Court of Justice of the European Communities (including Court of First Instance Decisions)

Provisional text

OPINION OF ADVOCATE GENERAL

CAMPOS SÁNCHEZ-BORDONA

delivered on 13 March 2018 (1)

Case C-52/17

VTB Bank (Austria) AG

Intervener:

Österreichische Finanzmarktaufsicht

(Request for a preliminary ruling from the Bundesverwaltungsgericht (Federal Administrative Court) (Austria))

(Reference for a preliminary ruling — Approximation of laws — Supervision of credit institutions — Directive 2013/36/EU —Regulation (EU) No 575/2013 — Regulation (EU) No 468/14 — Supervisory powers and powers to impose penalties — Large exposure limits — Rules of a Member State which provide for interest to be levied in cases where large exposure limits are exceeded)

1.        This reference provides the Court of Justice with an opportunity to rule for the first time (unless I am mistaken) on certain aspects of the procedure for supervising the prudential requirements to which the EU legislature compels credit institutions and investment firms to submit.

2.        The legislation in this field is comprised of Directive 2013/36/EU (2) and Regulation (EU) No 575/2013. (3) In this context, the dispute before the Austrian courts centres on two questions:

–       First, what is the legal nature of the levying of interest on institutions which do not comply with the limits on exposure to risk laid down by the CRR. In particular, it falls to be determined whether the levying of such interest is a penalty or an administrative measure and what discretion national authorities have to adopt such a measure in cases such as that at issue.

–      Secondly, under what conditions may a supervisory procedure be said to be pending for the purposes of applying the transitional arrangements provided for in Regulation (EU) No 468/14, (4) in the event of a change of competence between the European Central Bank (ECB) and a national supervisory authority.

I.      Legal framework

A.      EU law

1.      Directive 2013/36

3.        Recital 2 reads:

‘This Directive should, inter alia, contain the provisions governing the authorisation of the business, the acquisition of qualifying holdings, the exercise of the freedom of establishment and of the freedom to provide services, the powers of supervisory authorities of home and host Member States in this regard and the provisions governing the initial capital and the supervisory review of credit institutions and investment firms. The main objective and subject-matter of this Directive is to coordinate national provisions concerning access to the activity of credit institutions and investment firms, the modalities of their governance, and their supervisory framework. Directives 2006/48/EC ^[(5)^] and 2006/49/EC ^[(6)^] also contained prudential requirements for credit institutions and investment firms. Those requirements should be provided for in Regulation (EU) No 575/2013, which establishes uniform and directly applicable prudential requirements for credit institutions and investment firms, since such requirements are closely related to the functioning of financial markets in respect of a number of assets held by credit institutions and investment firms. This Directive should therefore be read together with Regulation (EU) No 575/2013 and should, together with that Regulation, form the legal framework governing banking activities, the supervisory framework and the prudential rules for credit institutions and investment firms.’

4.        Recital 35 states:

‘In order to ensure compliance with the obligations deriving from this Directive and from Regulation (EU) No 575/2013 by institutions, by those who effectively control the business of an institution and the members of an institution’s management body, and to ensure similar treatment across the Union, Member States should be required to provide for administrative penalties and other administrative measures which are effective, proportionate and dissuasive. Therefore, administrative penalties and other administrative measures laid down by Member States should satisfy certain essential requirements in relation to addressees, the criteria to be taken into account in their application, their publication, key powers to impose penalties and levels of administrative pecuniary penalties.’

5.        Recital 41 states:

‘This Directive should provide for administrative penalties and other administrative measures in order to ensure the greatest possible scope for action following a breach and to help prevent further breaches, irrespective of their qualification as an administrative penalty or other administrative measure under national law. Member States should be able to provide for additional penalties to, and higher level of administrative pecuniary penalties than, those provided for in this Directive’.

6.        Article 64 (‘supervisory powers and powers to impose penalties’) provides:

‘1.      Competent authorities shall be given all supervisory powers to intervene in the activity of institutions that are necessary for the exercise of their function, including in particular the right to withdraw an authorisation in accordance with Article 18, the powers required in accordance with Article 102 and the powers set out in Articles 104 and 105.

2.      Competent authorities shall exercise their supervisory powers and their powers to impose penalties in accordance with this Directive and with national law, in any of the following ways:

a)      directly;

b)      in collaboration with other authorities;

c)      under their responsibility by delegation to such authorities;

d)      by application to the competent judicial authorities.’

7.        Article 65 (‘Administrative penalties and other administrative measures’) states in paragraph 1:

‘Without prejudice to the supervisory powers of competent authorities referred to in Article 64 and the right of Member States to provide for and impose criminal penalties, Member States shall lay down rules on administrative penalties and other administrative measures in respect of breaches of national provisions transposing this Directive and of Regulation (EU) No 575/2013 and shall take all measures necessary to ensure that they are implemented. Where Member States decide not to lay down rules for administrative penalties for breaches which are subject to national criminal law they shall communicate to the Commission the relevant criminal law provisions. The administrative penalties and other administrative measures shall be effective, proportionate and dissuasive.’

