JUDGMENT OF THE GENERAL COURT (Fourth Chamber)
10 July 2024 (*) (1)
(Economic and monetary policy – Prudential supervision of credit institutions – Opposition of the ECB to the acquisition of qualifying holdings in a credit institution – Action for annulment – Interest in bringing proceedings – Direct concern – Inadmissibility in part – Reputation and professional competence of the proposed acquirer – Financial soundness – Compliance with prudential requirements – Anti-money laundering and counter-terrorist financing – Proportionality)
In Case T‑323/22,
PH,
PI,
PJ,
Socrates Capital Ltd, established in Toronto (Canada),
represented by D. Hillemann, C. Fischer and T. Ehls, lawyers,
applicants,
v
European Central Bank (ECB), represented by E. Yoo, S. Letocart and V. Hümpfner, acting as Agents,
defendant,
supported by
European Commission, represented by D. Triantafyllou, acting as Agent,
intervener,
THE GENERAL COURT (Fourth Chamber),
composed of R. da Silva Passos, President, S. Gervasoni (Rapporteur) and T. Pynnä, Judges,
Registrar: V. Di Bucci,
having regard to the written part of the procedure,
having regard to the fact that no request for a hearing was submitted by the parties within three weeks after service of notification of the close of the written part of the procedure, and having decided to rule on the action without an oral part of the procedure, pursuant to Article 106(3) of the Rules of Procedure of the General Court,
gives the following
Judgment
1        By their action under Article 263 TFEU, the applicants, PH, PI, PJ and Socrates Capital Ltd, seek annulment of the decision of the European Central Bank (ECB) of 22 March 2022 by which it opposed the acquisition by PH, PI and PJ of a qualifying holding in HKB Bank GmbH (‘the target bank’) and the exceedance of 50% of the capital and voting rights in the latter.
I.      Background to the dispute and events subsequent to the bringing of the action
2        When the contested decision was adopted, the target bank was a less significant credit institution, within the meaning of Article 6(4) 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), situated in Germany and under the direct prudential supervision of the Bundesanstalt für Finanzdienstleistungsaufsicht (Federal Financial Supervisory Authority, Germany; ‘BaFin’).
3        On the date of the contested decision, Socrates Capital held 81.6% of the capital and 95.14% of the voting rights in the target bank. Socrates Capital was itself 100% indirectly and ultimately owned by A (through two holding companies).
4        Since 2010, with the exception of 2017, the auditor of the target bank’s annual accounts informed BaFin each year that it was aware of facts that may endanger the existence of the target bank.
5        Since 2012, the target bank has been subject to severe prudential supervision measures. On 26 June 2017, BaFin adopted a measure, which was still in force on the date of the contested decision, prohibiting the target bank from accepting deposits and granting loans, on the ground that the safety of the assets entrusted to it was endangered due to the target bank’s critical capital situation and continuous losses. Since that measure, the target bank has not been able to undertake significant business; deposits were reduced to zero and the real estate lending business was transferred to external service providers.
6        In June 2017, without submitting prior notification to BaFin, Socrates Capital acquired more than 50% of the capital and voting rights in the target bank. The ex post notifications of that acquisition, made in December 2017 and January 2018 by Socrates Capital, A and the two holding companies, remained incomplete, in particular as regards the origin of the funds used to finance the acquisition. For that reason, on 19 February 2018, BaFin imposed a prohibition on Socrates Capital exercising its voting rights in the target bank. Since that prohibition, A has sought to sell his shares in the target bank.
7        Notifications were sent to BaFin – on 9 April 2020 by PH and on 9 July 2020 by PI and PJ – in respect of their intention to acquire, as indirect acquirers in the case of PH and PI and as a direct acquirer in the case of PJ, a qualifying holding and to exceed holding 50% of the capital and voting rights in the target bank (‘the proposed acquisition’), as a result of the acquisition of all the shares held by Socrates Capital in the target bank.
8        PH is an Australian citizen residing in Hong Kong (China) with business activities focusing mainly on asset management and financial investments, in particular in the Cayman Islands, Hong Kong and Australia. PI, which was incorporated in Hong Kong in 2020, has PH as its sole shareholder and director and is a holding company with no business activity. PJ, which was incorporated in Luxembourg in 2020, has PI as its sole shareholder and is a holding company with no business activity; it has two directors, one of whom is PH.
9        Between July 2020 and February 2022, PI and PJ paid, on three occasions, contributions to the capital of the target bank as silent partners, that is to say without corresponding voting rights. Totalling EUR 4 million, those silent shareholdings were intended to prevent the target bank from failing to meet its minimum capital requirements.
10      In August 2020, Socrates Capital, PI and PJ concluded a sale and purchase agreement for the purpose of the proposed acquisition (‘the sale and purchase agreement’). Under the sale and purchase agreement, which was subject to conditions precedent and termination clauses, Socrates Capital agreed to sell to PJ, for an amount of EUR [2-20] million, the qualifying holding which it had acquired in the target bank in June 2017.
11      In the business plan annexed to the notification of 9 April 2020 (‘the initial business plan’), the proposed acquirers stated that the proposed acquisition would make it possible to bridge business between Europe and Asia and capture an expected increase in demand from Asian individuals and small and medium-sized enterprises (SMEs) wishing to invest their capital in Europe, leveraging on the Asian client network of PH and A. The proposed acquisition was also intended to create synergies between PH’s business group and the target bank.
12      According to the initial business plan, the business model envisaged for the target bank was based on three main business segments: (i) real estate financing, (ii) deposits, and (iii) corporate banking services and trade finance. In addition, concierge services would be offered as a support function for those three main segments. As regards real estate financing, the target bank was to grant loans to clients resident in the European Union guaranteed by mortgages on properties located in the European Union, and subsequently that activity was to be extended to clients residing in Asia. As regards deposit activities, the plan envisaged shifting the focus of the target bank’s business to high net worth individuals and SMEs. The products were to include US dollar (USD) and EUR accounts, with the accounts denominated in USD mainly relating to clients residing in Asia. As regards corporate banking services and trade finance, the plan was to offer high net worth clients and SMEs current account management, trade document processing, trade finance such as bank guarantees and letters of credit, bank transfers and foreign exchange transactions in support of trade between the European Union and China.
13      Following notification of the proposed acquisition on 9 April 2020, BaFin repeatedly asked the proposed acquirers to provide additional documents for their file and put to them numerous questions. In that context, the proposed acquirers submitted, inter alia, replies to BaFin’s questions on 10 July 2020, an addendum to the business plan (‘the addendum’) on 9 August 2021, and new financial documents in November 2021.
14      BaFin acknowledged receipt of the complete notification on 6 December 2021.
15      On 5 January 2022, BaFin asked the proposed acquirers for additional information. The proposed acquirers provided additional information on 1 February 2022.
16      On 7 February 2022, BaFin submitted a proposal for a decision to the ECB (‘the BaFin proposal’). In that document, it proposed objecting to the proposed acquisition.
17      On 15 February 2022, the ECB gave the proposed acquirers the opportunity to submit comments on the draft decision opposing the proposed acquisition.
18      On 17 February 2022, the proposed acquirers requested access to the file. The ECB granted that access by email of 21 February 2022.
19      On 28 February 2022, the proposed acquirers submitted comments on the draft decision.
20      On 22 March 2022, the ECB notified the proposed acquirers of the contested decision and of its response to the comments on the draft version of the contested decision (‘the response to the comments’).
21      The contested decision was adopted on the basis, inter alia, of Articles 22 and 23 of Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ 2013 L 176, p. 338), as transposed by German legislation on the credit sector. The ECB concluded, in essence, that it should oppose the proposed acquisition, given that the proposed acquirers did not meet the criteria of good repute, financial soundness and compliance with prudential requirements or anti-money laundering and counter-terrorist financing requirements.
22      On 21 April 2022, the proposed acquirers requested an administrative review of the contested decision under Article 24 of Regulation No 1024/2013. On 20 May 2022, the Administrative Board of Review rejected that request as inadmissible.
23      On 27 May 2022, the applicants brought the present action.
24      By decision of 26 July 2022, which took effect the following day, the ECB withdrew the target bank’s licence to operate as a credit institution (‘the licence withdrawal decision’).
25      On 3 August 2022, the target bank brought an action before the Court for annulment of the licence withdrawal decision, together with an application for suspension of the operation of that decision. By orders of 14 September 2022, HKB Bank v ECB (T‑479/22 R, not published, EU:T:2022:564), and of 14 September 2022, HKB Bank v ECB (T‑479/22, not published, EU:T:2022:585), the Court found that the target bank had discontinued its action and its application and removed the cases at issue from the register.
II.    Procedure and forms of order sought
26      By document lodged at the Court Registry on 8 September 2022, the ECB asked the Court to declare that there was no longer any need to adjudicate on the action. By order of 11 January 2023, the Court decided to reserve its decision on that application for a decision that there is no need to adjudicate on the action until it ruled on the substance of the case.
27      The applicants claim that the Court should:
–        declare that the contested decision is unlawful and that their rights have been infringed;
–        order the ECB to pay the costs.
28      The ECB contends that the Court should:
–        principally, declare that there is no longer any need to adjudicate on the action;
–        in the alternative, dismiss the action as inadmissible in so far as it was brought by Socrates Capital and, in any event, dismiss it as unfounded;
–        order the applicants jointly and severally to pay the costs.
29      The European Commission, intervening in support of the ECB, contends that the Court should:
–        dismiss the action as unfounded;
–        order the applicants to bear the costs.
III. Law
A.      Subject matter of the action
30      In the application, the applicants submitted a form of order seeking annulment of the contested decision. Then, in their observations on the plea that there is no need to adjudicate raised by the ECB, they asked the Court to reject that plea, declare the contested decision unlawful and find that their rights have been infringed. In their reply, they maintained their previous applications.
31      In support of their form of order asking the Court to declare the contested decision unlawful and find that their rights have been infringed, the applicants have argued that, since their interest in bringing proceedings persists despite the licence withdrawal decision, the Court must declare the contested decision unlawful rather than annul it. In particular, according to the applicants, where an applicant for annulment still has an interest in bringing proceedings as a basis for a potential action for damages, the action for annulment becomes an action for a declaratory judgment.
32      The Court has no jurisdiction when exercising judicial review of legality under Article 263 TFEU to issue declaratory judgments (see judgment of 4 February 2009, Omya v Commission, T‑145/06, EU:T:2009:27, paragraph 23 and the case-law cited).
33      Where, even though the contested measure has become obsolete, the party bringing an action for annulment still has an interest in bringing proceedings, the General Court continues to have jurisdiction to annul such a measure (see, to that effect, judgment of 4 September 2018, ClientEarth v Commission, C‑57/16 P, EU:C:2018:660, paragraphs 45 and 128).
34      In those circumstances, despite the wording used by the applicants after the submission of the application, which is based on a misinterpretation of the role of the Courts of the European Union where the contested measure has become obsolete, the action must be regarded as seeking the annulment of the contested decision.
B.      The application for a declaration that there is no need to adjudicate
35      The ECB submits that, by letter of 16 August 2022, the only party having standing to challenge the licence withdrawal decision, namely the target bank, discontinued its action before the Court and irrevocably waived its right to bring legal actions against that decision. It maintains that, even if the applicants had an interest in seeking the annulment of the contested decision when the action was brought, such an interest has disappeared, since the licence withdrawal decision has become final. The proposed acquisition is no longer subject to the absence of opposition by the ECB and is not susceptible to be subject to such requirements again in the future.
36      The applicants contest that line of argument.
37      An applicant’s interest in bringing proceedings must, in the light of the purpose of the action, exist at the stage of lodging the action, failing which the action will be inadmissible. That purpose must, like the interest in bringing proceedings, continue until the final decision, failing which there will be no need to adjudicate, which presupposes that the action must be liable, if successful, to procure an advantage for the party bringing it (judgment of 28 May 2013, Abdulrahim v Council and Commission, C‑239/12 P, EU:C:2013:331, paragraph 61).
38      Under Article 4(1)(c) of Regulation No 1024/2013, the ECB is competent to assess notifications of the acquisition and disposal of qualifying holdings in credit institutions. However, in application of the licence withdrawal decision, which has become final, the target bank has not had credit institution status since 27 July 2022.
39      Consequently, the licence withdrawal decision deprived the contested decision of its effects, on 27 July 2022, that is to say, after the action had been brought, with the result that the contested decision became obsolete on that date (see, to that effect and by analogy, judgment of 7 June 2007, Wunenburger v Commission, C‑362/05 P, EU:C:2007:322, paragraph 45).
40      However, in various circumstances the Court of Justice has acknowledged that an applicant’s interest in bringing proceedings does not necessarily disappear because the act challenged by him has ceased to have effect in the course of proceedings (judgment of 28 May 2013, Abdulrahim v Council and Commission, C‑239/12 P, EU:C:2013:331, paragraph 62).
41      In particular, an applicant may retain an interest in claiming the annulment of a decision, first, in order to be restored to his original position, second, in order to induce the author of the contested act to make suitable amendments in the future, and thereby avoid the risk that the unlawfulness alleged in respect of that act will be repeated, and, third, even where, because of the circumstances, it proves impossible to fulfil the obligation, owed by the institution whose act has been annulled, to take the necessary measures to comply with the judgment annulling the act, the application for annulment may retain an interest as the basis for possible proceedings for damages (judgments of 28 May 2013, Abdulrahim v Council and Commission, C‑239/12 P, EU:C:2013:331, paragraphs 63 and 64, and of 30 June 2022, Camerin v Commission, C‑63/21 P, not published, EU:C:2022:516, paragraph 48).
42      In particular, the possibility of an action for damages suffices to justify such an interest in bringing proceedings, in so far as that interest is not hypothetical (judgments of 17 September 2015, Mory and Others v Commission, C‑33/14 P, EU:C:2015:609, paragraph 79, and of 7 November 2018, BPC Lux 2 and Others v Commission, C‑544/17 P, EU:C:2018:880, paragraph 43). In that regard, an applicant cannot be criticised for having brought an action for damages on a date after the date on which it brought its action for annulment before the Court (judgment of 17 September 2015, Mory and Others v Commission, C‑33/14 P, EU:C:2015:609, paragraph 79).
43      Also in that regard, continuation of an interest in bringing proceedings must be assessed in the light of the specific circumstances, taking account, in particular, of the consequences of the alleged unlawfulness and of the nature of the damage claimed to have been sustained (judgments of 17 September 2015, Mory and Others v Commission, C‑33/14 P, EU:C:2015:609, paragraph 70, and of 7 November 2018, BPC Lux 2 and Others v Commission, C‑544/17 P, EU:C:2018:880, paragraph 45).
44      The applicant must adduce evidence concerning the specific impacts of the unlawfulness and the nature of the damage (see, to that effect, Opinion of Advocate General Bobek in Joined Cases Italy and Comune di Milano v Council and Parliament (Seat of the European Medicines Agency), C‑106/19 and C‑232/19, EU:C:2021:816, point 117). It is appropriate to carry out a prima facie examination of the negative impact of the contested act on the applicant, without requiring a higher standard of proof (see, to that effect, Opinion of Advocate General Sharpston in Gul Ahmed Textile Mills v Council, C‑100/17 P, EU:C:2018:214, point 47).
45      In the present case, the applicants claim, inter alia, that they intend to bring an action for damages against the ECB and produce two letters addressed to the ECB in which they present their claims for damages. The possibility that the applicants might bring an action for damages cannot therefore, in the present case, be regarded as hypothetical.
46      In addition, the Court holds that the contested decision, adopted on 22 March 2022, produced legal effects, since it prevented PH, PI and PJ from carrying out the proposed acquisition before the entry into force of the licence withdrawal decision on 27 July 2022.
47      Moreover, it cannot be ruled out at this stage that the applicants suffered material damage as a result of the unlawful acts alleged in the present action. It cannot be ruled out prima facie that, as a result of the contested decision, PH, PI and PJ suffered a loss of opportunity linked to the acquisition of the target bank and that PH wrongly had to bear the cost of silent partnerships with the target bank. Furthermore, it cannot be ruled out that Socrates Capital suffered harm such as the loss of the price of purchasing the target bank, the assumption of the target bank’s monthly losses and the fees for tax and legal advice.
48      In those circumstances, from the point of view of each of the applicants, the present action for annulment may serve as the basis for a potential action for damages against the ECB.
49      Consequently, the applicants demonstrate, at the very least, their interest in continuing the proceedings for the purposes of a possible action for damages.
50      The plea of inadmissibility raised by the ECB alleging that, because the applicants no longer have an interest in bringing proceedings, the action has become devoid of purpose must therefore be rejected.
C.      Admissibility of the action in so far as it is brought by Socrates Capital
51      The ECB maintains that Socrates Capital is not directly and individually concerned by the contested decision, with the result that it does not have standing to bring an action for annulment under the fourth paragraph of Article 263 TFEU. The contested decision does not affect Socrates Capital’s legal situation, since that decision does not prevent it, from a purely legal point of view, from selling its stake to the interested purchaser, since no provision is made for a sanction against the seller of the shares. From the point of view of the purpose of the procedure, the criteria for assessing the acquisition of a qualifying holding and the administrative procedure, the seller of the qualifying holding is not directly concerned by a decision opposing the acquisition, which affects only the potential purchaser. The ECB adds that the requirement to be individually concerned is not met because the contested decision is the result of the assessment of criteria unrelated to the seller of the qualifying holding.
52      The applicants contest that line of argument. The ECB allegedly does not take account of the fact that the sale and purchase agreement contains a conditionality clause, according to which the agreement is not enforceable if the ECB opposes the transaction. The contested decision also affects Socrates Capital’s right to property and its freedom to conduct a business. In addition, the contested decision states that the reputation of the proposed acquirers is vitiated by the fact that they ‘did business’ with the seller, which amounts to a general prohibition on purchasing the target bank. Socrates Capital is individually affected, since no other entity holds the majority of the shares that the proposed acquirers wish to acquire.
53      In that regard, the Court observes that the four applicants have brought one and the same action. Since one and the same action is involved, provided that PH, PI and PJ have standing, there is no need to examine Socrates Capital’s standing (see, to that effect, judgment of 24 March 1993, CIRFS and Others v Commission, C‑313/90, EU:C:1993:111, paragraph 31)
54      However, the Court considers it appropriate, in the interests of the proper administration of justice and in view of the particular importance of the question of admissibility raised by the ECB’s plea of inadmissibility, to rule on that plea.
55      The fourth paragraph of Article 263 TFEU provides for two situations in which natural or legal persons are accorded standing to bring proceedings against an act which is not addressed to them. First, such proceedings may be instituted if the act is of direct and individual concern to those persons. Second, such persons may bring proceedings against a regulatory act not entailing implementing measures if that act is of direct concern to them (judgment of 18 October 2018, Internacional de Productos Metálicos v Commission, C‑145/17 P, EU:C:2018:839, paragraph 32).
56      The conditions of admissibility laid down in the fourth paragraph of Article 263 TFEU must be interpreted in the light of the fundamental right to effective judicial protection, but such an interpretation cannot have the effect of setting aside the conditions expressly laid down in that Treaty (judgment of 3 October 2013, Inuit Tapiriit Kanatami and Others v Parliament and Council, C‑583/11 P, EU:C:2013:625, paragraph 98).
57      In the present case, the contested decision was not notified to Socrates Capital. Moreover, no provision required such notification to be given to that applicant as the transferor of the qualifying holding at issue. Since Socrates Capital is not an addressee of the contested decision, it can be recognised as having standing to bring proceedings only if it falls within one of the two situations to which reference is made in paragraph 55 above.
58      Furthermore, since the contested decision is not a regulatory act, the Court must examine whether the action is admissible in the context of the first situation referred to in paragraph 55 above.
59      Accordingly, the Court must first determine whether Socrates Capital is directly concerned by the contested decision.
60      The condition that the measure forming the subject matter of the proceedings must be of direct concern to a natural or legal person, as laid down in the fourth paragraph of Article 263 TFEU, requires the fulfilment of two cumulative criteria, namely the contested measure should, first, directly affect the legal situation of the individual and, second, should leave no discretion to the addressees who are entrusted with the task of implementing it, such implementation being purely automatic and resulting from EU rules alone without the application of other intermediate rules (judgment of 22 June 2021, Venezuela v Council (Whether a third State is affected), C‑872/19 P, EU:C:2021:507, paragraph 61).
61      In order to determine whether a measure produces legal effects, it is necessary to look in particular to its purpose, its content, its scope, its substance and the legal and factual context in which it was adopted (judgment of 22 June 2021, Venezuela v Council (Whether a third State is affected), C‑872/19 P, EU:C:2021:507, paragraph 66).
62      The mechanism for monitoring qualifying holdings provided for in Article 22 et seq. of Directive 2013/36 makes the person wishing to acquire a qualifying holding in a credit institution subject to a prior assessment, in particular of his or her reputation and financial soundness, in order to ensure the sound and prudent management of the credit institution concerned.
