Case T‑576/18

Crédit agricole SA

v

European Central Bank

Judgment of the General Court (Second Chamber, Extended Composition), 8 July 2020

(Economic and monetary policy — Prudential supervision of credit institutions — Article 18(1) of Regulation (EU) No 1024/2013 — Administrative pecuniary penalty imposed by the ECB on a credit institution — First subparagraph of Article 26(3) of Regulation (EU) No 575/2013 — Continued breach of capital requirements — Negligent breach — Retroactive application of less severe enforcement legislation — Absence — Rights of defence — Amount of the penalty — Obligation to state reasons)

1. Economic and monetary policy — Economic policy — Supervision of the EU financial sector — Single supervisory mechanism — Prudential supervision of credit institutions — Obligation to obtain the permission of the competent authorities before classifying a capital instrument as a Category 1 instrument — Concept of permission of the competent authorities — Scope

   (European Parliament and Council Regulation No 575/2013, Art. 26(3))

   (see paragraphs 46-50, 56-60)

2. EU law — Principles — Principle of retroactive application of the more lenient penalty — Conditions under which applicable — Administrative pecuniary penalty imposed by the European Central Bank (ECB) — Penalty imposed prior to the adoption of less severe enforcement legislation — Precluded — Judicial review — Power of the General Court to alter the amount of the penalty imposed — Conditions

   (Art. 261 TFEU; Charter of Fundamental Rights of the European Union, Art. 49(1); Council Regulation No 1024/2013, Art. 18(1))

   (see paragraphs 69-74)

3. Economic and monetary policy — Economic policy — Supervision of the EU financial sector — Single supervisory mechanism — Prudential supervision of credit institutions — Continued breach of capital requirements — Negligent breach — Concept — Scope

   (European Parliament and Council Regulation No 575/2013, Art. 26(3); Council Regulation No 1024/2013, Art. 18(1))

   (see paragraphs 79-84, 88-92)

4. Economic and monetary policy — Economic policy — Supervision of the EU financial sector — Single supervisory mechanism — Prudential supervision of credit institutions — Administrative pecuniary penalty imposed by the European Central Bank (ECB) — Statement of objections — Necessary content — Observance of the rights of the defence — Criteria for assessment

   (Council Regulation No 1024/2013, Art. 22(1); European Central Bank Regulation No 468/2014, Art. 126)

   (see paragraphs 105-109)

5. Economic and monetary policy — Economic policy — Supervision of the EU financial sector — Single supervisory mechanism — Prudential supervision of credit institutions — Administrative pecuniary penalty imposed by the European Central Bank (ECB) — Amount — Discretion enjoyed by the European Central Bank — Obligation to state reasons — Scope — Decision which is insufficiently clear as to the methodology applied and the factors taken into consideration to determine the amount of the penalty — Regularisation during the proceedings — Not permissible — Insufficient statement of reasons

   (Art. 296 TFEU; Council Regulation No 1024/2013, Art. 18(1) and (3))

   (see paragraphs 129-140, 144-157)

Résumé

In the judgment in Crédit agricole v ECB (T‑576/18), delivered on 8 July 2020, the General Court, sitting in extended composition, upheld the action brought by Crédit agricole SA, a credit institution under prudential supervision, for annulment of the decision of the European Central Bank (ECB), ( 1 ) only in so far as it imposed on the applicant an administrative pecuniary penalty of EUR 4300000.

In the present case, the ECB had adopted a decision imposing on the applicant an administrative pecuniary penalty under Regulation No 1024/2013 ( 2 ) for continued breach of the capital requirements laid down by Regulation No 575/2013. ( 3 ) In particular, the applicant had classified capital instruments as Common Equity Tier 1 (CET 1) instruments without having obtained prior authorisation from the competent authorities. The ECB considered that the requirements had been breached negligently and took the view that an administrative pecuniary penalty of EUR 4300000, which, according to the ECB, represented 0.0015% of the annual turnover of the group of which the applicant is part, constituted a proportionate penalty. The applicant, which disputed the legality of the decision both in so far as the ECB had found that there had been a breach by the applicant and in so far as it had imposed on the applicant an administrative pecuniary penalty, brought an action before the Court for annulment of that decision.

First, in reviewing the legality of the contested decision to the extent that it was found in that decision that there had been a breach by the applicant, the Court interpreted the wording ‘permission is granted by the competent authorities’, which appears in the first subparagraph of Article 26(3) of Regulation No 575/2013 but is not defined by that article. According to the Court, it follows from a contextual and purposive interpretation of that provision that the credit institution should have obtained the permission of the competent authorities before classifying each of its issuances of capital instruments as CET 1.

