1 This request for a preliminary ruling concerns the interpretation of Articles 64 and 65(1) 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. 388), Article 395(1) and (5) 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) and Article 48(3) of Regulation (EU) No 468/2014 of the European Central Bank of 16 April 2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the European Central Bank and national competent authorities and with national designated authorities (SSM Framework Regulation) (OJ 2014 L 141, p. 1).
2 The request has been made in proceedings between VTB Bank (Austria) AG (‘VTB’) and the Finanzmarktaufsichtsbehörde (Financial Markets Supervisory Authority, Austria) (‘FMA’) concerning the latter’s decision to levy ‘absorption’ interest for exceeding the large exposure limits set out in Article 395(1) of Regulation No 575/2013.
3 Recitals 2 and 41 of Directive 2013/36 are worded as follows: ‘(2) … This Directive should … be read together with [Regulation No 575/2013] and should, together with that Regulation, form the legal framework governing banking activities, the supervisory framework and the prudential rules for credit institutions and investment firms. … (41) This Directive should provide for administrative penalties and other administrative measures in order to ensure the greatest possible scope for action following a breach and to help prevent further breaches, irrespective of their qualification as an administrative penalty or other administrative measure under national law. Member States should be able to provide for additional penalties to, and a higher level of administrative pecuniary penalties than, those provided for in this Directive.’
4 In accordance with Article 1(b) of that directive, the directive lays down rules concerning supervisory powers and tools for the prudential supervision of credit institutions and investment firms by competent authorities.
5 Article 64 of Directive 2013/36 reads as follows: ‘1. Competent authorities shall be given all supervisory powers to intervene in the activity of institutions that are necessary for the exercise of their function, including in particular the right to withdraw an authorisation in accordance with Article 18, the powers required in accordance with Article 102 and the powers set out in Articles 104 and 105. 2. Competent authorities shall exercise their supervisory powers and their powers to impose penalties in accordance with this Directive and with national law, in any of the following ways: (a) directly; (b) in collaboration with other authorities; (c) under their responsibility by delegation to such authorities; (d) by application to the competent judicial authorities.’
6 Article 65(1) of that directive provides: ‘Without prejudice to the supervisory powers of competent authorities referred to in Article 64 and the right of Member States to provide for and impose criminal penalties, Member States shall lay down rules on administrative penalties and other administrative measures in respect of breaches of national provisions transposing this Directive and of [Regulation No 575/2013] and shall take all measures necessary to ensure that they are implemented …’
7 Under Article 67(1)(k) of Directive 2013/36: ‘This Article shall apply at least in any of the following circumstances: … (k) an institution incurs an exposure in excess of the limits set out in Article 395 of [Regulation No 575/2013]’.
8 Article 67(2) of Directive 2013/36 provides that Member States are to ensure that in the cases referred to in Article 67(1), the administrative penalties and other administrative measures that can be applied include at least those set out in Article 67(2)(a) to (g).
9 Recitals 5 and 9 of Regulation No 575/2013 state as follows: ‘(5) Together, this Regulation and [Directive 2013/36] should form the legal framework governing the access to the activity, the supervisory framework and the prudential rules for credit institutions and investment firms … This Regulation should therefore be read together with that Directive. … (9) For reasons of legal certainty and because of the need for a level playing field within the Union, a single set of regulations for all market participants is a key element for the functioning of the internal market. In order to avoid market distortions and regulatory arbitrage, prudential minimum requirements should therefore ensure maximum harmonisation. As a consequence, the transitional periods provided for in this Regulation are essential for the smooth implementation of this Regulation and to avoid uncertainty for the markets.’
10 Article 2 of Regulation No 575/2013 provides as follows: ‘For the purposes of ensuring compliance with this Regulation, competent authorities shall have the powers and shall follow the procedures set out in [Directive 2013/36].’
11 Article 4(1)(1) of that regulation defines a ‘credit institution’ as ‘an undertaking the business of which is to take deposits or other repayable funds from the public and to grant credits for its own account’.