63      The criteria for assessing the notification of acquisition of a qualifying holding laid down in Article 23 of Directive 2013/36 are intended to assess the suitability of the proposed acquirer and the planned acquisition which it submits to the competent authority. In particular, the purpose of the assessment is to check that the proposed acquirer enjoys a good reputation and has the necessary financial soundness, so that the institution in which the stake is to be acquired continues to meet its prudential requirements. The assessment also helps to ensure that the transaction is not financed by the proceeds of illegal activities (Opinion of Advocate General Campos Sánchez-Bordona in Berlusconi and Fininvest, C‑219/17, EU:C:2018:502, point 80).
64      Under Article 22(1) of Directive 2013/36, it is for the proposed acquirer to notify the competent authorities of the proposed acquisition. Furthermore, that directive does not mention either the publication of that notification or the possibility for persons other than the proposed acquirer, in particular the person wishing to transfer his or her shareholding in a credit institution, to participate in the procedure for assessing the proposed acquisition.
65      According to Article 22(5) of Directive 2013/36, if the competent authorities decide to oppose the proposed acquisition, they are to inform the proposed acquirer, providing the reasons.
66      Lastly, according to the third subparagraph of Article 26(2) of Directive 2013/36, if a holding is acquired despite opposition by the competent authorities, Member States, regardless of any other penalty to be adopted, are to provide either for exercise of the corresponding voting rights to be suspended, or for the nullity of votes cast or for the possibility of their annulment.
67      It follows from the foregoing that the purpose of the mechanism for monitoring qualifying holdings is to assess, before such holdings are acquired, the suitability of proposed acquirers wishing to gain access to the banking sector as owners.
68      In those circumstances, opposition to the acquisition of a qualifying holding in a credit institution must be regarded as not altering the legal position of the company selling such a holding.
69      Although opposition to the acquisition of a qualifying holding does call into question the possibility for proposed acquirers to enter into a contract with the seller of a qualifying holding, that opposition does not, however, call into question the seller’s right to enter into a transaction to transfer the qualifying holding, which it may conclude with another potential acquirer; that opposition is merely a refusal to allow the proposed acquirers to gain access to the banking sector as owners.
70      That conclusion is borne out by the legal context of the contested decision. Directive 2013/36 makes no reference either to the publication of the notification of the acquisition of a qualifying holding in a credit institution, or to the possibility of third parties being involved in the administrative procedure, or indeed to the systematic publication of the decision of the competent authority. If the opposition to the acquisition of a qualifying holding is not observed, it provides for penalties only in respect of the exercise of the voting rights corresponding to the shareholding acquired by the proposed acquirers. In particular, the penalties provided for in Paragraph 2c(2) of the Kreditwesengesetz (Law on credit institutions) of 9 September 1998 (BGBl. 1998 I, p. 2776), as amended by the Law of 10 August 2021 (BGBl. 2021 I, p. 3436) (‘the KWG’) includes neither sanctions against a seller of a qualifying holding nor measures such as the invalidity of the acquisition itself or the obligation to return to the situation prior to the sale.
71      Thus, in the present case, the contested decision assesses the suitability of the proposed acquirers and not the lawfulness of the sale and purchase agreement.
72      The clause in the sale and purchase agreement stipulating that the agreement will not enter into force without the ECB’s authorisation was voluntarily inserted by the parties to the agreement. It is true that a clause inserted by the parties to an agreement may reflect legislation (see, to that effect and by analogy, judgment of 5 May 1998, Dreyfus v Commission, C‑386/96 P, EU:C:1998:193, paragraph 51). However, in the present case, that clause reflects legislation which makes the proposed acquirer individually subject to an administrative authorisation the purpose of which is to assess whether that acquirer is suitable to access the banking sector as an owner. Unlike the circumstances of the case that gave rise to the judgment of 5 May 1998, Dreyfus v Commission (C‑386/96 P, EU:C:1998:193), the ECB is not ruling on the conformity of any agreement entered into between the proposed acquirers and the seller of a shareholding in a credit institution when it assesses the notification of that acquisition.
73      Furthermore, Article 16 of the Charter of Fundamental Rights of the European Union (‘the Charter’) provides that the freedom to conduct a business in accordance with Union law and national laws and practices is recognised.
74      Article 17 of the Charter provides that everyone has the right to own, use, dispose of and bequeath his or her lawfully acquired possessions.
75      In that regard, although the contested decision does constitute an interference with the right to property and the freedom to conduct a business of the proposed acquirers, it cannot be regarded as constituting an interference with the same rights vis-à-vis Socrates Capital. The contested decision does not directly affect Socrates Capital’s right to sell its shares in the target bank.
76      Contrary to what is maintained by the applicants, the ECB did not find that the proposed acquirers were not of good repute on the ground that they generally ‘did business’ with Socrates Capital. In particular, the ECB did not criticise the proposed acquirers for having signed the sale and purchase agreement with Socrates Capital. In paragraph 2.7 of the contested decision, the ECB merely criticised the proposed acquirers for their intention to involve A in the implementation of the business plan and to appoint him to the advisory board after the proposed acquisition. The applicants are therefore not justified in claiming that the contested decision amounts to a general prohibition on Socrates Capital selling its shares in the target bank.
77      Socrates Capital is therefore not directly concerned by the contested decision.
78      Consequently, without there being any need to examine whether Socrates Capital is individually concerned by the contested decision, the action is inadmissible so far as that company is concerned.
D.      Substance of the action
79      The Court considers it appropriate to start by examining the eleventh plea, relating to the formal lawfulness of the contested decision, before moving on to examine the pleas relating to the substance of that decision, beginning with the third, fourth and fifth pleas.
80      In addition, the Court will examine below all the applicants’ arguments, including, in the alternative, those alleging that Socrates Capital’s rights were infringed.
1.      The eleventh plea in law, alleging a failure to meet the obligation to state reasons
81      In the application, the applicants submit that the ECB failed to meet its obligation to state the reasons for the contested decision.
82      The ECB, supported by the Commission, disputes that line of argument.
83      According to case-law, the statement of reasons required, in particular by Article 296 TFEU, the second subparagraph of Article 22(2) of Regulation No 1024/2013 and Article 33(1) and (2) 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 ECB and national competent authorities and with national designated authorities (SSM Framework Regulation) (OJ 2014 L 141, p. 1), must be appropriate to the measure at issue and 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 persons concerned to ascertain the reasons for the measure and to enable the competent Court to exercise its power of review (see, to that effect, judgment of 8 May 2019, Landeskreditbank Baden-Württemberg v ECB, C‑450/17 P, EU:C:2019:372, paragraph 85).
84      Whether or not the requirement to state reasons has been met must be assessed by reference to the circumstances of the 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 specify all the relevant facts and points of law, since the question whether the statement of reasons meets the requirements of Article 296 TFEU 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 (see, to that effect, judgment of 8 May 2019, Landeskreditbank Baden-Württemberg v ECB, C‑450/17 P, EU:C:2019:372, paragraph 87).
85      In that regard, the Court finds that, as the ECB submits without being contradicted, the BaFin correspondence sent to the proposed acquirers during the administrative procedure, the BaFin proposal and the response to the comments form part of the context of the contested decision within the meaning of the case-law referred to in paragraph 84 above and must be taken into account in order to assess whether the contested decision contains an adequate statement of reasons.
86      In particular, in the contested decision, the ECB referred, for each criterion for assessing the proposed acquisition (see paragraphs 2.2, 2.14, 2.19 and 2.35 of the contested decision), to BaFin’s assessment, with the result that the ECB must be regarded as having relied, inter alia, on the information contained in the BaFin proposal in order to adopt the contested decision.
87      In the present case, the applicants submit that the contested decision does not contain an adequate statement of reasons as regards certain specific reasons relating, first, to the integrity of the proposed acquirers and, second, to their financial soundness.
(a)    Whether or not the requirement to state reasons has been met as regards the integrity of the proposed acquirers
88      As regards the criterion that the proposed acquirers must be of good repute, the ECB found in the contested decision that, according to BaFin’s assessment and its own assessment, that criterion was not satisfied. It took the view that neither of the sub-criteria of integrity or professional competence were satisfied. As regards the integrity sub-criterion, it relied, in essence, on four factors: (i) the lack of clarity of the motivation behind the proposed acquisition (paragraph 2.4 of the contested decision), (ii) PH’s risk appetite (paragraph 2.5 of the contested decision), (iii) the conduct of the proposed acquirers during the administrative procedure, in particular the poor quality of the information provided and the late and incomplete submission of the information required (paragraph 2.6 of the contested decision) and (iv) A’s role in the implementation of the business plan (paragraph 2.7 of the contested decision).
89      The applicants claim that the contested decision is not sufficiently reasoned as regards the PH’s risk appetite and the poor quality of the information provided.
90      In the first place, in paragraph 2.5 of the contested decision, the ECB found that PH’s high risk appetite raises doubts as to the prudence of his intended investment. It found that the behaviour and statements made by PH give the impression that he viewed the investment like any other (venture) investment made in the past outside the banking industry and did not take into account the particularities with regards to an acquisition of a controlling stake in a credit institution. That risky investment approach cast doubts as to whether the proposed acquirers would implement sound and prudent management and take the investment seriously, in particular in light of the applicable regulatory framework and taking into account the situation of the target bank on the date of the contested decision, that is to say the situation of a credit institution which has not been conducting banking business for many years and is lacking the accordant basic business organisation.
91      On page 22 of the BaFin proposal, BaFin stated that PH’s lawyer had maintained during the preliminary discussions that PH was an active risk-taking investor with an entrepreneurial background. Although that did not mean that there was a lack of integrity as such, the willingness of new market participants (new controlling shareholders of a credit institution) to take high risks had to be closely supervised by the supervisory authority. Although that did not mean that there was a lack of integrity as such, the willingness of new market participants (new majority shareholders of a credit institution) to take high risks, had to be closely monitored by the supervisor. That risk-taking approach may allow doubts to linger in respect of the interest of the proposed acquirer in implementing sound and prudent management and taking the investment adequately seriously.
92      The applicants submit that the contested decision refers to a venture investment made by PH from which the ECB infers a strong willingness to take risks without indicating what that activity or past investment is.
93      On page 12 of the response to the comments, as regards paragraph 2.5 of the contested decision, the ECB stated that it did not question PH’s experience in asset management. However, asset management is different from acquiring a qualifying holding in a credit institution, the latter requiring specific care and diligence as well as awareness of the legal framework in which the institution operates. The ECB also stated that PH wished to invest a large share of his wealth in the target bank without a plausible explanation as to whether there would be a reasonable return in the short and medium term. It added that the proposals of the proposed acquirers were unclear and did not include the governance and infrastructure required for their business model.
94      In view of the BaFin proposal and the response to the comments, the Court finds that the applicants were able to understand that the (venture) investment to which the ECB referred in paragraph 2.5 of the contested decision was past investments made by PH in the asset management sector.
95      The applicants’ argument relating to the inadequacy of the statement of reasons in paragraph 2.5 of the contested decision must therefore be rejected.
96      In the second place, in paragraph 2.6 of the contested decision, the ECB found that the actions by the proposed acquirers, in particular the poor quality of the documentation and information provided, and the late and incomplete submission of the required information, also raised concerns as to whether they possess the necessary understanding of the importance of complying with the applicable regulatory framework. The ECB found that, as investors in a credit institution, they were investing in an entity operating in a highly regulated environment which required awareness of their obligations towards the supervisor. It stated that, in the course of the procedure, the proposed acquirers had shown an ongoing lenient attitude with regard to their obligations under the law of prudential supervision. The documentation of the proposed acquirers was generally submitted very late after the requests from BaFin had been received and showed severe inconsistencies. Numerous requests from BaFin to reach formal completeness were not met, or only with documents that did not provide a comprehensive and plausible overview of the proposed business plan in a structured way, leading to a very lengthy process. Thus, overall, according to the ECB, the proposed acquirers’ behaviour showed a constant lack of awareness of the need to act in compliance with their obligations under the law of prudential supervision.
97      The applicants submit that the ECB refers to the poor quality of and late and incomplete submission of information, without making clear what information they are referring to. The contested decision is contradictory, since the ECB examined the coherence of information that was allegedly submitted late.
98      The Court finds that the contested decision, in so far as it refers to the poor quality of the information provided and to the late and incomplete submission of the information required, enabled the applicants to understand what the information concerned was.
99      In paragraph 2.12 of the contested decision, the ECB provided clarification on the poor quality of the information provided. It took the view that the proposed acquirers had not submitted plausible information on the business plan. The assumptions provided were often unclear and difficult to understand. Significant expectations in all business segments were based on assumptions which could not be followed. The proposed acquirers stated growth expectations in terms of client acquisition which were based solely on the network of A and PH. Pricing assumptions for US dollar deposits applying unfavourable rates in comparison to what the market offers raised the question of how that would attract new clients. Furthermore, subsequent submissions of the business plan (addendum) including new financial documents were neither derivable nor consistent with previously presented assumptions, although the proposed acquirers had stated that they would remain unchanged. With the exception of the change in equity position, none of the changes were explained. The addendum additionally missed updated information on a ‘granular’ basis. Lastly, the new financial documents significantly deviated from past submissions. Overall, due to the submission of contradictory information and differing figures without a comprehensible explanation of the correlations and comprehensible reconciliation of the figures, it was not possible to understand the business plan provided and conduct a plausibility check.
100    Thus, the applicants were able to understand – in the light, in particular, of paragraph 2.12 of the contested decision – what information the ECB regarded to be of poor quality and which documents presented serious inconsistencies.
101    Furthermore, the response to the comments states, in respect of paragraph 2.6 of the contested decision, that the initial notification was incomplete, that BaFin had sent three requests for information to the proposed acquirers and had repeatedly informed the proposed acquirers that the notification was still incomplete and that the proposed acquirers had not fully responded to the requests for information. It also sets out the dates of the BaFin letters sent to the proposed acquirers.
102    Thus, the applicants were able to understand, in the light of the response to the comments, the finding set out in paragraph 2.6 of the contested decision regarding the late and incomplete submission of the information required.
103    Contrary to what the applicants maintain, even if it were assumed that a contradictory statement of reasons could affect the adequacy of the statement of reasons for the contested decision from a formal perspective, the statement of reasons for the contested decision is not contradictory. The ECB was able to conclude, without contradicting itself, that information had been submitted late and was incomplete and that that information was also inconsistent.
104    The applicants’ line of argument relating to the failure to state reasons in paragraph 2.6 of the contested decision must therefore be rejected.
(b)    Whether or not the requirement to state reasons has been met as regards the financial soundness of the proposed acquirers
105    As regards the criterion of financial soundness, the ECB found, in paragraphs 2.14 to 2.18 of the contested decision, that that criterion was not satisfied. In the business plan, the capital required for the implementation of the proposed acquisition was underestimated. The estimates of the own funds needs as corrected by the administration led to a total capital gap of EUR 209 million in the third year following the acquisition. Deducting the planned investment in the target bank and the purchase price of EUR [2-20] million, the proposed acquirers would have only EUR 37 million that could be used as an additional investment in the target bank. Even if PH was prepared to liquidate all his assets, he would not have had sufficient funds to cover the target bank’s capital needs.
106    The applicants submit that they do not understand the estimates of the own funds needs as corrected by the administration in paragraph 2.16 of the contested decision. Both the legal basis and the calculation itself are ambiguous, with the result that the amount of the own funds requirement is incomprehensible.
107    However, in paragraphs 2.19 and 2.20 of the contested decision, to which paragraph 2.16 of that decision refers, the ECB stated that the proposed acquirers had significantly underestimated the risk-weighted assets resulting from the proposed business model as they were not calculated in line with the requirements for the calculation of credit and operational risk under the standardised approach of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ 2013 L 176, p. 1), as amended by Commission Delegated Regulation (EU) 2015/62 of 10 October 2014 (OJ 2015 L 11, p. 37).
108    Furthermore, in the response to the comments, as regards the comment relating to paragraph 2.16 of the contested decision, the ECB stated that the high capital requirement came from the business model which contained assets requiring a risk weight of 1 250% and that, in the business plan, the proposed acquirers had applied a risk weighting of 100% for syndicated loans referencing Article 124(1) of Regulation No 575/2013, whereas that article refers to exposures secured on immoveable property, but not on securitisations.
109    In addition, on pages 29 and 30 of the BaFin proposal, as regards the financial capacity of the proposed acquirer, BaFin stated that, due to a lack of transparency with regard to the underlying assumptions for the base case scenario and a false calculation for the risk exposure amount, it had performed a supervisory view of the base case. It presented, in a table, the capital needs resulting from its analysis and stated that a significant risk exposure amount resulted from the target bank’s core product, namely the junior loan tranche of structured real estate loans which, due to their nature, caused high risk-weighted assets in respect of credit risk. As regards the base case, on page 46 of the BaFin proposal, BaFin stated that, according to its analysis, for the structured loans portfolio, it had taken into account the provisions set out for securitisations and that Article 153(8) of Regulation No 575/2013 provided for a risk weight of 1 250% for all securitisations that cannot use an internal model. It inserted a table showing the amount of the assets weighted for credit risk.
110    In those circumstances, the applicants are not justified in claiming that the financial estimates of the own funds needs as corrected by the administration are not comprehensible.
111    The plea must therefore be rejected.
2.      The third plea in law, alleging infringement of point 6 of the first sentence of Paragraph 2c(1b) of the KWG as regards the financial soundness of the proposed acquirer
112    As has already been stated, in paragraphs 2.14 to 2.18 of the contested decision, the ECB found that, according to BaFin’s assessment and its own assessment, the proposed acquirers did not satisfy the financial soundness criterion. In particular, in the business plan, the proposed acquirers underestimated the capital required for the implementation of the proposed acquisition. The estimates of the own funds needs as corrected by the administration led to a total capital gap of EUR 209 million in the third year following the acquisition. PH therefore did not have sufficient funds to cover the target bank’s capital needs.
113    The applicants submit that the ECB infringed point 6 of the first sentence of Paragraph 2(1b) of the KWG. First, it proposes a restrictive interpretation of the ground for refusal relating to the financial soundness of the proposed acquirer. Second, the ECB disregarded the fact that PH financed the investment exclusively with equity. Third, the business plan was submitted and demonstrated how the target bank’s capital requirements would be met in the future. Fourth, the addendum did not contradict the initial business plan. Fifth, the ECB should have taken into account the fact that, if a proposed acquirer cannot guarantee that funds will be injected at a later stage, that can be countered by a capital increase.
114    The ECB, supported by the Commission, disputes the applicants’ line of argument.
115    As a preliminary point, it is important to note that the contested decision is a measure relating to the prudential supervision of a credit institution, adopted by the ECB, which has a broad discretion in that regard since, as stated in recital 55 of Regulation No 1024/2013, the conferral of supervisory tasks implies a significant responsibility for the ECB to safeguard financial stability in the Union, and to use its supervisory powers in the most effective and proportionate way (see, to that effect, judgment of 8 May 2019, Landeskreditbank Baden-Württemberg v ECB, C‑450/17 P, EU:C:2019:372, paragraph 86).
116    The ECB’s broad discretion also stems from the fact that the contested decision involves an assessment of complex economic and financial facts and circumstances (see, to that effect, judgments of 10 November 2022, Commission v Valencia Club de Fútbol, C‑211/20 P, EU:C:2022:862, paragraph 34, and of 22 June 2023, Germany and Estonia v Pharma Mar and Commission, C‑6/21 P and C‑16/21 P, EU:C:2023:502, paragraph 52).
117    In those circumstances, the judicial review which the Courts of the European Union must carry out of the merits of the grounds of a decision such as the contested decision must not lead it to substitute its own assessment for that of the ECB, but seeks to ascertain that that decision is not based on materially incorrect facts and that it is not vitiated by an error of law, a manifest error of assessment or misuse of powers (see, to that effect, judgments of 2 September 2021, EPSU v Commission, C‑928/19 P, EU:C:2021:656, paragraph 96, and of 4 May 2023, ECB v Crédit lyonnais, C‑389/21 P, EU:C:2023:368, paragraph 55).
118    The Courts of the European Union must, inter alia, establish not only whether the evidence relied on is factually accurate, reliable and consistent but also whether that evidence contains all the relevant information which must be taken into account in order to assess a complex situation and whether it is capable of substantiating the conclusions drawn from it (judgment of 4 May 2023, ECB v Crédit lyonnais, C‑389/21 P, EU:C:2023:368, paragraph 56).
119    In the first place, the applicants submit that the ground for opposition relating to the financial soundness of the proposed acquirers has no counterpart in Paragraph 33 of the KWG, which relates to the authorisation of credit institutions. That indicates a restrictive interpretation of that ground for opposition, because if a shareholder does not have to prove, at the time of the authorisation of the credit institution, that he will have funds for later capital measures, that can only be required from an acquirer of a qualifying holding in exceptional cases.
