals that would be such as to affect the validity of that final ECB decision.

Another illustrative case is Crédit mutuel Arkéa v ECB, whereby the Court also included national substantive laws, as a question of law, in its review of the ECB decision that was partly based on national law (cf. Gagliardi & Wissink).  

These cases and the Court’s centralised approach are welcome steps to ensure effective judicial protection but still leave important questions unanswered.

Remaining uncertainties

The main remaining question in the case of bottom-up procedures is in what manner effective judicial protection of the national part of the procedure can be ensured. To gain a deeper understanding of the issues involved, I analysed various aspects of the legal protection in place, for instance, the administrative standards that apply in each part of the decision-making procedure and the intensity of the judicial review.

Although the Court has previously taken national parts of an EU decision-making procedure into account for its review by allocating full responsibility for the administrative process to the EU institution involved and limiting its review to the EU level (cf. Sweden v Commission; IFAW), it could be questioned whether a similar limited review would be justified in the cases at hand. A more limited review of the national part of the EU decision-making procedure may be justified in light of the centralisation of supervision and the ECB’s exclusive competence, and would help to ensure the autonomy, uniformity, and effectiveness of Union law. However, it may not do justice to the division of tasks and responsibilities in the administrative procedures laid down in the relevant legal framework and the role of NCAs and national law in this respect. Another relevant question, in my view, is whether or not it is justified if the Court’s review of national preparatory measures in EU decision-making procedures is less intense than it would have been if it were ECB preparatory measures.

In the book, it is proposed to have the Court, when it reviews the ECB final decision, also assess the national preparatory part of the decision-making process, unless such national preparatory measure is in itself subject to judicial review according to the Court’s standards of reviewability based on Article 263 TFEU. The latter would have to be reviewed by national courts similar to the reasoning used in the Borelli case. This approach ensures equal treatment of ECB and NCA preparatory measures that are part of an EU decision-making procedure. Thus, it ensures early judicial protection at the national level for NCA preparatory measures in cases where the Court has decided that early judicial review of EU preparatory measures is necessary to ensure effective judicial protection (cf. Section 3.1. Chapter 5 of the book).  

This implies a new step in ensuring judicial protection in bottom-up procedures by which the standard of reviewability would be harmonized for measures that are part of an EU decision-making procedure. It is basically the mirror image of the Court’s standards developed in its TWD case for top-down procedures.

At the same time, I recommend that the EU Courts apply only EU administrative standards when reviewing the final ECB decision and its entire decision-making process, i.e. including to the national part of the procedure. This reduces situations in which the Court has to apply and interpret national standards, which would for many reasons be a challenging thing for the Court to do.

In the case of top-down procedures, the preliminary ruling procedure, although not exactly perfect, avoids many issues that exist in the case of bottom-up procedures. A big question mark in top-down procedures is what national courts are allowed to do when ECB input as evidence for an NCA final decision does not meet any national legal safeguards providing for more protection than the relevant EU legal safeguards. May national courts exclude such ECB input based on their national evidential laws? Should this be possible, the ECB becomes subject to different legal safeguards in each Member States, while not allowing for this may reduce the legal protection for the institutions involved. National courts may submit such a question to the Court for a preliminary ruling, which would be a great opportunity for clarification.

Suggestions for a way towards more effective legal protection

The far-reaching administrative collaboration will more often result in situations in which EU Courts have to review national parts of EU decision-making procedures and apply and interpret national substantive laws, national procedural rules and, depending on the Court’s approach, perhaps even national administrative-legal safeguards. It is questionable if the EU Courts are adequately equipped to handle such situations. In my research, I explore the current possibilities for the EU Courts to acquire in-depth and updated knowledge about national laws and to strengthen their cooperation with national courts. For instance, by increasing their use of existing judicial networks and procedures laid down in the Court’s Statute and Rules of Procedure. Also, minor amendments could be considered to make the Court’s work easier, such as including national courts to the persons who can be invited by the Court to answer questions in writing (Article 61 Rules of the Procedure of the Court of Justice) or to broaden the scope of Article 64 of the Rules of Procedures so the Court may also prescribe measures of inquiry to have relevant national law and national legal context clarified. Furthermore, it could be argued that NCAs may have to assist the EU Courts to ensure the relevant Union law’s effectiveness by participating in EU judicial proceedings based on the general duty of sincere cooperation laid down in Article 4(3) TEU.

In the long-term, it may be helpful to introduce a reversed preliminary ruling procedure that enables EU Courts to request an opinion from the relevant national courts. It would be best to have such procedure included in the Treaties but the Court may also be able to use the general duty of sincere cooperation of Article 4(3) TEU to require national courts’ opinions, when necessary, to ensure effective judicial protection. Another possibility that is discussed in the book is to slightly amend the Rules of Procedure to make this possible or to include this procedure in soft law instruments such as recommendations.

Other long-term recommendations concern a better use of the legislator’s tools, which, admittedly, may not be that easy given the political interests involved, such as harmonizing applicable rules or better indicating if certain supervisory acts are subject to judicial control. Also, a provision similar to the amicus curiae provision in the field of competition law could be considered in order to improve the ECB’s and NCAs’ participation in national and EU judicial proceedings, respectively. Lastly, some suggestions are made to align EU and national judicial proceedings concerning related cases, for instance, by introducing a possibility for both the EU Courts and the national courts to refer cases to the other level.  

So, many opportunities still seem to be available to strengthen the legal protection’s effectiveness in the case of composite procedures. Whilst some of them may require a broad interpretation of existing legal provisions or innovative new steps, it is necessary, in my view, to consider these opportunities to ensure effective legal protection in the case of complex composite administrative procedures as in place within the SSM. 

Posted by Laura Wissink. Laura is senior manager of the legal and regulatory team of EY Financial Service in Brussels. She has a background in EU banking supervision and recently finished her PhD (Utrecht) on effective legal protection in this field.

Suggested citation: L Wissink, ‘Effective legal protection in the SSM’s composite administrative procedures’, REALaw.blog, available at https://realaw.blog/?p=868.