Landeskreditbank Baden-Wurttemberg (Economic and monetary policy - Prudential supervision of credit institutions - Opinion) [2018] EUECJ C-450/17P

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(Appeal — Economic and monetary policy — Prudential supervision of credit institutions — Regulation (EU) No 1024/2013 — Article 6(4) — Regulation (EU) No 468/2014 — Article 70(1) — Single supervisory mechanism (SSM) — Competences of the European Central Bank (ECB) — Decentralised exercise by the national authorities — Classification of an institution as a significant entity — Direct supervision by the ECB — Exception — Existence of particular circumstances — Classification of a supervised entity as significant inappropriate)

1. The collapse of the leading US investment bank, Lehman Brothers, in September 2008 is generally thought to mark the onset of a major fiscal and banking crisis which was to engulf nearly all advanced economies. So severe and prolonged was this crisis — requiring as it did bank recapitalisations and nationalisations in several Member States — that it posed what amounted to an existential threat to the fiscal stability of several countries within the euro area and, indeed, at times, to the very survival of the euro currency itself.

2. This crisis has, accordingly, left a long shadow. Since then legislators and regulators have struggled to come to terms with the enormity of this banking crisis and to understand how, in the face of what had previously seemed to be a perfectly adequate system of regulation, that system ultimately failed when it was put to the test in those dark days of 2008 onwards. One of the lessons drawn by the Union legislator has been that shadow banking practices and a failure to grasp the nature of the systemic risk potentially posed by major banking institutions lay at the heart of the regulatory failures exposed by the 2008 crisis.

3. In many ways, all of this forms the background to the present appeal brought by the Landeskreditbank Baden-Württemberg — Förderbank (‘the appellant’) in which it seeks to have the judgment of the General Court of the European Union of 16 May 2017, Landeskreditbank Baden-Württemberg v ECB (T‑122/15, EU:T:2017:337) (‘the judgment under appeal’), set aside. By that judgment the General Court dismissed its action for annulment of Decision ECB/SSM/15/1 of the European Central Bank (‘ECB’) of 5 January 2015. That decision of the ECB had in turn been taken pursuant to Article 6(4) and Article 24(7) 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) (‘the Basic Regulation’). The net effect of that decision was that the ECB had refused to recognise the appellant as a less significant entity within the meaning of Article 6(4) of that Regulation (‘the contested decision’).

4. The classification of the appellant as a significant entity entailed the direct prudential supervision of that entity by the ECB rather than by the competent German authorities. The appellant claims that it should be classified as a less significant entity due to the existence of ‘particular circumstances’ pursuant to Article 6(4) of the Basic Regulation and Article 70 of Regulation (EU) No 468/2014 of the ECB 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 (OJ 2014 L 141, p. 1) (‘the SSM Framework Regulation’). Before considering this argument it is, however, necessary first to set out the relevant legislative provisions.

5. The first paragraph of Article 1 of the Basic Regulation provides that ‘this Regulation confers on the ECB specific tasks concerning policies relating to the prudential supervision of credit institutions, with a view to contributing to the safety and soundness of credit institutions and the stability of the financial system within the Union and each Member State, with full regard and duty of care for the unity and integrity of the internal market based on equal treatment of credit institutions with a view to preventing regulatory arbitrage’.

(9) “Single supervisory mechanism” (SSM) means the system of financial supervision composed by the ECB and national competent authorities of participating Member States as described in Article 6 of this Regulation.’

7. Article 4 of the Basic Regulation, entitled ‘Tasks conferred on the ECB’, states in paragraph 1 that ‘within the framework of Article 6, the ECB shall, in accordance with paragraph 3 of this Article, be exclusively competent to carry out, for prudential supervisory purposes, [nine listed tasks] in relation to all credit institutions established in the participating Member States’.

8. Article 6 of the Basic Regulation, entitled ‘Cooperation within the SSM’, states:

‘1. The ECB shall carry out its tasks within a single supervisory mechanism composed of the ECB and national competent authorities. The ECB shall be responsible for the effective and consistent functioning of the SSM.

4. In relation to the tasks defined in Article 4 except for points (a) and (c) of paragraph 1 thereof, the ECB shall have the responsibilities set out in paragraph 5 of this Article and the national competent authorities shall have the responsibilities set out in paragraph 6 of this Article, within the framework and subject to the procedures referred to in paragraph 7 of this Article, for the supervision of the following credit institutions, financial holding companies or mixed financial holding companies, or branches, which are established in participating Member States, of credit institutions established in non-participating Member States:

– those that are less significant on a consolidated basis, at the highest level of consolidation within the participating Member States, or individually in the specific case of branches, which are established in participating Member States, of credit institutions established in non-participating Member States. The significance shall be assessed based on the following criteria:

With respect to the first subparagraph above, a credit institution or financial holding company or mixed financial holding company shall not be considered less significant, unless justified by particular circumstances to be specified in the methodology, if any of the following conditions is met:

(ii) the ratio of its total assets over the GDP of the participating Member State of establishment exceeds 20%, unless the total value of its assets is below EUR 5 billion;

(iii) following a notification by its national competent authority that it considers such an institution of significant relevance with regard to the domestic economy, the ECB takes a decision confirming such significance following a comprehensive assessment by the ECB, including a balance-sheet assessment, of that credit institution.

The ECB may also, on its own initiative, consider an institution to be of significant relevance where it has established banking subsidiaries in more than one participating Member States and its cross-border assets or liabilities represent a significant part of its total assets or liabilities subject to the conditions laid down in the methodology.

Those for which public financial assistance has been requested or received directly from the [European Financial Stability Facility (EFSF)] or the [European Stability Mechanism (ESM)] shall not be considered less significant.

Notwithstanding the previous subparagraphs, the ECB shall carry out the tasks conferred on it by this Regulation in respect of the three most significant credit institutions in each of the participating Member States, unless justified by particular circumstances.

5. With regard to the credit institutions referred to in paragraph 4, and within the framework defined in paragraph 7:

(a) the ECB shall issue regulations, guidelines or general instructions to national competent authorities, according to which the tasks defined in Article 4 excluding points (a) and (c) of paragraph 1 thereof are performed and supervisory decisions are adopted by national competent authorities.

Such instructions may refer to the specific powers in Article 16(2) for groups or categories of credit institutions for the purposes of ensuring the consistency of supervisory outcomes within the SSM;

(b) when necessary to ensure consistent application of high supervisory standards, the ECB may at any time, on its own initiative after consulting with national competent authorities or upon request by a national competent authority, decide to exercise directly itself all the relevant powers for one or more credit institutions referred to in paragraph 4, including in the case where financial assistance has been requested or received indirectly from the EFSF or the ESM;

(c) the ECB shall exercise oversight over the functioning of the system, based on the responsibilities and procedures set out in this Article, and in particular point (c) of paragraph 7;

(d) the ECB may at any time make use of the powers referred to in Articles 10 to 13;

(e) the ECB may also request, on an ad hoc or continuous basis, information from the national competent authorities on the performance of the tasks carried out by them under this Article.

6. Without prejudice to paragraph 5 of this Article, national competent authorities shall carry out and be responsible for the tasks referred to in points (b), (d) to (g) and (i) of Article 4(1) and adopting all relevant supervisory decisions with regard to the credit institutions referred to in the first subparagraph of paragraph 4 of this Article, within the framework and subject to the procedures referred to in paragraph 7 of this Article.

7. The ECB shall, in consultation with national competent authorities, and on the basis of a proposal from the Supervisory Board, adopt and make public a framework to organise the practical arrangements for the implementation of this Article. …

9. Article 1 of the SSM Framework Regulation, entitled ‘Subject matter and purpose’, provides:

(a) the framework referred to in Article 6(7) of the [Basic] Regulation, namely a framework to organise the practical arrangements for implementing Article 6 of the [Basic] Regulation concerning cooperation within the SSM, to include:

(i) the specific methodology for the assessment and review of whether a supervised entity is classified as significant or less significant pursuant to the criteria laid down in Article 6(4) of the [Basic] Regulation, and the arrangements resulting from this assessment;

10. Article 70 of the SSM Framework Regulation entitled ‘Particular circumstances leading to the classification of a significant supervised entity as less significant’, states;

‘1. Particular circumstances, as referred to in the second and fifth subparagraphs of Article 6(4) of the [Basic] Regulation (hereinafter the “particular circumstances”) exist where there are specific and factual circumstances that make the classification of a supervised entity as significant inappropriate, taking into account the objectives and principles of the [Basic] Regulation and, in particular, the need to ensure the consistent application of high supervisory standards.