8.        According to Article 67:

‘1.      This Article shall apply at least in any of the following circumstances:

[…]

k)      an institution incurs an exposure in excess of the limits set out in Article 395 of Regulation (EU) No 575/2013;

[…]

2.      Member States shall ensure that in the cases referred to in paragraph 1, the administrative penalties and other administrative measures that can be applied include at last the following:

[…]

g)      administrative pecuniary penalties of up to twice the amount of the profits gained or losses avoided because of the breach where these can be determined.

[…]’

2.      Regulation No 575/2013

9.        Recital 5 states:

‘Together, this Regulation and Directive 2013/36/EU should form the legal framework governing the access to the activity, the supervisory framework and the prudential rules for credit institutions and investment firms (referred to collectively as “institutions”). This Regulation should therefore be read together with that Directive.’

10.      Recital 9 states:

‘For reasons of legal certainty and because of the need for a level playing field within the Union, a single set of regulations for all market participants is a key element for the functioning of the internal market. In order to avoid market distortions and regulatory arbitrage, prudential minimum requirements should therefore ensure maximum harmonisation. […]’

11.      In accordance with Article 2:

‘For the purposes of ensuring compliance with this Regulation, competent authorities shall have the powers and shall follow the procedures set out in Directive 2013/36/EU’.

12.      In accordance with Article 395:

‘1.      An institution shall not incur an exposure, after taking into account the effect of the credit risk mitigation in accordance with Articles 399 to 403, to a client or group of connected clients the value of which exceeds 25% of its eligible capital. Where that client is an institution or where a group of connected clients includes one or more institutions, that value shall not exceed 25% of the institution’s eligible capital or EUR 150 million, whichever the higher, provided that the sum of exposure values, after taking into account the effect of the credit risk mitigation in accordance with Articles 399 to 403, to all connected clients that are not institutions does not exceed 25% of the institution’s eligible capital.

Where the amount of EUR 150 million is higher than 25% of the institution’s eligible capital the value of the exposure, after taking into account the effect of credit risk mitigation in accordance with Articles 399 to 403 shall not exceed a reasonable limit in terms of the institution’s eligible capital. That limit shall be determined by the institution in accordance with the policies and procedures referred to in Article 81 of Directive 36/2013/EU, to address and control concentration risk. This limit shall not exceed 100% of the institution’s eligible capital.

Competent authorities may set a lower limit than EUR 150 million and shall inform EBA (European Banking Authority) and the Commission thereof.

[...]

5.      The limits laid down in this Article may be exceeded for the exposures on the institution’s trading book if the following conditions are met:

a)      the exposure on the non-trading book to the client or group of connected clients in question does not exceed the limit laid down in paragraph 1, this limit being calculated with reference to eligible capital, so that the excess arises entirely on the trading book;

b)      the institution meets an additional own funds requirement on the excess in respect of the limit laid down in paragraph 1 which is calculated in accordance with Articles 397 and 398;

c)      where ten days or less have elapsed since the excess occurred, the trading-book exposure to the client or group of connected clients in question shall not exceed 500% of the institution’s eligible capital;

d)      any excesses that have persisted for more than 10 days do not, in aggregate, exceed 600% of the institution’s eligible capital.

In each case in which the limit has been exceeded, the institution shall report the amount of the excess and the name of the client concerned and, where applicable, the name of the group of connected clients concerned, without delay to the competent authorities.

[...]’

13.      Article 396(1) provides:

‘If, in an exceptional case, exposures exceed the limit set out in Article 395(1), the institution shall report the value of the exposure without delay to the competent authorities which may, where the circumstances warrant it, allow the institution a limited period of time in which to comply with the limit.

[…]’

3.      Regulation (EU) No 1024/2013 (7)

14.      Article 33(2) provides:

‘The ECB shall assume the tasks conferred on it by this Regulation on 4 November 2014 subject to the implementation arrangements and measures set out in this paragraph.

[…]’

4.      Regulation No 468/14

15.      Article 2 contains the following definitions:

‘[…]

24)      “ECB supervisory procedure” means any ECB activity directed towards preparing the issue of an ECB supervisory decision, including common procedures and the imposition of administrative pecuniary penalties. All ECB supervisory procedures are subject to Part III. Part III also applies to the imposition of administrative pecuniary penalties, unless Part X provides otherwise. […]

25)      “NCA [National Competent Authority] supervisory procedure” means any NCA activity directed towards preparing the issue of a supervisory decision by the NCA, which is addressed to one or more supervised entities or supervised groups or one or more other persons, including the imposition of administrative penalties.

[…]’

16.      Article 48 (‘Pending procedures’) states:

‘1.      If a change in competence between the ECB and an NCA is to take place, the authority whose competence is to end (hereinafter the “authority whose competence ends”) shall inform the authority which is to become competent (hereinafter the “authority assuming supervision”) of any supervisory procedure formally initiated, which requires a decision. The authority whose competence ends shall provide this information immediately after becoming aware of the imminent change in competence. The authority whose competence ends shall update this information on a continual basis, and as a general rule on a monthly basis, when there is new information on a supervisory procedure to report. The authority assuming supervision may, in duly justified cases, allow reporting on a less frequent basis. For the purposes of Articles 48 and 49, a supervisory procedure shall mean an ECB or NCA supervisory procedure.

Prior to the change in competence, the authority whose competence ends shall liaise with the authority assuming supervision without undue delay after the formal initiation of any new supervisory procedure which requires a decision.

