Case T‑27/19

Pilatus Bank plc

and

Pilatus Holding Ltd.

against

European Central Bank

Judgment of the General Court (Ninth Chamber, Extended Composition), 2 February 2022

(Economic and monetary policy – Prudential supervision of credit institutions – Specific supervisory tasks conferred on the ECB – Decision to withdraw a credit institution’s authorisation – Indictment of the main shareholder in a third country – Criterion of good repute – Perception of good repute by the market – Presumption of innocence – Proportionality – Rights of the defence)

1. Actions for annulment – Natural or legal persons – Measures of direct and individual concern to them – Whether directly concerned – Decision of the European Central Bank (ECB) to withdraw a credit institution’s authorisation – The shareholders of that credit institution not directly concerned – Inadmissibility

   (Art. 263, fourth para., TFEU)

   (see paragraph 33)

2. Economic and monetary policy – Economic policy – Supervision of the EU financial sector – Single supervisory mechanism – Allocation of powers between the European Central Bank (ECB) and the national authorities – Decision of the ECB to withdraw a credit institution’s authorisation – No effect of the acts adopted by the national authorities on the lawfulness of that decision – Direct supervision of a credit institution by the ECB – Conditions

   (Council Regulation No 1024/2013, Arts 4(1)(a), 6(5)(b) and 14(5))

   (see paragraphs 43, 45-47, 50-53)

3. Economic and monetary policy – Economic policy – Supervision of the EU financial sector – Single supervisory mechanism – Prudential supervision of credit institutions – Decision of the European Central Bank (ECB) to withdraw a credit institution’s authorisation – Ground for withdrawal based on the indictment of the main shareholder in a third country – Criterion of good repute – Scope – Taking into account the perception of that shareholder’s good repute by the market – Lack of good repute justifying withdrawal of the authorisation

   (Council Regulation No 1024/2013, Arts 1, first para., 4(1) and (3), 14(5); European Parliament and Council Directive 2013/36, Arts 14(2), 18 and 23(1))

   (see paragraphs 71-80, 97-102, 113)

4. Economic and monetary policy – Economic policy – Supervision of the EU financial sector – Single supervisory mechanism – Prudential supervision of credit institutions – Decision of the European Central Bank (ECB) to withdraw a credit institution’s authorisation – Ground for withdrawal based on the indictment of the main shareholder in a third country – No obligation on the ECB to examine the merits of the prosecution contained within the indictment – Assessment of the consequences of the prosecution

   (Council Regulation No 1024/2013, Arts 4(1)(a) and 14(5); European Parliament and Council Directive 2013/36, Arts 14(2) and 23)

   (see paragraphs 114, 116-120)

5. EU law – Principles – Fundamental rights – Presumption of innocence – Decision of the European Central Bank (ECB) to withdraw a credit institution’s authorisation – Ground for withdrawal based on the indictment of the main shareholder in a third country – No review by the ECB of the facts relating to the indictment – Infringement of the principle of the presumption of innocence – None

   (Art. 6(1) TEU; Charter of Fundamental Rights of the European Union, Art. 48(1))

   (see paragraphs 196-198, 200-205)

6. EU law – Principles – Rights of the defence – Decision of the European Central Bank (ECB) to withdraw a credit institution’s authorisation – Consequences for the rights of the defence resulting from the act adopted by the national authorities – No liability on the part of the ECB

   (Art. 6(1) TEU; Charter of Fundamental Rights of the European Union, Arts 41, 47 and 48; Council Regulation No 1024/2013)

   (see paragraphs 235-238, 242-250)

Résumé

Pilatus Bank plc is a Maltese credit institution subject to the prudential supervision of the Malta Financial Services Authority (MFSA). Following the indictment in the United States of its main shareholder – who indirectly holds full control over it – for alleged financial offences, Pilatus Bank plc received several requests for withdrawal of deposits, representing approximately 40% of the deposits on its balance sheet.

In response to that situation, the MFSA adopted three decisions, relating, respectively, to the suspension of the voting rights of the indicted shareholder, the moratorium by which it ordered Pilatus Bank plc not to authorise any banking transactions, and the appointment of a competent person entrusted with exercising the main powers normally conferred on Pilatus Bank plc’s governing bodies in respect of that bank’s specific activities and its assets. The MFSA then submitted a proposal to the European Central Bank (ECB) to withdraw the authorisation of Pilatus Bank plc to take up the business of a credit institution, ( 1 ) on the basis of which proposal the ECB adopted a decision to that effect.

The General Court dismisses the action brought by Pilatus Bank plc against that decision of the ECB. The present case has, inter alia, enabled the Court, for the first time, to rule on the withdrawal of a credit institution’s authorisation on the ground that its shareholder lacks good repute.