12 Article 395 of Regulation No 575/2013, entitled ‘Limits to large exposures’, provides, in paragraphs 1 and 5 thereof: ‘1. An institution shall not incur an exposure, after taking into account the effect of the credit risk mitigation in accordance with Articles 399 to 403, to a client or group of connected clients the value of which exceeds 25% of its eligible capital. Where that client is an institution or where a group of connected clients includes one or more institutions, that value shall not exceed 25% of the institution’s eligible capital or EUR 150 million, whichever the higher, provided that the sum of exposure values, after taking into account the effect of the credit risk mitigation in accordance with Articles 399 to 403, to all connected clients that are not institutions does not exceed 25% of the institution’s eligible capital. Where the amount of EUR 150 million is higher than 25% of the institution’s eligible capital the value of the exposure, after taking into account the effect of credit risk mitigation in accordance with Articles 399 to 403, shall not exceed a reasonable limit in terms of the institution’s eligible capital. That limit shall be determined by the institution in accordance with the policies and procedures referred to in Article 81 of [Directive 2013/36], to address and control concentration risk. This limit shall not exceed 100% of the institution’s eligible capital. Competent authorities may set a lower limit than EUR 150 million and shall inform [the European Banking Authority (EBA)] and the Commission thereof. … 5. The limits laid down in this Article may be exceeded for the exposures on the institution’s trading book if the following conditions are met: (a) the exposure on the non-trading book to the client or group of connected clients in question does not exceed the limit laid down in paragraph 1, this limit being calculated with reference to eligible capital, so that the excess arises entirely on the trading book; (b) the institution meets an additional own funds requirement on the excess in respect of the limit laid down in paragraph 1 which is calculated in accordance with Articles 397 and 398; (c) where ten days or less have elapsed since the excess occurred, the trading-book exposure to the client or group of connected clients in question shall not exceed 500% of the institution’s eligible capital; (d) any excesses that have persisted for more than 10 days do not, in aggregate, exceed 600% of the institution’s eligible capital. In each case in which the limit has been exceeded, the institution shall report the amount of the excess and the name of the client concerned and, where applicable, the name of the group of connected clients concerned, without delay to the competent authorities.’
13 Article 33(2) of Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (OJ 2013 L 287, p. 63) (‘the SSM Regulation’) provides as follows: ‘The ECB shall assume the tasks conferred on it by this Regulation on 4 November 2014 subject to the implementation arrangements and measures set out in this paragraph.’
14 Recital 9 of the SSM Framework Regulation is worded as follows: ‘… this Regulation further develops and specifies the cooperation procedures established in the SSM Regulation between the ECB and the [national competent authorities] [‘NCA’] within the [Single Supervisory Mechanism] as well as, where appropriate, with the national designated authorities, and thereby ensures the effective and consistent functioning of the SSM.’
15 Article 2(16) of the SSM Framework Regulation defines a ‘significant supervised entity’ as ‘both (a) a significant supervised entity in a euro area Member State; and (b) a significant supervised entity in a participating non-euro area Member State’.
16 Article 2(25) of the SSM Framework Regulation defines an ‘NCA supervisory procedure’ as follows: ‘Any NCA activity directed towards preparing the issue of a supervisory decision by the NCA, which is addressed to one or more supervised entities or supervised groups or one or more other persons, including the imposition of administrative penalties.’
17 Article 48(1) and (3) of that regulation provides as follows: ‘1. If a change in competence between the ECB and an NCA is to take place, the authority whose competence is to end (hereinafter the “authority whose competence ends”) shall inform the authority which is to become competent (hereinafter the “the authority assuming supervision”) of any supervisory procedure formally initiated, which requires a decision. The authority whose competence ends shall provide this information immediately after becoming aware of the imminent change in competence. The authority whose competence ends shall update this information on a continual basis, and as a general rule on a monthly basis, when there is new information on a supervisory procedure to report. The authority assuming supervision may, in duly justified cases, allow reporting on a less frequent basis. For the purposes of Articles 48 and 49, a supervisory procedure shall mean an ECB or NCA supervisory procedure. Prior to the change in competence, the authority whose competence ends shall liaise with the authority assuming supervision without undue delay after the formal initiation of any new supervisory procedure which requires a decision. … 3. If a formally initiated supervisory procedure, which requires a decision, cannot be completed prior to the date on which a change in the supervisory competence occurs, the authority whose competence ends shall remain competent to complete such pending supervisory procedures. For this purpose, the authority whose competence ends shall also retain all relevant powers until the supervisory procedure has been completed. The authority whose competence ends shall complete the pending supervisory procedure in question in accordance with the applicable law under its retained powers. The authority whose competence ends shall inform the authority assuming supervision prior to taking any decision in a supervisory procedure which was pending prior to the change in competence. It shall provide to the authority assuming supervision a copy of the decision taken and any relevant documents relating to that decision.’
18 Article 149(1) of that regulation states as follows: ‘Unless the ECB decides otherwise, if an NCA has initiated supervisory procedures for which the ECB becomes competent on the basis of the SSM Regulation, and this occurs before 4 November 2014, then the procedures laid down in Article 48 shall apply.’
19 Paragraph 97(1)(4) of the Bankwesengesetz (Law on the banking sector), in the version applicable at the material time (‘BWG’), provides as follows: ‘(1) [The FMA] shall levy on credit institutions … interest in the following amounts: … 4. 2% of the excess over the large exposure limit laid down in Article 395(1) of [Regulation No 575/2013], calculated annually, for 30 days, save in the event of supervisory measures as provided for in Paragraph 70(2) or the over-indebtedness of the credit institution.’