[…]

3.      If a formally initiated supervisory procedure, which requires a decision, cannot be completed prior to the date on which a change in the supervisory competence occurs, the authority whose competence ends shall remain competent to complete such pending supervisory procedures. For this purpose, the authority whose competence ends shall also retain all relevant powers until the supervisory procedure has been completed. The authority whose competence ends shall complete the pending supervisory procedure in question in accordance with the applicable law under its retained powers. The authority whose competence ends shall inform the authority assuming supervision prior to taking any decision in a supervisory procedure which was pending prior to the change in competence. It shall provide to the authority assuming supervision a copy of the decision taken and any relevant documents relating to that decision.

[…]’

17.      Article 149 (‘Continuity of existing procedures’) provides:

‘1.      Unless the ECB decides otherwise, if an NCA has initiated supervisory procedures for which the ECB becomes competent on the basis of the SSM Regulation, and this occurs before 4 November 2014, then the procedures laid down in Article 48 shall apply.

2.      By derogation from Article 48, this Article shall apply to common procedures.’

B.      National law. Bankwesengesetz (Law on Banking) (8)

18.      Paragraph 97(1) provided:

‘The Finanzmarktaufsichtsbehörde (Financial Markets Supervisory Authority, “FMA”) shall levy on credit institutions interest in the following amounts:

[…]

4.      2% of the excess over the large exposure limit laid down in Article 395(1) of [the CRR], calculated annually, for 30 days, save in the event of supervisory measures as provided for in Paragraph 70(2) or over-indebtedness of the credit institution’.

19.      According to Paragraph 98(5):

‘Anyone who, acting as person responsible […] for a credit institution,

[…]

2)      exposes the credit institution to credit in excess of the limits laid down in Article 395 of Regulation (EU) No 575/2013;

[…]

commits, provided that the act does not constitute a punishable offence subject to the jurisdiction of the courts, an administrative infringement for which the Financial Markets Supervisory Authority shall impose a pecuniary fine of up to EUR 5 million or twice the profit obtained from the infringement, where this can be calculated.’

II.    Facts and reference for a preliminary ruling

20.      Pursuant to Paragraph 97(1) of the BWG, the FMA adopted two decisions, of 30 October 2014 and 11 May 2015 respectively, requiring VTB Bank (Austria) AG (‘VTB Bank’) to pay certain amounts by way of interest for having incurred in relation to a group of connected customers an exposure in excess of that permitted by Article 395(1) of the CRR.

21.      The interest amounted, in the first case, to a total of EUR 94 951.41, corresponding to the excess committed in the months of March to September 2014; and, in the second case, to a total of EUR 28 278.57 for the excess committed in the month of October 2014.

22.      VTB Bank appealed the second FMA decision to the Bundesverwaltungsgericht (Federal Administrative Court), claiming that, since Article 395(5) of the CRR was applicable, it could not be penalised under a provision of national law.

23.      It was in those circumstances that that court decided to suspend the proceedings and refer the following questions for a preliminary ruling.

‘1)      Are provisions of European Union secondary legislation (in particular, for example, Article 64 or 65(1) of Directive 2013/36/EU […]) applicable to the levying by the authorities of interest pursuant to a Member State’s legal provisions under which a credit institution, on exceeding the limit for large exposures under Article 395(1) of [the CRR], is to have interest of 2 per cent of the excess over the limit for large exposures, calculated on an annual basis, levied on it for 30 days?

2)      Does European Union law (in particular, Article 395(1) and (5) of [the CRR]) preclude a national provision such as that which was contained in Paragraph 97(1)(4) of the [BWG] where, despite the fact that the conditions for applying the exemption provided for in Article 395(5) are satisfied, (absorption) interest is levied for a breach of Article 395(1)?

3)      Is Article 48(3) of […] (SSM Framework Regulation) to be interpreted as meaning that a “formally initiated supervisory procedure” can be deemed to exist simply where an undertaking submits a report to the supervisor, or can a “formally initiated supervisory procedure” be deemed to exist where a supervisory decision has already been rendered in a parallel procedure for similar breaches?’

III. Procedure before the Court of Justice

24.      The reference for a preliminary ruling was registered at the Court of Justice on 1 February 2017.

25.      During the written procedure, observations have been lodged by the FMA, the ECB and the Commission. The Court did not consider there to be any need for a hearing.

IV.    Analysis

26.      The first two questions raised by the Bundesverwaltungsgericht (Federal Administrative Court) may, in my opinion, and in line with the view expressed by the Commission, be answered together.

27.      They seek, in short, to ascertain:

–      whether the levying of interest provided for in the national legislation in cases where a credit institution exceeds the exposure limits laid down in Article 395(1) of the CRR constitutes an ‘administrative penalty’ or ‘other administrative measure’ within the meaning of Articles 65 and 67 of Directive 2013/36; and

–      whether the fact that, in accordance with the national legislation, that interest is levied even where the conditions governing the exception provided for in Article 395(5) of the CRR are met, is compatible with EU law.

28.      By the third (and final) question, the referring court wishes to ascertain at what point in time a supervisory procedure must be regarded as having been formally initiated. The answer will determine the authority to which it falls to assume responsibility for that procedure if there is a change of competence between the ECB and an NCA such as to affect pending cases.