11. Article 71 of the SSM Framework Regulation entitled ‘Assessment of the existence of particular circumstances’ provides in paragraph 1:

‘Whether particular circumstances exist that justify classifying what would otherwise be a significant supervised entity as less significant shall be determined on a case-by-case basis and specifically for the supervised entity or supervised group concerned, but not for categories of supervised entities.’

12. The appellant is the investment and development bank (Förderbank) of Baden-Württemberg (Germany). Created by Paragraph 1(1) of the Law on the Baden-Württemberg regional credit bank, it is a legal person governed by public law and wholly owned by the Land (State) of Baden-Württemberg.

13. On 25 June 2014, the ECB informed the appellant, in essence, that on account of its size it was subject solely to its supervision rather than shared supervision under the SSM, pursuant to Article 6(4) of the Basic Regulation and invited it to submit its observations.

14. On 10 July 2014, the appellant disputed that analysis, arguing, inter alia, the presence of particular circumstances within the meaning of Article 6(4) of the Basic Regulation and Articles 70 and 71 of SSM Framework Regulation.

15. On 1 September 2014, the ECB adopted a decision classifying the appellant as a significant entity within the meaning of Article 6(4) of the Basic Regulation.

16. On 6 October 2014, the appellant requested review of that decision pursuant to Article 24(1), (5) and (6) of the Basic Regulation, read in conjunction with Article 7 of Decision [2014/360/EU of the European Central Bank] of 14 April 2014 concerning the establishment of an Administrative Board of Review and its Operating Rules (OJ 2014 L 175, p. 47). A hearing was held on 23 October 2014 before the Administrative Board of Review.

17. On 20 November 2014, the Administrative Board of Review gave an Opinion finding the ECB’s decision to be lawful.

18. On 5 January 2015, the ECB adopted the contested decision, which repealed and replaced the decision of 1 September 2014, whilst maintaining the applicant’s classification as a significant entity.

19. In the contested decision, the ECB observed that the value of the appellant’s assets exceeded EUR 30 billion and refused to accept the latter’s arguments alleging that there were ‘particular circumstances’ for it within the meaning of Article 6(4) of the Basic Regulation justifying its continuing to come under direct prudential supervision by the German authorities.

– the applicant’s classification as a significant entity was not in contradiction with the objectives of the Basic Regulation;

– an entity’s risk profile was not a relevant question at the stage of its classification;

– even if it did take the view that there were particular circumstances in the applicant’s case, it would also have to ascertain whether such circumstances justified reclassifying the applicant as a less significant entity;

– under Article 70(2) of the SSM Framework Regulation, the concept of ‘particular circumstances’ had to be interpreted restrictively and, therefore, it was only when direct supervision by the ECB was inappropriate that a ‘significant’ entity could be reclassified as ‘less significant’;

– taking into account the principle of proportionality for the purpose of interpretation does not require it to ascertain whether the application of the criteria laid down in Article 6(4) of the Basic Regulation to an entity was proportionate and the examination whether it was ‘inappropriate’ to classify an entity as significant did not amount to conducting such an examination of proportionality;

– the adequacy of national supervisory frameworks and their ability to apply a high supervisory standard did not lead to a finding that the exercise of direct prudential supervision by the ECB was inappropriate, since the Basic Regulation did not make it subject to proof that the national supervisory frameworks or national supervisory standards were inadequate.

21. By application lodged at the Registry of the General Court on 12 March 2015, the appellant sought annulment of the contested decision. The appellant raised five pleas in law in support of its action, (i) infringement of Article 6(4) of the Basic Regulation and Article 70 of the SSM Framework Regulation in the choice of criteria applied by the ECB; (ii) manifest errors of assessment of the facts; (iii) infringement of the obligation to state reasons; (iv) misuse of powers arising from the ECB’s failure to exercise its discretion; and (v) infringement by the ECB of its obligation to take into consideration all the relevant circumstances of the case.

22. In the judgment under appeal, the General Court dismissed the action for annulment brought by the appellant.

– annul the contested decision ordering the effects of the substituted decision of the ECB of 1 September 2014 to be maintained;

– in the alternative, set aside the judgment under appeal and refer the case back to the General Court;

25. In support of its appeal, the appellant puts forward three grounds of appeal, (i) infringement of EU law in the interpretation and application of Article 6(4) of the Basic Regulation and Article 70 of the SSM Framework Regulation; (ii) distortion of the contested decision and an incorrect assessment of the requirements applicable to the statement of reasons; (iii) procedural errors on the part of the General Court through the introduction of elements which are not the subject of these proceedings.

A. The first ground of appeal, alleging infringement of EU law in the interpretation and application of Article 6(4) of the Basic Regulation and Article 70 of the SSM Framework Regulation

1. Incorrect interpretation of the second subparagraph of Article 6(4) of the Basic Regulation and Article 70(1) of the SSM Framework Regulation

27. In the first part, the appellant claims that the General Court incorrectly interpreted the second subparagraph of Article 6(4) of the Basic Regulation and Article 70(1) of the SSM Framework Regulation.

29. First, the appellant considers that the General Court incorrectly concluded that ‘particular circumstances’ (2) leading to the classification of an entity as a less significant entity exist only if direct supervision by the national authorities is better suited to achieving the aims of the Basic Regulation rather than direct supervision by the ECB. According to the appellant, the General Court’s literal interpretation of the term ‘inappropriate’ (3) relied solely on the case-law of the Court on the principle of proportionality pursuant to which the question of whether an EU act is appropriate focuses on whether it is suitable for attaining the legitimate objectives pursued by the legislation at issue. (4) It was said that that Court thus relied on terminology which arises in a totally different context and not on the normal meaning of the term.

30. In addition, it was said that the General Court erroneously assumed that only the English language version of the SSM Framework Regulation (and thus the term ‘inappropriate’) is decisive thereby infringing the principle that all language versions are equally authentic. The appellant claims that the concepts ‘geeignet’, ‘aptes’, ‘idóneos’, ‘idonei’ and ‘geschikt’ used in the German, French, Spanish, Italian and Dutch language versions respectively of the judgment of 16 June 2015, Gauweiler and Others, (5) do not correspond to the terms ‘unangemessen’, ‘inapproprié’, ‘inadecuada’, ‘inappropriata’ and ‘niet passend’ used in Article 70(1) of the SSM Framework Regulation.

31. According to the appellant, the terms ‘inappropriate’ and ‘particular circumstances’ are indeterminate legal concepts. Article 6(4) of the Basic Regulation and Article 70 of the SSM Framework Regulation must thus be interpreted by reference to their purpose and general structure in thelight of superior law.

32. The ECB and the Commission contend that this argument should be rejected. For my part, I can only agree.

33. It is important to note at the outset that the appellant does not contest the validity of Article 6(4) of the Basic Regulation or Article 70 of the SSM Framework Regulation. What is instead in question in these proceedings — and in the earlier proceedings before the General Court — is the correct interpretation of those provisions. In addition, given that the appellant’s assets exceed EUR 30 billion, (6) it follows, accordingly, by reason of the second subparagraph of Article 6(4) of the Basic Regulation that it ‘should not be considered less significant, unless justified by particular circumstances’. It may be further observed that the appellant does not dispute the ECB’s assessment that its assets far exceed the applicable legislative threshold.

