1. Introduction
One of the key actors in the Banking Union is the European Banking Authority (‘EBA’), which plays a crucial role in ensuring the stability and effectiveness of the Union’s financial system. EBA cannot adopt legislative or quasi-legislative acts, but it participates in different ways in the EU rulemaking and contributes to the creation of the Single Rulebook in banking, by drafting technical standards for the implementation of the banking legislation and adopting various forms of soft law, i.e. legally non-binding acts having normative ambitions and producing legal and practical effects.
The aim of this blogpost, which is based on a chapter in a forthcoming book [J. Bauerschmidt, R. D’Ambrosio, D. Fromage, D. Jaros and P. Weismann (Eds.) EU Banking Union: Law, Institutions, and Co-operation (Oxford University Press)], is to examine EBA’s guidelines as a tool of regulatory governance in the Banking Union. The post will consider the peculiar legal effects produced by guidelines through the so-called ‘comply-or-explain’ mechanism and the available control mechanisms against these soft law measures. It will be shown that, while formally not binding, EBA’s soft law is capable of producing significant legal effects within the Bank Union. However, the control mechanisms available vis-à-vis EBA’s soft law are currently subject to several limitations.
2. EBA and its soft law
Soft law encompasses a wide variety of legally non-binding acts, taken, for example, in the form of opinions, recommendations, suggestions, standards, best practices, guidance or guidelines. Guidelines adopted in accordance with Article 16 of the EBA’s founding Regulation present a considerable part of the EBA’s soft law production.
The purpose of guidelines, which are addressed both to national competent authorities and to financial institutions under their supervision, is to help with establishing consistent, efficient and effective supervisory practices within the ESFS, and to ensure the common, uniform and consistent application of Union law. In practice, however, they offer more than just a suggestion of how to interpret those rules. The detail and depth of their provisions demonstrate their ability to propose specific new rules, which are only derived from or based on binding EU acts.
The EBA’s founding Regulation states a duty for the addressees to ‘make every effort to comply’ with respective guidelines. National competent authorities are still left with a discretion to make a final decision whether to comply with the guidelines or not. However, if they find that they cannot comply, they must inform the EBA of their decision within two months following the adoption of the guidelines and provide an explanation for their choice.
In addition to the comply-or-explain mechanism, there is a clear tendency toward compliance also because officials from the national competent authorities participate in the drafting process of the guidelines within the respective EBA working groups. As a result, there are only few notifications of non-compliance. In this way, guidelines become indirectly binding on financial institutions.
The quasi-binding effect of the EBA guidelines is not accidental. The ultimate (de facto) bindingness of the guidelines appears to be a deliberate aspect of the system, which aims to promote effective supervision in the sector of banking, to ensure proper and consistent implementation of EU law across Member States, and to prevent consumer harm, bankruptcy of banks and eventually financial crises.
3. Control and remedies
EBA’s founding Regulation provides, first of all, a mechanism of political accountability before the EP and Council (Article 3), which requires the preparation of an Annual Report, adopted in accordance with Article 43(5), to be transmitted the European Parliament, to the Council, to the Commission, to the Court of Auditors and to the European Economic and Social Committee.
Furthermore, the legislative framework provides for forms of administrative review. These are, however, either inapplicable or toothless when it comes to EBA’s soft law. Firstly, there is an internal review (Article 60) by a Board of Appeal, but it can only be brought against ‘decisions’ of the Authority, thereby excluding guidelines and recommendations under Article 16.
A second mechanism of administrative review specifically geared towards guidelines is, under Article 60a, the possibility for natural and legal persons to send reasoned advice to the Commission if they are of the opinion that a guideline has been adopted in breach of the principle of proportionality. However, the provision subjects the possibility to send reasoned advice to those natural or legal persons who are directly and individually concerned by a guideline. While there is no case law on Article 60a, it would be hard to overlook the interpretation of the concept of ‘individual and direct concern’ by the CJEU under Article 263(4) TFEU. Looking specifically at the notion of ‘direct concern’, one might actually wonder whether this threshold could ever be fulfilled by a soft law measure, given that the EU soft law measures will need invariably to be concretised through measures adopted at the national level.