120    Article 23(1)(c) of Directive 2013/36 provides that the suitability of the proposed acquirer and the financial soundness of the proposed acquisition are to be assessed in accordance with the financial soundness of the proposed acquirer, in particular in relation to the type of business pursued and envisaged in the credit institution in which the acquisition is proposed.
121    Point 6 of the first sentence of Paragraph 2c(1b) of the KWG provides that the supervisory authority may oppose the proposed acquisition or increase of a significant holding during the assessment period if there are facts justifying the assumption that the person subject to the notification obligation does not have the required financial soundness. It also provides that that is the case, in particular, if, by reason of its own capital resources or its assets, the person subject to the notification obligation is not in a position to meet the specific requirements laid down by statute with regard to an institution’s own funds and liquidity.
122    The third sentence of paragraph 8.4 of the Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector, adopted by the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA), published on 20 December 2016 (‘the Joint Guidelines’), states, moreover, that if a proposed acquirer gains control over the target undertaking, the assessment of the financial soundness of the proposed acquirer should also cover the capacity of the proposed acquirer to provide further capital to the target undertaking in the midterm, if necessary, and its stated intentions in respect of whether it would provide such capital.
123    Paragraph 12.1 of the Joint Guidelines states that the financial soundness of the proposed acquirer should be understood as the capacity of the proposed acquirer to finance the proposed acquisition and to maintain, for the foreseeable future, a sound financial structure in respect of the proposed acquirer and of the target undertaking.
124    Paragraph 12.2 of the Joint Guidelines states that the target supervisor should determine whether the proposed acquirer is sufficiently sound from a financial point of view to ensure the sound and prudent management of the target undertaking for the foreseeable future (usually three years), having regard to the nature of the proposed acquirer and of the acquisition.
125    The applicants’ line of argument that the criterion that the proposed acquirers are to be financially sound must be interpreted restrictively is based on the premiss that that criterion has no equivalent in Paragraph 33 of the KWG, relating to the licence for credit institutions.
126    Point 3 of the first sentence of Paragraph 33(1) of the KWG, which transposes Article 14(2) of Directive 2013/36, provides that a banking licence is to be refused if the future holder of a qualifying holding does not satisfy, inter alia, the criteria set out in points 1 to 6 of the first sentence of Paragraph 2c(1b) of the KWG, which relate to the acquisition of a qualifying holding.
127    In addition, in so far as the applicants claim that the proposed acquirers must not be required to prove at the time of the authorisation for the acquisition of a qualifying holding that they will have funds for subsequent capital measures, the Court notes that, as is apparent from the wording of Article 23(1)(c) of Directive 2013/36, which mentions the type of activities both pursued ‘and envisaged’ and, moreover, from paragraphs 8.4, 12.1 and 12.2 of the Joint Guidelines, referred to in paragraphs 122 to 124 above, the assessment of the financial soundness of proposed acquirers is to have a prospective aspect, in that it examines their future capacity to provide capital to the target undertaking. That interpretation is borne out by the fact that Article 23(1)(d) of Directive 2013/36 makes an express reference to the ability of the credit institution to comply with and to ‘continue to comply’ with prudential requirements.
128    The applicants’ line of argument relating to the interpretation of the financial soundness criterion must therefore be rejected.
129    In the second place, the applicants claim that the ECB incorrectly ignored the fact that PH complied with BaFin’s request and financed the proposed acquisition exclusively by own funds. BaFin refused to accept that the stake in a fund which PH managed could be liquidated to fund the proposed acquisition. PH had to liquidate that stake in order to prove to BaFin that it had the capital and missed out on profit.
130    However, the applicants do not substantiate their assertion that BaFin asked PH to finance the acquisition with own funds and refused to take into account his stake in a fund. They do not refer to any document or indicate in what circumstances, particularly when, such a refusal took place.
131    The applicants’ line of argument relating to the financing of the proposed acquisition with own funds must therefore be rejected.
132    In the third place, the applicants submit that the business plan and the additional information submitted on 1 February 2022 demonstrated how the capital requirements would be met in the future. The estimates of the own funds requirements as corrected by the administration are allegedly incorrect. The business plan does not envisage securitisation transactions with a large portfolio, but rather individual loans. In the reply, the applicants claim that BaFin confused the loan syndication with securitisation.
133    The ECB submits that, under Article 92 of Regulation No 575/2013, the own funds ratios used to determine whether a bank meets its own funds needs are based on the total risk exposure amount of that bank, which is itself the sum of several elements, including risk-weighted exposure amounts or ‘risk-weighted assets’ in respect of credit risk. In order to support their projections of the target bank’s own funds requirements and demonstrate their financial soundness, the proposed acquirers should have provided not only own funds projections, but also projections for risk-weighted assets in respect of credit risk. Given that the target bank used a standard approach to determine the amount of its risk-weighted assets, the risk weighting applied to a given exposure depended, under Articles 112 and 113 of Regulation No 575/2013, on its appropriate classification into one of the exposure classes, and then on the correct application of the provisions of that regulation relating to risk weighting. The proposed acquirers should have provided a breakdown of risk-weighted assets in respect of credit risk, explaining the underlying assumption, that is to say how they had classified individual credit exposures according to the different exposure classes listed in Regulation No 575/2013, and the risk weighting applied to those exposure categories. The information provided by the proposed acquirers on 28 February 2022 showed that the proposed acquirers had applied to the retained securitisation tranches in the target bank’s business model a risk weight which was not applicable to items representing securitisation positions. Article 254 of Regulation No 575/2013 establishes a hierarchy of methods to be applied to calculate risk-weighted assets for securitisation positions. In so far as the proposed acquirers did not provide information allowing the application, as regards retained securitisation positions, of another method of calculating risk-weighted assets among those listed in Article 254 of Regulation No 575/2013, the ECB could apply to those exposures only a risk weighting of 1 250% under Article 254(7) of Regulation No 575/2013.
134    The Court must examine whether, as the applicants essentially submit, the ECB erred in finding that the subordinated tranches of mortgage loans referred to in the business plan constituted securitisation positions.
135    The initial business plan sets out, on pages 45 to 47, the structure envisaged by the proposed acquirers as regards the real estate loan business. It makes reference to the fact that the target bank would grant a mortgage loan to the borrower to finance the purchase of property. Only the junior tranche of the debt (subordinated and guaranteed by a second ranking mortgage) was to remain on the target bank’s balance sheet. The senior tranche of the debt (secured by a first ranking mortgage) would be sold to a ‘special purpose vehicle’ (SPV) through an assignment agreement. The SPV was to issue certificates of indebtedness in the form of promissory notes (Schuldscheindarlehen), which were to be purchased by investors.
136    Under Article 2(1) of Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation, and amending Directives 2009/65/EC, 2009/138/EC and 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012 (OJ 2017 L 347, p. 35), ‘securitisation’ means a transaction or scheme, whereby the credit risk associated with an exposure or a pool of exposures is tranched, having all of the following characteristics: (a) payments in the transaction or scheme are dependent upon the performance of the exposure or of the pool of exposures; (b) the subordination of tranches determines the distribution of losses during the ongoing life of the transaction or scheme; (c) the transaction or scheme does not create exposures which possess all of the characteristics listed in Article 147(8) of Regulation No 575/2013.
137    Under Article 2(2) of Regulation 2017/2402, ‘securitisation special purpose entity’ or ‘SSPE’ means a corporation, trust or other entity, other than an originator or sponsor, established for the purpose of carrying out one or more securitisations, the activities of which are limited to those appropriate to accomplishing that objective, the structure of which is intended to isolate the obligations of the SSPE from those of the originator.
138    Under Article 2(3) of Regulation 2017/2402, the originator means an entity which itself or through related entities, directly or indirectly, was involved in the original agreement which created the obligations or potential obligations of the debtor or potential debtor giving rise to the exposures being securitised or which purchases a third party’s exposures on its own account and then securitises them.
139    The ECB states, in the rejoinder, that it classified as securitisation positions the second-ranking tranches of real estate loans granted by the target bank which the proposed acquirers intended to keep on the latter’s balance sheet. The description of the structure envisaged by the proposed acquirers used terminology characteristic of securitisation and has the features set out in the definition referred to in paragraph 136 above. In particular, that description makes reference to the tranching of the underlying exposure (that is to say, the real estate loans), the subordination between the tranches and the link with the performance of the underlying exposure. The reference in the qualitative lending criteria on page 47 of the initial business plan to ‘existing cash flow, stable and predictable income’ refers to the condition relating to the link with the performance of the underlying exposure. The ECB maintains that the business plan envisages the intervention of an SPV (that is to say, other than the originator, which was the target bank), which purchases the exposure and issues certificates of indebtedness intended to be sold to investors, and refers in that regard to the definition of securitisation special purpose entity set out in paragraph 137 above. It also maintains that the use of the term ‘syndication’ in the business plan did not make it possible to conclude that the transaction was not a securitisation, since syndication and securitisation transactions are not mutually exclusive, because the credit risk associated with the exposures of participants in a syndicate can be securitised.
140    As regards the applicants’ arguments, first, they do not claim that the structure envisaged by the proposed acquirers as regards the refinancing of the syndicated loans does not have one of the characteristics of a securitisation transaction referred to in Article 2(1)(a), (b) or (c) of Regulation 2017/2402.
141    Second, the applicants assert that the business model of syndicated loans envisaged in the initial business plan has been part of the target bank’s business plan for years.
142    However, that assertion is contradicted, as the ECB submits, by the replies to the questions of 10 July 2020, in which the proposed acquirers stated that the SPV had not yet been established, given that the target bank did not have the necessary authorisation to launch its mortgage business.
143    Third, it is true that, as the applicants state, the initial business plan, on page 42, does not mention that securitisation transactions are envisaged and states as follows: ‘The terms Schuldscheindarlehen (SSD), Schuldschein, Certificates of [Indebtedness], and Promissory Loans are used synonymously’ and ‘it is important to note that this is neither a security nor a bond but rather a bilateral credit contract’.
144    However, the Court notes that, prior to the reply, certain statements made by the proposed acquirers and the applicants, by contrast, tended to show that the real estate loan business involved securitisation transactions. The addendum makes reference, on page 18, to the recent success of the securitisation business of a business partner of the target bank on the Dutch market and states, on page 55, that securitisation is an area in which the staff of the target bank must have expertise. In the application, the applicants expressly use the term ‘securitise’ to describe the proposed transaction consisting of ‘transforming’ the target bank’s real estate loans into investments akin to ‘promissory notes’ (Schuldscheindarlehen). Although they also claim, in the application, that they do not envisage securitisation transactions ‘with a large portfolio’, they do not indicate that the business plan excludes securitisation transactions with a small portfolio.
145    Fourth, the applicants claim that the business plan does not mention the pooling or repacking of a loan portfolio, whereas, according to the second sentence of recital 1 of Regulation 2017/2402, ‘the lender pools and repackages a portfolio of its loans, and organises them into different risk categories for different investors, thus giving investors access to investments in loans and other exposures to which they normally would not have direct access’.
146    However, as the ECB submits, the definition of securitisation, referred to in paragraph 136 above, does not indicate that a securitisation transaction necessarily involves the pooling or repacking of underlying exposures. It refers to the credit risk associated with ‘an’ exposure or pool of exposures. Recital 6 of Regulation 2017/2402 states, moreover, that a clear and encompassing definition of securitisation is needed to capture any transaction or scheme whereby the credit risk associated with ‘an’ exposure or pool of exposures is tranched.
147    Fifth, the applicants state that the initial business plan, on page 46, provides that the target bank will provide services in respect of the investor’s interest in the promissory notes (Schuldscheindarlehen). They maintain that, in a securitisation transaction, the servicer is necessarily commissioned by the SPV to handle the ongoing management and collection of receivables. Furthermore, a securitisation transaction requires a trustee or paying agent who forwards principal payments to the investor.
148    Nevertheless, as the ECB submits, the definition of securitisation, referred to in paragraph 136 above, does not stipulate that the involvement of an agent or paying agent is an essential characteristic of such a transaction. Similarly, the applicants do not explain why the originator of a securitisation transaction could not manage securitised mortgage loans.
149    Sixth, the applicants claim that the ECB’s decision to reclassify the loan syndication business as a securitisation transaction was taken by the ECB at ‘the last minute’ and was a surprise, in particular, to the staff of the target bank.
150    The Court notes that the draft contested decision (in particular paragraph 2.26), sent to the proposed acquirers on 15 February 2022, refers to the ‘securitisation process’. Furthermore, before submitting their comments on the draft contested decision, the proposed acquirers had access to the BaFin proposal, which states, on page 46, that BaFin took account of the provisions set forth for securitisations as regards the structured loan portfolio.
151    In addition, the ECB states that, in order to substantiate their projections of the target bank’s own funds needs and demonstrate their financial soundness, the proposed acquirers had to provide their risk-weighted asset projections in respect of credit risk, explaining how they had classified individual credit exposures into the various classes of exposure listed in Regulation No 575/2013 and specifying the risk weighting applied to those exposure classes by that regulation. It states that the initial notifications of the proposed acquisition of April and July 2020 did not contain that information, that BaFin notified that omission to the proposed acquirers on 19 June 2020 and then asked them on four occasions (on 25 August and 14 September 2020, 17 November 2021 and 5 January 2022) to provide the missing information. It adds that the proposed acquirers submitted risk-weighted asset projections in respect of credit risk and operational risk only on 1 February 2022 and that the information substantiating those projections, in particular the way in which they had classified individual exposures in the different exposure classes and the risk weighting applied to each exposure class, was not communicated by the proposed acquirers until 28 February 2022. The applicants do not dispute that.
152    In those circumstances, the Court finds that the time taken by the ECB to communicate to the proposed acquirers its assessment of the method of calculating risk-weighted assets as regards the real estate loans business may be explained by the time taken by the proposed acquirers themselves to submit the information relating to their own funds projections.
153    Thus, the ECB did not err in finding that the subordinated tranches of real estate loans provided for in the business plan constituted securitisation positions.
154    The applicants are therefore not justified in claiming that the business plan shows how the target bank’s capital requirements are met and that the estimates of own funds requirements as corrected by the administration are incorrect.
155    In the fourth place, the applicants claim that the addendum was merely a supplement to the original business plan. It is therefore incomprehensible why BaFin found that the initial business plan and the addendum were contradictory.
156    In that regard, it must be held, as the ECB submits without being contradicted, that the reasons for the contested decision relating to the financial soundness of the proposed acquirers are not based on the contradiction between the business plan and the addendum. Consequently, the applicants’ argument must be rejected as irrelevant.
157    In the fifth place, the applicants claim that the ECB should have taken account of the fact that, in the event that a proposed acquirer cannot guarantee that funds will be injected at a later date, that may be countered with an increase in the capital of the credit institution concerned.
158    In that regard, given that the proposed acquirers did not send, in the notification of the proposed acquisition and before the adoption of the contested decision, the relevant information relating to their possible intention to cover the target bank’s own funds needs by means of a capital increase, which they do not dispute, the ECB was fully entitled to state that those acquirers are not justified in claiming that it should have taken that possibility into account in order to assess their financial soundness.
159    The plea must therefore be rejected.
3.      The fourth plea in law, alleging infringement of point 2 of the first sentence of Paragraph 2c(1b) of the KWG as regards compliance with prudential requirements
160    In paragraph 2.19 et seq. of the contested decision, the ECB found that the target bank, as a consequence of the proposed acquisition, might not be in a position to meet prudential requirements due, first, to the underestimation of risk-weighted assets and, second, to the fact that it did not have a proper organisation in accordance with Paragraph 25a(1) of the KWG.
161    The applicants submit that the ECB infringed point 2 of the first sentence of Paragraph 2c(1b) of the KWG. They dispute the ECB’s assessment both as regards the underestimation of risk-weighted assets and as regards the target bank’s lack of a proper business organisation.
162    The ECB, supported by the Commission, disputes that line of argument.
(a)    The estimation of risk-weighted assets
163    In paragraphs 2.20 and 2.21 of the contested decision, the ECB noted that the proposed acquirers had significantly underestimated the risk-weighted assets resulting from the proposed business model. Consequently, the target bank would not meet its prudential capital requirements in the three years under assessment.
164    The applicants claim that the newly estimated risk-weighted assets referred to in paragraph 2.20 of the contested decision are not mathematically comprehensible and are manifestly inaccurate. Consequently, the ECB was incorrect in so far as it found that the proposed acquirers did not have sufficient financial means to avoid a breach of the own funds rules.
165    However, as stated, in essence, in paragraphs 110 and 154 above, the applicants are not justified in claiming that the risk-weighted asset estimations as corrected by the administration are incomprehensible and incorrect.
166    Consequently, the applicants are not justified in claiming that the proposed acquirers had sufficient financial means to avoid an infringement of the own funds rules.
(b)    The business organisation of the target bank
167    In paragraph 2.22 et seq. of the contested decision, the ECB found that, since the target bank was no longer authorised to conduct banking activities, it no longer had a proper organisation for the resumption of its business activities. The proposed acquirers did not provide a plan to establish a business organisation suitable for commencing business activities in accordance with Paragraph 25a(1) of the KWG. Under that provision, a proper business organisation should include, inter alia, a defined strategy, processes for determining and ensuring risk-bearing capacity, internal control procedures, adequate staffing and technical and organisational resources. Deficiencies were identified with regard to the requirements of Paragraph 25a(1) of the KWG as regards those four aspects and as regards the outsourcing of activities.
(1)    The defining of the strategy
168    In paragraph 2.26 of the contested decision, the ECB found that the commercial strategy of the proposed acquirers was incomprehensible and indicated that the proposed business development was strongly dependent on PH, which gave rise to doubts as to the viability and sustainability of the business model. A clear timeline with the detailed planned steps to execute the strategy was not provided. Crucial elements regarding the establishment of business lines remained unclear, particularly regarding the organisational structure of the SPV, the securitisation process and the establishment of the representative office in Hong Kong. The strategy contained an overly optimistic plan on business development and profitability, which lacked substantiation on how to achieve it. The planning assumptions on business development and profitability were also overly optimistic and subject to high uncertainties.
169    On pages 51 to 53 of the BaFin proposal, BaFin stated that, under point 1 of the third sentence of Paragraph 25a(1) of the KWG, read in conjunction with module AT 4.2 of BaFin Circular 10/2021 on the Minimum Requirements for Risk Management (MaRisk) in the version of 16 August 2021 (‘the MaRisk Circular’), the management board of a credit institution is to define a sustainable business strategy outlining the institution’s objectives for each material business activity and the measures to be taken to achieve those objectives. It is to define a risk strategy that is consistent with the business strategy. The business strategy of the proposed acquirers as concerns real estate financing includes a description of general market conditions for property lending in Germany and the Netherlands and refers to assumptions, but provides no consistent transition from the market conditions and those assumptions. The business strategy of the deposits activity builds on incomprehensible assumptions. The business strategy for corporate banking and trade finance services is based on rates and fees that are not explained. The business strategy for concierge services foresees substantial synergies with other departments, but the existence and extent of such synergy effects remain to be determined. The risk exposure levels in respect of all material risks were not provided. Thus, the business strategies for the various business segments are not adequate and the risk strategy does not go beyond a superficial description.
170    In the first place, the applicants are not justified in maintaining that the consideration set out in the contested decision that the business strategy is incomprehensible and that business development is strongly dependent on PH is neither clear nor substantiated.
171    The ECB explained, in paragraph 2.12 of the contested decision, the content of which is recalled in paragraph 99 above, that the proposed acquirers’ significant expectations in all business segments are based on assumptions which cannot be followed. In particular, pricing assumptions for USD deposits applying unfavourable rates in comparison to what the market was offering raised the question of how that pricing would attract new clients. In addition, the BaFin proposal, the content of which was set out in part in paragraph 169 above, contained details in that regard.
172    Furthermore, it is also clear from paragraph 2.12 of the contested decision that the growth expectations in terms of client acquisition are based solely on the network of A and PH. In that regard, the initial business plan states, on pages 6, 8, 9, 24, 27, 29, 64 and 77, that the clients of the target bank had to be acquired, in particular, through the Asian client network of PH and A. The addendum underscores, on pages 7, 8, 9, 21 and 29, the importance of PH’s network of Asian clients.
173    The applicants’ line of argument must therefore be rejected.
174    In the second place, the applicants submit that management’s strategic plans, for example planned acquisitions, disposals, outsourcing or entry into new business fields, do not have to be included in the business strategy. The submission of a timetable for the implementation of the strategy is not mandatory and, in any event, such a timetable was presented in the business plan and the addendum.
175    According to point 2 of the first sentence of Paragraph 2c(1b) of the KWG, which transposes Article 23(1) (d) of Directive 2013/36, the supervisory authority may prohibit the proposed acquisition of a qualifying holding if the facts justify the assumption that the institution will not or cannot comply with the supervisory requirements, in particular Directive 2013/36 and Regulation No 575/2013.