34. In my view, it is clear from the terms ‘unless justified by particular circumstances’ in the second subparagraph of Article 6(4) of the Basic Regulation that the classification of an entity which meets any of the detailed criteria specified in that provision as a less significant entity is an exception to the normal rule that direct prudential supervision of such an entity otherwise meeting these standards should be exercised by the ECB. Pursuant to Article 70(1) of the SSM Framework Regulation, such ‘particular circumstances’ exist where the classification of an entity as significant is ‘inappropriate’ taking into account the objectives and principles of the Basic Regulation and, in particular, the need to ensure the consistent application of high supervisory standards, and, I would add, the need to guard against potentially hidden systemic risks posed by major banking institutions with large capital assets. This is underscored by the fact that Article 70(2) of the SSM Framework Regulation provides that the term ‘particular circumstances’ in the second subparagraph of Article 6(4) of the Basic Regulation must be strictly interpreted. The obvious inference here is that that the classification of an entity which meets any of the relevant criteria as less significant is quite exceptional in nature and a departure from the norm. All of this in turn means that where any of the criteria specified in Article 6(4) are satisfied, any banking entity such as the appellant which wishes to demonstrate the existence of ‘particular circumstances’ within the meaning of this provision must do so not simply by mere assertion, but rather must establish this in a particularly convincing manner.

35. I consider that the General Court did not err in law in finding at paragraph 44 of the judgment under appeal that the wording of Article 70(1) of the SSM Framework Regulation focuses on whether direct supervision of an entity by the ECB, which in principle should not be classified as less significant (7) and thus subject to direct supervision by the ECB, is appropriate or not. As the General Court rightly points out, no reference is made in the second subparagraph of Article 6(4) of the Basic Regulation or Article 70(1) of the SSM Framework Regulation to an examination of the need for direct supervision of the entity by the ECB or to the fact that direct supervision by the national authorities is just as able to achieve the objectives of the Basic Regulation as supervision by the ECB alone. (8)

36. In this respect, the legislative scheme is clear. One starts from the premiss that any banking entity meeting any of the detailed criteria specified in the second subparagraph of Article 6(4) of the Basic Regulation is considered or deemed by the Union legislator to be ‘significant’, thereby necessitating direct supervision by the ECB. In the case of an entity such as the appellant, once its assets exceed the EUR 30 billion threshold, then the Union legislator proceeds from the ex ante assumption that direct ECB supervision is required, unless the existence of particular circumstances negating that assumption within the meaning of Article 70(1) of the SSM Framework Regulation is convincingly established.

37. What, then, are the particular circumstances advanced by the appellant in support of its contention that it should be regarded as coming within the Article 6(4) exception? The principal arguments advanced in this context relate to the laws governing its business model and the nature of its retail operations. Specifically, it is contended that these legislative objectives define its key objective of the provision of finance for specified public tasks and oblige the federal state (Land) of Baden-Württemberg to provide it with the resources to enable it to discharge these tasks. It further maintains that its own business model is essentially risk-averse and, as it is almost entirely located within the territory of one Member State, the very simplicity of its structure ensures sound risk management and even a lack of systemic relevance for it qua credit institution within the broader German banking system.

38. In my view, even if these arguments were to be accepted as factually correct, they are essentially irrelevant to the issues at hand. There is nothing at all in the Basic Regulation or in the SSM Framework Regulation which suggests that either the legal structure of the banking entity, the laws governing the exercise of its banking functions or its business model, or, for that matter, the nature of the risk which it poses to banking stability are relevant to its designation as significant under the Basic Regulation. Here it may be recalled that the third sentence of Article 1 of the Basic Regulation obliges the ECB ‘to have full regard to the different types, business models and sizes of credit institutions’, so that legislative framework envisages that the ECB will exercise supervisory control in respect of credit institutions with a diversity of business models. One of the further lessons drawn by the Union legislator from the 2008 financial crisis was that many of the easy assumptions which had previously been made about the nature of financial risk or the lack of systemic relevance of particular credit institutions were ultimately shown to be ill-founded when they were actually put to the test. This is, after all, why the Basic Regulation proceeds on the ex ante assumption that a credit institution with assets of this size should be subject to ECB supervision, irrespective of whether that institution does — or does not — pose a real systemic risk to financial stability. It follows, accordingly, that perceived lack of systemic risk does not in itself mean that the classification of the credit institution in question as a significant entity within the meaning of Article 6(4) of the Basic Regulation is thereby inappropriate.

39. The reliance of the General Court (9) on the language contained in paragraph 67 of the judgment of 16 June 2015, Gauweiler and Others (C‑62/14, EU:C:2015:400), in order to interpret the term ‘inappropriate’ cannot, I suggest, be regarded as legally flawed. While paragraph 67 of the judgment of 16 June 2015, Gauweiler and Others (C‑62/14, EU:C:2015:400), undoubtedly relates to the principle of proportionality, the General Court cited the paragraph in question merely to illustrate in paragraph 46 of the judgment under appeal that an examination of whether or not something is appropriate is distinct from an examination of whether it goes beyond what is necessary.

40. Moreover, the appellant’s arguments relating to the different language versions of Article 70(1) of the SSM Framework Regulation and paragraph 67 of the judgment of 16 June 2015, Gauweiler (C‑62/14, EU:C:2015:400), are, I fear, unconvincing. I consider that the ordinary meaning of the terms ‘geeignet’, ‘aptes’, ‘idóneos’, ‘idonei’ and ‘geschikt’ used in the German, French, Spanish, Italian and Dutch language versions respectively of the judgment of the 16 June 2015, Gauweilerand Others (C‑62/14, EU:C:2015:400, paragraph 67), is the antonym of the ordinary meaning of the terms ‘unangemessen’, ‘inapproprié’, ‘inadecuada’, ‘inappropriata’ and ‘niet passend’ used in Article 70(1) of the SSM Framework Regulation. It is, accordingly, clear from the plain language of Article 70(1) of the SSM Framework Regulation that supervision of an entity by the national competent authority is permitted only where direct supervision by the ECB is unsuitable or inadequate or ‘inappropriate’ in light of the objectives of the Basic Regulation. This could, for example, arise where prudential supervision would not be adequately achieved by the ECB.

41. Secondly, the appellant considers that the General Court failed to interpret the second subparagraph of Article 6(4) of the Basic Regulation and Article 70(1) of the SSM Framework Regulation in conformity with the principle of proportionality applicable in respect of competences pursuant to Article 5(4) TEU.

42. The appellant claims that the General Court wrongly considered that the principle of proportionality applicable with respect to competences is not relevant for the interpretation of Article 6(4) of the Basic Regulation and Article 70(1) of the SSM Framework Regulation (10) based on the fact that ‘the national authorities are acting within the scope of decentralised implementation of an exclusive competence of the Union, not the exercise of a national competence’. (11) The appellant considers that the principle of proportionality in Article 5(4) TEU also applies to the exclusive competences of the Union and must therefore be respected by the ECB when acting as a European supervisory authority and, in particular, when classifying an entity as significant or less significant.

43. The appellant considers that it appears from a global analysis of Articles 4 and 6 of the Basic Regulation that the ECB enjoys exclusive competence in respect of the supervision of significant entities while the national authorities retain their pre-existing competences in respect of less significant entities. Recitals 15, 28 (12) and 37 to 40 (13) of the Basic Regulation do not support the contrary finding by the General Court.

44. The appellant also claims that as the legal basis of the Basic Regulation is Article 127(6) TFEU, the Council, contrary to the findings of the General Court at paragraphs 63 and 72 of the judgment under appeal, cannot confer powers on the national competent authorities. It continues by contending that in accordance with Article 5(4) TEU direct supervision by the ECB is not necessary where the national competent authorities are capable of achieving the objectives of the Basic Regulation. ‘Particular circumstances’ pursuant to the second subparagraph of Article 6(4) of the Basic Regulation exist — it is said — where, due to the specific and factual circumstances of the case, direct prudential supervision by the national competent authorities is at least as capable of achieving the objectives of the Basic Regulation as direct supervision by the ECB. In this case, a requalification of a significant entity as a less significant entity is required.