A.      The ‘administrative penalties and other administrative measures’ applicable to a breach of the credit risk exposure limit (first and second questions referred)

1.      Summary of the observations of the parties

29.      In the view of VTB Bank, the national measure at issue falls within the scope of Directive 2013/36 and is caught by the concepts of ‘administrative penalties’ and ‘other administrative measures’ provided for in Article 65 of that directive. Member States have an obligation to take one course of action or the other in cases of infringement of the CRR.

30.      Even though Directive 2013/36 does not give a precise definition of those two concepts, it follows from Article 66(2) of that directive, according to VTB Bank, that the penalties and measures in question must fulfil certain conditions whereby they are capable of preventing or mitigating any infringement of the CRR. In the light of its nature, essence and character, the interest sought by the FMA is comparable to the penalties or measures provided for in Directive 2013/36.

31.      VTB Bank further recalls that Article 395(5) of the CRR allows the limits laid down in paragraph 1 of that article to be exceeded in certain circumstances. Consequently, a national legislature may not adopt a decision which renders that provision of the EU legislature ineffective.

32.      According to the FMA, the interest at issue does not fall within the scope of Articles 64 and 65 of Directive 2013/36. In its submission, the levying of such interest is, in accordance with Austrian constitutional case-law, a non-punitive economic control measure intended to recover the advantage, real or potential, which a credit institution obtains from infringing a prudential rule.

33.      The FMA submits that Regulation No 1024/2013 confers a discretion on the Member States to enact their own legislation. The supervisory tasks not entrusted to the ECB fall to the national authorities, with the result, in its contention, that the measure in question is a specifically Austrian rule of law the purpose of which is not to transpose Directive 2013/36.

34.      The FMA submits, finally, that there is no direct link between the provision of national law applied and the CRR, since Article 97(1), point 4, of the BWG refers only to Article 395(1) of the CRR (and not to paragraph 5) in setting out the substantive conditions governing the levying of interest. Account being taken of its purpose, the interest in question applies automatically in the event that the limits laid down in Article 395(1) of the CRR are exceeded, even if the conditions set out in paragraph 5 thereof are fulfilled.

35.      The Commission submits that the national provision implements Articles 64, 65 and 67 of Directive 2013/36, with which, however, it is incompatible inasmuch as it imposes adverse legal consequences as an automatic effect of an infringement of Article 395(1) of the CRR, without assessing whether the conditions laid down in paragraph 5 of that article are met.

36.      To that effect, the Commission recalls that Articles 387 to 403 of the CRR, which concern large risk exposures, must be categorised as a ‘measure for the definitive maximum harmonisation of prudential requirements’, and that, for that reason, Member States do not enjoy ‘any discretion to adopt their own, derogating, measures with respect to the requirements applicable to large risks’.

37.      The Commission notes that Directive 2013/36 places an obligation on Member States to provide for penalties and other administrative measures applicable in cases where the limit laid down in Article 395(1) is breached. In accordance with Article 67(2)(g) of the same directive, such breaches must be punished by the imposition, at least, of pecuniary penalties.

38.      According to the Commission, however, there is no breach of the limits laid down in Article 395(1) of the CRR if the conditions for the application of the exception provided for in paragraph 5 of that article are met. Consequently, a national provision which makes interest payable without consideration of the entirety of Article 395 of the CRR gives rise to an administrative penalty or an administrative measure that punishes conduct permitted by EU law.

2.      Assessment

39.      Directive 2013/36 and the CRR together make up the legal framework governing banking activities, supervision and the prudential rules for credit institutions and investment firms. (9)

40.      More specifically, the CRR sets out the prudential requirements applicable to credit institutions and investment firms. These are minimum requirements intended, in the words of the EU legislature, to ‘ensure maximum harmonisation’ with a view to ‘avoid[ing] market distortions and regulatory arbitrage’.

41.      The guiding principle is that, ‘[f]or reasons of legal certainty and because of the need for a level playing field within the Union, a single set of regulations for all market participants is a key element for the functioning of the internal market’. (10)

42.      Directive 2013/36 sets out the legal framework necessary for the purposes of applying and enforcing the rules on the supervision of credit institutions and investment firms laid down by the CRR.

43.      The prudential requirements laid down by the CRR include, for our purposes here, that contained in Article 395(1), which prohibits institutions from ‘incur[ring] an exposure, after taking into account the effect of the credit risk mitigation in accordance with Article 399 to 403, to a client or group of connected clients the value of which exceeds 25% of its eligible capital’. ^[(11)^]

44.      According to the referring court, that risk exposure limit was exceeded in this case. Consequently, in accordance with Directive 2013/36, the situation at issue corresponds to that provided for in Article 67(1)(k), making it necessary, pursuant to paragraph 2 of that same article, to apply ‘at least’, inter alia, an administrative pecuniary penalty ‘of up to twice the amount of the profits gained or losses avoided because of the breach where those can be determined’. That penalty is, after all, one of the ‘administrative penalties and other administrative measures’ for which Member States have an obligation to provide in the event that that particular breach should arise.