176    Paragraph 25a(1) of the KWG, which transposes Article 74 of Directive 2013/36, provides as follows:
‘An institution shall have in place a proper business organisation which ensures compliance with the statutory provisions to be observed by the institution and business requirements. The managers shall be responsible for ensuring the proper business organisation of the institution; they shall take the necessary measures to draw up the applicable internal guidelines except where they are decided upon by the administrative or supervisory body. Proper business organisation of the undertaking shall comprise, in particular, appropriate and effective risk management, on the basis of which an institution shall continuously safeguard its ability to bear risks; risk management shall comprise, in particular:
1. the definition of strategies, including the definition of a business strategy geared to the institution’s sustainable development and a risk strategy that is consistent with that business strategy, and the establishment of processes for planning, implementing, assessing and adjusting strategies; …’
177    Under Paragraph 15(1) of the Inhaberkontrollverordnung (Regulation on controls on shareholders) of 20 March 2009 (BGBl, 2009 I, p. 562; 688), as amended by the Regulation of 6 November 2015 (BGBl, 2015 I, p. 1947) (‘the InhKontrollV’), if the person required to notify obtains control of the target entity through the acquisition of a qualifying holding, the business plan must mention relevant information on planned strategic development and planned developments in the asset, financial and profit situation as well as the impacts on the company structure and organisation of the target entity. That includes any possible redirection of business activities. Information on impacts on the company structure and organisation of the target entity includes, in particular, effects on the principles for the outsourcing of business activities and processes to other entities or persons.
178    In view of the wording of Paragraph 15(1) of the InhKontrollV, set out in paragraph 177 above, the applicants’ argument that management’s strategic plans, for example proposed acquisitions, disposals, outsourcing or entry into new business fields, do not have to be included in the business strategy must be rejected.
179    Although Paragraph 15(1) of the InhKontrollV does not expressly stipulate that the business plan must include a timetable for the implementation of the planned strategic development, it requires ‘relevant’ information on those developments to be provided. Given that that information must enable the competent authorities to assess compliance with prudential requirements, in particular those laid down in Paragraph 25a(1) of the KWG, including prospective compliance, the ECB did not err in law or make a manifest error of assessment in finding that the proposed acquirers had to provide information on the deadlines for implementing the planned strategic development. In that regard, the ECB rightly points out that a timetable containing steps for the implementation of the strategy was necessary in the present case, given that the target bank was essentially inactive and that the proposed acquirers intended to extend the target bank’s activities to new business segments.
180    Furthermore, as the ECB contends, by merely stating that the business plan and its addendum had a timetable for the implementation of the business strategy, without referring in a sufficiently precise manner to a part of those documents, the applicants have not adduced evidence that the proposed acquirers have submitted such a timetable.
181    The applicants’ line of argument must therefore be rejected.
182    In the third place, in the reply, without indicating to which plea in the application their line of argument relates, the applicants dispute the ECB’s assessment that the business strategy for the deposit business activities is based on incomprehensible assumptions.
183    Assuming that that line of argument relates to the fourth plea, the Court notes that, first, on page 52 of the BaFin proposal, BaFin maintained that, as regards deposits in euros, the initial business plan did not go into detail on maturities. The long-term deposits presented in that plan deviate from the cumulated term deposits, which led BaFin and the Deutsche Bundesbank (Federal Bank of Germany) to the conclusion that for each term deposit category, different maturities had been set. Furthermore, a general average interest rate of 0.4% was assumed irrespective of the maturity. According to that plan that will guarantee an attractive rate, as it is equal to or above the deposit rate of the top 15 sellers. BaFin and the Federal Bank of Germany cannot reconcile that assumption, as only the interest rate for daily deposits was below that general interest rate, but the rate for term deposits was higher.
184    In the reply, the applicants claim that the interest rates of 0.4% on accounts denominated in euros were very competitive as compared with those offered by German banks. They state that, according to the replies to the questions of 10 July 2020, on pages 24 and 25, 250 German banks applied a negative interest rate to current and short-term money market accounts, and more competitive German banks paid less than 0.4% interest on current and short-term accounts on average.
185    However, the applicants’ explanations do not specify the maturities of the deposits in euros to which reference is made in the initial business plan. Given that those explanations focus solely on current and short-term accounts, they do not explain how the general interest rate of 0.4% envisaged by the proposed acquirers would have been attractive for the other categories of term deposits.
186    Second, with regard to USD deposits, the applicants claim in the reply that remuneration of deposits which are 1.1% to 1.3% lower than remuneration offered on US Treasury Bills is attractive in a normal market environment, even if that was less the case during the period of the COVID-19 pandemic. The proposed acquirers set out, in the replies to the questions of 10 July 2020, on page 26, the reasons why Asian clients were prepared to accept such interest rates on USD accounts.
187    However, the applicants’ explanations that the market environment during the period of the COVID-19 pandemic made the proposed acquirers’ offer less attractive does not call into question the finding set out in paragraph 2.12 of the contested decision, according to which the pricing assumptions for the USD deposits envisaged by the proposed acquirers applied unfavourable rates as compared with what was then available on the market, with the result that that raised the question of how that offer would attract new clients.
188    Third, the applicants claim that the market survey provided by the proposed acquirers was of sufficient quality to substantiate their assumptions of in terms of growth. They provided a list of 1 500 potential client names, the respondents to that survey already had a business relationship with PH, and the conversion rate estimated by the proposed acquirers was prudent.
189    However, the applicants’ explanations are not sufficient to call into question the evidence on which BaFin relied, on page 34 of the BaFin proposal, in order to conclude, in the exercise of its broad discretion, that the market survey was of insufficient quality, namely that, first, that study had been carried out after the assumptions made in the business plan had been created, with the result that there was a risk that the survey design was not examined with an open outcome, second, the documents did not show the distribution of answers as regards questions relating to price, third, only Asian customers had been considered and, fourth, the parameters of the survey and of the business plan were not equal.
190    The applicants’ line of argument must therefore be rejected.
191    In the fourth place, the applicants claim that the ECB interfered with their freedom to conduct a business, guaranteed by Article 16 of the Charter, and infringed module AT 4.2 of the MaRisk Circular by stating that the planning assumptions for the development and profitability of the undertaking were too optimistic and subject to great uncertainties.
192    According to module AT 4.2 of the MaRisk Circular, the substance of the business strategy is solely the responsibility of the management board and is not subject to examination in the course of audit activities by auditors of the annual accounts or the internal audit function.
193    However, the finding in the contested decision that the strategy of the proposed acquirers contains a plan that is too optimistic for the undertaking’s development and profitability is based on the finding that the assumptions underlying that strategy are incomprehensible.
194    In so doing, the ECB did not take the place of the proposed acquirers in order to decide the substance of the business strategy, but examined, taking into account the information on that strategy provided by the proposed acquirers, whether the criteria for acquiring a qualifying holding in a credit institution were satisfied.
195    In those circumstances, the applicants are not justified in claiming that the ECB infringed Article 16 of the Charter or, in any event, module AT 4.2 of the MaRisk Circular.
196    The applicants’ line of argument relating to the planned business strategy must therefore be rejected.
(2)    The processes for determining and guaranteeing the ability to bear risks
197    In paragraph 2.27 of the contested decision, the ECB found that the proposed acquirers had failed to submit information on the necessary adjustment of the risk-bearing capacity governance process to meet the more complex requirements associated with the resumption of the new business. The risk-weighted assets and leverage ratio presented in the business plan were not calculated in line with the methodology as required in Regulation (EU) No 575/2013. In addition to evidencing a lack of knowledge of the regulatory framework the target bank intended to operate in, it also raised concerns as to the adequacy of those processes.
198    On pages 53 to 58 of the BaFin proposal, BaFin maintained that, in accordance with point 2 of the third sentence of Paragraph 25a(1) of the KWG, which transposes Article 73 of Directive 2013/36, a proper business organisation requires processes for determining and ensuring the risk-bearing capacity, based on a prudent determination of the risks, the potential losses arising from stress scenarios, including those determined in accordance with the supervisory stress test pursuant to Paragraph 6b(3) of the KWG, and the risk coverage potential available to cover them. It concluded that the risks presented by the proposed acquirers had not taken into account the specific risk amounts for exposures in syndicated junior loans and the reduction of the available capital that it had analysed. The risk-bearing concept provided is neither sound nor comprehensive nor effective. The processes and methods were not fully integrated into the risk management of the target bank and its decision-making processes. As the business activities were extended, the requirements regarding the effectiveness of risk management increased, the structural limits should have been adjusted and the reporting system should have been reviewed. Adjustments of the risk-bearing capacity concept were addressed only with regard to certain activities.
199    The applicants submit that the negative assessment of the processes for determining and ensuring risk-bearing capacity is incorrect, since it is based solely on the incomprehensible and inaccurate review according to which the stated risk-weighted assets and the leverage ratio were not calculated correctly.
200    Since, as stated in paragraphs 110 and 154 above, the applicants are not justified in claiming that the risk-weighted asset estimations as corrected by the administration are incomprehensible and incorrect, the applicants’ line of argument must be rejected.
(3)    The internal control framework
201    In paragraph 2.28 of the contested decision, the ECB found that the proposed acquirers did not plan to adjust the existing internal control framework of the target bank, despite acknowledging that some of the activities (like trade finance) were subject to high risk-management and compliance requirements Therefore, the information provided raised severe doubts as to whether the internal control framework would be adequate for the nature, scale, complexity and riskiness of the business activities.
202    The applicants claim that the ECB’s statements that an adjustment of the internal control framework is not planned are incomprehensible. Moreover, the ECB’s assertion is incorrect.
203    In the first place, on pages 60 and 61 of the BaFin proposal, BaFin stated that the internalisation of the internal audit and compliance processes provided for in the business plan was not accompanied by further explanations in terms of how and when they would happen, and that the proposed acquirers had presented no guidance for making new products available to clients (corporate banking and trade finance as well as concierge services). It added that the latest submission by the proposed acquirers did not foresee any adjustments regarding the internal control system.
204    In the light of the details contained in the BaFin proposal, the applicants are not justified in claiming that the finding in the contested decision that the proposed acquirers do not intend to adjust the internal control framework is incomprehensible.
205    In the second place, under point 2 of the third sentence of Paragraph 25a(1) of the KWG, which transposes Article 73 of Directive 2013/36, a proper business organisation must include, in particular, appropriate and effective risk management, on the basis of which an institution must continuously guarantee its ability to bear risks. Risk management includes, inter alia, the establishment of internal control procedures with an internal control and internal audit system, in which the internal control system includes, inter alia, first, structural and procedural rules with a clear demarcation of areas of responsibility, second, processes for the identification, evaluation, control, monitoring and reporting of risks in accordance with the criteria set out in Title VII, Chapter 2, Section II, Sub-Section 2 of Directive 2013/36 and, third, a risk control function and a compliance function.
206    According to module AT 5(3) of the MaRisk Circular, the credit institution is to ensure that business activities are conducted on the basis of organisational guidelines (for example, manuals, work instructions or workflow descriptions). The level of detail of the organisational guidelines is to depend on the nature, scale, complexity and riskiness of the business activities. Those guidelines must contain, inter alia, rules governing the organisation of the risk management and risk control processes.
207    By letter of 5 January 2022, in the last bullet point on page 2 and in the first two bullet points on page 3, BaFin stated that, in order to implement the business plan, an adjustment of the target bank’s business organisation rules, within the meaning of Paragraph 25a(1) and Paragraph 25b of the KWG, was necessary. It asked the proposed acquirers to explain in the form of a comparison between the objectives and the actual situation whether adjustments were foreseen by the time the target bank was to start operating and what the adjustments were. It asked them to provide an appropriate timetable for the implementation of the steps. It stated that that comparison had to be presented in the form of a table and that the proposed acquirers would receive the corresponding table by email. It asked them to describe in detail the planning of the new direction of the management and control functions of the institution as regards the implementation of the business model and the assessment of the risks associated with that model. Lastly, it asked them to provide a list of organisational guidelines which needed to be adjusted in relation to that model and, if those guidelines were to be adapted, the relevant draft documents.
208    As the applicants claim, the initial business plan, on page 113 et seq., sets out the planned internal structure and the various responsibilities. It states that, as the target bank grows, it is foreseeable that the advisory board will be changed to a supervisory board and that, at that point, the composition of the board will be reconsidered. It also states there is an intention to internalise internal audit and compliance functions to take account of an increased workload with a foreign client base and to meet the highest international standards.
209    However, although the proposed acquirers planned to commence new activities (corporate banking and trade financing as well as concierge services) and internalise internal audit and compliance functions, the applicants do not state that the proposed acquirers provided, following BaFin’s letter of 5 January 2022, details as to the adjustment of the risk management and control processes, which must be included in the organisational guidelines.
210    In those circumstances, the Court finds that the ECB did not make a manifest error of assessment in finding that the information provided by the proposed acquirers raised serious doubts as to the adequacy of the internal control framework for the nature, scale, complexity and riskiness of the commercial activities which the proposed acquirers planned for the target bank.
(4)    The staff of the target bank
211    In paragraph 2.29 of the contested decision, the ECB found that the staff envisaged by the proposed acquirers were not sufficient to ensure that it had a proper business organisation. Even though the target bank intended to start business operations in the first year following the proposed acquisition, in particular as regards the syndication of loans, deposit taking, corporate banking and trade financing, the proposed acquirers planned to hire new full-time equivalents (FTEs) for those activities only in the third year. Also, no additional FTEs were planned to be hired for the risk function.
212    The BaFin proposal states, on pages 61 to 67, that the target bank employed 13 people, some of whom were part-time employees, so that the total number of FTEs was less than 13. It states that, on 1 February 2022, the proposed acquirers confirmed that the personnel capacities were to be supplemented at the time the target bank restarted its business operations and that there was no immediate need for significant additional staff. The proposed acquirers stated that, if additional capacity was required, that could be acquired at short notice or ‘purchased’ externally. For the first two years following the proposed acquisition, the personnel planning provides for only three additional FTEs. The tables provided are partly inconsistent as regards the distribution of those FTEs between the ‘Origination/Marketing Sales’ department and the ‘Consultants/Concierge Services’ department. No additional staff resources have been foreseen for real estate financing and outplacement, even though real estate financing is the core element of the business model. Similarly, personnel capacities are not planned for the corporate finance and trade financing business area until the third year. As regards concierge services, during the first year, one FTE is planned for the development of the partner network, customer acquisition and support for the three core business areas, which seems to be calculated very progressively. BaFin concluded that, in view of the planned business model, the staffing level in the first two years is insufficient and is not in line with module AT 7.1 of the MaRisk Circular.
213    The applicants claim that the planned new business will grow gradually and that there is therefore no immediate need for substantial additional staff. In the reply, they state that, even though the target bank was inactive, it employed 15 FTEs (five of which were in ‘Risks and Compliance’ and ‘Finance’ departments) which were underoccupied. They submit that, as is apparent from pages 39 to 44 of the replies to the questions of 10 July 2020, the plan was to maintain the outsourcing of risk management functions for the first two years and then to double the staff dedicated to that function within five years. For a period of three years, only a limited amount of pilot transactions, which would be carried out with the assistance of service providers and consultants, would be carried out in the field of trade financing, using existing processes and procedures. As a first step, the risk management team already in place and its outsourcing partner could be responsible for the euro deposit business and the mortgage business, where the target bank had relevant experience. Over time, new risk experts would be added and would bring experience in new business areas such as USD deposits and trade financing. Those additional experts would be hired six to nine months before the launch of a new business line, so that they can work with the business team and consultants to set up the relevant new business.
214    According to point 4 of the third sentence of Paragraph 25a(1) of the KWG, risk management covers, inter alia, adequate staff and technical and organisational resources for the credit institution.
215    According to module AT 7.1 of the MaRisk Circular, the quantity and quality of the institution’s staffing are to be commensurate, in particular, with its internal operational needs, business activities and risk situation.
216    As the applicants maintain, the staff of the target bank, which at that time was essentially inactive, were indeed in a position to cope with an additional workload.
217    However, as is apparent from the BaFin proposal, prior to the proposed acquisition, the target bank had fewer than 13 FTEs, and not 15 FTEs as the applicants maintain, without adducing evidence to contradict BaFin’s assessment.
218    Moreover, the fact that the staff of the target bank may be able to cope with an additional workload is not sufficient to justify the fact that, as is apparent from the BaFin proposal, the proposed acquirers did not propose any significant additional staff capacity before the third year, with the exception of concierge services, whereas new, significant business presenting risks and in respect of which, in some instances, the staff of the target bank had no prior experience had to begin in the first year.
219    In that regard, it is apparent from page 3 of the replies to the questions of 10 July 2020 that the syndicated loan business, the USD deposits business and the corporate banking services business was to commence in the first year. As regards trade financing, the proposed acquirers stated that they expected a total turnover for that business of EUR 160 000 in the first year and EUR 610 000 in the second year. Although that turnover remains limited, that did not exempt the target bank from complying with its obligation to put in place adequate technical and organisational resources and staff, in accordance with point 4 of the third sentence of Paragraph 25a(1) of the KWG.
220    Consequently, the ECB did not make a manifest error of assessment in finding that the planned staff were not sufficient to ensure that the target bank had a proper business organisation.
(5)    Outsourcing
221    In paragraph 2.30 of the contested decision, the ECB found that the information provided by the proposed acquirers on the changes related to outsourcing did not contain concrete plans. It remained unclear how the future set-up as regards the outsourcing activities would be arranged.
222    On pages 67 and 68 of the BaFin proposal, BaFin took the view that, in accordance with Paragraph 25b of the KWG, read in conjunction with module AT 5(3)(f) and module AT 9 of the MaRisk Circular, every institute is to implement organisational guidelines which are to contain the rules governing procedures for material outsourced activities and processes. The business plan stated that there was an intention to internalise internal audit and compliance functions. In addition, the proposed acquirers indicated that the target bank may consider using fintech companies to assist it in its anti-money laundering, counter-terrorist financing and know-your-customer processes. The business plan was contradictory in that it stated that it was appropriate to internalise those activities while taking the view that no change in relation to outsourcing policy was planned for at least the next two years. Furthermore, the applicants’ latest submission explained that the payment services were to be outsourced in part according to an implementation schedule of 6 to 24 months after the cancellation of the measure prohibiting deposit-taking and lending. However, contrary to what was requested by BaFin, no policies or drafts which explain the planned processes regarding the future outsourcing set-up were submitted.
223    The applicants submit that the ECB’s assertions are incorrect and erroneous. The proposed acquirers set out comprehensively in the business plan which functions were then outsourced and indicated that the plan was to internalise those functions. They also stated that the bank intended to use a fintech company to support the anti-money laundering, counter-terrorist financing and know-your-customer processes. The wire transfer and treasury management were also to be outsourced in part to existing or new providers after the qualification holding procedure had been completed. The corresponding contracts and structures were to be implemented thereafter. The planned timetable for implementation was 6 to 24 months after the lifting of the prohibition on deposit-taking and lending. It is not clear what further details were necessary, with the result that the contested decision does not satisfy the requirements under the obligation to state reasons laid down in Article 296(2) TFEU.
224    Paragraph 25b(1) of the KWG provides:
‘An institution shall, depending on the nature, scope, complexity and riskiness of outsourcing to another undertaking activities and processes that are material to the execution of banking business, financial services or any of an institution’s other usual services, make appropriate arrangements in order to avoid incurring excessive additional risks. Outsourcing shall impair neither the proper execution of such business and services nor the business organisation within the meaning of Paragraph 25a(1). In particular, the institution shall ensure ongoing appropriate and effective risk management that includes the outsourced activities and processes. …’
225    Module AT 5(3)(f) of the MaRisk Circular states that the organisational guidelines must, inter alia, contain rules governing the procedures for outsourced activities and processes.
226    The seventh sentence of Paragraph 15(1) of the InhKontrollV provides that the information provided by the proposed acquirer on the consequences for the corporate and organisational structure of the target entity includes, inter alia, the effects on the principles for the outsourcing of commercial activities and processes to other entities or persons.
227    In so far as the applicants claim that the contested decision does not state what details would have been necessary in order for the business plan to include a sufficiently specific plan as regards the outsourced activities, the Court notes that the BaFin proposal indicates that the proposed acquirers did not explain the planned processes concerning the future outsourcing set-up and referred in that regard to module AT 5(3)(f) and module AT 9, headed ‘Outsourcing’, of the MaRisk Circular. The argument must therefore be rejected.
228    Furthermore, in view of the significant changes that the proposed acquirers intended to make with regard to the outsourcing of activities, in particular by outsourcing payment services, the ECB was entitled to require, in application of the seventh sentence of Paragraph 15(1) of the InhKontrollV, details of the procedures relating to outsourced activities.
229    In spite of BaFin’s letter of 5 January 2022, in which it asked the proposed acquirers to provide a list of organisational guidelines which had to be adapted to the planned business model, the proposed acquirers did not provide any details as to how they intended to adapt the procedures relating to outsourced activities.
230    In those circumstances, it was reasonable for the ECB to find that it remained unclear what the future organisation of the target bank would be as regards the outsourced activities.