45. The ECB and the Commission contend that this argument should be rejected. I agree with them.

46. It is important to note at the outset that the appellant does not argue that any provision of the Basic Regulation or the SSM Framework Regulation infringe the principle of proportionality outlined in Article 5(4) TEU. (14)

47. The appellant rather considers that as Articles 4 and 6 of the Basic Regulation merely grant exclusive supervisory powers to the ECB in respect of significant entities while national authorities remain, in principle, competent in respect of less significant entities, the ECB, when examining whether to requalify an entity as less significant due to the existence of ‘particular circumstances’, is bound by the principle of proportionality. The ECB must thus examine on a case-by-case basis whether prudential supervision of a particular entity could be just as well attained by the national competent authorities, in which event, the entity should be qualified as less significant.

48. It follows from the foregoing that it is necessary to examine whether the General Court erred in law in its assessment of the division competences between the ECB and the relevant national authorities pursuant to Articles 4 and 6 of the Basic Regulation in respect of less significant entities prior to examining the application of the principle of proportionality by that jurisdiction.

49. The General Court found in paragraph 63 of the judgment under appeal that ‘the Council has delegated to the ECB exclusive competence in respect of the tasks laid down in Article 4(1) of the Basic Regulation and that the sole purpose of Article 6 of that same regulation is to enable decentralised implementation under the SSM (15) of that competence by the national authorities, under the control of the ECB, in respect of the less significant entities and in respect of the tasks listed in Article 4(1)(b) and (d) to (i) of the Basic Regulation, whilst conferring on the ECB exclusive competence for determining the content of the concept of “particular circumstances” within the meaning of Article 6(4), second subparagraph, of that same regulation, which was implemented through the adoption of Articles 70 and 71 of the SSM Framework Regulation’.

50. For my part I agree entirely with the analysis of the General Court. Article 4(1) of the Basic Regulation vests the ECB with exclusive competence to carry out the nine specified tasks in respect of ‘all’ credit institution established in the participating Member States (16) within the framework of Article 6 of that regulation. Here it may be recalled that no distinction is drawn for this purpose in Article 4 of the Basic Regulation between significant and less significant entities. Article 6(4) of the Basic Regulation provides, however, in respect of less significant entities, that the ECB shall have certain responsibilities (17) in relation to the tasks specified in points (b), (d) to (g) and (i) of Article 4(1) while the national competent authorities have other responsibilities in relation to those tasks. The ECB is solely responsible for the tasks listed in Article 4(1)(a) and (c) of the Basic Regulation in respect of less significant entities.

51. Article 6(5)(a) of the Basic Regulation provides that the ECB shall issue regulations, guidelines or general instructions to national competent authorities in respect of the performance of the tasks specified in Article 4. (18) The ECB may decide, in order to ensure high supervisory standards, to exercise all the relevant powers in respect of one or more less significant entity. (19) The ECB is, moreover, empowered to oversee the functioning of the system, (20) it may at any time make use of the investigatory powers contained in Articles 10 to 13 of the Basic Regulation (21) and it may request information from the national competent authorities on the performance of their tasks. (22)

52. In contrast, the national competent authorities must carry out and be responsible for the tasks referred to in Article 4(1) of the Basic Regulation, save those in Article 4(a) and (c), and adopt all relevant supervisory decisions with regard to less significant entities in accordance with the framework adopted by the ECB, in ‘consultation with national competent authorities …’, pursuant to Article 6(7) of the Basic Regulation. (23) On the basis of that framework, the ECB adopted the SSM Framework Regulation, including Articles 70 and 71 thereof laying down the rules for establishing the existence of ‘particular circumstances’. (24)

53. Given the sheer breadth of the competences conferred on the ECB in respect of less significant entities and the clearly secondary or ancillary role played by the national competent authorities in that regard under the Basic Regulation, I cannot agree with the claim by the appellant that those authorities retain their pre-existing competences in respect of those entities. The ECB thus exercises exclusive prudential supervision of less significant entities in respect of the nine tasks specified in Article 4(1) of the Basic Regulation and is assisted (25) in that exercise with respect to the tasks specified in points (b), (d) to (g) and (i) of Article 4(1) of the Basic Regulation.

54. As regards, moreover, the appellant’s claim in respect of the legal basis of the Basic Regulation, I cannot agree with its analysis of the judgment under appeal as the General Court did not find at paragraphs 63 and 72 of that judgment that powers were conferred on the national competent authorities. Those paragraphs specifically refer to the exclusive competence of the ECB/Union. In any event, given that the Basic Regulation provides that the ECB, rather than the Member States, shall exercise exclusive prudential supervision of less significant entities in respect of the nine tasks specified in Article 4(1) of the Basic Regulation, the appellant’s argument on the legal basis of the Basic Regulation outlined at paragraph 44 above cannot prevail and must be rejected.

55. Contrary to the appellant’s claims at paragraph 42 above, the General Court did not find that the principle of proportionality was irrelevant for the interpretation of Article 6(4) of the Basic Regulation and Article 70(1) of the SSM Framework Regulation. Indeed, the General Court examined this question in-depth at paragraphs 66 to 85 of the judgment under appeal and referred to the Court’s case-law on this principle at paragraphs 66 to 68 of that judgment.

56. It is clear from the wording of Article 5(4) TEU that the principle of proportionality applies to the content and form of any action of the Union, including, as argued by the appellant, action taken by the Union when acting within its exclusive competence.

57. In my view, the principle of proportionality cannot alter the division of competences of the Member States and the Union which is governed by the principle of conferral pursuant to Article 5(1) and (2) TEU. In accordance with Article 5(1) TEU, ‘the limits of Union competences are governed by the principle of conferral’. Article 5(2) TEU provides that, ‘under the principle of conferral, the Union shall act only within the limits of the competences conferred upon it by the Member States in the Treaties to attain the objectives set out therein. Competences not conferred on the Union in the Treaties remain with the Member States’. The principle of proportionality cannot accordingly be invoked to devolve a Union competence on the Member States or vice versa. The ‘use of Union competences is [however] governed by the principles of subsidiarity and proportionality’. (26)

58. When interpreting the concepts of ‘particular circumstances’ pursuant to Article 6(4) of the Basic Regulation and ‘inappropriate’ pursuant to Article 70(1) of the SSM Framework Regulation in the light of the principle of proportionality, the ECB may not classify an otherwise significant entity as insignificant unless that action is, inter alia, appropriate for attaining the legitimate objectives of the Basic Regulation and does not exceed the limits of what is necessary in order to achieve those objectives.

59. It is accordingly not sufficient to establish that the national competent authorities can achieve the objectives of the Basic Regulation, (27) as argued by the appellant, as this merely satisfies the requirement of the appropriateness of the action under the proportionality test. Rather the fact that supervision by the national competent authorities is better able to attain the objectives of the Basic Regulation (28) — thereby ensuring that the classification of an otherwise significant entity as insignificant does not exceed the limits of what is necessary in order to achieve those objectives — must also be established.

60. Any attempt to classify an otherwise significant entity as insignificant pursuant to Article 6(4) of the Basic Regulation on the basis that the objectives of that regulation could be just as well attained through direct supervision by the national competent authorities not only runs counter to the division of competences between the Member States and the ECB laid down in that provision but fails to comply with the principle of proportionality.

61. In any event, I consider that the proportionality argument as advanced by the appellant in the present appeal amounts in substance to an indirect challenge to the validity of the second subparagraph of Article 6(4) of the Basic Regulation. As I have already observed, the legislative scheme is clear inasmuch as banking entities which fulfil any of the enumerated conditions specified therein are presumptively deemed to be significant unless particular circumstances are plainly established. This is underscored by the provisions of Article 70(2) of the SSM Framework Regulation which states that the term ‘particular circumstances’ shall be strictly construed.

62. While, admittedly, the potential application of the principle of proportionality cannot, in an appropriate case, be excluded, at the same time the principle cannot be deployed in a manner which would effectively undermine the effet utile of the legislative scheme established by the Union legislator. Yet this is what the appellant has effectively sought to achieve so far as the present appeal is concerned.