Finally, (soft) acts of EU agencies could, in principle, be subject to the judicial control of the CJEU. That the soft law measures adopted by EU agencies in general needs to be judicially controlled has been stated in no unclear terms by the Court, not least to comply with the requirements of the Short Selling ruling. In Fédération bancaire française, the CJEU considered that ‘since it is apparent from [the EBA’s founding Regulation] that the EU legislature has precisely delineated the EBA’s power to issue guidelines, on the basis of objective criteria, the exercise of that power must be amenable to stringent judicial review in the light of those objective criteria’ (para 67).
The judicial control of EBA’s guidelines is theoretically possible through two avenues: directly, through an action for annulment under Article 263 TFEU and indirectly, through a preliminary question of validity sent by a national court under Article 267 TFEU.
In respect of this last possibility, the CJEU has stated that a preliminary question is open on the validity of all acts of EU institutions ‘without exception’ (para 8 of the Grimaldi ruling). The direct avenues of judicial control are, however, very limited for soft law acts since the CJEU has interpreted the requirement to produce ‘legal effects’ (which is a pre-condition for the reviewability of an act under Article 263 TFEU) as the capacity of act to produce ‘binding legal effects’. It is therefore very likely that, on the basis of the current case law, such action against EBA soft law would be declared inadmissible.
As the case law now stands, therefore, judicial control of EBA’s recommendations and guidelines is ensured through the preliminary question of validity.
However, there are compelling reasons to argue that this avenue is not sufficient to comply with the rule of law and effective judicial protection tenets of the EU legal order. First of all, preliminary questions of validity take longer than direct actions, they may be brought only after infringements to individuals’ legal spheres have occurred and strongly depend on the willingness of national courts to refer such questions to the CJEU.
Second, looking specifically at the soft law nature of an act, as argued by AG Bobek, the current case law has the paradoxical consequence of placing Member States and EU institutions at a ‘procedural disadvantage’ compared to private parties. While the latter have access to national courts to challenge EU soft law indirectly, privileged applicants do not have this option, a situation which is clearly misaligned with the setup foreseen by the Treaties.
Third, focussing particularly on EBA’s soft law, much of the chances of success of indirectly getting the CJEU to review its validity depends on the national procedural ecosystem and whether actions against national (soft) law measure implementing the EBA’s guidelines are deemed admissible, a matter which is uncertain.
Be it as it may, it is by now clear that, with all its limitations, the CJEU will hear claims concerning the validity of EBA’s soft law in preliminary questions. The final point to be discussed concerns the ‘intensity’ of this review. In the Fédération bancaire française case, the CJEU insisted that that review should be ‘stringent’ (paras 70-72). This consideration might be regarded as serving to strengthen the effectiveness of the judicial control over soft law measures. However, if one considers that soft law is increasingly used by EU agencies, arguably (also) as a way to circumvent the limitations imposed by the Meroni and Short Selling rulings, ‘mellowing’ the Short Selling threshold, which is in itself already a ‘mellowing’ of its predecessor Meroni, is a concerning development in terms of respect of institutional balance.
4. Conclusion
This post sought to examine the role guidelines issued by the EBA in the regulation of the Banking Union. While these instruments are formally non-binding, they create significant regulatory effects, often resembling hard law in practice. These effects are generated by the ‘comply-or-explain” principle and also by the fact that NCAs participate in the drafting process of the guidelines, fostering a high compliance rate. Consequently, EBA guidelines often become de facto mandatory because NCAs may enforce them indirectly on financial institutions.
Despite these strong regulatory effects, EBA’s soft law is subject to limited political, administrative, and judicial oversight. Judicial control in particular is mostly indirect, with national courts referring validity questions to the CJEU, ensuing a number of hurdles to full accountability. Consequently, the limitations of the possibility of administrative review, for example through the control exercised by the ESA Board of Appeal, can be considered a missed opportunity to ensure control of these increasingly important tools within the Banking Union.
Posted by Mariolina Eliantonio and Pavlína Hubková
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Mariolina Eliantonio is Professor of European and Comparative Administrative Law and Procedure. Her research is focused on the enforcement of European law before national and EU courts. She does research specifically on the theme of access to court before national and European courts (with a special focus on environmental matters), on the Europeanisation process of national procedural administrative law and on the judicial review of the new modes of governance.
Pavlína Hubková is a Research Fellow at the University of Exeter. She previously held positions at Maastricht University and the University of Luxembourg. Her research focuses on various aspects of EU law, including EU administrative law, competition law and regulation, judicial review and soft law.