231    Since that complaint is unfounded, the plea must be rejected in its entirety.
4.      The fifth plea in law, alleging infringement of point 5 of the first sentence of Paragraph 2c(1b) of the KWG as regards the risk of money laundering and terrorist financing
232    In paragraphs 2.33 to 2.35 of the contested decision, the ECB found that, according to its own assessment and BaFin’s assessment, there were reasonable grounds to believe that the proposed acquisition would increase the risk of money laundering and terrorist financing. The complete traceability of the origin of the funds for the proposed acquisition and cash flows could not be verified. The unclear motivation for the proposed acquisition added further concerns. In addition, the proposed business model entailed a generally increased money laundering and terrorist financing risk due to the envisaged new lines of business, such as international trade finance, and due to the future customer structure.
233    Over pages 2 to 5 of the BaFin proposal, BaFin stated that the funds used by PH for the proposed acquisition essentially came from the sale of his former software-based asset management business. That business was allegedly held through two wholly owned holding companies, one of which being entity B, established in China, and the other being entity C, established in the British Virgin Islands. Entity B received fee revenue, by relying on software developed internally, from three funds established in the Cayman Islands, including entity D. The fees received by entity B and entity C were converted into shares in entity D. That business was acquired, through an asset purchase agreement signed on 31 July 2019 (‘the asset purchase agreement’), by entity E and entity F, two companies incorporated in the Cayman Islands.
234    On pages 71 to 73 of the BaFin proposal, BaFin maintained that there was no evidence that money laundering activities were committed or attempted by the proposed acquirers. However, it pointed out that, according to the Joint Guidelines, the supervisory authority should oppose the proposed acquisition if it increases the risk of money laundering or terrorist financing. The scope of the assessment covers, in addition to the reputation of the proposed acquirer, the source and chain of the funds to finance the proposed acquisition and the impact of the proposed acquisition, from an anti-money laundering and counter-terrorist financing perspective, on the target bank’s business plan and on the management and organisational structure of the target bank.
235    First, as regards the impact of the proposed acquisition on the target bank’s business plan, BaFin maintained that there was no indication of misuse of the target bank for money laundering or terrorist financing purposes by the proposed acquirers in general. However, the planned business model entailed a generally increased money laundering and terrorist financing risk due to the new lines of business and future customer structure. It would be appropriate to monitor closely how the target bank would tackle that increased risk and what measures would be taken.
236    Second, as regards the source and chain of the funds intended to finance the proposed acquisition, BaFin maintained that the proposed acquisition and the future capital increase of the target bank was to be paid by funds raised by PH by the sale of the asset management business he owned previously in the context of the asset purchase agreement. Entity F, which was a purchaser under the asset purchase agreement and is a company incorporated in the Cayman Islands, paid via its 100% subsidiary, which is also incorporated in the Cayman Islands, directly into PJ’s account. Although BaFin received, after various requests, vast amounts of documentation from the proposed acquirers, the origin of the funds intended to be used to pay for the proposed acquisition was still not fully traceable. The underlying financing structure and the respective flow of funds (asset purchase agreement and connected business) was highly complex, involving multi-layered corporate structures (mainly in the Cayman Islands). BaFin could not verify the value of the underlying transactions and former business assets of PH. The overall consideration under the asset purchase agreement was paid, first, for the software and, second, for the acquisition of the shares in entity D held by PH through his holding company C. PH had obtained those shares as compensation for his sub-management services of three Cayman Islands funds. BaFin could not verify the value of the shares in entity D or the reasonableness of the underlying fee arrangements. It also had difficulties in verifying the value of the software sold under the asset purchase agreement, and the valuation report submitted by the proposed acquirers relied solely on the market approach (focusing on market comparable companies). As the most appropriate market comparable companies for the valuation of the business assets sold under the asset purchase agreement, the report listed companies which were hard to compare with PH’s business. The income approach could not be applied by the auditors who drew up the valuation report, because reliable and justifiable profits and cash flows projections could not be provided Consequently, BaFin could not verify the value of the assets sold under the asset purchase agreement. The generation of funds for the acquisition involved a multi-layered network of offshore companies, mainly incorporated in the Cayman Islands, which increased the risk of money laundering by facilitating the disguising of cash flows within the company structure.
237    Third, BaFin maintained that the reasons for the proposed acquisition remained unclear. PH stated that there were no major quantifiable synergies between the companies held by him then and the target bank. Nevertheless, he was prepared to invest the major part of his assets in an institution which has not been active for years and is subject to severe supervisory measures, which will not automatically be lifted after completion of the proposed acquisition.
238    First, the applicants claim that the ground for the contested decision alleging the proposed acquisition will increase the risk of money laundering or terrorist financing in the target bank is unsubstantiated. Second, the relevant activities of the proposed acquirers do not show any indication that ought to raise a suspicion of money laundering or terrorist financing. Third, the origin of the funds for the proposed acquisition has been proved. Fourth, the applicants claim that anti-money laundering and counter-terrorist financing policies cover the businesses originally operated by the target bank and will be aligned with the relevant obligations when Asian clients are added. Given that the extent of that adaptation will depend on the actual development of the business, the ECB could not at the proposed acquisition stage make a blanket assumption that the requirements would not be met.
239    The ECB, supported by the Commission, disputes that line of argument.
240    According to point 5 of the first sentence of Paragraph 2c(1b) of the KWG, which transposes Article 23(1) (e) of Directive 2013/36, the supervisory authority may prohibit the proposed acquisition of a qualifying holding if the facts justify the assumption either that money laundering or terrorist financing, within the meaning of Article 1 of Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing (OJ 2005 L 309, p. 15), now Article 1 of Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC (OJ 2015 L 141, p. 73), is taking place or took place on the occasion of the proposed acquisition, or that those offences were attempted or the proposed acquisition could increase the risk of such conduct.
241    In the first place, the applicants claim that the ECB failed to state the reasonable grounds for finding that the proposed acquisition would increase the risk of money laundering or terrorist financing.
242    However, the ECB stated, in paragraph 2.34 of the contested decision, that its assessment was based on the origin of the assets used for the proposed acquisition. It added that the unclear motivation for the proposed acquisition also raised concerns. It also found that the business model envisaged entails a generally increased money laundering and terrorist financing risk. Those three factors are explained on pages 71 to 73 of the BaFin proposal, as stated in paragraphs 234 to 237 above.
243    The applicants’ line of argument must therefore be rejected.
244    In the second place, the applicants claim that the relevant activities of the proposed acquirers do not present any indication that ought to raise a suspicion of terrorist financing or money laundering.
245    However, first, BaFin itself maintained that it was not aware of relevant activities of the proposed acquirers as far as concerns the risk of money laundering and terrorist financing and that there was no evidence that money laundering activities were committed or attempted by the proposed acquirers.
246    Second, those factors do not prohibit the competent authorities from opposing the proposed acquisition on other grounds on the basis of Article 23(1)(e) of Directive 2013/36.
247    As is clear from the wording of that article, it is sufficient that there are reasonable grounds to suspect that the proposed acquisition could increase the risk of money laundering or terrorist financing in order for the competent authorities to be able to oppose the proposed acquisition.
248    The first subparagraph of paragraph 14.4 of the Joint Guidelines states, moreover, that, even in the absence of criminal records or reasonable grounds to suspect that money laundering is being committed or attempted, the target supervisor should oppose the acquisition if the context of the acquisition would give reasonable grounds to suspect that there will be an increased risk of money laundering or terrorist financing.
249    The applicants’ argument must therefore be rejected.
250    In the third place, the applicants claim that the origin of the funds for the proposed acquisition has been proved. PH provided detailed documents on his income as an employee, including his tax reports, as well as documents concerning the loans and donations from his family and friends who helped him to start his business. He provided a comprehensive summary of the existence, use and development costs of the software. As regards the software, he provided, inter alia, the login details of one of the many modules, the source code for a particular sub-module and screenshots. With regard to expenses for the development and maintenance of the software, he provided an Excel spreadsheet detailing the expenses and allocations to the respective funds, contracts and invoices of service providers, and extracts from the fund prospectuses. Those documents prove that the software exists, that it is used and that substantial development costs (USD 8.5 million) were incurred for external software engineers. The value of the software or the asset management activity is also demonstrated by the asset purchase agreement. That value was made plausible by the submission of the complete documentation for the three investment funds over three years, including financial reports proving the fees charged by PH or his asset management companies, with documents drawn up in Chinese being accompanied by certified translations. The proposed acquirers sent confirmations from entity G, the service provider managing entity C, which proved the number of shares acquired by the latter, the price per share and the overall value of the shares on the dealing days. PH asked entity F to instruct an auditor to draft a valuation report based on a recognised method for the business sold. By requiring an income approach, the ECB demands the impossible, because PH was no longer able to force entity F to deliver projections covered by professional secrecy. BaFin required information which was not in the gift of the proposed acquirers, namely the balance sheet of entity F. However, entity F is not required to publish its balance sheets under the law of the Cayman Islands and has provided, by way of courtesy, a letter containing an excerpt from its accounting journal.
251    According to Paragraph 14 of the InhKontrollV, headed ‘Financing, disclosure of all agreements’, a full and informative description and adequate and complete evidence of the existence and origin of the own funds and external funds which have been or are to be used for the acquisition or increase, as well as all agreements and contracts concluded in connection with the acquisition or increase, must be attached to the notifications.
252    Moreover, according to Section 9(2) of Annex I to the Joint Guidelines, headed ‘Information relating to the financing of the proposed acquisition’, the explanations on the specific sources of funding for the proposed acquisition are to include, inter alia, information on assets of the proposed acquirer or target undertaking which are to be sold in order to help finance the proposed acquisition, such as conditions of sale, price, appraisal and details regarding their characteristics, including information on when and how the assets were acquired.
253    Paragraph 14.5 of the Joint Guidelines states that the supervisory authorities of the target bank should also assess information regarding the source of the funds that will be used for the proposed acquisition, including both the activity that generated the funds, as well as the means through which they have been transferred, to assess whether that may give rise to an increased risk of money laundering or terrorist financing. Supervisory authorities should verify, inter alia, that information on the activity that generated the funds, including the history of the business activities of the proposed acquirer, and on the financing scheme is credible and consistent with the value of the deal and that the funds have an uninterrupted paper trail back to their origins, or other information that allows the supervisory authorities to resolve all doubts as to their legal origin.
254    Paragraph 14.6 of the Joint Guidelines states that, should the supervisory authority for the target be unable to verify the source of funds in the manner described in paragraph 14.5, it should consider whether the explanation provided by the proposed acquirer is reasonable and credible, having regard to the outcome of the proposed acquirer’s integrity assessment.
255    In the present case, the evidence produced by the applicants is not sufficient to call into question BaFin’s assessment, on which the ECB relied and according to which the value of the assets sold under the asset purchase agreement cannot be verified.
256    In particular, while it is not disputed by the ECB that the software sold under the asset purchase agreement exists and that it is of significant value, the documents produced by the applicants as regards that software, in particular those relating to its development costs, do not provide an estimate of its value. Similarly, the statement of entity G, the service provider managing entity C, which indicates the number of shares acquired, the price per share and the overall value of the shares, is not comparable to an auditor’s report and is not sufficient to confirm the value of the PH’s shareholding in entity D.
257    It is true that the auditor’s report produced by the applicants in order to assess the value of the assets sold under the asset purchase agreement does indeed indicate that, on a market approach, the value of the asset management company based on that software was assessed correctly.
258    However, first, that report also mentions, on page 6, that an income assessment could not be carried out because reliable and supportable profits or cash flow projections could not be provided. In that regard, even though the applicants claim that they could not require a third party to provide information covered by professional secrecy, the fact remains that that method of assessment could not be implemented.
259    Second, the applicants are not justified in claiming that the ECB required an income approach, given that, according to the BaFin proposal on which the ECB relied, in so far as the auditor’s report is based on public sources of information to assess the assets using a market approach, the companies to which the software has been compared cannot be fully compared with that software. The applicants have not adduced any evidence to call that finding into question.
260    Furthermore, the applicants do not dispute that the financing structure underlying the proposed acquisition and the respective flows of funds are very complex, involving a multi-layered network of offshore companies, mainly incorporated in the Cayman Islands, and that the involvement of those companies increases the risk of money laundering by facilitating the disguising of cash flows within the company structure.
261    In that regard, under the asset purchase agreement, one of the purchasers is entity F, a Cayman Islands company, which makes the payment through a 100% subsidiary, which is also incorporated in the Cayman Islands. PH’s shares in entity D, a Cayman Islands company, are held by him through holding company C, a British Virgin Islands company. PH obtained those shares in return for his sub-management services of three funds situated in the Cayman Islands.
262    The Court notes that, according to the second subparagraph of paragraph 14.4 of the Joint Guidelines, the context of the acquisition could give reasonable grounds to suspect that there will be an increased risk of money laundering or terrorist financing, for example, if the proposed acquirer is established in, or has relevant personal or business links itself (or through any family member or persons known to be close associates) with a country or territory the Financial Action Task Force identified as having strategic deficiencies that pose a risk to the international financial system or with a country or territory identified by the Commission as having strategic deficiencies in its national anti-money laundering or counter-terrorist financing regime that pose significant threats to the financial system. In any case, particular attention should be paid where the legislation of the third country does not permit the application of anti-money laundering and terrorist financing combating measures consistent with those applicable in the European Union. Competent authorities should also consider the relevant reports of organisations such as Transparency International, the Organisation for Economic Co-operation and Development (OECD) and the World Bank.
263    On the date of the contested decision, the Cayman Islands were included, first, on the list of jurisdictions actively working with the Financial Action Task Force to address the strategic deficiencies of their regimes to counter money laundering, terrorist financing and proliferation financing and, second, on the list of third countries which have strategic deficiencies in their anti-money laundering and countering the financing of terrorism regimes that pose significant threats to the financial system of the Union, established by Commission Delegated Regulation (EU) 2016/1675 of 14 July 2016 supplementing Directive (EU) 2015/849 of the European Parliament and of the Council by identifying high-risk third countries with strategic deficiencies (OJ 2016 L 254, p. 1), as amended by Commission Delegated Regulation (EU) 2022/229 of 7 January 2022 (OJ 2022 L 39, p. 4).
264    Thus, in view of the origin of the funds intended to finance the acquisition and the financing structure of the transaction – which is very complex and involves offshore companies established in, inter alia, a State with strategic deficiencies in its anti-money laundering and counter-terrorist financing regime – and the documents provided by the interested parties – which are indeed numerous, but which did not allow the value of the business sold to finance the proposed acquisition to be fully verified – the ECB did not make a manifest error of assessment in finding that the complete traceability of the origin of the funds intended for the proposed acquisition could not be verified.
265    In the fourth place, the applicants claim that anti-money laundering and counter-terrorist financing policies cover the businesses originally operated by the target bank and will be aligned with the relevant obligations when Asian clients are added. Given that the scale of that adaptation will depend on how the business actually develops, the ECB could not, at the stage of the proposed acquisition, make a blanket assumption that the requirements would not be met. Depending on the type, complexity and scope of the development of the business, it was instead necessary to reassess whether the requirements of Paragraph 25h KWG would be met in the future.
266    In that regard, the Court finds that neither the ECB nor BaFin assumed that the target bank would not meet the anti-money laundering and counter-terrorist financing requirements after the proposed acquisition.
267    As stated in paragraph 235 above, as regards the impact of the proposed acquisition on the target bank’s business model from the perspective of combating money laundering and terrorist financing, according to the BaFin proposal, on which the ECB relied, it will be necessary to ‘closely monitor’ how the target bank will tackle that increased risk and what organisational measures will be taken to mitigate adequately that risk.
268    In particular, as is apparent from pages 69 and 70 of the BaFin proposal, BaFin did not find any infringement of the provisions of Paragraph 25h of the KWG. As regards compliance with the prudential requirements relating to the business organisation, BaFin stated that, as far as concerns compliance with the provisions on combating money laundering and terrorist financing, even though the initial business plan provided only a very superficial description of the organisational and procedural measures, the proposed acquirers had provided additional information on 1 February 2022, in particular a draft of the envisaged anti-money laundering and counter-terrorist financing process and that the documents submitted were formally in accordance with German law. It concluded that it would be necessary to reassess in the future, depending on the type, complexity and scope of the development of the business, whether the requirements of Paragraph 25h of the KWG would be met.
269    In that context, the applicants’ argument that the ECB could not, at the stage of the proposed acquisition, assume that the anti-money laundering and counter-terrorist financing requirements would not be met after the proposed acquisition, must be rejected as ineffective.
270    The plea must therefore be rejected.
5.      The first plea in law, alleging infringement of point 1 of the first sentence of Paragraph 2c(1b) of the KWG as regards the reliability of the proposed acquirers
271    Turning to the reputation of the proposed acquirers, the ECB found in the contested decision, as has already been stated, that neither the sub-criterion of integrity nor that of professional competence referred to in the Joint Guidelines was satisfied.
272    The applicants submit that, in its assessment of the proposed acquirers’ integrity of the proposed acquirers, the ECB unlawfully denied that the proposed acquirers had a good reputation.
273    The ECB, supported by the Commission, disputes that line of argument.
274    It is necessary to examine each of the factors taken into account by the ECB in its assessment of the integrity of the proposed acquirers.
(a)    Lack of clarity of the reasons for the proposed acquisition
275    In paragraph 2.4 of the contested decision, the ECB found that the reasons for the proposed acquisition and the reason for the investment remained unclear, despite several requests for clarification sent in that regard by BaFin. First, it observed that PH was willing to pay a purchase price above the net asset value of the target bank, despite EUR 4 million already having been contributed to the target bank. Second, it observed that PH was willing to invest in a credit institution which had not been active for several years, was subject to severe supervisory measures and required a complete new start of business. Third, it observed that PH was willing to invest in a credit institution which would create no comprehensible synergies with the other group of companies which he already controlled. Fourth, it observed that PH was prepared to use a considerable amount of his assets for the investment, without any business partners who would share the intrinsic risks of the proposed acquisition. Fifth, it observed that PH was prepared to implement a business plan with high uncertainty regarding its implementation, strategy and any type of economic benefit for him.
276    The applicants claim, first, that the ECB erred in law by failing to take into account the explanations provided in the administrative procedure. Second, the economic sense of an investment is not a criterion for assessing the good repute of the proposed acquirers. Third, in the reply, the applicants claim that the reasoning to the effect that the purchase of a company at a price above its net asset value raises doubts as to the motives of the acquirer is incorrect. Fourth, PH sold his asset management business during the qualifying holding procedure, with the result that it was no longer possible to leverage the synergy effects with the asset management company.
277    In the first place, the applicants claim that the ECB erred in law by failing to take into account the explanations of the proposed acquirers. The business plan submitted to BaFin clearly shows the reasons for the proposed acquisition.
278    The applicants claim that the target bank will bridge business between Europe and Asia and will exploit opportunities arising from the clear flight to safety of capital from China and other regions in Asia due to social unrest and the ongoing US-China trade war. Germany has garnered a reputation as an attractive, well-regulated market. Due to the limited choice of banks willing and able to serve SMEs in Asia and the excessive pricing of basic banking services, it has become difficult for SMEs ‘especially if they are non-resident or non-resident owned from Taiwan and elsewhere’ to open and maintain bank accounts throughout Asia. The proposed acquisition will enable PH’s group to provide a more complete service offering, retain existing clients and attract additional clients.
279    Contrary to what is claimed by the applicants, the ECB took into account the information provided by the proposed acquirers, in particular the extract from pages 24 to 27 of the initial business plan to which reference is made in the application, as evidenced, for example, by paragraph 1.6 of the contested decision, which sets out the reasons for the proposed acquisition as set out in the business plan. It nevertheless found that the motivation for the proposed acquisition was not clear for the reasons set out in paragraph 2.4 of the contested decision.
280    The argument must therefore be rejected.
281    In the second place, the applicants claim that the ECB’s assessment is based solely on the lack of economic justification for the proposed investment, whereas the economic justification for an investment is not a criterion for assessing the reputation of the proposed acquirers.
282    According to point 1 of the first sentence of Paragraph 2c(1b) of the KWG, which transposes Article 23(1)(a) of Directive 2013/36, the supervisory authority may prohibit the proposed acquisition of a qualifying holding if the facts justify the assumption that the person subject to a notification obligation or, in the case of a legal person, a statutory representative or a representative under the documentation establishing that legal person, or in the case of a trading partnership, a partner, is unreliable or, for other reasons, does not meet the requirements for the sound and circumspect management of the institution; where there is doubt as to the above, that provision is to apply where the facts justify the assumption that the funds raised to acquire a qualifying holding were obtained by means of an act that objectively constitutes a criminal offence.
283    First, the proposed acquirers were required to explain the reasons for the proposed acquisition.
284    Under point 1 of the fourth sentence of Paragraph 15(1) of the InhKontrollV, the information to be included in the business plan is to include the reasons for the proposed acquisition.