45.      Although the referring court’s position in this regard is not clear, the FMA emphasises that the interest levied on VTB Bank (Austria) was not charged by way of an ‘administrative penalty’ or as a ‘measure of constraint’ for infringement of the CRR. It is simply ‘absorption interest’ (Abschöpfungszinsen), having no punitive character in Austrian law, which the FMA defines as ‘an economic measure […] which has as its purpose the lump-sum absorption of the advantage obtained or obtainable from conduct in breach of the law, that is to say that it is intended to offset the economic advantage derived from exceeding the limit on large exposures [to credit risk]’. (12)

46.      In my view, it is fair to say that the levying of interest provided for in Article 97(1), point 4, of the BWG is not one of the ‘administrative pecuniary penalties’ which, in accordance with Article 67(1)(k) and (2)(g) of Directive 2013/36, Member States have an obligation to impose, at least, on institutions which incur an exposure beyond the limits laid down in Article 395(1) of the CRR.

47.      The ‘administrative pecuniary penalty’ referred to in Article 67(2)(g) of Directive 2013/36 seems to be more akin, as the Commission suggests, (13) to that provided for in Paragraph 98(5), point 2, of the BWG. Under that provision, a person responsible for a credit institution who has exposed that institution to credit in excess of the limits laid down in Article 395 of the CRR is to be punished by way of a fine of up to EUR 5 million or twice the profit obtained from the infringement where this can be calculated, provided that the act in question does not constitute a criminal offence.

48.      The charging of such interest (in the absence of any previous debt on the part of the principal) under a power exercised by the public authority might more accurately be classified as an administrative measure. It is, in my opinion, irrelevant whether Article 67(2)(g) of Directive 2013/36 has its national counterpart in Paragraph 97 or in Paragraph 98 of the BWG. Aside from the fact that that is a question for the referring court to resolve, the latter scenario would not remove Paragraph 97 of the BWG (and, therefore, the levying of the interest at issue) from the scope of Directive 2013/36.

49.      The penalties and measures referred to in Article 67(2) of Directive 2013/36 do not make up the totality of the steps which the public authorities may take in response to infringements of the CRR. Directive 2013/36 allows — and even expects — Member States to provide for additional penalties and measures, that is to say to ‘take all measures necessary to ensure the application both of that directive and of the CRR (Article 65(1) of Directive 2013/36). (14)

50.      The penalties and measures which Member States are allowed to enact in addition to the minima established by the EU legislature might properly include, of course, the levying of interest such as that provided for in Paragraph 97(1), point 4, of the BWG. From that point of view, therefore, it makes little difference that the step taken by the FMA is open to classification as an ‘administrative penalty’ or ‘another administrative measure’ within the meaning of Articles 65 and 67 of Directive 2013/36, since that step would in any event be permitted by the EU legislature. (15)

51.      That said, while it is true that Member States are entitled to adopt other penalties or administrative measures, it is no less so that any such penalties or measures which they decide to adopt must comply with the legal framework comprised of Directive 2013/36 and the CRR.

52.      What I mean by this is that, having opted to secure ‘maximum harmonisation’ (16) in the field of the supervision of, and prudential rules applicable to, credit institutions and investment firms, the EU legislature introduced a single set of rules made up of Directive 2013/36 and the CRR. The existence of that single set of rules applicable to all market participants ‘is a key element for the functioning of the internal market’. (17)

53.      This explains why, even though it affords Member States the option of introducing other penalties and administrative measures, Directive 2013/36 itself endeavours to ensure that, in defining the profile of such acts and setting the level of pecuniary penalties, the national legislatures adhere to certain common standards. (18) To that end, Directive 2013/36 not only imposes a minimum quota of penalties and administrative measures (leaving Member States some discretion to extend these) but also establishes a framework of infringements which may attract a penalty or give rise to the adoption of other administrative measures.

54.      To my mind, therefore, there are two categories of punishable behaviours: a) those which are exhaustively described in Article 67(1) of Directive 2013/36; and b) others (19) which Member States may classify as cases of infringement of the CRR and which are separate from those set out by Directive 2013/36. So far as the latter are concerned, moreover, Member States are free to provide for penalties or measures different from those prescribed ‘as a minimum’ by the EU legislature.

55.      The question is whether, given that Member States may add new classes of infringement, they may also reconfigure those established by Directive 2013/36. In my view, they may not if, in so doing, they alter or eliminate any of the factual situations that might be called ‘necessary’, that is to say those which, according to the Directive, must be provided for in national law ‘as a minimum’.

56.      In the situation at issue here, it would seem, according to the information available, that Paragraph 98(5), point 2, of the BWG was the provision that transposed the content of Article 67(1)(k) and (2)(g) of Directive 2013/36 into Austrian law.

57.      If that were the case, which it falls to the referring court to determine, the national legislature would have complied with the obligation to make provision for one, ‘as a minimum’, of the factual situations set out by the EU legislature. It would in addition have linked to that factual situation the legal consequence stipulated (again, ‘as a minimum’) by Directive 2013/36.

58.      More specifically, Paragraph 98(5), point 2, of the BWG refers to the person responsible for a credit institution who exposes the latter ‘to credit in excess of the limits laid down in Article 395 of [the CRR]’. The fact that that provision refers to Article 395 of the CRR in toto, that is to say without excluding any of its paragraphs, means that the situation contemplated in Paragraph 98(5), point 2, of the BWG is that described by the aforementioned provision of the CRR.

