Opinion of Mr Advocate General Fennelly delivered on 29 October 1998. - Criminal proceedings against Massimo Romanelli and Paolo Romanelli. - Reference for a preliminary ruling: Tribunale civile e penale di Firenze - Italy. - Freedom to provide services - Credit institutions - Repayable funds. - Case C-366/97.



European Court reports 1999 Page I-00855



Opinion of the Advocate-General

I - Introduction

1 The request for a preliminary ruling in this case arises from the criminal prosecution of Massimo and Paolo Romanelli for the unlawful taking of savings from the public, and relates to the interpretation of the notion of deposits in Community banking law.

II - Legal and factual context

2 The fourth and fifth recitals in the preamble to the First Council Directive 77/780/EEC of 12 December 1977 on the coordination of the laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions (1) (hereinafter `the First Directive') state, in relevant part:

`Whereas measures to coordinate credit institutions must, both in order to protect savings and to create equal conditions of competition between these institutions, apply to all of them; ... .

Whereas the scope of those measures should therefore be as broad as possible, covering all institutions whose business is to receive repayable funds from the public whether in the form of deposits or in other forms such as the continuing issue of bonds and other comparable securities and to grant credits for their own account; ... .'

Article 1 of the First Directive defines a credit institution as `an undertaking whose business is to receive deposits or other repayable funds from the public and to grant credits for its own account.'

3 The Second Council Directive 89/646/EEC of 15 December 1989 on the coordination of the laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions and amending Directive 77/780/EEC (2) (hereinafter `the Second Directive') defines a credit institution, at Article 1(1), by reference to the definition given in the First Directive. Article 3 provides as follows:

`The Member States shall prohibit persons or undertakings that are not credit institutions from carrying on the business of taking deposits or other repayable funds from the public. This prohibition shall not apply to the taking of deposits or other funds repayable by a Member State or by a Member State's regional or local authorities or by public international bodies of which one or more Member States are members or to cases expressly covered by national or Community legislation, provided that those activities are subject to regulations and controls intended to protect depositors and investors and applicable to those cases.'

4 The Second Directive was implemented in Italy by Legislative Decree No 385 of 1 September 1993 (hereinafter `the Decree'). Article 11 of the Decree defines `taking savings' as `the acquisition of funds accompanied by an obligation of reimbursement, in the form of deposits or otherwise'. Article 130 of the Decree implements Article 3 of the Second Directive by creating the offence of the unlawful taking of savings from the public, of which Massimo and Paolo Romanelli (hereinafter `the defendants') are accused before the Tribunale Civile e Penale (Civil and Criminal District Court) di Firenze (hereinafter `the national court'). They are being prosecuted in their capacity as legal representatives of the company Romanelli Finanzaria SpA.

5 The national court explains in its order for reference that the offence is alleged,

`(a) in relation to the issue of trust securities consisting in the sale to third parties of an instrument representing an amount receivable and immediate advance repurchase thereof at a price which incorporated the agreed interest;

(b) in relation to the issue of warrants representing an option to acquire debentures issued by ... Romanelli Finanzaria SpA.'

The national court adds that `the trust securities and debenture warrants in question ... are not financial instruments repayable by their intrinsic nature; they are repayable only as a result of contractual provisions'. It states that the notion of the taking of savings under the Decree can be interpreted either `restrictively ... as covering only those financial instruments which inherently embody an obligation of repayment', or `extensively ... referring, conversely, also to financial instruments in which the repayability derives from a specific agreement'. In order to resolve its doubts about the proper construction of the Decree, the national court has referred the following question regarding the interpretation of the Second Directive, asking,

`[w]hether the expression "repayable funds" contained in Directive 89/646/EEC of 15 December 1989 refers only to financial instruments which possess the intrinsic characteristic of repayability or whether that expression refers also to those financial instruments which, although not possessing that intrinsic characteristic, are the subject of a contractual agreement to repay the amount paid.'

III - Observations

6 Written observations were submitted by the defendants, the Republic of Austria, the Kingdom of Belgium, the Republic of Finland and the Commission of the European Communities. Oral observations were also submitted by the defendants and the Commission.

7 The defendants argue for a restrictive approach, confining the application of Article 3 of the Second Directive to instruments which intrinsically contain an obligation of repayment. The `other repayable funds' referred to in Article 3 should be understood as being analogous to deposits. The two Directives are concerned with protecting credit capital rather than risk capital. Credit capital is typically provided to banks through deposits which are, by their very nature, repayable. Risk capital, on the other hand, is not invested on the basis of a guarantee of repayment, but in order to achieve speculative returns.