285    The Joint Guidelines provide, moreover, in paragraph 2 of Section 12 of Annex I that the strategic development plan should indicate the main goals of the proposed acquisition. They also state in point (f) of Section 7 of Annex I that the proposed acquirer must indicate to the supervisory authority the proposed acquisition price and the criteria used when determining such price and, if there is a difference between the market value and the proposed acquisition price, an explanation as to why that is the case.
286    Second, the lack of clarity in the reasons for the acquisition of a qualifying holding may give rise to doubts as to the integrity of the proposed acquirers. In particular, such a lack of clarity may lead the competent authority to question the real reasons for that acquisition.
287    The applicants’ line of argument must therefore be rejected.
288    In the third place, the applicants claim that the ECB’s reasoning that the purchase of a company at a price higher than its net asset value raises doubts as to the motives of the acquirer is incorrect, since it is common practice for investors to pay a mark-up for their investments. PH’s willingness to invest 40% of his assets in the target bank does not cast doubt on his integrity.
289    However, the Court finds that the applicants’ reasoning is general in nature. The applicants do not set out, in a sufficiently specific manner, the reasons why PH was prepared, in the circumstances of the present case, to make an investment at such a level in the target bank in conditions seemingly unfavourable in several respects, that is to say, at a price much higher than the value of the assets of the target bank, with no partner prepared to share the risk and without any possibility of synergies with his group.
290    In the fourth place, the applicants claim that PH sold his asset management business during the administrative qualifying holding procedure, with the result that it was no longer possible to exploit the synergy effects with the asset management business he owned previously.
291    In that regard, it is clear from page 29 of the initial business plan that the creation of synergies between PH’s group and the target bank was one of the reasons for the proposed acquisition.
292    When BaFin questioned the proposed acquirers about the synergy effects associated with the integration of the target bank into PH’s group, they stated, on page 5 of their replies to the questions of 10 July 2020, that no major quantifiable synergies were planned between the investment activities and the banking activities, which should be regarded as separate activities.
293    Although the applicants claim, for the first time in the reply, that the absence of synergies between PH’s group and the target bank is explained by the fact that PH sold his asset management business during the administrative procedure, the Court observes that the asset purchase agreement is dated 31 July 2019, that is to say, before the initial business plan was sent to BaFin.
294    In those circumstances, the sale of PH’s asset management business does not justify the apparent contradiction, as regards the synergies between his group and the target bank, between the initial business plan and the subsequent statement of the proposed acquirers in their replies to the questions of 10 July 2020.
295    In the fifth place, the Court finds that the lack of clarity in the reasons for the proposed acquisition was, in the present case, sufficiently serious to raise doubts as to the integrity of the proposed acquirers. In view of that lack of clarity, it was reasonable for the ECB to question the real reasons for the proposed acquisition.
296    The applicants’ line of argument must therefore be rejected.
(b)    The risk appetite of PH
297    In paragraph 2.5 of the contested decision, the ECB found that PH’s high risk appetite raises doubts as to the prudence of his intended investment. It found that the behaviour and statements made by PH gave the impression that he viewed the investment like any other (venture) investment made in the past outside the banking industry and did not take into account the particularities with regards to an acquisition of a controlling stake in a credit institution. That risky investment approach cast doubts as to whether the proposed acquirers would implement sound and prudent management and take the investment seriously in particular in light of the applicable regulatory framework and taking into account the situation of the target bank, that is to say, a credit institution which has not been conducting banking business for many years and is lacking the accordant basic business organisation.
298    The applicants submit that the view that finding that a high risk appetite raises doubts as to the prudence of PH constitutes an inadmissible assessment criterion and that, in any event, there is no basis for such a finding. It is impossible to know the basis for the ECB’s conclusion that PH made high-risk investments in the past. Furthermore, the previous business conduct of PH is an expression of low-risk behaviours, his business success being based on a quantitative trading software which he developed himself. That business was no riskier than what was normal and was compliant with the regulatory requirements.
299    The ECB maintains that it was entitled to take into account PH’s high risk appetite. Integrity requirements are not limited to the absence of ‘negative records’. Paragraph 2.5 of the contested decision does not call into question past investments of PH in the field of asset management, but such activities are not comparable to investment in a credit institution which is subject to strict regulatory requirements. The fact that, notwithstanding those limits, PH envisaged investing a large share of his wealth without a plausible explanation of a reasonable investment return in the short and medium term gave rise to concern that he viewed the proposed acquisition to be like any other (venture) investment made in the past outside the banking sector, which raised doubts as to whether the proposed acquirers would take the investment seriously in the light of the applicable regulatory framework. The proposed acquirers might, in the future, be more focused on trying to recoup their significant investment rather than on implementing sound and prudent management in line with legal requirements. That was evidenced by the fact that the business plan refers to growth plans, but makes very little reference to how the risk management and governance processes of the target bank should be adapted to the intended resumption of banking activities. The ECB refers, in general terms, to the arguments in the defence relating to the fourth plea (assessment of the target bank’s ability to comply with prudential requirements), as regards the definition of a business strategy, the processes for determining and safeguarding internal capital adequacy, internal control mechanisms, staffing and arrangements for outsourcing.
300    In the first place, as was stated in paragraphs 92 to 95 above, the Court must reject the applicants’ argument that it is impossible to know the basis for the ECB’s conclusion that PH made high-risk investments in the past.
301    In the second place, in so far as the applicants claim that the asset management business previously owned by PH was not risky, that argument must be rejected as having no factual basis, since, as stated in paragraph 91 above, PH’s lawyer stated that he was a risk-taking investor.
302    In the third place, the fact that the applicant has, in the past, behaved in accordance with the law in the context of his asset management business does not call into question the ECB’s assessment that PH’s willingness to invest a large share of his assets in the target bank without a plausible explanation of a reasonable investment return in the short and medium term shows a high risk appetite.
303    The applicants’ line of argument must therefore be rejected.
(c)    The poor quality of the information provided
304    In paragraph 2.6 of the contested decision, as stated in paragraph 96 above, the ECB found that the actions of the proposed acquirers, in particular the poor quality of the information provided, and the late and incomplete submission of the information required, also raised concerns as to whether the proposed acquirers possessed the necessary understanding of the importance of complying with the applicable regulatory framework.
305    In paragraph 2.12 of the contested decision, as stated in paragraph 99 above, the ECB provided clarification on the poor quality of the information provided.
306    In addition, on page 23 of the BaFin proposal, BaFin stated that, in the light of the poor quality of the business plan, it had doubts as to the awareness and understanding required by PH of the importance of complying with supervisory regulations. In the part of the BaFin proposal headed ‘Overall remarks’, on pages 33 to 35, and in the part of the BaFin proposal headed ‘Professional competence as controlling shareholder’, on pages 26 and 27, to which page 23 of the BaFin proposal refers, it stated that the documents provided throughout the procedure revealed a multitude of inconsistencies and missing details even after repeated requests. There was a lack of consistency when comparing different submissions (initial business plan, addendum and new financial documents), but also inconsistencies within one document (initial business plan). It also stated that the financial projections and envisaged governance structures showed that the significant growth assumptions expected by the proposed acquirers in all business segments were based on implausible assumptions, that the assumptions as to the bank’s staffing were unrealistic, that the total risk exposure amount had not been calculated in compliance with the requirements of Regulation No 575/2013 and that, in a number of aspects, the business plan did not comply with the business organisation requirements under Paragraph 25a of the KWG.
307    The applicants submit that the criticism in paragraph 2.6 of the contested decision is incorrect.
308    In the first place, as has been stated in paragraphs 182 to 190 above, the applicants’ line of argument that the ECB was incorrect in so far as it found that the growth expectations of the proposed acquirers were based on assumptions which are difficult to understand must be rejected.
309    Furthermore, the applicants do not put forward any evidence capable of calling into question the ECB’s finding that there were multiple inconsistencies between the various submissions of the proposed acquirers.
310    Consequently, the applicants are not justified in claiming that the ECB erred in finding that the information submitted by the proposed acquirers was of poor quality.
311    In the second place, the applicants claim that the allegation that the information submitted was incomplete cannot be taken into account, since BaFin confirmed that the notification was complete. The information cannot have been sent late, since the proposed acquirers were not informed of the deadlines set.
312    In that regard, it is common ground that BaFin acknowledged receipt of a complete notification, in accordance with Article 23(2) of Directive 2013/36, as transposed into German law.
313    The ECB nevertheless submits that the consideration relating to the late and incomplete submission of the required information must be understood as meaning that, initially, the proposed acquirers did not provide numerous documents and that they took more than one year to send all the missing information, despite several requests for additional information with specific deadlines, which were not met by the proposed acquirers.
314    The ECB contends that the initial notification, dated 9 April 2020, covered only PH, which demonstrated a lack of understanding of the requirements for acquiring a qualifying holding in a credit institution. Almost all the documents that have to be submitted by a proposed acquirer were either not submitted at all or were submitted in a way that did not comply with the legal requirements. BaFin informed PH on 8 May 2020 that his notification was incomplete and then, by letter of 19 June 2020, advised him that the business plan submitted was incomplete and asked PH to provide, inter alia, capital projections. After reminders from BaFin, the proposed acquirers supplemented the business plan on 12 October 2020 with a severe stress test scenario. By letter of 25 August 2020, BaFin informed PH that his initial notification and the notifications of 9 and 14 July 2020 from PI and PJ were still incomplete and asked him to comply with its request by 20 October 2020 at the latest. The documents sent in response to BaFin’s request of 25 August 2020 were not sufficient. In three communications between November 2020 and May 2021, BaFin informed PH that the notifications remained incomplete and asked that they provided them by 15 June 2021 at the latest. Only on 15 June 2021 did PH file the ‘acquisition/increase’ form in the format required by law, that is to say, bearing his signature, whereas that signed form should have been attached to the initial notification, which BaFin had first drawn to his attention in that regard on 9 May 2020 and had requested by 20 October 2020 at the latest, something which illustrates the attitude which he displayed throughout the procedure. On 13 July 2021, BaFin informed PH that the notifications remained incomplete, in particular as regards the origin of the funds intended for the proposed acquisition. After three additional communications from BaFin, in which it detailed the missing information, BaFin finally acknowledged receipt of a complete notification on 6 December 2021.
315    In those circumstances, since the timeline of the stages of the procedure described above is not disputed by the applicants, even though BaFin acknowledged receipt of a complete notification on 6 December 2021, it is established that, before that date, the proposed acquirers were informed of the prescribed periods for submitting information, the deadlines for which had been set on 20 October 2020 and 15 June 2021, and that they did not communicate all the requested documents within those periods.
316    The applicants claim that the holding companies set up for the purpose of purchasing the target bank were not established until 18 May and 22 June 2020, with the result that the relevant notifications could not be submitted on 8 May 2020. BaFin’s claims were exceptionally extensive and unjustified, with the result that BaFin was responsible for the long duration of the procedure. No actual exclusion period was set before 23 February 2022. The proposed acquirers operated from a different economic area.
317    In that regard, the Court finds that the applicants have not shown that the ECB required documents in breach of the provisions of the InhKontrollV Regulation. Moreover, they do not set out precisely why they did not comply with each of the deadlines set by BaFin, in particular as regards the ‘acquisition/increase’ form and the information relating to capital projections.
318    Consequently, the ECB did not make an error of fact in finding that the proposed acquirers had initially submitted the required information late and incomplete.
319    In the third place, the Court finds that the quality of the information provided by the proposed acquirers was so poor that, without committing a manifest error of assessment, the ECB was entitled to take the view that that failure in terms of quality demonstrated a lack of awareness on the part of the proposed acquirers of the need to act in accordance with their obligations under the law of prudential supervision.
320    The applicants’ line of argument must therefore be rejected.
(d)    The role of A in the implementation of the business plan
321    In paragraph 2.7 of the contested decision, the ECB found that the proposed acquirers wanted A, who was prohibited from exercising his voting rights in the target bank because of his failure to comply with the obligation to notify the acquisition of a qualifying holding, to retain a role in the implementation of the business plan and to join the target bank’s advisory board. That intention added the ECB’s substantial doubts as to the integrity of the proposed acquirers.
322    The applicants submit, first, that, in so far as the ECB relies on the character of A in support of the ground relating to the doubtful integrity of the proposed acquirers, the contested decision has no legal basis, since that person is a third party and not the proposed acquirer. Second, the assessment was based on incorrect factual claims, since the target bank did not need to have an advisory board. Third, the proposed acquirers changed the business plan in order to meet BaFin’s requirements as regards A’s role. Fourth, the ECB incorrectly concluded that PH lacked good repute.
323    The ECB disputes that line of argument.
324    In the first place, the applicants submit that there is no legal basis, in particular in point 1 of the first sentence of Paragraph 2c(1b) of the KWG, allowing the ECB to take into account the character of A in order to find that there are doubts as to the integrity of proposed acquirers, since A is a third party in relation to proposed acquirers.
325    In that regard, the Court notes that Directive 2013/36, as transposed into German law, does not preclude the proposed acquirer’s lack of good repute from resulting from the latter’s relations with a third party.
326    It is possible that the choice by a proposed acquirer as regards his or her professional or personal relations may give rise to doubts as to his or her integrity and have negative consequences on the objective of the sound and prudent management of the credit institution concerned.
327    Moreover, paragraph 10.21 of the Joint Guidelines states that, when assessing the integrity of the proposed acquirer, the target supervisor may take into consideration the integrity and reputation of any person linked to the proposed acquirer, meaning any person who has, or appears to have, a close family or business relationship with the proposed acquirer.
328    The applicants’ argument must therefore be rejected.
329    In the second place, the applicants claim that the ECB’s assessment is based on incorrect facts, since the target bank did not need to have an advisory board. In that regard, the applicants rely on a statement by PH, dated 1 February 2022, according to which, since BaFin and the Federal Bank of Germany were dissatisfied with the target bank’s internal supervisory structure, PH intended, in the event of a positive conclusion of the qualifying holding procedure, to replace the structures of the target bank then in place with a supervisory board, which should also include at least one external member.
330    The Court observes that, in the initial business plan, the proposed acquirers stated that PH would appoint A to the advisory board, that, as the bank develops, the advisory board would become a supervisory board and that, at that stage, the composition of the supervisory board would be reconsidered. On page 7 of the replies to the questions of 10 July 2020, the proposed acquirers stated that A’s involvement in the advisory board would be limited to assisting in the smooth transfer of ownership and sourcing commercial opportunities.
331    It is clear from PH’s statement of 1 February 2022 that he intended to replace the structures of the target bank then in place with a supervisory board.
332    Given that PH’s statement was made after the initial plan and the replies to the questions of 10 July 2020, the Court finds that that statement nullified the proposed acquirers’ intention to invite A to participate in the target bank’s advisory board.
333    Although the ECB contends that, no matter which body of the target bank A was involved in, that is to say, a supervisory board or an advisory board of the target bank, the proposed acquirers intended A to play a role as an advisor to that bank, it does not refer to any document in support of its line of argument.
334    Consequently, the ECB must be regarded as having made an error of fact in finding, in paragraph 2.7 of the contested decision, that the proposed acquirers wanted A to join the target bank’s advisory board.
335    However, where some of the grounds in a decision on their own provide a sufficient legal basis for the decision, any errors in the other grounds of the decision have no effect on its operative part (judgments of 14 December 2005, General Electric v Commission, T‑210/01, EU:T:2005:456, paragraph 42, and of 15 January 2015, France v Commission, T‑1/12, EU:T:2015:17, paragraph 73).
336    In the present case, the Court observes that, despite the error of fact made by the ECB regarding the desire for A to join the target bank’s advisory council, the grounds of the contested decision set out in paragraphs 2.4, 2.5 and 2.6 thereof and the intention of the proposed acquirers to involve A in the implementation of the business plan are sufficient to justify the existence of doubts as to the integrity of the proposed acquirer. A fortiori, that error does not call into question either the existence of doubts as to the good repute of the proposed acquirers, which are also based on their lack of professional competence, or the operative part of the contested decision, which is also based on the fact that the financial soundness criteria were not satisfied and the fact that prudential requirements and anti-money laundering and counter-terrorist financing requirements were not met.
337    In the third place, the applicants claim that BaFin informed PH that it was not in favour of A’s involvement in the target bank’s future commercial activities. Consequently, PH forewent the advantages of having A serve as an advisor and changed the business plan to meet BaFin’s demands.
338    In that regard, it is clear from page 24 of the BaFin proposal and from the initial business plan that A and his group of companies had to play a very important role in the implementation of the business plan, in particular by allowing their network in Asia to be leveraged.
339    In the replies to the questions of 10 July 2020, the candidates qualified A’s role in the implementation of the business plan. They stated that A would assist the target bank in launching its new activities, that A’s business relationships would potentially be useful in sourcing new customers and new opportunities, but that the relationship with A should be characterised as occasional and that no corporate relationship with A’s group of companies was necessary.
340    Furthermore, even assuming that the proposed acquirers are referring to the addendum when they claim that they amended the business plan in order to meet BaFin’s demands, which they do not expressly state, the Court observes that the addendum does not refer to A. However, the relationship between the initial business plan and the addendum is not clear. Indeed, page 4 of the addendum states that the pillars of the business plan, key determinants of success, the business areas of focus for growth and the business plan implementation approach have been generally confirmed.
341    In those circumstances, it could not, in any event, be inferred from the addendum that the proposed acquirers had ultimately decided that A would not participate in the target bank’s future commercial activities.
342    Consequently, the ECB did not make an error of fact in finding that the proposed acquirers intended A to play a role in the implementation of the business plan.
343    In the fourth place, the applicants submit that the ECB was wrong to conclude that PH lacked good repute.
344    First of all, the applicants claim, for the first time at the stage of the reply, that A was not the ultimate beneficial owner of Socrates Capital at the time of the ‘first failure’ to meet the obligation to notify the acquisition of a qualifying holding in a credit institution.
345    In that regard, it is apparent from pages 16 and 17 of the BaFin proposal that, on 23 June 2017, Socrates Capital agreed to take over shares in the target bank without BaFin being notified beforehand. On 14 December 2017 and 22 and 29 January 2018, Socrates Capital, A and two holding companies sent an ex post notification to BaFin in respect of their intention to acquire a majority of the capital and of the voting rights in the target bank. The information requested by BaFin during the corresponding qualifying holding procedures remained incomplete despite multiple requests, in particular as regards the origin of the funds used to finance the proposed acquisition. Socrates Capital and A did not provide that information and made no efforts to do so subsequently. Consequently, on 19 February 2018, BaFin imposed a prohibition on the exercise of voting rights and other measures under Paragraph 2c(2) of the KWG on the majority shareholder on that date.
346    In those circumstances, the applicants’ claim that A was not the ultimate beneficial owner of Socrates Capital at the time of the ‘first failure’ does not call into question the finding, in paragraph 2.7 of the contested decision, that A is subject to a measure prohibiting him from exercising his voting rights as he did not meet the requirement to notify the proposed acquisition of a qualifying holding. The applicants do not dispute the fact that A did not provide the information requested by BaFin in the context of the ex post notification of 14 December 2017, 22 and 29 January 2018.
347    Furthermore, the applicants state that, even if A had infringed German banking law, that would not taint PH’s good repute, since that infringement did not amount to criminal conduct and, moreover, an advisory role does not generally entail any direct influence on business decisions.
348    However, first, even if a failure to meet the obligation to notify the acquisition of a qualifying holding by A does not constitute a criminal offence, it may be regarded as a serious infringement of the rules on prudential supervision of credit institutions, which, moreover, resulted in a severe prudential measure prohibiting the exercise of voting rights.
349    Second, the parties agree that the proposed acquirers were aware of the fact that A had failed to meet his obligation to notify the acquisition of a qualifying holding in a credit institution.
350    Third, the fact that, despite his involvement in the implementation of the business plan, A did not have to have a direct influence on the decisions of the target bank does not call into question either the fact that that involvement was genuine and was non-negligible in nature or the fact that the proposed acquirers chose to have A play such a role while being aware of the failure at issue.
351    In those circumstances, the ECB did not err in finding that, in the present case, the willingness of the proposed acquirers to involve A in the implementation of the business plan, even though he had failed to meet the obligation to notify the acquisition of a qualifying holding, was such as to raise doubts as to their integrity.
352    The applicants’ line of argument must therefore be rejected and, accordingly, the plea must be rejected in its entirety.
6.      The second plea in law, alleging infringement of point 1 of the first sentence of Paragraph 2c(1b) of the KWG as regards the professional competence of the proposed acquirers
353    In paragraphs 2.8 to 2.12 of the contested decision, the ECB found that PH had not yet had any experience in the field of banking and that it was therefore important to seek expert advice in order to ensure the sound and prudent management of the credit institution and to provide a business plan in compliance with the regulatory framework. The actions of the proposed acquirers demonstrated that they were not aware of the standards applicable to credit institutions and that they seemed to have omitted to obtain sufficient external advice.