59.      It is important to emphasise that the factual situation provided for in Article 395 of the CRR is not only that described in paragraph 1 thereof but also that which emerges from that paragraph in conjunction with the content of paragraph 5 of that same article.

60.      In accordance with Article 395(1) of the CRR, institutions may not incur an exposure in excess of 25% of their eligible capital. (20) The mere infringement of that limit does not, however, in and of itself, constitute the factual situation which Article 67(1)(k) of Directive 2013/36 envisages: in referring to Article 395 of the CRR in its entirety, Article 67 of Directive 2013/36 also includes paragraph 5 of Article 395 of the CRR, which allows that limit to be exceeded provided that certain conditions are fulfilled.

61.      In other words, an integrated reading of the factual situation contemplated in Article 67(1)(k) of Directive 2013/36 confers the following wording on that provision: ‘This Article shall apply […] where an institution incurs an exposure in excess of the limits set out in Article 395(1) of the CRR in circumstances in which the conditions laid down in paragraph 5 of that same article are not fulfilled’.

62.      Paragraph 98(5), point 2, of the BWG would then be a faithful copy of Article 67(1)(k) of Directive 2013/36 and would have transposed into Austrian law one of the infringements which the national legislature was necessarily obliged to consider ‘as a minimum’.

63.      If that interpretation is correct, as I believe it is, Paragraph 97(1), point 4, of the BWG has the effect not of creating a different factual situation but rather of distorting the factual situation contemplated in Article 67(1)(k) of Directive 2013/36.

64.      After all, that provision of national law refers only to the circumstances described in Article 395(1) of the CRR, without regard to paragraph 5 of that article. It could therefore reasonably be said to provide for a new factual situation characterised only by the act of exceeding the limit laid down in Article 395(1) of the CRR, whether the circumstances mentioned in paragraph 5 are present or not.

65.      However, Article 395 of the CRR, in so far as it allows the risk exposure limits (laid down in paragraph 1) to be exceeded in certain circumstances (described in paragraph 5), implies that the truly decisive limits are those which emerge from an integrated reading of those two paragraphs of that provision. Together, these form an indivisible unit and serve ultimately to define the level of risk which institutions may incur.

66.      In other words, it follows from the factual situation contemplated in Article 395(1) and (5) of the CRR that financial institutions may lawfully expose themselves to risk within the limits defined by both paragraphs.

67.      The effect of allowing Member States to take action against institutions which, precisely because they find themselves in the circumstances detailed in Article 395(5) of the CRR, have exposed themselves to the risks which that paragraph permits, would, in my opinion, be to distort Article 395 in toto, and, as a serious consequence, to frustrate the expectation that institutions may legitimately have that the limits within which they may incur risks are those that follow from the integrated application of paragraphs 1 and 5 of Article 395 of the CRR.

68.      Under the auspices of the option afforded to Member States by the EU legislature of establishing other infringements and other penalties or administrative measures in addition to those required in any event ‘as a minimum’ by Directive 2013/36, the national legislature may make provision for new factual situations but, I repeat, may not distort those which have already been addressed by the EU legislature.

69.      It is my view, in short, that the national legislation under examination is not compatible with the legal framework defined by Directive 2013/36 and the CRR.

B.      The existence of supervisory procedures pending at the time of a change of competence between the supervisory authorities (third question referred)

1.      Summary of the observations of the parties

70.      VTB Bank submits that, in accordance with Article 48(3) and Article 149(1) of the SSM Framework Regulation, the FMA has competence only in respect of supervisory procedures formally initiated before 4 November 2014.

71.      Since the FMA’s decision to levy interest on it (because of the excess risk which it had incurred during the month of October 2014) is dated 11 May 2015 and was based on a declaration made by VTB Bank itself on 3 November 2014, that institution takes the view that that declaration cannot be regarded as having triggered a formal supervisory procedure within the meaning of Article 2(25) and Article 48(3) of the SSM Framework Regulation.

72.      Consequently, VTB Bank submits, since it did not initiate a formal procedure before 4 November 2014, the FMA lacked competence to adopt the decision of 11 May 2015.

73.      In rebuttal of the foregoing, the FMA bases its competence on the fact that EU law does not provide for interest similar to that levied, but, on the contrary, authorises Member States to exercise a margin of discretion in such domestic matters. Since the ECB is not competent under the SSM Framework Regulation, the FMA considers it unnecessary to analyse the transitional provisions relating to pending supervisory procedures to which Article 48(3) of that regulation refers.

74.      The FMA further maintains that, for reasons of procedural economy, the VTB Bank declaration of 3 November 2014 had already been taken into account in an investigative procedure relating to the aforementioned excesses, since the customers and the facts were the same in both procedures.

75.      The ECB, whose submissions are confined to the third question referred, submits that the concept of a ‘formally initiated supervisory procedure’ was introduced into Article 48(3) of the SSM Framework Regulation for cases in which there is a change in the distribution of competences between the ECB and an NCA. Since that notion is linked to the tasks and powers of the ECB, Article 48(3) applies only to procedures that fall within the scope of its competences.