63. In this context I cannot avoid thinking that the appellant has singularly failed to advance any arguments based on the existence of particular circumstances within the meaning of the second subparagraph of Article 6(4) of the Basic Regulation. The proportionality argument instead seems to amount to an argument that because it would be possible — even desirable — for the appellant to be regulated directly by national supervisory authorities, the onus is thereby placed on the ECB to establish that the contrary was in some way necessary. That, however, is an argument which is quite inconsistent with the plain context of the legislative scheme and, as I have just stated, amounts in substance to an indirect challenge to its validity.

64. For all of these reasons I consider that the proportionality argument as advanced by the appellant is not well founded.

(c) Infringement of the principle of interpretation ‘ut res magis valeat quam pereat’ and the obligation not to require a ‘probatio diabolica’

65. Thirdly, the appellant claims that the General Court has infringed the principle of interpretation ut res magis valeat quam pereat and the obligation not to require a probatio diabolica. The argument advanced here amounts, in effect, to a contention that the second subparagraph of Article 6(4) exception should not be made excessively difficult to establish.

66. The appellant considers that the concept of ‘particular circumstances’ in the second subparagraph of Article 6(4) of the Basic Regulation cannot be interpreted in such a way that the presumption that entities which fulfil the criteria outlined therein should be qualified as significant entities can never be rebutted. While the criteria relating to the existence of ‘particular circumstances’ pursuant to Article 70(2) of the SSM Framework Regulation are subject to ‘strict interpretation’, it submits that there must still be scope to apply those criteria. According to the appellant, the General Court at paragraphs 46 and 80 of the judgment under appeal fails to understand this point and, in so doing, makes it all but impossible for the appellant to establish the existence of such particular circumstances.

67. The appellant claims that the General Court erred in law at paragraph 80 of the judgment under appeal when it states that ‘direct prudential supervision by the national authorities [must be] better able to attain the objectives and principles of the Basic Regulation’ and that this point must be proven by significant entities. It is claimed that neither the Basic Regulation nor the SSM Framework Regulation establish such a hierarchy between supervision which is ‘better able’ to achieve objectives of the Basic Regulation and that which is ‘less able’ to do so. The criterion of the General Court that supervision by national authorities is ‘better’ is, it is said, inappropriate and deprives significant entities of any realistic possibility of actually providing the evidence required by that court as those entities must establish facts relating to the way in which the various supervisory authorities operate, facts which do not fall within the entities’ sphere of competence. The rule on ‘particular circumstances’ pursuant to the second subparagraph of Article 6(4) of the Basic Regulation and Article 70 of the SSM Framework Regulation is intended to avoid inconsistencies arising from a simplistic application of the size criterion in a given case which would lead to excessive competences being granted to the ECB.

68. In their defence, the ECB and the Commission consider that it is possible to demonstrate ‘particular circumstances’ pursuant to the second subparagraph of Article 6(4) of the Basic Regulation. They referred to a number of examples of decisions adopted by the ECB in that regard.

69. In its reply, the appellant claims that the ECB decisions referred to by the ECB and the Commission did not apply the criteria adopted by the General Court in the judgment under appeal. According to the appellant those ECB decisions prove on the contrary that the ECB adopts its decisions in an arbitrary and opportunistic manner.

70. I consider that the present claim of the appellant should be rejected. As a preliminary matter I would note that this Court acting in its appellate capacity is not in a position to assess whether or not the examples of ECB decisions adduced by the ECB and the Commission support their contention that an application of the interpretation of the General Court of the second subparagraph of Article 6(4) of the Basic Regulation does not require a ‘probatio diabolica’. That is a question of fact which is not within this Court’s remit on appeal.

71. As I have already pointed out, it is clear from Article 70(2) of the SSM Framework Regulation that the term ‘particular circumstances’ in the second subparagraph of Article 6(4) of the Basic Regulation must be interpreted strictly. The classification of a significant entity as a less significant entity due to the existence of particular circumstances in accordance with the second subparagraph of Article 6(4) of the Basic Regulation must accordingly be regarded as being exceptional in nature.

72. It is, perhaps, unnecessary to attempt an exhaustive definition of what constitutes ‘particular circumstances’ for the purpose of the present appeal. Given, nevertheless, the regulatory objective of the two regulations — which, after all, is designed to ensure the consistent application of high supervisory standards through the application of the same substantive rules relating to the prudential supervision of that entity, irrespective of whether this is done at national or at ECB level — the exception provided for by the second subparagraph of Article 6(4) of the Basic Regulation seems principally directed to those special and unusual circumstances where designation of the entity as significant would amount in practice to an obstacle to the consistent application of these high supervisory standards.

73. The appellant claims in response that it is effectively impossible to prove that direct prudential supervision by the national competent authorities is better able to attain the objectives of the Basic Regulation as this would require knowledge of the manner in which the various supervisory authorities operate.

74. For my part, I find this argument wholly unpersuasive. One may agree that it is easier to satisfy the test advocated by the appellant rather than that laid down by the General Court in the judgment under appeal. Yet both tests require an in-depth knowledge of the manner in which the ECB and a given national competent authority operate. Given that the manner in which the ECB and the national competent authorities operate is a matter of public record, I do not see how it is impossible to demonstrate in a given case that direct prudential supervision by the national competent authorities is better able to attain the objectives of the Basic Regulation. Besides, the appellant is a hugely well-resourced entity with, one must assume, an extensive knowledge of banking practice and regulation. If there were indeed ‘particular circumstances’ which might justify the dis-application of Article 6(4) of the Basic Regulation so that direct supervision returned from the ECB to the national competent authorities, one imagines that the appellant would not be slow in highlighting these particular considerations. Yet it has remained strangely silent on this very issue, preferring to advance what must be considered, having regard to the facts of this appeal, to be quite theoretical arguments regarding the principle of proportionality and its interplay with the provisions of Article 6(4) of the Basic Regulation.

75. In the second part of the first ground of appeal, the appellant claims that the General Court erred in law at paragraphs 101 to 112 of the judgment under appeal by failing to examine the specific circumstances raised by the appellant and to assess whether in the case of the appellant there were ‘particular circumstances’ pursuant to the second subparagraph of Article 6(4) of the Basic Regulation. The General Court failed to carry out that assessment and merely found at paragraph 108 of the judgment under appeal that the appellant had not argued that national supervision would be better able to attain the objectives of the Basic Regulation than direct supervision by the ECB.

76. The ECB and the Commission contend that this argument should be rejected. I agree with them.

77. It must be noted, as I have already observed, that the appellant does not dispute the fact that, in its application at first instance, the facts which it adduced in support of its argument that it should be reclassified as a less significant entity were solely aimed at demonstrating that direct supervision by the ECB was unnecessary. (29)

78. In my view, if the General Court were, of its own motion, to have examined the facts adduced by the appellant in order to assess whether direct supervision by the national competent authorities would be better able to attain the objectives of the Basic Regulation, it would have infringed the prohibition of ruling ultra petita. (30) That question, which was not raised by the appellant in its application at first instance, would not fall under the exception on matters of public policy which the General Court may raise of its own motion.

79. The appellant also calls into question the General Court’s assessment at paragraphs 109 to 111 of the judgment under appeal whereby that court rejected its claim that due to the diversity of legal frameworks and supervisory authorities, the national competent authorities are better able to cooperate amongst themselves than with the ECB in order to ensure consistent application of prudential supervisory standards on the basis that the appellant had not adduced any evidence demonstrating that cooperation between the relevant German authorities was easier than with the ECB.

80. It appears from paragraph 109 of the judgment under appeal that it was only in its reply at first instance that the appellant adduced certain evidence aimed at demonstrating that the national competent authority would be better able to attain the objectives of the Basic Regulation. Independently of the question whether the General Court should have examined this evidence on the basis that it constituted, according to the ECB and Commission, a new plea in law and was thus inadmissible, I consider that the appellant has not in fact claimed that the General Court’s assessment at paragraph 111 of the judgment under appeal is incorrect. The appellant merely claims in the present appeal that it was not on notice that it should produce such evidence and, in any event, this would impose an impossible burden on it.