354    Thus, first, in paragraph 2.10 of the contested decision, the ECB stated that the proposed acquirers had not calculated the total risk exposure amount in accordance with Regulation No 575/2013. In addition, the business plan showed serious deficiencies as regards the compliance of the future business organisation with the requirements of Paragraph 25a of the KWG in particular.
355    Second, in paragraph 2.11 of the contested decision, the ECB stated that the proposed acquirers had provided information on the business plan that did not comply with the regulatory framework. The submissions evidenced that the proposed acquirers were not sufficiently familiar with the scope of the business plan assessment carried out in the context of a qualifying holding procedure. The proposed acquirers stated that they consider the acquisition of the target bank with its licence to be less resource intensive and costly than applying for a banking licence. In cases where there is a complete restart of business with a severe change of the business model, requiring significant amendments to the organisation of the target bank, the scope and depth of the assessment in a qualifying holding procedure becomes very similar to the business plan assessment in a licensing procedure. The statement by the proposed acquirers that the acquisition of a basically non-operating bank would require only a narrower assessment compared to a licencing procedure evidences a lack of understanding of the applicable regulatory framework.
356    Third, in paragraph 2.12 of the contested decision, as has already been stated, the ECB maintained that the proposed acquirers had also failed to submit plausible information on the business plan. That, together with the severe deficiencies of the business plan with regard to compliance with prudential requirements, showed a substantial lack of professional competence.
(a)    Whether it is possible for the ECB to assess the professional competence of the proposed acquirers
357    In the reply, the applicants claim for the first time that the ECB could not take as its basis the professional competence of the proposed acquirer in order to adopt the contested decision. Article 23(1) of Directive 2013/36 refers to good repute and not to the professional competence of the proposed acquirer. The ECB therefore infringed that article, as transposed into German law.
358    In the rejoinder, the ECB maintains that that line of argument constitutes a new plea in law, which must be rejected as inadmissible pursuant to Article 84(1) of the Rules of Procedure of the General Court. Furthermore, it considers that that line of argument is unfounded.
359    Article 84(1) of the Rules of Procedure provides that no new plea in law may be introduced in the course of proceedings unless it is based on matters of law or fact which have come to light in the course of the procedure. However, a plea or an argument which may be regarded as amplifying a plea put forward previously, whether directly or by implication, in the original application and which is closely connected therewith must be declared admissible (judgment of 11 July 2013, Ziegler v Commission, C‑439/11 P, EU:C:2013:513, paragraph 46).
360    The applicants’ line of argument alleging that the ECB was not entitled to take as its basis the professional competence of the proposed acquirers in order to adopt the contested decision does not amplify a complaint in the application that is closely connected therewith. In the application, the applicants merely claim, in essence, that the ECB erred in so far as it found that the proposed acquirers did not have the required professional competence, without calling into question, directly or by implication, the fact that the ECB took into account their professional competence when it assessed the proposed acquirers’ reputation.
361    In those circumstances, and since it is not based on matters of law or fact which have come to light in the course of the procedure, that line of argument, raised for the first time at the stage of the reply, is out of time and therefore inadmissible.
362    Furthermore, it is true that Article 23(1) of Directive 2013/36 makes reference, in subparagraph (a), only to the reputation of the proposed acquirer, whereas subparagraph (b) of that article makes reference to the reputation, knowledge, competence and experience, as set out in Article 91(1) of that directive, of any member of the management body who will direct the business of the credit institution as a result of the proposed acquisition.
363    However, the Court notes that, according to its usual meaning, to be of ‘good repute’ means being ‘worthy of esteem’ or being ‘known to be respectable’. Such a definition, which refers in particular to public opinion, does not preclude a person’s good repute from being dependant on his or her professional competence.
364    According to recital 8 of Directive 2007/44/EC of the European Parliament and of the Council of 5 September 2007 amending Council Directive 92/49/EEC and Directives 2002/83/EC, 2004/39/EC, 2005/68/EC and 2006/48/EC as regards procedural rules and evaluation criteria for the prudential assessment of acquisitions and increase of holdings in the financial sector (OJ 2007 L 247, p. 1), the provisions of which were reproduced in Directive 2013/36, the application of the criterion concerning the reputation of the proposed acquirer implies the determination of whether any doubts exist as to the integrity ‘and professional competence’ of the proposed acquirer and whether those doubts are founded.
365    Taking into consideration professional competence when examining the reputation of the proposed acquirer is consistent with assessing the ‘suitability’ of the proposed acquirer, in accordance with the wording of Article 23(1) of Directive 2013/36. It is also consistent with the objective of monitoring the acquisition of qualifying holdings, which is to ensure the sound and prudent management of the credit institution. Given that the holder of a qualifying holding is in a position to influence the credit institution concerned, his or her professional competence contributes to that sound and prudent management of that institution.
366    Moreover, the Joint Guidelines support that interpretation, since they state, in particular in paragraph 10.1, that the assessment of the reputation of the proposed acquirer should cover his or her integrity and his or her professional competence.
367    The wording of point 1 of the first sentence of Paragraph 2c(1b) of the KWG, referred to in paragraph 282 above, does not make it possible to preclude such an interpretation. The explanatory memorandum to the Gesetz zur Umsetzung der Beteiligungsrichtlinie (Law on the Implementation of the Holdings Directive) of 12 March 2009 (BGBl., 2009 I, p. 470), which transposes Directive 2007/44 into German law, states that the reliability criterion consists of determining whether there are doubts as to the integrity ‘and professional ability’ of the proposed acquirer and whether those doubts are well founded.
368    It follows from the foregoing that the reputation criterion referred to in Article 23(1) of Directive 2013/36 must be interpreted as including an assessment of the professional competence of the proposed acquirer.
369    Consequently, the applicants are not justified in claiming that the ECB infringed Article 23 of Directive 2013/36, as transposed into German law, by examining the professional competence of the proposed acquirers.
370    The applicants’ line of argument must therefore be rejected as inadmissible and, in any event, unfounded.
(b)    The allegation that the assessment of the proposed acquirers’ professional competence is incorrect
371    The applicants claim that they have general knowledge of the rights and obligations associated with holding an interest in a credit institution. PH has expertise in the field of corporate governance (previous experience in the acquisition and management of interests in companies) and in the field of the financial activities of the target bank (experience in the operation and management of financial institutions as a controlling shareholder). The amount of capital required, the business plan, the total capital ratio and the reason for the proposed acquisition do not say anything about the previous professional competence of the proposed acquirers. The ECB should have taken account of PH’s experience in managing majority shareholdings and financial investments. The proposed acquirers had sought sufficient external advice. PH’s competence was rejected in an arbitrary, irrelevant and discriminatory manner, which casts doubt on whether it was examined impartially.
372    The ECB, supported by the Commission, disputes the applicants’ line of argument.
373    In that regard, first, according to paragraph 10.3 of the Joint Guidelines, the assessment of professional competence should take into account the influence that the proposed acquirer will exercise over the target undertaking. This means that, according to the principle of proportionality, the competence requirements are reduced for proposed acquirers who are not in a position to exercise, or undertake not to exercise, significant influence over the target undertaking. In such circumstances, the evidence of adequate management competence should be sufficient.
374    It is common ground in the present case that the proposed acquirers had to exercise a significant influence over the target bank, with the result that the competence requirements imposed on them could not be regarded as reduced within the meaning of paragraph 10.3 of the Joint Guidelines.
375    Second, according to paragraph 10.5 of the Joint Guidelines, subject to paragraph 10.8 thereof, the professional competence requirement should generally be considered to be met if, inter alia, the proposed acquirer is a person already considered to be sufficiently competent in its capacity as a holder of a qualifying holding in another financial institution which is supervised by the same competent supervisor or by another competent supervisor in the same country or in another Member State.
376    The applicants do not claim that the proposed acquirers were in the situation referred to in paragraph 10.5 of the Joint Guidelines.
377    Third, according to point 10.23 of the Joint Guidelines, the professional competence of the proposed acquirer covers competence in management (‘management competence’) and in the area of the financial activities carried out by the target undertaking (‘technical competence’).
378    As regards management competence, according to paragraph 10.24 of the Joint Guidelines, that competence may be based on the proposed acquirer’s previous experience in acquiring and managing holdings in companies, and should demonstrate due skill, care, diligence and compliance with the relevant standards.
379    In the present case, it is common ground that PH, who himself set up and controls several companies, has the necessary management competence to acquire a qualifying holding in the target bank.
380    As regards technical competence, according to paragraph 10.25 of the Joint Guidelines, that competence may be based on the proposed acquirer’s previous experience in operating and managing financial institutions as a controlling shareholder or as a person who effectively directs the business of a financial firm. In that case also, the experience should demonstrate due skill, care, diligence and compliance with the relevant standards.
381    According to paragraph 10.29 of the Joint Guidelines, when the acquisition of control or of a shareholding allows the proposed acquirer to exercise a strong influence (for example, a holding which confers a veto power), the need for technical competence will be greater, considering that the controlling shareholders will be able to define and/or approve the business plan and strategies of the financial institution concerned. In the same way, the degree of technical competence needed will depend on the nature and complexity of the activities envisaged.
382    In the light of paragraph 10.29 of the Joint Guidelines, the ECB was entitled to take into account the fact that the proposed acquirers, who were able to decide upon the target bank’s business plan and strategies, were considering relaunching the activities of that bank and branching out into new activities.
383    In addition, contrary to what the applicants claim, the ECB did in fact take into account, as regards the technical competence, PH’s previous experience in the financial field.
384    On page 26 of the BaFin proposal, on which the ECB relied, PH’s previous experience is mentioned. BaFin states, in particular, that he has a degree in finance, is a financial analyst and an alternative investment analyst and that he has worked as an asset manager, as a property investment analyst and as a trader focusing on foreign exchange, commodities, bullions, futures, contracts for difference and options.
385    However, the ECB was also entitled to take into account the undisputed fact that PH had no experience in a credit institution and find that, consequently, it was important that he seek external advice.
386    Moreover, where, as in the present case, the proposed acquirer does not have prior experience in a credit institution and wishes to acquire a controlling stake in such an institution, the content of the business plan may reveal whether he or she has the necessary technical competence, given the nature and complexity of the activities envisaged.
387    The business plan submitted on behalf of the proposed acquirer may demonstrate whether or not the latter has sufficient knowledge of the legal framework for the target bank’s future business activities and whether he or she is able to obtain sufficiently reliable legal advice.
388    Accordingly, the ECB was entitled, in its assessment of the technical competence of the proposed acquirers, to take into account the fact that the calculation of the total risk exposure amount was not accurate, that there were serious deficiencies in the business plan as regards the compliance of the future organisation of the undertaking, that the proposed acquirers were mistaken as to the scope of the assessment in the qualifying holding procedure and that they had submitted information that was not plausible in business terms.
389    Thus, although PH, who wished to exercise significant influence over the target bank, provided evidence of competence in the field of finance and had recourse to external advice, he did not have professional experience in the management of a credit institution and submitted information and a business plan with serious deficiencies, as regards the calculation of the total risk exposure amount, the organisation of the target bank and the plausibility of the information provided.
390    Consequently, the ECB did not make the errors alleged by the applicants by finding that the sub-criterion of professional competence was not satisfied.
391    The plea must therefore be rejected.
7.      The seventh plea in law, alleging failure to take account of the relevant facts and errors of assessment, and the ninth plea in law, alleging failure to comply with the duties of diligence and impartiality
392    In the context of the seventh plea, the applicants submit that the ECB did not fully investigate the facts and did not examine them objectively and impartially, as required by Article 41(1) of the Charter and Article 28(2) of Regulation No 468/2014. The proposed acquirers produced documents which the ECB did not take into account in its decision. That allegedly resulted in errors of assessment.
393    In particular, first, in paragraph 2.33 et seq. of the contested decision, the ECB incorrectly assumes that the source of the funds for the proposed acquisition was not explained to it. Second, the proposed acquirers demonstrated that PH’s previous business was not high risk. Third, BaFin was informed that a supervisory board had to be set up.
394    In the ninth plea, the applicants submit that the ECB failed to comply with the duties of diligence and impartiality, whereas the principle of good administration, enshrined in Article 41 of the Charter, entails the obligation, reiterated in Article 28(2) of Regulation No 468/2014, to examine carefully and impartially all the relevant aspects of the individual case.
395    In particular, first, in paragraph 2.8 of the contested decision, the ECB did not take account of PH’s business success in the assessment of professional competence. Second, in paragraphs 1.3, 1.4, 1.5 and 1.8 of the contested decision, the ECB took into account irrelevant circumstances, in particular as regards the supervisory measures imposed in the past on the target bank and its history.
396    The ECB disputes the applicants’ line of argument.
397    Since the seventh and ninth pleas are both based on an infringement of Article 41(1) of the Charter and Article 28(2) of Regulation No 468/2014, the Court will examine them together.
398    The guarantees afforded by EU law in administrative procedures include, inter alia, the right to good administration, enshrined in Article 41 of the Charter, which entails the obligation on the competent institution to carry out a careful and impartial assessment, which also takes into account all the relevant aspects of the individual case (see, to that effect, judgment of 8 June 2017, Schniga v CPVO, C‑625/15 P, EU:C:2017:435, paragraph 47).
399    Similarly, Article 28(2) of Regulation No 468/2014 provides that, in its assessment, the ECB is to take account of all relevant circumstances.
400    In the first place, the applicants submit that the ECB failed to take account of certain relevant aspects.
401    First, the applicants claim that the fact that the ECB assumes, in paragraph 2.5 of the contested decision, that PH is very inclined to take risks can only indicate that it had not fully examined ‘the facts’.
402    However, as regards the ground of the contested decision that PH’s risk appetite gives rise to doubts as to the prudence of the proposed investment, the applicants do not show that the ECB did not take account of the information intended to demonstrate that PH’s previous asset management business was not risky.
403    Nor does the fact that, according to the applicants, that business was not risky lead to the conclusion that the ECB did not examine the facts.
404    Second, the applicants claim that, in paragraph 2.8 of the contested decision, the ECB did not take account of PH’s business success when it assessed his professional competence, in particular the fact that PH, who is [30-50] years old, himself had assets of EUR [10-100] million.
405    However, as has already been stated in paragraph 384 above, in the BaFin proposal, BaFin made reference to PH’s prior professional experience. It also examined, on page 10 of the BaFin proposal, PH’s financial position and CV.
406    Consequently, the applicants have not demonstrated that the ECB did not take account of PH’s business success in its assessment of his professional competence.
407    Third, the applicants submit that, in paragraph 2.33 et seq. of the contested decision, the ECB assumed that the source of the funds for the proposed acquisition had not been explained to it, even though the proposed acquirers had described in detail how PH had acquired his own funds.
408    However, the applicants are not justified in claiming that the ECB did not take into account the information that they communicated to BaFin as regards the origin of the funds for the proposed acquisition. It is apparent from the detailed analysis on pages 72 and 73 of the BaFin proposal that BaFin took account of the documents submitted by the proposed acquirers. That finding is borne out by the fact that BaFin repeatedly approached the proposed acquirers to ask them to provide information on the origin of the funds intended for the proposed acquisition and provided them with its comments on the documents already communicated.
409    Fourth, the applicants confirm that BaFin was informed that the organisational structure of the target bank was to be adapted after the proposed acquisition and that a supervisory board would also have to be set up. They refer to PH’s statement of 1 February 2022, referred to in paragraph 331 above.
410    In that regard, the Court notes that, first, the applicants do not refer to any paragraph of the contested decision and do not draw any conclusion from their assertion and, second, the BaFin proposal, on page 13, makes reference to the fact that PH intends to set up a supervisory board.
411    In those circumstances, the applicants’ assertion relating to the setting up of a supervisory board must be rejected.
412    Furthermore, the fact that the ECB did not take into account certain information submitted by the proposed acquirers – even if it were established, which is not the case – does not automatically allow it to be concluded that the ECB made ‘errors of assessment’, which, moreover, remained unidentified by the applicants.
413    It follows from the foregoing that the applicants are not justified in claiming that the ECB did not take account of certain relevant aspects or that it made errors of assessment.
414    In the second place, the applicants claim that, in paragraphs 1.3, 1.4, 1.5 and 1.8 of the contested decision, the ECB took account of irrelevant circumstances. Neither the supervisory measures imposed in the past on the target bank (paragraph 1.3) nor its history (paragraph 1.4) are relevant. That shows that the ECB is subjectively guided by its dislike for the target bank as a financial institution. The speculative allusions in paragraph 1.8 of the contested decision to alleged earlier requests by an investor are irrelevant and are intended to paint a negative picture of the applicants.
415    In paragraph 1.3 of the contested decision, the ECB stated that the target bank was subject to a prohibition on accepting deposits and granting loans and, in paragraph 1.4, that, according to the auditors responsible for auditing the target bank’s annual accounts, since 2012 the target bank’s viability had been under threat. In paragraph 1.8 of that decision, the ECB noted that, in October 2018, another investor had submitted a notification with a business plan that resembled the business plan of A to a large extent and that that investor had answered BaFin’s requests, in particular as to the origin of the funds for the acquisition, only reluctantly and in a contradictory manner, before withdrawing its notification.
416    The aspects mentioned in paragraphs 1.3, 1.4 and 1.8 of the contested decision constitute facts relating to the prudential supervision of the target bank and form part of the context of the contested decision.
417    Furthermore, the facts referred to in points 1.3 and 1.4 are relevant for assessing whether the criterion of compliance with prudential requirements is satisfied. The assessment of the business plan could take into account, as regards, inter alia, compliance with the prudential requirements relating to the target bank’s business organisation, the fact that, since 2017, the target bank had been subject to a prohibition on accepting deposits and granting loans.
418    While it is true that the circumstance referred to in paragraph 1.8 of the contested decision is unrelated to the proposed acquisition of the qualifying holding in the target bank by the applicants, it was not used by the ECB to assess whether the criteria laid down in Article 23(1) of Directive 2013/36, as transposed into national law, were satisfied. It must be regarded as a contextual element relating to the target bank’s prudential supervision history which did not affect the assessment of the notification submitted by the proposed acquirers.
419    Lastly, the facts referred to in paragraphs 1.3, 1.4 and 1.8, which form part of the context of the contested decision and the accuracy of which are not disputed, do not demonstrate an intention on the part of the ECB to harm the target bank or to paint a negative picture of the applicants.
420    The line of argument alleging that the ECB took into account irrelevant circumstances in paragraphs 1.3, 1.4, 1.5 and 1.8 of the contested decision, which is not substantiated as regards paragraph 1.5, must therefore be rejected, as must, consequently, the seventh and ninth pleas.
8.      The eighth plea in law, alleging failure to observe the principle of proportionality and the tenth plea in law, alleging infringement of the Charter
421    In paragraph 2.36 et seq. of the contested decision, the ECB found, as regards observance of the principle of proportionality, that the objective of the qualifying holding procedure is to contribute to the safeguarding of the banking system by ensuring that only sound and properly functioning credit institutions operate in order to protect depositors and shield credit institutions from the detrimental influence exerted by any future shareholder who could affect whether the institution’s functioning is compliant with the applicable legislation.
422    In paragraph 2.37 of the contested decision, the ECB found that the proposed acquirers did not meet one or more of the requirements listed in Paragraph 2c(1b) of the KWG. Therefore, according to the ECB, it could oppose the proposed acquisition in order to ensure that the proposed acquirers would not acquire a controlling shareholding in the target bank. There were no less restrictive supervisory measures which would achieve such purpose with the same probability. Generally, the imposition of one or a number of ancillary provisions could, however, be less restrictive measures compared to an objection.
423    In paragraph 2.38 of the contested decision, the ECB found that the imposition of one or more ancillary provisions would not mitigate non-compliance with the assessment criteria. First, the proposed acquirers are considered not to be of good repute. That could not be mitigated as no measures exist which can address in the short to medium term the concerns with regard to the integrity of the proposed acquirers. In particular, the lack of understanding of the importance of compliance with the regulatory framework, the risk-taking approach and the envisaged remaining influence of A, that is to say an unsuitable shareholder, could not be mitigated as they relate to the personal suitability of the proposed acquirers. Second, nor can the failure in terms of financial soundness be addressed with an ancillary provision. A condition precedent, for example to borrow funds, would only have an even more detrimental effect on the target bank as it might expose it to additional pressure by the proposed acquirers in the future to distribute dividends in order to pay back the borrowed funds. Third, the non-fulfilment of the proposed business plan, coupled with prudential requirements, can neither be addressed with a condition precedent nor an obligation. One condition precedent could, for example, be to implement an organisational structure compliant with Paragraph 25a of the KWG before the proposed acquisition. However, in order to set up an infrastructure compliant with the minimum requirements outlined in Paragraph 25a of the KWG, for the business model as described in the business plan, the proposed acquirers would first have to become a shareholder in the target bank to obtain control of it. That is due to the fact that the start of the envisaged business activities would require significant restructuring of the governance and the infrastructure of the target bank. Thus, a condition precedent to remedy the lack of good organisation could not be fulfilled in the case at hand. Furthermore, the imposition of an obligation to implement a business plan compliant with prudential requirements would not achieve the purpose. Even after numerous additional information requests, the business plan remains unclear and not in line with the regulatory framework, both as concerns capital requirements as well as requirements with regard to the proper organisation of the target bank. Lastly, the concerns with regard to an increased risk of money laundering due to the non-transparent origin of funds to be used for the proposed acquisition and the planned capital increases might only be addressed with plausible and comprehensive explanations on the origin of the funds for the proposed transaction. However, BaFin had previously asked for further clarification several times, but the proposed acquirers have failed to provide any.