20 VTB is a credit institution established in Austria which, as is apparent from the order for reference, was classified by the ECB as a ‘significant supervised entity’ within the meaning of Article 2(16) of the SSM Framework Regulation.
21 By two decisions, adopted on 30 October 2014 and 11 May 2015, the FMA required VTB to pay, pursuant to Paragraph 97(1)(4) BWG, ‘absorption’ interest on the ground that it had exceeded the large exposure limits set out in Article 395(1) of Regulation No 575/2013.
22 In particular, by its first decision, the FMA required VTB to pay interest totaling EUR 94 951.41 on the ground that it had exceeded the exposure limit applicable during the period from March to September 2014. That decision was based on the fact that VTB reported on 3 April, 7 July and 8 October 2014 that it had exceeded the exposure limits.
23 By the second decision, the FMA required payment of ‘absorption’ interest of EUR 28 278.57 for exceeding the exposure limit applicable in October 2014. That decision was based on the fact that VTB reported on 3 November 2014 that it had exceeded the exposure limit.
24 On 3 June 2015, VTB brought an action for annulment of the FMA’s decision of 11 May 2015 before the referring court, the Bundesverwaltungsgericht (Federal Administrative Court, Austria).
25 VTB maintains that it is not required to pay the interest levied by that decision. It argues that Article 395(1) of Regulation No 575/2013, which sets limits for the exposure which a credit institution or an investment firm may incur to its clients, must be read in conjunction with Article 395(5) of that regulation, which lays down the conditions under which a credit institution or an investment firm may derogate from the exposure limits set out in Article 395(1).
26 The FMA contends that the application of interest, as required by Paragraph 97(1)(4) BWG, does not constitute a penalty or a coercive measure within the meaning of EU law, but an economic control measure under national competition law.
27 The referring court states, in the first place, that that classification of the interest levied by the decision of 11 May 2015 is consistent with the established case-law of the Verfassungsgerichtshof (Constitutional Court, Austria), which classifies the imposition of interest for exceeding large exposure limits as a measure derived from economic law, based on competition law, which is non-punitive and intended to recover the advantage, real or potential, which may be obtained as a result of unlawfully exceeding the limits set in Article 395(1) of Regulation No 575/2013.
28 In the second place, the referring court is uncertain as to the correct interpretation of the term ‘formally initiated supervisory procedure’ within the meaning of Article 48(3) of the SSM Framework Regulation. In particular, that court seeks to ascertain whether, with regard to the large exposure limits that were exceeded in October 2014, a supervisory procedure could be regarded as having been ‘formally’ initiated before 4 November 2014, either as a result of the fact that VTB reported on 3 November 2014 that it had exceeded the exposure limit, or as a result of earlier procedures, already closed by FMA, for similar breaches.
29 In those circumstances, the Bundesverwaltungsgericht (Federal Administrative Court) decided to stay proceedings and seek a preliminary ruling from the Court on the following questions: ‘(1) Are provisions of European Union secondary legislation, in particular, … Article 64 and 65(1) of [Directive 2013/36], applicable to the levying by the [financial markets supervisory] authorities of interest pursuant to a Member State’s legal provisions under which a credit institution, on exceeding the limit for large exposures under Article 395(1) of [Regulation No 575/2013], is to have interest of 2 per cent of the excess over the limit for large exposures, calculated on an annual basis, levied on it for 30 days? (2) Does European Union law (in particular, Article 395(1) and (5) of [Regulation No 575/2013]) preclude a national provision such as that which was contained in Paragraph 97(1)(4) [BWG] where, despite the fact that the conditions for applying the exemption provided for in Article 395(5) are satisfied, (absorption) interest is levied for a breach of Article 395(1)? (3) Is Article 48(3) of [the SSM Framework Regulation) to be interpreted as meaning that a “formally initiated supervisory procedure” can be deemed to exist simply where an undertaking submits a report to the [financial markets] supervisor, or can a “formally initiated supervisory procedure” be deemed to exist where a supervisory decision has already been rendered in a parallel procedure for similar breaches?’
30 By its first two questions, which it is appropriate to consider together, the referring court asks the Court whether Articles 64 and 65(1) of Directive 2013/36 and Article 395(1) and (5) of Regulation No 575/2013 are to be interpreted as precluding national legislation which provides that, where the exposure limits set out in Article 395(1) of that regulation are exceeded, ‘absorption’ interest is to be levied automatically on a credit institution, even if that institution fulfils the conditions laid down in Article 395(5) of the regulation under which a credit institution may exceed those limits.