8 Austria, Belgium, Finland and the Commission all argue that Article 3 of the Second Directive should be interpreted by reference to the nature of a transaction as a whole. It should cover any transaction, however constructed, which includes an obligation of repayment of the funds invested. The fact that this obligation may arise from a contract which is formally distinct from the financial instrument in question is immaterial. The two Directives are to be read together. (3) Thus, the definition of deposits and other repayable funds is also central to the definition of a credit institution in both Directives. The object of the Directives is, in part, to protect savings; (4) the achievement of this objective requires measures of broad scope, as is indicated by the statement and list of instruments in the fifth recital in the preamble to the First Directive and by Article 1(1) of Directive 94/19/EC on deposit-guarantee schemes. (5) Financial institutions are constantly devising new instruments and combinations of instruments to attract investors. If a narrow approach were taken, such undertakings could avoid compliance with the Second Directive by devising savings transactions in which the deposit and repayment obligations were divided between two or more instruments or contractual agreements. This could distort competition and endanger depositors' savings.

9 The Commission argues that the issuing of the trust securities in question in the present case is undeniably a form of collection of repayable funds, as they can be redeemed at any time for a price comprising both the principal sum and interest. (6) On the other hand, it submits that the issue of warrants, representing an option to acquire debentures during a specified period and at a specified price, would not normally constitute the taking of repayable funds. However, if the warrants were priced in such a fashion that the purchaser would inevitably be led to exercise his option to acquire the debentures, the transaction would come within Article 3 of the Second Directive.

IV - Analysis

10 It is not necessary, in my view, to address directly the character of the types of investment offered by the defendants. The Court has been provided with relatively little information about them and the national court has referred a clearly defined question of principle the answer to which, applied to the facts, should enable it to dispose of the case before it.

11 It is clear that one of the objectives of the Second Directive, as of the First Directive, is the protection of savers. This emerges not only from the express statements in the above-quoted recitals in the preamble to the First Directive, but also from the scheme of the Second Directive itself, including Article 3. Credit institutions are subjected to conditions regarding authorisation and the pursuit of their business which ensure a certain harmonised level of protection for depositors. It is noteworthy, in particular, that the prohibition in Article 3 on the taking of deposits or other repayable funds from the public by persons or undertakings other than credit institutions is subject to an exception in cases expressly covered by national or Community legislation, provided that the activities in question are subject to regulations and controls intended to protect depositors and investors.

12 I agree with the defendants that the prohibition in Article 3 of the Second Directive, and the definition of credit institutions, by reference to the taking of deposits and other repayable funds and the granting of credit, in Article 1 of the First Directive, both rely upon an implicit distinction between credit and risk capital. This distinction is established by the requirement that the funds invested be repayable. However, I do not agree with the defendants' conclusion that the distinction between credit and risk capital is reflected in practice, for the purposes of the Directives, by a further distinction between financial instruments which are intrinsically repayable and those which are not. Whether a business consists in the `taking of deposits or other repayable funds from the public' should not, in my view, depend on the form of financial instruments used, if the transactions, taken as a whole, give rise to an obligation of repayment either on demand or at a point in time which is specified or can be specified by the investor. As has been pointed out by the Commission and by the Member States which have submitted observations, the fifth recital in the preamble to the First Directive emphasises the need for measures of broad scope to protect savings. Furthermore, the effectiveness of Article 3 of the Second Directive could be undermined by a formalistic insistence that the financial instruments used in a transaction involving, in reality, the making of deposits be intrinsically repayable. Thus, in principle, Article 3 should apply where a person or undertaking other than a credit institution carries on the business of taking funds from the public in such circumstances.

V - Conclusion

13 In the light of the foregoing analysis, I recommend that the Court answer the question referred by the Tribunale Civile e Penale di Firenze as follows:

Article 3 of the Second Council Directive 89/646/EEC of 15 December 1989 on the coordination of the laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions and amending Directive 77/780/EEC should be interpreted as prohibiting all persons or undertakings other than credit institutions from carrying on the business of taking deposits or other repayable funds from the public even where the obligation to repay arises not from the intrinsic characteristic of repayability of the instruments used but from a contractual agreement.

(1) - OJ 1977 L 322, p. 30.

(2) - OJ 1989 L 386, p. 1.

(3) - The second recital in the preamble to the Second Directive states that `this Directive will join the body of Community legislation already enacted, in particular the First Council Directive 77/780/EEC ...'.

(4) - Fourth recital in the preamble to the First Directive, cited above; Case C-222/95 Parodi v Banque H. Albert de Bary [1997] ECR I-3914, paragraphs 22 and 23; see also the first recital in the preamble to Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on deposit-guarantee schemes, OJ 1994 L 135, p. 5, which refers to increasing protection for savers.

(5) - Loc. cit.

(6) - See Article 12, Council Directive 86/635/EEC of 8 December 1986 on the annual accounts and consolidated accounts of banks and other financial institutions, OJ 1986 L 372, p. 1, which deals with the accounting treatment of sale and repurchase transactions.