How to challenge the ECB: Lessons from first EU court cases on the SSM

The Single Supervisory Mechanism (SSM) refers to the system of banking supervision in Europe that comprises the European Central Bank (ECB) and the national supervisory authorities of the participating countries. The ECB became the lead supervisor of the SSM in 2014 and currently directly supervises 116 ‘significant' banks accounting for 82% of banking assets in the euro area.

The European Courts have now published their first decisions on supervisory measures taken by the European Central Bank. Four of the judgments are first instance decisions by the European Court (EC) and one is an appeal decision by the European Court of Justice (ECJ). There are several important take-aways here that highlight the role of national law, the scope of judicial review, the principle of proportionality and limits to the judicial control over discretionary decisions.

Application and interpretation of national law

A central question in the SSM is the role of national law, as the ECB is an EU institution. Since the ECB also applies national law transposing EU law within the SSM under Article 4 (3) of SSM Regulation, this "necessarily requires the Court to assess the legality of the contested decisions in the light of [EU law] and [national law transposing it]" (T-133/16, para 49).

When doing so, "the scope of national laws, regulations or administrative provisions must be assessed in light of the interpretation given to them by national courts." In the absence of decisions by competent national courts, it is however for the EC to rule on the scope of those provisions (T-52/16, para 131) and, therefore, to interpret the national law by itself.

Scope of judicial review

In general, the EC's examination of the merits is restricted to the arguments brought forward by the applicant. This holds true for most reasons possibly rendering an EU act invalid, e.g. error of law and disproportionality. To be heard by the EC, the applicant will always have to make an explicit plea of illegality of the underlying provision (T-122/15, para 38; T-52/16, paras 80, 151). Where a plea of illegality is raised within the meaning of Art. 277 TFEU, it is for the court alone to review its consistency with the provisions of the EU primary and secondary law (T-733/16, para 35).

Principle of proportionality

The principle of proportionality plays an important role when challenging a supervisory measure as it obliges both the legislators and the supervisors and is a requirement for the legality of a legislative act as well as for a supervisory measure based on it.

Proportionality means that the content and form of an EU legal act is not to exceed what is necessary to attain the objectives of EU law. Both the L-Bank and the Crédit Mutuel Arkéa cases addressed the proportionality principle.

In the L-Bank case, the EC stated that the principle of proportionality had already been taken into account by the legislator and, therefore, could not additionally be applied in the individual case. To support this view, the EC also put forward the allocation of responsibilities between the supervisory authorities, enshrined in the SSM Regulation.

In the Crédit Mutuel Arkéa case, the EC defined proportionality in the supervisory context. It stated that acts adopted by EU institutions must be appropriate for attaining the legitimate objectives pursued by the legislation at issue and must not exceed the limits of what is necessary in order to achieve those objectives. Where there is a choice between several appropriate measures, recourse must be had to the least onerous, and the disadvantages caused must not be disproportionate to the aims pursued (T-52/16, para 200).

Review of discretionary ECB decisions

Many prudential rules under EU law provide for supervisory discretion, e.g. by referring technical and risk-related assessments or offering a choice of actions to the supervisors. Under general EU procedural principles, the Union courts have limited power to review discretionary decisions. This has now been confirmed by the EC with regard to discretionary decisions by the ECB. This is important for claimants from national jurisdictions, such as Germany, where the courts traditionally exercise a stronger scrutiny of administrative decisions. The EU courts limit their scope of judicial control to reviewing whether a discretionary decision:

• Is based on materially incorrect facts (including whether the evidence relied on is factually accurate, reliable and consistent)
• Is vitiated by an error of law
• Is vitiated by a manifest error of assessment or
• Is vitiated by misuse of powers.