A roadmap toward protecting fundamental rights in composite banking law enforcement

The Single Supervisory Mechanism (SSM) is the legislative and institutional framework that grants the European Central Bank (ECB) exclusive competence to authorize and supervise banks in the eurozone. Yet, even in the context of such a high degree of Europeanization, the ECB is not completely autonomous but often relies on the powers and expertise of the national supervisors (NCAs). Various final decisions are therefore adopted on the basis of composite administrative procedures. While SSM procedures are indeed highly integrated, the protection of fundamental rights is split between the EU and the national legal orders, which may lead to gaps in complete fundamental rights protection.

In this blogpost, I highlight a number of recommendations that aim at enhanced fundamental rights protection in the SSM. These recommendations are included in my forthcoming book ‘The protection of fundamental rights in composite banking supervision proceedings’ (Europa Law Publishing 2022). At a meta-level, my recommendations are aimed at solving problems related to procedural (un)fairness, gaps in legal protection and legal (un)certainty. Generally speaking, procedural fairness goes part and parcel with the rights of the defense (Article 48(2) CFR). Legal protection is the dominant legal interest underpinning Articles 7, 47 and 48(2) CFR, and legal certainty is strongly embedded in Articles 7, 48(2) and 50 CFR.

I shall now discuss each problem and proposed solution(s) in order.

Bolstering legal protection in composite SSM enforcement procedures

SSM enforcement procedures may lead to the imposition of sanctions of a criminal nature (‘punitive sanctions’). For analytical purposes, I have distinguished between the following three types of composite enforcement procedures and concomitant legal protection-related challenges that each of them brings along:

  • In vertical bottom-up enforcement procedures an NCA provides – formal or less formal – input for the adoption of a final ECB punitive decision. The CJEU has already clarified that it is competent to carry out single judicial review and thus review also the national input. However, I have raised doubts as to whether the CJEU is well-positioned to conduct a full ex post assessment of the national segment of a composite enforcement procedure. Think for instance of the application of national coercive powers during an on-site inspection. The reviewing EU judge may need to examine precise facts that likely took place years ago. I therefore agree with other authors who have supported the introduction of a reversed preliminary reference procedure: national courts could provide a non-binding opinion to the CJEU. That way, the CJEU’s exclusive competence to review ECB decisions under Article 263 TFEU will be preserved. At the same time, national courts would still be involved in the interpretation of questions of national law or facts.
  • In vertical top-down enforcement procedures the ECB provides (part of) the input for the adoption of a final NCA punitive decision. If questions concerning the lawfulness of the acts of EU organs do arise, the preliminary ruling procedure seems to ensure full legal protection.
  • In diagonal enforcement procedures the ECB and the NCAs of – let us say – Member States A and B provide input for the adoption of a final punitive decision by the NCA of Member State C. Complications may arise because the reviewing national court of jurisdiction C may not be well-positioned to test violations of fundamental rights that may have occurred in Member State A. To overcome this problem, I propose the introduction of a horizontal cooperation mechanism between national courts. Using Article 4(3) TFEU as the legal basis, the EU legislature could adopt, in secondary Union law, a legal instrument establishing a framework whereby national courts may pose questions to one another. Such an instrument could actually prove to be useful also outside the contours of the SSM, i.e., in other policy fields in which enforcement takes place through horizontal and diagonal composite procedures.

Safeguarding procedural fairness: the example of the privilege against self-incrimination

In combinations of non-punitive and punitive procedures, the privilege against self-incrimination (PSI) generally demands the following: if a punitive procedure follows-up on a non-punitive one, incriminating information obtained in the course of the non-punitive procedure must not be used as evidence for the imposition of a punitive sanction. In the EU, the need for coordination between the non-punitive and the punitive legs of an enforcement procedure has been discussed only in relation to natural persons. The ECtHR on the other hand does not distinguish between legal and natural persons but does demand that combinations of punitive and non-punitive procedures are coordinated so as to avoid a violation of the PSI.

The main issue that I identified in my book concerns the situation in which – during ongoing supervision – banks are under a legal duty to provide all requested information to the ECB, including potentially incriminating statements or documents, yet the same information can later be used by the ECB or an NCA for the imposition of a punitive sanction.

To ensure procedural fairness, I have proposed a two-pronged approach. First, in light of the objective of effective supervision and enforcement, the element of compulsion in the non-punitive parts of composite SSM procedures should in my view be maintained. Thus, before a  supervised person becomes a suspect, the Orkem standard, which entails that supervisors may not pose directly incriminating questions, should be preserved. Second, when incriminating materials obtained in ongoing supervision are to be used as evidence for the imposition of a punitive sanction, either by the ECB or by an NCA, the law should foresee the exclusion of such materials.

Ensuring legal certainty by preventing ne bis in idem violations

In my book, I reach the conclusion that, owing to the allocation of sanctioning competences between the ECB and the NCAs, the SSM is generally ‘ne bis in idem foolproof’. However, violations at the intersection between SSM administrative law enforcement and national criminal law enforcement cannot be ruled out. Some Member States, such as the Netherlands, enforce by means of stricto sensu criminal law substantive banking legislation that falls under the material competence of SSM supervision. Therefore, it is not inconceivable that, next to an SSM punitive administrative sanction, a person may also be at risk of facing a second criminal law prosecution or sanction at the national level for the same act/facts/offence.

For the purposes of this blogpost, I will leave aside the debate concerning the so-called ‘identity of legal interest’ test that is generally applied by the CJEU in competition law enforcement, a policy area which is conceptually similar to the SSM. The interested reader can follow the discussion by reading inter alia the recent case bpost. The main point that I rather wish to make here concerns the need for coordination between the SSM and national systems of criminal justice. Not only would such coordination safeguard fundamental rights and strengthen legal certainty, but it would in fact also serve the proper and efficient administration of justice. I have therefore proposed the following solution: the introduction of coordinating provisions in the SSM legal framework. In short, the law must oblige the ECB, the relevant NCA and the relevant national judicial authorities to coordinate their action and to ensure that, where responses are necessary, these are limited to what is strictly necessary in relation to the seriousness of the offense.

Outlook

Integrated enforcement procedures require an integrated approach also when it comes to the protection of fundamental rights. While the SSM comprises a specific case study, some of my findings and concomitant recommendations may prove to be useful also for the future design of other policy domains which will likely undergo Europeanization.

Author: Argyro Karagianni

Argyro works as an assistant professor at Utrecht University. In that capacity, she teaches courses on such topics as the EU Banking Union, the enforcement of anti-money laundering policy and supervision of markets. Prior to starting her PhD research, Argyro worked as a legal trainee at the European Central Bank and as a judicial trainee at the Athens Court of Appeals. She has also worked in private practice and is a qualified barrister in Greece.

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