81. Given that the appellant itself raised this claim, it is incumbent upon it to adduce evidence in support thereof. Moreover, in the light of my answer in the previous section, (31) I find myself unpersuaded by the appellant’s claim that it cannot adduce evidence relating to national legal frameworks, the operation of national authorities and the ECB which are all matters which lie within the public domain. If, indeed, supervision of this appellant at ECB level was likely to prejudice the application of appropriate high level regulatory banking standards,it is again sufficient to say that the appellant doubtless has the necessary expertise and resources to hand such as would enable it to make out this case. Once again, I cannot forbear observing that it has failed to do so, preferring for this purpose to rely on essentially abstract arguments based on proportionality.

3. Erroneous refusal to recognise that the ECB had failed to exercise its discretion and infringed its obligation to examine the case

82. In the third part of the first ground of appeal, the appellant claims that the General Court erred in lawby findingthat the ECB did not breach its obligation to use its discretion as ‘the argument put forward by the [appellant] during the administrative procedure was intended solely to establish that the objectives of the Basic Regulation could be attained through direct supervision of the [appellant] by the national authorities’. The Court incorrectly found at paragraph 140 et seq. of the judgment under appeal that the ECB cannot ‘be criticised for having failed to exercise its discretion by rejecting at the outset an argument that is completely irrelevant’.

83. Equally erroneous according to the appellant is the General Court’s finding at paragraph 149 of the judgment under appeal that ‘the circumstances which the ECB is criticised for having failed to take into account were irrelevant in the light of the wording of Article 70(1) of the SSM Framework Regulation’, so that ‘the ECB cannot be successfully criticised for having failed to take such circumstances into account in the application of that provision’.

84. The appellant claims that the facts presented were not irrelevant for the ECB’s examination and the exercise of its discretion as the appellant had relied upon them in support of the correct legal criterion to be applied pursuant Article 70(1) of the SSM Framework Regulation. In any event, neither the ECB nor the General Court can simply reject a party’s argument as ‘irrelevant’ on the sole ground that, from its point of view, that argument relies on the wrong legal standard. On the contrary, the ECB must consider all the relevant facts and fully exercise its discretion. In the contested decision, the ECB does not satisfy that requirement.

85. The ECB and the Commission claim that this argument should be rejected. I agree with them.

86. Given that the correct legal test for ‘particular circumstances’ pursuant to the second subparagraph of Article 6(4) of the Basic Regulation and ‘inappropriate’ pursuant to Article 70(1) of the SSM Framework Regulation is whether the attainment of the objectives of the Basic Regulation could be better safeguarded through direct supervision by the national competent authorities, I consider that the General Court correctly found at paragraphs 140 and 149 of the judgment under appeal that arguments or evidence tending to satisfy a different legal test, namely, that supervision by the relevant German authorities would be sufficient in order to attain those objectives, are irrelevant. The General Court thus correctly found that the ECB had not misused its powers by failing to exercise its discretion in the application of Article 70(1) of the SSM Framework Regulation and had not failed to take into account all relevant circumstances.

87. I would add that, if the General Court or, indeed, the ECB had acted on the basis of evidence which simply demonstrated that supervision by the German competent authorities would be sufficient in order to attain the objectives of the Basic Regulation but which did not go further and establish that the attainment of the objectives of that regulation could be better safeguarded through direct supervision by the national competent authorities, they would have erred in law.

B. Second ground of appeal, alleging distortion of the contested decision and an incorrect assessment of the requirements applicable to the statement of reasons

89. The appellant claims that at paragraphs 31 and 34 of the judgment under appeal the General Court distorted the reasoning of the contested decision and thus erred in law. (32)

90. Firstly, the appellant considers that at paragraph 31 of the judgment under appeal the General Court inverted the order of sentences contained in the contested decision and secondly, linked that decision to the Opinion of the Administrative Board of Review of 20 November 2014 (33) even though such a link does not appear in the contested decision itself. The appellant stresses the fact that the contested decision merely states that the classification of the supervised entity as significant is not in contradiction to the goals of the Basic Regulation. The contested decision does not state that it is for that reason that supervision of the appellant is not ‘inappropriate’ within the meaning of Article 70(1) of the SSM Framework Regulation. The General Court found that the Administrative Board of Review had underscored the fact that the appellant had to establish the existence of circumstances indicating that direct supervision by the national competent authority would be better able to guarantee the objectives of the Basic Regulation. The appellant considers however that this alleged connection between the criteria laid down in the Opinion of the Administrative Board of Review of 20 November 2014 and the contested decision does not exist. The contested decision does not refer to the passage quoted from that Opinion nor to any other passage thereof. Conversely, the Opinion does not mention the criterion of ‘contradiction’ with the objectives of the Basic Regulation, to which the contested decision refers.

91. The appellant claims that the General Court, after referring to its erroneous reproduction of the contested decision at paragraph 31 of the judgment under appeal, examined at paragraph 34 of that judgment the content of the contested decision and, in particular, the conception of the ECB as regards the criterion of assessment to be applied. The appellant notes that, according to the General Court, it follows from the contested decision, interpreted in the light of the Opinion, that the ECB considers that the application of Article 70(1) of the SSM Framework Regulation cannot lead to classification of an entity as less significant unless direct supervision by the German competent authorities is better able to guarantee the objectives of the Basic regulation than supervision by the ECB. (34) The appellant claims that the contested decision does not mention even once that criterion.

92. The ECB and the Commission claim that this argument should be rejected. I agree with them.

93. In addition to the obligation under the second subparagraph of Article 22(2) of the Basic Regulation and Article 33(1) and (2) of the SSM Framework Regulation for the ECB to state reasons in its decision, Article 296 TFEU clearly states that legal acts (35) shall state the reasons on which they are based.

94. According to a consistent body of case-law, the purpose of the obligation to state the reasons on which an act adversely affecting an individual is based, which is a corollary of the principle of respect for the rights of the defence, is, first, to provide the person concerned with sufficient information to make it possible to ascertain whether the act is well founded or whether it is vitiated by a defect which may permit its legality to be contested before the European Union judicature and, second, to enable that judicature to review the legality of that act. The statement of reasons required by Article 296 TFEU must disclose in a clear and unequivocal fashion the reasoning followed by the institution which adopted the measure in such a way as to enable the person concerned to ascertain the reasons for the measure and to enable the court having jurisdiction to exercise its power of review. The statement of reasons required by Article 296 TFEU must, however, be appropriate to the act at issue and the context in which it was adopted. The requirements to be satisfied by the statement of reasons depend on the circumstances of each case, in particular the content of the measure in question, the nature of the reasons given and the interest which the addressees of the measure, or other parties to whom it is of direct and individual concern, may have in obtaining explanations. It is not necessary for the reasoning to go into all the relevant facts and points of law, since the question whether the statement of reasons is sufficient must be assessed with regard not only to its wording but also to its context and to all the legal rules governing the matter in question. In particular, the reasons given for a measure adversely affecting a person are sufficient if that measure was adopted in a context which was known to that person and which enables him to understand the scope of the measure concerning him. (36)

95. I would note as a preliminary matter that the mere assertion by the appellant that the order of sentences in the contested decision has been inverted by the General Court does not in itself demonstrate that the meaning of that decision has been distorted.

96. I consider, moreover, that the General Court did not err in law in finding that the Opinion of the Administrative Board of Review of 20 November 2014 (37) is linked to the contested decision and is thus part of the context of which that decision forms part. (38)

97. The appellant itself not only states that the Opinion was ‘annexed’ to the contested decision and was referred to therein as part of the historical context in which that decision was adopted, it also states that, in accordance with Article 24(9) of the Basic Regulation (39) and Article 18 of the Decision of the European Central Bank of 14 April 2014 concerning the establishment of an Administrative Board of Review and its Operating Rules, (40) the ECB is obliged to annex (41) the Opinion of the Administrative Board of Review to all new decisions.