In addition, in response to the applicant’s objections to the effect that its conduct no longer constituted a breach after that provision was subsequently amended, pursuant to the principle of retroactive application of the less severe penalty, the Court held that that principle, which constitutes a general principle of EU law now enshrined in the Charter of Fundamental Rights of the European Union, may lead to the annulment of a decision imposing an administrative or criminal penalty should the legal framework be amended after the facts of the particular case but prior to the contested decision. However, the Court pointed out that that principle cannot be relied on when the Court is reviewing the legality of a measure that was adopted before the legal framework was amended. An institution cannot be criticised for having infringed, in its decision, rules of law that are not yet applicable. It is only when the Court exercises its power to alter the amount of the penalty imposed that a development in the legal framework subsequent to the contested decision may be taken into account by the Court for the purposes of assessing whether the amount is appropriate on the date when it issues its decision. In the present case, however, no such request for alteration was made.

Further, after noting that, according to case-law, negligence refers to an unintentional act or omission by which the person responsible breaches his or her duty of care ( 4 ) and that, in order to determine whether there is negligence, account must be taken, in particular, of the complexity of the provisions at issue and the professional experience of, and care taken by, the trader in question, ( 5 ) the Court stated that, in its capacity as a credit institution, the applicant should have demonstrated great care when implementing Regulation No 575/2013. According to the Court, a careful analysis of the provisions of that regulation would have made it clear to the applicant what the exact scope of its obligations thereunder were, and the Court therefore concluded that the ECB was right to find that the applicant’s breach was negligent.

Lastly, as regards the applicant’s claim that the requirements of the protection of the rights of the defence were not observed, the Court, by applying, by analogy, case-law concerning observation of the rights of the defence in enforcement proceedings for infringements in the area of competition, ( 6 ) held that those requirements were observed since the ECB sent the interested party a statement of objections setting out clearly all of the essential factors on which it relied prior to a supervisory decision being adopted. The decision must not hold the interested party liable for infringements other than those communicated to that party in the administrative procedure and must contain only those facts on which the interested party could express a view. However, the Court pointed out that the final decision need not necessarily be a copy of the statement of objections because the assessments of fact or law in that statement are purely provisional. Nevertheless, the rights of the defence will be infringed when, owing to an irregularity on the part of the ECB, the administrative procedure led by the ECB could have resulted in a different outcome, in particular when the interested party could have defended itself more effectively had there been no irregularities. In the light of those findings, the Court held that the applicant was unable to demonstrate the unlawfulness of the contested decision in which it was found that there had been a breach by the applicant.

Second, in reviewing the legality of the contested decision to the extent that it imposed on the applicant an administrative pecuniary penalty, the Court emphasised in particular the fundamental nature of the obligation to state reasons for the ECB’s decisions in the area of prudential supervision. It stated that, taking account of the wide discretion conferred on the ECB by Regulation No 1024/2013 to determine the pecuniary penalty as well as the very high amount of the penalties incurred, it is essential that judicial review of the imposition and amount of the penalty can be carried out to determine whether they are effective, proportionate and persuasive. The Court pointed out that the statement of reasons for the decision must show the methodology used by the ECB and all of the relevant factors which were taken into account in determining the amount of the penalty.

However, it is apparent from the facts of the present case that, while the ECB set out in its statement of defence and during the hearing the methodology applied and the factors taken into account to determine the amount of the penalty, that information was not included in the initial decision imposing the administrative pecuniary penalty. That decision was therefore vitiated by an inadequate statement of reasons which, pursuant to settled case-law, could not be remedied by the subsequent communication of the missing information.

Accordingly, the Court annulled, on the basis of an inadequate statement of reasons, the ECB’s decision only in so far as it imposed on the applicant an administrative pecuniary penalty of EUR 4300000.

( 1 ) Decision ECB-SSM-2018-FRCAG-76 adopted by the European Central Bank on 16 July 2018.

( 2 ) Article 18(1) of Council Regulation (EU) No 1024/2013 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).

( 3 ) Article 26(3) 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 (OJ 2013 L 176, p. 1, and corrigenda OJ 2013 L 208, p. 68 and OJ 2013 L 321, p. 6).

( 4 ) Judgment of 3 June 2008, Intertanko and Others (C‑308/06, EU:C:2008:213, paragraph 75).

( 5 ) Judgment of 11 November 1999, Söhl & Söhlke (C‑48/98, EU:C:1999:548, paragraph 56).

( 6 ) Judgment of 24 May 2012, MasterCard and Others v Commission (T-111/08, EU:T:2012:260, paragraphs 266 to 269 and the case-law cited).