Actions and inactions in the investigation of breaches of Union law by the European Supervisory Authorities

The breach of Union law procedure of the European Supervisory Authorities (ESAs) has been in the spotlight recently. In July, the European Banking Authority (EBA) issued a recommendation under the breach of Union law procedure against the Financial Intelligence Analysis Unit in Malta. More recently, the European Commission asked the EBA to open an investigation against authorities in Denmark and Estonia in relation to the Danske money laundering scandal.

Yet, despite this recent level of activity, the ESAs rarely take formal action under the procedure set out in Article 17 of their founding regulations. The issuance of a formal recommendation by which an ESA requests a competent authority to take remedial action to comply with EU law is rare. On various occasions, the ESAs appear to have settled issues with competent authorities informally. Many of the actual decisions that are adopted in the context of the breach of Union law procedure are in fact decisions not to take action: that is, not to open a full-fledged investigation following a complaint by a natural or legal person (hereinafter, ‘ordinary complainants’). Some of these ‘inactions’ were appealed before the ESAs’ Board of Appeal (BoA). Indeed, one of them was subject to further scrutiny before the Court of Justice of the European Union (the Court).

In an article recently published in the Common Market Law Review, I attempt to shed light on the ESAs’ inactions under Article 17: that is, their decisions to permanently shelve a complaint and hence not to open a formal investigation in an alleged breach of EU law. The breach of Union law procedure is complex. It involves different stages and it may also require the intervention of the European Commission if a competent authority fails to comply with an ESA recommendation. However, it is also an important part of the ESAs’ effort to work towards supervisory convergence.

Specifically, the article focuses on two aspects of the breach of Union law procedure: the ESAs’ very substantial discretion not to initiate an investigation; and the procedural position of ordinary complainants who ask an ESA to investigate an (alleged) breach of Union law by a competent authority. Both aspects are related since the procedural position of ordinary complainants – and especially the question of whether ordinary complainants benefit from procedural safeguards that can be enforced before an appeals body – is a factor that influences the ESAs’ actual level of discretion under Article 17. In the article, I show how the fate of ordinary complainants was sealed by the Court in SV Capital following several decisions by the BoA which initially struggled to articulate a clear-cut position. In short, in SV Capital, the Court denied ordinary complainants procedural safeguards, including rights to appeal to the Court and the BoA. The article takes a normative perspective on the issue: it asks whether the procedural position of ordinary complainants – especially the absence of a right to appeal to the BoA – should be revisited. In the article, I argue that it should be revisited in relation to certain categories of ordinary complainants. I reach this conclusion after considering several factors that in my view support a case for reform: eg, the normative context in which the procedure must be seen; the importance of improving incentives for complainants to bring non-compliance to the attention of the ESAs; the importance of maintaining the credibility of the Article-17 procedure in the eyes of market participants; and last but not least the fact that currently the complaint system under Article 17(2) is largely ineffective.

The article also seeks to shine a light on the considerable discretion that comes with the right not to open a full-fledged investigation. This prompts me to consider the Court’s decision in Meroni (more recently confirmed in the short selling case). Meroni seeks in essence to prevent agencies from exercising wide discretionary powers that would allow agencies to shape policy. Having previously examined the impact of Meroni on the ESAs’ powers to act, I ask in this latest article whether a decision not to act can also be subject to scrutiny under this case law. Indeed, since what is at issue in Meroni is the discretion to make choices and since policy can generally be shaped by both action and inaction, there is prima facie no reason to exclude inaction from the scrutiny of this case law. The paper goes on to examine the breach of Union law procedure in this light. Prima facie, Meroni does not seem to be relevant. To be in a position to shape policy – through action or inaction – one would expect an actor to have binding and autonomous powers. However, in the case of Article 17, the main instrument that an ESA can use in relation to competent authorities is a non-binding recommendation (leaving aside the question of the ESAs’ powers in relation to market actors which are neither autonomous nor unconditional powers).

Still, the article argues that if what is at issue in the case law is to prevent an agency from shaping policy (an Article-17 ‘enforcement’ policy, as it were), this may not be the end of the matter. This is because the (discretionary) decision not to initiate an investigation produces legal effects on the breach of Union law procedure which cannot unfold unless an ESA launches an investigation. The power to decide to initiate an investigation thus enables an ESA to decide the fate of the Article 17 procedure. Crucially, few restrictions were placed on this power. Prima facie, the paper argues, an ESA will hence be able to give markets and competent authorities signals about the type of behaviour that is tolerated under Article 17 (eg, because of the need to set priorities) or that ought to be addressed by other means (eg, by using non-binding mediation) and by its very inactions contribute to defining the orientations of an Article-17 enforcement policy. The paper goes on to discuss whether this line of argument is likely to carry weight with the Court. It expresses scepticism in this context since the Court’s approach to agency discretion has so far at least been one of ends (ie, safeguarding the ESAs’ role) justifying means.    

Pierre Schammo is a Reader in Law at Durham University, School of Law.