424    In paragraph 2.39 of the contested decision, the ECB found that the objection to the proposed acquisition was also adequate. The proposed acquirers intend to acquire a controlling stake in the target bank in order to add a business partner to the proposed acquirers’ group which will provide to clients from Asia investment opportunities in Europe and complete the service offerings of the group. The proposed acquirers furthermore plan to acquire the target bank as they considered the acquisition of an existing bank and the new start of its business less time-consuming and costly than the establishment of a new bank and the application for a license. The economic interests of the proposed acquirers do however not outweigh the public interest of a safe and well-functioning banking system and of protecting depositors from shareholders who could exercise a detrimental influence on the target bank and thus ultimately be a risk to creditors. The facts leading to a negative conclusion on the assessment criteria mentioned above result from direct consequences of actions and behaviour of the proposed acquirers. The proposed acquirers were not able to overcome those concerns throughout the lengthy process despite several opportunities given by BaFin and the ECB to address and overcome them. The opposition to the proposed acquisition was therefore considered proportionate.
425    In the eighth plea, the applicants submit that the contested decision interferes with the business activities of the proposed acquirers. They maintain that the ECB adopted a measure which was disproportionate to the incompatibility with the regulatory requirements, whereas it could have taken milder measures.
426    In the tenth plea, in the first place, the applicants submit that PH’s freedom of occupation, enshrined by Article 15 of the Charter, had been infringed. The contested decision had an influence on the professional projects of PH, who was unable to pursue his chosen business. The interference with PH’s rights is unjustified and disproportionate. In the second place, the applicants claim that the contested decision interferes unjustifiably and disproportionately with the entrepreneurial freedom of each of the applicants.
427    The ECB, supported by the Commission, disputes the applicants’ line of argument.
428    Since the eighth and tenth pleas are each based on the allegedly disproportionate nature of the contested decision, it is appropriate to examine those pleas together.
429    According to Article 15(1) of the Charter, headed ‘Freedom to choose an occupation and right to engage in work’, everyone has the right to engage in work and to pursue a freely chosen or accepted occupation. Article 16 of the Charter, headed ‘Freedom to conduct a business’, provides that the freedom to conduct a business in accordance with EU law and national laws and practices is recognised.
430    The principle of proportionality requires that acts of the EU institutions be appropriate for attaining the legitimate objectives pursued by the legislation at issue and do not go beyond what is necessary in order to achieve those objectives; when 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 (judgments of 22 January 2013, Sky Österreich, C‑283/11, EU:C:2013:28, paragraph 50, and of 6 September 2017, Slovakia and Hungary v Council, C‑643/15 and C‑647/15, EU:C:2017:631, paragraph 206).
431    The assessment of the proportionality of a measure must be reconciled with compliance with the discretion that may have been conferred on the EU institutions at the time it was adopted (see judgment of 8 May 2019, Landeskreditbank Baden-Württemberg v ECB, C‑450/17 P, EU:C:2019:372, paragraph 53 and the case-law cited).
432    In the first place the applicants claim, in essence, that, in certain regards, the contested decision is vitiated by a lack of reasoning as far as concerns paragraphs 2.36 to 2.39. They maintain that it is impossible to understand why PH’s risk appetite and the planned remaining influence of A could not be mitigated by setting ancillary provisions. In paragraphs 2.37 and 2.38 of the contested decision, the failure to have recourse to a milder measure is not clearly explained as regards the organisational structure. The ECB’s reasoning in paragraph 2.39 of the contested decision is neither plausible nor consistent, since the necessary balancing of interests is lacking and the negative conclusions on the assessment criteria are not clear. The ECB did not include fundamental rights in its assessment of proportionality. The weighting and justification of the interference with the freedom to conduct a business are insufficient and incomprehensible.
433    It is apparent from the grounds of the contested decision, reproduced in paragraphs 421 to 424 above, that the ECB noted the objective of the contested decision, stated that the proposed acquirers did not meet one or more of the criteria laid down in Paragraph 2c(1b) of the KWG, found that there were no less restrictive measures than the contested decision capable of achieving the objective pursued and concluded that that decision was proportionate.
434    Contrary to what the applicants state, in paragraph 2.38 of the contested decision, the ECB set out the reason why PH’s risk appetite and the proposed acquirers’ intention to involve A in the implementation of the business plan could not be the subject of ancillary provisions, concluding that those concerns related to the personal suitability of the proposed acquirers.
435    Similarly, the ECB clearly stated, in the same paragraph, the reasons why ancillary provisions were not appropriate as regards the organisational structure of the target bank. It stated that a condition precedent providing for the establishment of an appropriate organisational structure before the proposed acquisition was not possible, given that starting the envisaged business activities would involve a significant restructuring of the target bank’s governance and infrastructure. It added, moreover, that imposing an obligation to implement a business plan compliant with the regulatory requirements would not achieve the objective pursued since, even after multiple requests for additional information had been made, the business plan remained unclear and not in line with the regulatory framework in a number of respects.
436    In addition, in paragraph 2.39 of the contested decision, again contrary to what the applicants claim, the ECB balanced the public interest with the interests of the proposed acquirers. In so far as the ECB stated that the facts leading to a ‘negative conclusion’ on the assessment criteria were the direct consequences of the actions and behaviour of the proposed acquirers, the ECB made sufficiently clear reference to the fact that the proposed acquirers did not satisfy one or more of the criteria listed in Paragraph 2c(1b) of the KWG. Nor are the applicants’ claims well-founded in so far as they maintain that the ECB did not include fundamental rights, in particular the freedom to conduct a business, in its assessment, given that it referred to the economic interests of the proposed acquirers.
437    Paragraphs 2.36 to 2.39 of the contested decision therefore contain an adequate statement of reasons.
438    In the second place, as is apparent from the wording of Article 23(1) of Directive 2013/36, the objective pursued by the contested decision is to ensure the sound and prudent management of the bank that is the subject of the proposed acquisition.
439    Although the applicants claim that the objective of safeguarding the banking system referred to in paragraph 2.36 of the contested decision is too abstract, whereas the ECB should have focused its analysis on the target bank, the Court finds that, in paragraph 2.37 et seq., the ECB examined in a sufficiently specific manner, taking into account the specific situation of the target bank, whether the contested decision was proportionate to the objective which it pursues. The ECB referred, in particular, in paragraph 2.38, to the detrimental effect for the target bank of an ancillary provision such as a condition precedent relating to the borrowing of funds.
440    Furthermore, the contested decision, which prevents the proposed acquirers from acquiring a qualifying holding in the target bank, on the basis that they do not satisfy the criteria laid down in Article 23(a), (c), (d) and (e) of Directive 2013/36, as transposed into German law, is appropriate for attaining the objective pursued by the contested decision.
441    In particular, even if the contested decision has the effect of preventing the proposed acquirers from injecting financial resources into the target bank, it is nevertheless appropriate for the purposes of protecting any future depositors of the target bank from the influence of proposed acquirers whose notification does not satisfy one or more of the criteria laid down in Article 23(1) of Directive 2013/36, as transposed into German law.
442    The fact that the target bank is a less significant institution within the meaning of Article 6(4) of Regulation No 1024/2013 does not prevent the proposed acquisition, which is subject to the authorisation provided for in Article 23 of Directive 2013/36, from being such as to present a risk to the sound and prudent management of that institution.
443    Similarly, the fact that the target bank has been subject to prudential supervisory measures, in particular a measure prohibiting it from accepting deposits and granting loans, does not prevent the proposed acquisition from presenting a risk to the sound and prudent management of that institution. Even if such a prohibition is not automatically lifted in the event that the acquisition is authorised, that fact was taken into account by the ECB in its assessment of the proposed acquisition and, despite that, the proposed acquirers still do not satisfy one, or in fact a number of the criteria laid down in Article 23(1) of Directive 2013/36, as transposed into German law.
444    Lastly, the applicants claims are not well founded in so far as they submit that BaFin and the ECB do not attribute most of their concerns to the proposed acquirers, but to the character of A or to the intention of acquiring clients in Asia, and that those concerns are aggravated by the prohibition on selling to a new owner.
445    The ECB’s opposition is not based on the character of A, but, in part, as regards the integrity of the proposed acquirers, on the intention of the proposed acquirers to have A participate in the implementation of the business plan. Similarly, the ECB did not dispute the intention of the proposed acquirers to acquire clients in Asia. In addition, the contested decision does not aggravate the prudential supervision concerns to which it refers or, a fortiori, cause the collapse of the target bank, given that it does not change the situation of that bank, but merely refuses to allow the acquisition of a qualifying holding on the basis of a notification which does not satisfy the criteria laid down in Article 23(1) of Directive 2013/36, as transposed into German law.
446    In the third place, it is common ground that the ECB may, where appropriate, adopt provisions ancillary to the authorisation of the acquisition of a qualifying holding, such as conditions precedent or obligations imposed on the proposed acquirers.
447    The applicants claim that the ECB could have adopted certain ancillary provisions, such as measures relating to reliability or professional qualifications, the obligation to provide additional information, the obligation to increase staff, attributing to the ECB additional supervisory possibilities after the purchase of the target bank, and the gradual or limited lifting of the prohibition on taking deposits and granting loans and of the prohibition on exercising voting rights.
448    However, in general, the applicants do not indicate precisely which ancillary provisions could have been adopted or how those provisions could have addressed the prudential supervision concerns.
449    Thus, first, the applicants do not state precisely which measures relating to reliability or professional competence the ECB could have adopted, or how and within what period those measures could have addressed the concerns set out in the contested decision relating to the integrity and professional competence of the proposed acquirers. They do not put forward any argument capable of calling into question the finding in paragraph 2.38 of the contested decision that concerns about the integrity of proposed acquirers cannot be mitigated as they relate to their personal suitability.
450    Second, the applicants neither establish nor even allege that an ancillary provision could have adequately mitigated the ECB’s concerns regarding the proposed acquirers’ lack of financial soundness.
451    Third, although the applicants claim that the ECB should have required them to provide additional information, they do not indicate exactly what information they are referring to or which concerns that information could have addressed. Furthermore, the applicants’ arguments do not call into question the finding set out in paragraph 2.38 of the contested decision that, even after numerous requests for additional information, the business plan remained unclear and did not comply with the regulatory framework, with the result that an obligation would not enable the objective pursued to be achieved.
452    Fourth, the applicants do not specify the content of an ancillary provision consisting of granting to the ECB additional supervisory possibilities after the purchase of the target bank. As regards the possibility of adopting an ancillary provision consisting of the gradual or limited lifting of the prohibition on accepting deposits and granting loans and the prohibition on exercising voting rights, they do not specify which concerns that ancillary provision could mitigate. In addition, they do not specify how such a gradual or limited lifting of the prohibition on accepting deposits and granting loans and the prohibition on exercising voting rights is compatible with the proposed acquirers’ business plan, which provided for a complete restart of activities and the development of new lines of business.
453    Consequently, the ECB did not make a manifest error of assessment in finding that it could not adopt an authorisation allowing the acquisition of a qualifying holding coupled with ancillary provisions.
454    In the fourth place, the applicants claim that the contested decision is disproportionate and that it interferes excessively with PH’s freedom to choose an occupation and with the freedom to conduct a business of each of them.
455    In that regard, the Court finds that the contested decision does interfere with the proposed acquirers’ freedom to conduct a business, since it prevents them from acquiring a qualifying holding in the target bank.
456    However, the contested decision does not interfere, in a sufficiently direct way, with Socrates Capital’s freedom to conduct a business. As stated in paragraph 75 above, Socrates Capital’s right to sell its shares in the target bank is not directly called into question by the contested decision.
457    Contrary to what the applicants claim, no provision or principle requires the ECB to compare their situation with those of other cases of infringements in the banking sector when assessing whether the contested decision is proportionate.
458    Thus, in the light of the foregoing, the Court finds that the objective of sound and prudent management of the target bank was such as to justify interfering with the proposed acquirers’ freedom to conduct a business. Even if it is assumed that PH could rely on his freedom to choose an occupation and Socrates Capital could rely on its freedom to conduct a business, that objective was also such as to justify the infringement of those freedoms.
459    Consequently, the ECB was entitled to find that the contested decision was proportionate to the objective pursued without making a manifest error of assessment.
460    The eighth and tenth pleas must be rejected.
9.      The twelfth plea in law, alleging infringement of Article 23(3) of Directive 2013/36 and of the third sentence of Paragraph 2c(1b) of the KWG
461    In the reply, the applicants submit that the ECB infringed Article 23(3) of Directive 2013/36 and the third sentence of Paragraph 2c(1b) of the KWG. BaFin and the ECB relied essentially on their disapproval of the proposed acquirers’ business analysis. The ECB based the contested decision on the possible needs of Asian clients and competing available offers in order to find, on several occasions, that the business plan would not ‘work out’ and that there were no economic benefits visible.
462    The ECB maintains that that plea, which was new at the reply stage, is inadmissible under Article 84(1) of the Rules of Procedure and, moreover, that it is unfounded.
463    According to the fourth sentence of Paragraph 2c(1b) of the KWG, which transposes Article 23(3) of Directive 2013/36, the supervisory authority may not, inter alia, base its examination of the proposed acquisition on the economic needs of the market.
464    In the present case, the plea is not sufficiently substantiated, since it does not specify clearly which grounds of the contested decision are vitiated by unlawfulness.
465    In addition, even assuming that the plea implicitly refers to the ground set out in paragraph 2.4 of the contested decision, according to which the motivation for the proposed acquisition was not clear, the Court concludes that, by finding, in that paragraph, that the business plan presented great uncertainty as regards its operational implementation, its growth strategy and potentially any dividend distribution and thus any kind of economic benefit for PH from the investment, the ECB emphasised the lack of clarity in the motivation for the proposed acquisition, as set out in the business plan, and did not base its assessment on the economic needs of the market.
466    Even if that plea were admissible, in particular in the light of Article 84(1) of the Rules of Procedure, it must therefore be rejected as unfounded.
10.    The sixth plea in law, alleging infringement of Article 19 and recital 75 of Regulation No 1024/2013, misuse of powers and error of assessment as to the existence of a ground for refusing to authorise the acquisition of the target bank
467    The applicants submit that the ECB made ‘errors of assessment’ as to the existence of a reason for refusing to grant permission for the acquisition of the target bank. The ECB’s criticism regarding the information submitted in paragraph 2.6 of the contested decision could not have been included in that decision, since the proposed acquirers had provided all the necessary information in the required form. PH’s previous asset management activities were risky. That gave the impression that BaFin wanted to prevent the sale and see the closure of the target bank. In paragraph 2.11 of the contested decision, the ECB wrongly infers from the fact that the proposed acquirers wish to avoid having to create a new bank that they do not understand the implications of acquiring a qualifying holding in a credit institution, which is incorrect and irrelevant to the assessment of compliance with the conditions required for the acquisition of the target bank. Therefore, the ECB misused its powers.
468    The ECB, supported by the Commission, disputes that line of argument.
469    According to Article 19(1) of Regulation No 1024/2013, when carrying out the tasks conferred on it by that regulation, the ECB and the national competent authorities acting within the Single Supervisory Mechanism are to act independently and the members of the Supervisory Board and the steering committee are to act independently and objectively in the interest of the Union as a whole and are neither to seek nor to take instructions from the institutions or bodies of the Union, from any government of a Member State or from any other public or private body.
470    Recital 75 of Regulation No 1024/2013 states that, in order to carry out its supervisory tasks effectively, the ECB should exercise the supervisory tasks conferred on it in full independence, in particular free from undue political influence and from industry interference which would affect its operational independence.
471    A measure is vitiated by misuse of powers only if it appears, on the basis of objective, relevant and consistent evidence, to have been taken solely, or at the very least primarily, for purposes other than those for which the power in question was conferred or with the aim of evading a procedure specifically prescribed by the FEU Treaty for dealing with the circumstances of the case (judgments of 14 December 2004, Swedish Match, C‑210/03, EU:C:2004:802, paragraph 75, and of 8 December 2020, Hungary v Parliament and Council, C‑620/18, EU:C:2020:1001, paragraph 82).
472    Where more than one aim is pursued, even if the grounds of a decision include, in addition to proper grounds, an improper one, that would not make the decision invalid for misuse of powers, since it does not nullify the main aim (judgments of 21 December 1954, Italy v High Authority, 2/54, EU:C:1954:8, p. 54, and of 21 September 2005, EDP v Commission, T‑87/05, EU:T:2005:333, paragraph 87).
473    In support of their line of argument that the ECB misused its powers, the applicants rely on the errors allegedly made by the ECB in paragraphs 2.5, 2.6 and 2.11 of the contested decision.
474    In that regard, in the first place, as regards paragraph 2.5 of the contested decision, as stated in paragraph 301 above, the applicants are not justified in claiming that PH’s previous asset management activities were not risky.
475    In the second place, as regards paragraph 2.6 of the contested decision, as stated in paragraph 310 above, the ECB did not err in finding that the information provided by the proposed acquirers was of poor quality. Consequently, the applicants are not justified in claiming that they provided all the necessary information in the required form.
476    In the third place, as regards paragraph 2.11 of the contested decision, the ECB did not rely on the fact that the proposed acquirers wished to avoid having to create a new bank, but on the fact that they were mistaken as to the scope of the qualifying holding procedure. As stated in paragraph 388 above, that fact was relevant, among others, for the purposes of assessing whether the proposed acquirers had the requisite technical competence.
477    In the fourth place, in the reply, the applicants claim that, by pointing out to the proposed acquirers the option of founding a new bank, BaFin revealed its ulterior motive of putting the target bank out of business. They refer to a letter from BaFin dated 25 August 2020.
478    However, as the ECB notes, there is no such reference in the letter of 25 August 2020 to which the reply refers.
479    Furthermore, even if the ECB had made the errors alleged by the applicants in paragraphs 2.5, 2.6 and 2.11 of the contested decision, which is not the case, such errors would not make it possible to establish the existence of objective, relevant and consistent evidence that could demonstrate that the ECB wished to prevent any sale of A’s shareholding in the target bank and to secure the closure of that bank.
480    The applicants are therefore not justified in claiming that the ECB misused its powers or, in any event, infringed Article 19 and recital 75 of Regulation No 1024/2013.
481    The plea must therefore be rejected.
E.      The request to consult the administrative file
482    In the application, the applicants seek, in general, ‘the consultation of the administrative file at the [ECB]’. They also claim, in the third plea, that they requested access to the ECB’s file, in particular with regard to the calculation of the equity ratio, and that that access has not yet been granted.
483    In the defence, the ECB contends that the request for access to the file cannot succeed, since it gave the proposed acquirers access to the file.
484    In the reply, the applicants make no comment in that regard.
485    The Court notes that the applicants do not request the Court to adopt a measure of organisation of procedure within the meaning of Article 89 of the Rules of Procedure.
486    Furthermore, it is apparent from the documents produced by the ECB in the defence that, by email of 17 February 2022, the proposed acquirers requested access to the file and that the ECB granted that access by email of 21 February 2022. That email contains a list of documents to which the ECB granted the applicants access.
487    Although the applicants claim that they did not obtain access to the file as regards the calculation of the equity ratio, they are not requesting that the Court ask the ECB to produce such a calculation. In addition, the BaFin proposal contains information relating to the target bank’s own funds needs according to its analysis, as stated in paragraph 109 above.
488    In those circumstances, there is no need to adopt a measure of organisation of procedure requiring the ECB to produce one or more documents relating to the case.
489    It follows from all the foregoing that the action must be dismissed as inadmissible as regards Socrates Capital and, in any event, as unfounded as regards all the applicants.
IV.    Costs
490    Under Article 134(1) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings. As the applicants have been unsuccessful, they must be ordered to bear their own costs and to pay those incurred by the ECB, in accordance with the form of order sought by the ECB.
491    According to Article 138(1) of the Rules of Procedure, the Member States and institutions which have intervened in the proceedings are to bear their own costs. Consequently, the Commission must bear its own costs.
On those grounds,
THE GENERAL COURT (Fourth Chamber)
hereby:
1.      Dismisses the action;
2.      Orders PH, PI, PJ and Socrates Capital Ltd to bear their own costs and to pay those incurred by the European Central Bank (ECB);
3.      Orders the European Commission to bear its own costs.
da Silva Passos
Gervasoni
Pynnä
Delivered in open court in Luxembourg on 10 July 2024.
V. Di Bucci
S. Papasavvas
Registrar
President
*      Language of the case: English.
1      This judgment is published in extract form.