Findings of the Court

First of all, the Court points out that the criteria which shareholders seeking to acquire a qualifying holding in a credit institution must meet, including the criterion of good repute, are applicable to the assessment of the suitability of the shareholders carried out for the purposes of withdrawing an authorisation to take up the business of a credit institution. ( 2 ) Consequently, the competent authorities may withdraw an authorisation of a credit institution if, taking into account the need to ensure the sound and prudent management of that institution and to ensure the preservation and stability of the financial system within the European Union and each Member State, those authorities are not satisfied as to the suitability of the shareholders, in particular because of their lack of good repute.

Next, the Court clarifies the concept of ‘good repute’, while pointing out that it is an indeterminate legal concept and that the competent authorities enjoy a discretion in applying the criterion of good repute. In its normal meaning, good repute refers to the suitability of a person who complies with customary standards and rules and to the reputation which that person enjoys with the public as regards that fitness and his or her conduct. Thus, good repute depends not only on a person’s conduct, but also on the perception of that conduct by others. In assessing the good repute of the shareholders of credit institutions, account must be taken, first, of whether their conduct complies with the applicable laws and regulations and, secondly, of the perception of that conduct and their reputation by the public and by the participants in the financial markets.

The Court then holds that, in the present case, the ECB was fully entitled to consider that, because of the indictment of Pilatus Bank plc’s main shareholder and the corresponding perception of his good repute by the financial market participants, which resulted in significant negative consequences for the situation of that credit institution, that shareholder’s lack of good repute justified withdrawing Pilatus Bank plc’s authorisation to take up the business of a credit institution. The withdrawal decision was based on the specific negative effects which the indictment had had on the reputation of the indicted shareholder and of Pilatus Bank plc, on the public confidence in the latter and, consequently, on the soundness of the management thereof and the stability of the financial system within the European Union and each Member State. Among those effects, the significant requests for withdrawal of deposits, the termination of the correspondent banking relationships, the early termination of contracts and the deterioration in the risk ratio of Pilatus Bank plc were identified.

In the light of those concrete negative effects, the ECB was not obliged to take into consideration the fact that the conduct of Pilatus Bank plc’s main shareholder that is complained of might not be unlawful under EU law. The most important factor to be taken into account is not the merits of the prosecution contained within the indictment under EU law or the law of the third State concerned, but the consequences of that prosecution on the reputation of the indicted shareholder, on the situation of Pilatus Bank plc and on the banking market as a whole. However, the fact remains that the ECB is required to consider any evidence submitted in the context of the administrative procedure capable of demonstrating the absence of any effect of such a prosecution on the reputation or management of the institution concerned and which might result from the abusive or manifestly unfounded nature of such a prosecution.

Lastly, the Court finds that, in the present case, the ECB did not infringe either the presumption of innocence of Pilatus Bank plc or the rights of the defence.

As regards the principle of the presumption of innocence, the Court observes that the failure to review the facts relating to the shareholder’s indictment does not demonstrate that that principle has been infringed. Indeed, in the contested decision, the ECB clearly stated that the indictment contained allegations. That decision did not, therefore, imply an accusation of a criminal nature and did not constitute a finding that the offence had been committed. The Court points out that prudential supervision, which is intended to ensure the sound management of credit institutions and to preserve the stability of the financial system within the European Union and each Member State, pursues different objectives from those of criminal proceedings, the latter being intended to penalise conduct punishable by law.

As regards Pilatus Bank plc’s rights of defence, which were allegedly infringed owing in particular to the fact that its directors were unable to pay its legal adviser and to have access to its resources and information, the Court holds that those circumstances arise exclusively from the MFSA’s decision to appoint a competent person, entrusted with exercising the main powers normally conferred on Pilatus Bank plc’s governing bodies in respect of its specific activities and its assets. However, such a decision has no effect on the contested decision and its adoption falls within the competence of the national authority. Thus, the ECB cannot be held liable for the consequences of that decision. The decisions of the EU institutions cannot be rendered unlawful on grounds connected with the application of rules of national law, which do not fall within their competence, and over which they have no control. Moreover, within the framework of the single supervisory mechanism, the ECB is not under any obligation to prevent a national authority from adopting such a decision. Consequently, the circumstances relied on by Pilatus Bank plc are not such as to render the contested decision unlawful.

( 1 ) Pursuant to Article 14(5) 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).

( 2 ) Conclusion reached from a combined reading of Article 1, first paragraph, Article 4(1) and (3) and Article 14(5) of Regulation No 1024/2013 and Article 14(2), Article 18 and Article 23(1) of 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 (OJ 2013 L 176, p. 338).