76.      Consequently, the application of Article 48(3) of the SSM Framework Regulation will depend on the classification warranted by the levying of interest at issue. That article will apply if the levying of such interest is a prudential supervisory measure within the meaning of Articles 64 and 65 of Directive 2013/13, but not if it is an economic measure aimed at the full recovery of an advantage acquired or capable of being acquired by dint of illegal conduct.

77.      In the view of the Commission, which comments on this question only in the alternative, a prudential supervisory procedure within the meaning of Article 48(3) of the SSM Framework Regulation is not initiated when the credit institution presents the declaration provided for in Article 396 of the CRR. Furthermore, it submits, previous procedures now closed which relate to similar infringements cannot give rise to a prudential supervisory procedure in the event of a new infringement.

2.      Assessment

78.      The third question seeks to ascertain whether, in accordance with Article 48(3) of Regulation No 468/14, there is a ‘formally initiated supervisory procedure’ in either of these two situations:

–      as soon as a credit institution has communicated to the competent authorities the risk it has incurred in excess of the limits laid down in Article 395 of the CRR;

–      where, in a parallel procedure relating to similar previous infringements, the supervisory authority has already adopted a decision.

79.      In this case, the decision to levy interest which the FMA adopted on 11 May 2015 was motivated by an excessive risk exposure which occurred in the month of October 2014 and was communicated by VTB Bank to that authority on 3 November 2014 (that is to say, one day before the ECB assumed competence under the SSM Framework Regulation).

80.      In the context of the cooperation between the ECB and the national supervisory authorities, Article 48 of the SSM Framework Regulation deals with supervisory procedures which are pending at the time when there is a change of competence between the ECB and one of those authorities.

81.      Article 149(1) of the SSM Framework Regulation provides that, in that situation, the transitional procedures laid down in Article 48 of that regulation must apply ‘[u]nless the ECB decides otherwise, if an NCA has initiated supervisory procedures for which the ECB becomes competent on the basis of the SSM Regulation, and this occurs before 4 November 2014’.

82.      In the view of the referring court, the crucial point is whether the FMA had initiated a formal supervisory procedure before 4 November 2014. In my opinion, however, there is a prior condition, to which the ECB drew attention in its observations and which the FMA claims not to have been fulfilled, which calls for analysis.

83.      The FMA considers, after all, that the competence to levy absorption interest does not lie with the ECB under any circumstances, that is to say not even after 4 November 2014. If that were the case, there would be no need to apply the transitional arrangements provided for in Article 48 of the SSM Framework Agreement.

84.      According to Article 4(1)(d) of Regulation No 1024/2013, ‘the ECB shall […] be exclusively competent to carry out, for prudential supervisory purposes, […] in relation to all credit institutions established in the participating Member States’, the task, among others, of ‘ensur[ing] compliance with the acts referred to in the first subparagraph of Article 4(3), which impose prudential requirements on credit institutions in the areas of […] large exposure limits […]’.

85.      The aforementioned first subparagraph of Article 4(3) of Regulation No 1024/2013 provides that, with a view to carrying out its tasks, ‘and with the objective of ensuring high standards of supervision, the ECB shall apply all relevant Union law, and where this Union law is composed of Directives, the national legislation transposing those Directives’. It goes on to say that, ‘w]here the relevant Union law is composed of Regulations and where currently those Regulations explicitly grant options for Member States, the ECB shall apply also the national legislation exercising those options’. (21)

86.      Whether the levying of interest were a lawful national measure adopted by a Member State under an option allowed by the legislative framework comprised of Directive 2013/36 and the CRR, or a measure imposed in direct application of that framework (as I consider it to be), it would not fall outside the scope of the competences conferred on the ECB, in the light of Article 4 of Regulation No 1024/2013.

87.      Since, therefore, the first of the conditions laid down by Article 48 of the SSM Framework Regulation (that the ECB should have become competent) is fulfilled, it falls to be ascertained whether the condition about which the referring court explicitly asks is also satisfied, that is to say whether a procedure was pending before the FMA at the time when the ECB assumed supervisory competence.

88.      Article 48(3) of the SSM Framework Regulation expressly refers to a ‘formally initiated supervisory procedure’. The adverb used does not refer to the grounds on which the procedure was initiated, which may include the communication which, in accordance with Article 395(5) of the CRR, the institution must submit to the competent authorities where it has exceeded the exposure limit.

89.      In my view, the EU legislature specifically had in mind the point at which the procedure was formally or officially initiated, that is to say when the competent authority expressly took the decision to open the procedure. Whatever the material grounds (such as a declaration by a financial institution) on which that decision was formally adopted, what matters is the latter criterion, not the former.

90.      I therefore take the view that VTB Bank’s communication of 3 November 2014 cannot be regarded as having initiated the supervisory procedure referred to in Article 48(3) of the SSM Framework Regulation.

91.      Neither do I consider that the decision to levy interest adopted following VTB Bank’s communication of 3 November 2014 can be attributed to the procedure that prompted the decision of 30 October 2014 imposing interest by reason of excesses committed previously.

92.      Speaking with the circumspection appropriate to the case, a question referred for a ruling which ultimately falls to be disposed of by the national court, I would submit that it must be assumed that the procedure that gave rise to the decision of 30 October 2014 had ended when VTB Bank communicated its second excessive risk exposure (3 November 2014). The decision in relation to that second excess could be adopted only by reason a ‘formally initiated supervisory procedure’ that was new and, therefore, different from the previous procedure.