98. I consider that it is evident from Article 24(7) (42) and (9) of the Basic Regulation that the Opinion of the Administrative Board of Review, the new draft decision submitted by the Supervisory Board and the decision adopted by the Governing Council pursuant to that article are inherently linked. This is true even though the Opinion is not binding on the Supervisory Board or the Governing Council of the ECB. (43)

99. Given the obligation pursuant to Article 24(7) of the Basic Regulation of the Supervisory Board to take into account the Opinion of the Administrative Board of Review and to promptly submit a new draft decision to the Governing Council and the fact that the contested decision comes to the same conclusion as the Opinion of the Administrative Board of Review of 20 November 2014, the General Court rightly found that the Opinion may be taken into account in order to assess whether the contested decision contains an adequate statement of reasons. (44)

2. The General Court failed to find that the contested decision was not adequately reasoned

101. In the second part of the second plea, the appellant claims that as the General Court distorted the reasoning of the contested decision and substituted its own reasoning for that of the ECB, it disregarded the fact that the ECB did not respect the obligation to state reasons. According to the appellant, the reasoning of the contested decision is illogical and inherently contradictory.

102. Given that this part of the second plea is premissed on the absence of a link between the contested decision and the Opinion of the Administrative Board of Review of 20 November 2014 and that the latter does not form part of the context in which the contested decision was adopted, I consider that it should also be dismissed as ineffective.

103. For the sake of completeness, however, I propose to address a number of arguments raised by the appellant.

104. The appellant considers that the General Court erred in law by failing to acknowledge that the contested decision does not indicate the legal grounds on which it is based as the ECB in the contested decision merely juxtaposes different legal criteria. Thus the contested decision does not clearly indicate the facts which the ECB intended to take into account in deciding whether the classification of an entity as significant is inappropriate.

105. The appellant notes that the General Court found at paragraph 133 of the judgment under appeal that there was no contradiction ‘between, on the one hand, the reference in the Administrative Board of Review’s Opinion to the fact that the presence of “particular circumstances” means that the attainment of the objectives of the Basic Regulation, including the need to ensure the consistent application of high prudential supervisory standards, must be better ensured through direct supervision by the national authorities and, on the other, the reference in the contested decision to the fact that direct supervision of the [appellant] by the ECB must be contrary to the objectives of the Basic Regulation in order for Article 70(1) of the SSM Framework Regulation to apply’.

106. I also consider that there is no contradiction between those two statements and that, given the link between the documents in question, the first merely serves to clarify the second in the light of the relevant legal framework. The second subparagraph of Article 6(4) of the Basic Regulation requires the existence of ‘particular circumstances’ in order to reclassify an otherwise significant entity as less significant, thereby ensuring that direct prudential supervision will be carried out by the national competent authorities rather than the ECB. In accordance with Article 70(1) of the SSM Framework Regulation, ‘particular circumstances’ exist where, inter alia, the classification of a supervised entity as significant is inappropriate, taking into account the objectives and principles of the Basic Regulation. The emphasis placed in both the Opinion and the contested decision on the objectives of the Basic Regulation is thus entirely consistent with the legal framework in question and is not contradictory. The appellant objects in reality to the requirement, referred to in the contested decision and the Opinion of the Administrative Board of Review (45) and upheld by the General Court, (46) to demonstrate that the consistent application of high prudential supervisory standards is better ensured through direct supervision by the national competent authorities. That is a question of substance rather than one of adequacy of reasons. (47)

107. The appellant also considers that the General Court failed to acknowledge that the ECB did not examine in the contested decision the arguments it raised during the administrative procedure. That Court found at paragraph 130 of the judgment under appeal that the ECB is not obliged to provide detailed reasons rebutting the appellant’s arguments as they were ‘clearly irrelevant’ in the light of the interpretation favoured by the ECB. The appellant claimed before the General Court and continues to claim before this Court that it cannot deduce from the contested decision or from the Opinion of the Administrative Board of Review the reasons why its arguments were allegedly ‘irrelevant’.

108. I consider that the General Court did not err in law in finding, at paragraph 130 of the judgment under appeal, that the appellant could easily infer from the contested decision and from the Opinion of the Administrative Board of Review why its arguments, which clearly in my view advocated a totally different test for ‘particular circumstances’ than that retained in the contested decision and the Opinion were ‘clearly irrelevant’.

109. The second part of the second plea should thus be dismissed as ineffective and, in any event, unfounded.

C. The third ground of appeal alleging procedural errors on the part of the General Court through the introduction of elements which were not the subject of the proceedings

110. The appellant considers that the judgment under appeal infringes its right to be heard and the requirement of compliance with the adversarial principle, which are fundamental principles of EU law. According to the appellant, the General Court based the grounds of the judgment under appeal on two decisive issues which were not part of the proceedings, namely the requirement of proof that supervision by the German competent authority was more appropriate than supervision by the ECB and evidence of collaboration between that authority and the federal state (Land) Ministry of Finance.

111. The appellant notes that the General Court considered at paragraph 46 of the judgment under appeal that ‘particular circumstances’ ‘must necessarily be understood as suggesting that direct prudential supervision by the ECB, implied by the classification of an entity as “significant”, is less able to ensure achievement of the objectives of the Basic Regulation than direct prudential supervision of that entity by the national authorities’. The General Court based its judgment on the fact that the appellant had not argued that direct supervision by the German competent authority would be better able to achieve the objectives of the Basic Regulation rather than direct supervision by the ECB. (48) Given that that criterion was not mentioned in the course of the proceeding either by the ECB or by the General Court and is not referred to in the relevant legislative provisions, the General Court infringed the appellant’s right to be heard and the requirement of compliance with the adversarial principle. The General Court thus handed down a ‘surprise judgment’.

112. The appellant also claims that the General Court considered that its substantive arguments were irrelevant as it had not argued that direct supervision by the German competent authority would be better able to achieve the objectives of the Basic Regulation.

113. During the course of the proceedings, the appellant argued, in relation to the objective of the consistent application of high prudential standards, that not only was it subject to different EU and national legislation but also that it was subject to different national supervisory authorities. The General Court, however, rejected this argument on the ground that it was sufficient ‘to note in that regard that the [appellant] does not highlight any arrangement or collaboration between the authorities of Baden-Württemberg and the German authorities that might make cooperation easier with them than with the ECB’. (49) The appellant considers that the fact that proof of such an arrangement or other form of ‘collaboration’ between the relevant German authority, the Deutsche Bundesbank and the federal state (Land) is necessary in order to prove that direct supervision by the relevant German authority is better able to achieve the objective of consistent application of high prudential supervisory standards had not previously been mentioned by either the ECB or the General Court during the proceeding.

114. The ECB and the Commission claim that this plea should be rejected. I agree with them.

115. At paragraphs 45 and 46 of its application before the General Court, the appellant argued that the test for ‘particular circumstances’ outlined in the the Opinion of the Administrative Board of Review of 20 November 2014, namely, that the ‘objectives of the [Basic Regulation] and in particular the achievement of high supervisory standards, would be better met if the entity meeting the significance criteria were classified as less significant and, as a consequence, remain under the direct supervision of the relevant [national competent authority]’ was erroneous as it did not stem from the Basic Regulation or the SSM Framework Regulation. (50) The ECB replied to this argument extensively in its defence before the General Court, in particular at paragraphs 26 and 50 thereof. (51)

116. It is therefore clear from the above application and defence alone that the test for ‘particular circumstances’ upheld by the General Court was extensively debated before it by the parties thus ensuring that the appellant’s right to be heard and the requirement of compliance with the adversarial principle were respected.

117. The fact that at paragraph 88 of the judgment under appeal the General Court found that the appellant had merely argued in its letters of 10 July 2014 (52) and 6 October 2014 (53) that there was no need for prudential supervision by the ECB in order to ensure consistent application of high supervisory standards, without arguing that national supervision would be better able to attain those objectives, does not demonstrate that the test for ‘particular circumstances’ upheld by the General Court was not debated before it by the parties (54) and is clearly contradicted by a reading of the pleadings of the parties before the General Courts as demonstrated at paragraphs 115 and 116 of the present opinion.

118. As regards the appellant’s argument concerning paragraph 111 of the judgment under appeal, (55) I consider that it cannot prevail. In paragraph 111 of the judgment under appeal, the General Court merely rejected as unsubstantiated the argument raised by the appellant in its reply before the General Court that prudential supervision by the relevant German competent authorities would be better able to attain the objective of high prudential supervisory standards referred to in Article 70(1) of the SSM Framework Regulation.

120. Since none of the grounds of appeal relied upon by the appellant in support of its appeal can be upheld, I consider that the appeal should be dismissed in its entirety.

121. In accordance with Article 184(2) of the Rules of Procedure, where the appeal is unfounded, the Court is to make a decision as to the costs. Under Article 138(1) of those rules, applicable to the procedure on an appeal by virtue of Article 184(1) thereof, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings.

122. Since the ECB and the Commission have applied for costs and the appellant has been unsuccessful in its appeal, the appellant should be ordered to bear its own costs and to pay those incurred by the ECB and the Commission.

123. In the light of the above considerations, I am of the opinion that the Court should:

– order the Landeskreditbank Baden-Württemberg — Förderbank to bear its own costs and to pay those incurred by the European Central Bank and the European Commission.

3 See Article 70(1) of the SSM Framework Regulation and paragraph 46 of the judgment under appeal.

4 Judgment of 16 June 2015, Gauweiler and OthersGauweiler and Others (C‑62/14, EU:C:2015:400, paragraph 67).

6 It would appear from the file before the Court that the total value of the appellant’s assets on the relevant date was EUR 70.682 billion.

7 In accordance with the detailed criteria outlined in the second subparagraph of Article 6(4) of the Basic Regulation.

14 See for example paragraphs 61 to 72 of judgment of 12 May 2011, Luxembourg v Parliament and CouncilLuxembourg v Parliament and CouncilLuxembourg v Parliament and Council (C‑176/09, EU:C:2011:290). In that case, the Grand Duchy of Luxemburg claimed that a provision of a directive breached the principle of proportionality as the criterion defining the scope of that directive was irrelevant to its objectives.

15 Pursuant to Article 2(9) of the Basic Regulation, ‘“Single supervisory mechanism” (SSM) means the system of financial supervision composed by the ECB and national competent authorities of participating Member States as described in Article 6 of this Regulation’.

16 It is clear also from a reading of recital 15 of the Basic Regulation that the conferral of certain specific supervisory tasks on the ECB was envisaged. In addition, according to recital 28 of the Basic Regulation ‘supervisory tasks not conferred on the ECB should remain with the national authorities’. The examples of the tasks which should remain with the national authorities outlined in that recital do not overlap with the tasks conferred on the ECB pursuant to Article 4(1) of the Basic Regulation (see paragraph 57 of the judgment under appeal). Contrary to the appellant’s claims, at no point does the General Court find that the list of supervisory tasks which should remain with the national authorities is exhaustive. Indeed, it is clear from the use of the word ‘include’ in that recital that the list of tasks is an exemplification.

18 Excluding the tasks specified in Article 4(a) and (c) of the Basic Regulation.

23 Article 6(6) of the Basic Regulation. The national competent authorities must, however, inform the ECB of the measures taken pursuant to Article 6(6) of the Basic Regulation and closely coordinate those measures with the ECB. In addition, they must report to the ECB on a regular basis on the performance of their activities.

30 It follows from the rules governing the procedure before the Courts of the European Union, in particular Article 21 of the Statute of the Court of Justice of the European Union and Article 76 and Article 84(1) of the Rules of Procedure of the General Court, that the dispute is in principle determined and circumscribed by the parties and that the Courts of the European Union may not rule ultra petita: see, e,g., the judgment of 3 May 2018, EUIPO v European Dynamics Luxembourg and OthersEUIPO v European Dynamics Luxembourg and OthersEUIPO v European Dynamics Luxembourg and Others (C‑376/16 P, EU:C:2018:299, paragraph 33).

32 See judgment of 27 January 2000, DIR International Film and Others v CommissionDIR International Film and Others v CommissionDIR International Film and Others v Commission (C‑164/98 P, EU:C:2000:48, paragraphs 44 to 49).

35 Thus legislative and administrative acts must state reasons. See also Article 41(2)(c) of the Charter of Fundamental Rights of the European Union on the right to good administration and the obligation of the administration to give reasons for its decisions.

36 Judgment of 15 November 2012, Council v BambaCouncil v BambaCouncil v BambaCouncil v Bamba (C‑417/11 P, EU:C:2012:718, paragraphs 49, 50, 53 and 54).

37 It is clear from Article 24(1) of the Basic Regulation that the Administrative Board of Review is an internal organ of the ECB. The appellant’s argument that the Opinion of the Administrative Board of Review and the contested decision may not be linked for the purposes of assessing the adequacy of the statement of reasons in the contested decision as both documents are redacted by different authors cannot prevail as both documents emanate from the same institution and form part of the procedure outlined in Article 24 of the Basic Regulation.

38 In accordance with Article 24(1) of the Basic Regulation, the Administrative Board of Review carries out an internal administrative review of the decisions adopted by the ECB in the exercise of the powers conferred upon it under that regulation after a request for review submitted in accordance with Article 24(5).

39 That provision states that ‘the opinion expressed by the Administrative Board of Review, the new draft decision submitted by the Supervisory Board and the decision adopted by the Governing Council pursuant to this Article shall be reasoned and notified to the parties’.

40 In accordance with that provision ‘the Administrative Board’s opinion, the new draft decision submitted by the Supervisory Board and the new decision adopted by the Governing Council shall be notified to the parties by the Secretary of the Governing Council including the relevant reasoning’.

42 Pursuant to Article 24(7) of the Basic Regulation ‘after ruling on the admissibility of the review, the Administrative Board of Review shall express an opinion within a period appropriate to the urgency of the matter and no later than two months from the receipt of the request and remit the case for preparation of a new draft decision to the Supervisory Board. The Supervisory Board shall take into account the opinion of the Administrative Board of Review and shall promptly submit a new draft decision to the Governing Council. The new draft decision shall abrogate the initial decision, replace it with a decision of identical content, or replace it with an amended decision. The new draft decision shall be deemed adopted unless the Governing Council objects within a maximum period of ten working days’. (Emphasis added).

43 See Article 16(5) of the Decision of the European Central Bank of 14 April 2014 concerning the establishment of an Administrative Board of Review and its Operating Rules.

47 Judgment of 2 April 1998, Commission v Sytraval and Brink’’s FranceCommission v Sytraval and Brink’’s FranceCommission v Sytraval and Brink’’s FranceCommission v Sytraval and Brink’’s FranceCommission v Sytraval and Brink’’s FranceCommission v Sytraval and Brink’’s FranceCommission v Sytraval and Brink’’s FranceCommission v Sytraval and Brink’’s FranceCommission v Sytraval and Brink’’s France (C‑367/95 P, EU:C:1998:154, paragraph 67).

50 See also paragraphs 8 and 9 of the appellant’s reply before the General Court.

51 Emphasis added. See also paragraphs 4, 10 and 76 of the ECB’s rejoinder before the General Court.

54 And indeed was specifically referred to in paragraph 6.7 the Opinion of the Administrative Board of Review of 20 November 2014.

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You are here: BAILII >> Databases >> Court of Justice of the European Communities (including Court of First Instance Decisions) >> Landeskreditbank Baden-Wurttemberg (Economic and monetary policy - Prudential supervision of credit institutions - Opinion) [2018] EUECJ C-450/17P_O (05 December 2018) URL: http://www.bailii.org/eu/cases/EUECJ/2018/C45017P_O.html Cite as: [2018] EUECJ C-450/17P_O, EU:C:2018:982, ECLI:EU:C:2018:982

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