93.      The FMA has cited reasons of procedural economy as justification for attributing the second decision in some way to the procedure which culminated in the decision of 30 October 2014. It states to that effect that that procedure had already taken into account the excess communicated by VTB Bank on 3 November 2014. Without wishing to debate a question which, I repeat, falls to be disposed by the national court, I would proffer the view that the reference in Article 48(3) of the SSM Framework Regulation to the formal nature of the start of the supervisory procedure rules out the material and procedural economy considerations relied on by the FMA.

94.      I therefore consider that the answer to the third question should be that there is no ‘formally initiated supervisory procedure’ in either of the two cases described by the referring court.

V.      Conclusion

95.      In the light of the foregoing, I suggest that the Court of Justice reply to the Bundesverwaltungsgericht (Federal Administrative Court) as follows:

‘(1)      Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC, in particular Articles 64, 65 and 67, must be interpreted as meaning that it precludes national legislation which, like that applied in the main proceedings, provides for interest to be levied in cases where credit institutions and investment firms exceed the large exposure limits set out in Article 395(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012, even where the conditions governing the exception provided for in Article 395(5) of Regulation No 575/2013 are fulfilled.

(2)      Article 48(3) of Regulation (EU) No 468/14 of the European Central Bank of 16 April 2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the European Central Bank and national competent authorities and with national designated authorities (SSM Framework Regulation) must be interpreted as meaning that a “supervisory procedure” may be regarded as having been “formally initiated” only where the competent authority adopts an express decision to initiate that procedure, any communication submitted to that authority by a financial institution not constituting formal initiation.’

1      Original language: Spanish.

2      Directive of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ 2013 L 176, p. 338).

3      Regulation of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ 2013 L 175, p. 1), ‘CRR’ (Capital Requirement Regulation).

4      Regulation of the Central European Bank of 16 April 2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the European Central Bank and national competent authorities and with national designated authorities (SSM Framework Regulation) (OJ 2014 L 141, p. 1).

5      Directive of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (OJ 2006 L 177, p. 1).

6      Directive of the European Parliament and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions (OJ 2006 L 177, p. 201).

7      Council Regulation of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (OJ 2013 L 287, p. 63).

8      In the version published in BGBl. I No 532/2014, which was in force between 1 March 2014 and 14 August 2015 and referred to Article 395(1) of the CRR (the ‘BGW’).

9      Recital 2 of Directive 2013/36 and recital 5 of the CRR.

10      Recital 9 of the CRR. To much the same effect, recital 2 of Directive 2013/36 states that provision is made for ‘uniform and directly applicable prudential requirements for credit institutions and investment firms, since such requirements are closely related to the functioning of financial markets’.

11      The concept of ‘eligible capital’ might equate, more strictly, to that of ‘own funds’. See the Report from the Commission to the European Parliament and the Council on the review of the appropriateness of the definition of ‘eligible capital’ pursuant to Article 571 of Regulation (EU) No 575/2013, COM(2016) 21 final.

12      Paragraph 6 of the order for reference.

13      Paragraph 28 of its written pleadings.

14      To that effect, recital 41 of Directive 2013/36 could not be more telling when it states that ‘Member States should be able to provide for additional penalties to, and higher level of administrative pecuniary penalties than, those provided for in this Directive’. The discretion afforded to Member States is not confined to the sphere of penalties per se, since that same recital refers both to ‘administrative penalties’ and to ‘other administrative measures’, noting that what matters is to ensure ‘the greatest possible scope for action following a breach and to help prevent further breaches, irrespective of [the] classification [of the consequences provided for by Member States] as an administrative penalty or other administrative measure under national law’[emphasis added].

15      I refer to my previous note. Notwithstanding, as the Court of Justice has held in relation to measures adopted by Member States to protect the financial interests of the Union, that ‘the obligation to give back an advantage improperly received by means of an irregularity is not a penalty, but simply the consequence of a finding that the conditions required to obtain the advantage derived from EU rules have not been observed, so that that advantage becomes an advantage wrongly received (judgment of 26 May 2016, Județul Neamț, C-260/14 and C-261/14, EU:C:2016:360, paragraph 50).

16      Recital 9 of the CRR.

17      Cited above.

18      For that reason, Article 70 of Directive 2013/36 states that ‘the competent authorities shall take into account all relevant circumstances’, including, for example, ‘a) the gravity and duration of the breach; b) the degree of responsibility of the natural or legal person responsible for the breach; c) the financial strength of the natural or legal person responsible for the breach […]; d) the importance of profits gained or losses avoided by the natural or legal person responsible for the breach, insofar as they can be determined; […] [or] f) the level of cooperation of the natural or legal person responsible for the breach with the competent authority’, among others.

19      I would recall that, according to Article 67 itself, ‘this Article shall apply at least in any of the following circumstances […]’ (emphasis added). Similarly, Article 66(1) of the same directive also sets out a list of circumstances which must be the subject, ‘at least’, of national penalties and administrative measures.

20      Paragraph 1 also deals, in some cases, with a non-percentage limit, but that scenario is not of interest in this case.

21      Italics added.

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