31 It should be noted, first, that, as is apparent from recital 2 of Directive 2013/36 and recital 5 of Regulation No 575/2013, that directive and that regulation, which must be read together, lay down the legal framework governing, inter alia, the supervision of and prudential rules applicable to credit institutions.
32 Article 395(1) of Regulation No 575/2013, which forms part of those rules, in particular those applicable to ‘large exposures’, which credit institutions are required, in accordance with Article 387 of that regulation, to monitor and control, prohibits such institutions from incurring an exposure to a client or group of connected clients the value of which exceeds 25% of their eligible capital. However, Article 395(5) of the regulation allows the exposure limits laid down in Article 395(1) to be exceeded where certain conditions are met.
33 Next, it should be noted that, for the purposes of the prudential supervision of credit institutions, Article 1(b) of Directive 2013/36 grants competent authorities the supervisory powers and tools set out in the directive.
34 In that regard, under Article 65(1) of Directive 2013/36, Member States are to lay down rules on administrative penalties and other administrative measures in respect of breaches of national provisions transposing that directive and of Regulation No 575/2013 and are to take all measures necessary to ensure that those penalties and other administrative measures are implemented.
35 It is clear from recital 41 of Directive 2013/36 that the adoption of administrative penalties and other administrative measures must make it possible to ensure the greatest possible scope for action following a breach of EU rules and to help prevent further breaches.
36 Lastly, it follows from a reading of Article 67(1)(k) of Directive 2013/36 in conjunction with Article 67(2) of the directive that, in the cases identified in Article 395 of Regulation No 575/2013, Member States are to ensure that the administrative penalties and other administrative measures that can be applied are, at least, those set out in Article 67(2)(a) to (g).
37 In the present case, the referring court is uncertain whether, as argued by the FMA, the levying of interest on VTB, pursuant to Paragraph 97(1)(4) BWG, constitutes a national, non-punitive economic control measure which is unconnected with Articles 64 and 65 of Directive 2013/36 and is intended only to recover an advantage wrongly obtained as a result of the breach of a rule governing prudential supervision. If that question is answered in the affirmative, the FMA submits that the situation at issue in the main proceedings is not governed by Article 395(1) and (5) of Regulation No 575/2013.
38 In the first place, it should be noted that Paragraph 97(1)(4) BWG expressly provides that the interest in question is to be levied by the FMA at the rate of 2% of the excess over the large exposure limit ‘laid down in Article 395(1) of [Regulation No 575/2013]’.
39 In the present case, according to the referring court, VTB exceeded those limits. In those circumstances, and subject to the conditions laid down in Article 395(5) of Regulation No 575/2013 being complied with, Member States, as indicated in paragraph 36 above, are to ensure that at least the administrative penalties and other administrative measures set out in Article 67(2)(a) to (g) of Directive 2013/36 are applied.
40 In that regard, it should be added that, when analysing financial correction measures implemented by Member States to protect the financial interests of the European Union, the Court has classified as an ‘administrative measure’ the obligation to give back an advantage improperly received by means of an irregularity (see, to that effect, judgment of 26 May 2016, Județul Neamț and Județul Bacău, C‑260/14 and C‑261/14, EU:C:2016:360, paragraphs 50 and 51).
41 Moreover, recital 9 of Regulation No 575/2013 states that in order to avoid market distortions and regulatory arbitrage, prudential minimum requirements adopted by EU law should ensure maximum harmonisation. Accordingly, where the limits set out in Article 395(1) of Regulation No 575/2013 are exceeded, Member States are required to impose on credit institutions not a measure governed by national law but an administrative penalty or other administrative measure within the meaning of Article 65(1) of Directive 2013/36.
42 Accordingly, the ‘absorption’ interest provided for in Paragraph 97(1)(4) BWG must be classified as an administrative measure within the meaning of Article 65(1) of Directive 2013/36.
43 With regard to that classification, the fact that the interest in question is not included in the list set out in Article 67(2) of Directive 2013/36 is irrelevant.
44 Indeed, it is apparent from the wording of that provision that that list is not exhaustive. It should also be recalled that Article 65(1) of Directive 2013/36 provides that Member States are to take all measures necessary to ensure that that directive and Regulation No 575/2013 are implemented.
45 In the second place, it is clear from the information available to the Court that the referring court is required to verify whether the conditions laid down in Article 395(5) of Regulation No 575/2013, under which credit institutions are allowed to exceed the limits of their exposure to a client, as set out in Article 395(1) of the regulation, are met by VTB in the dispute in the main proceedings.
46 As the Advocate General observed in point 59 of his Opinion, the situation contemplated in Article 395 of Regulation No 575/2013 and in which Member States may apply, pursuant to Article 67(2) of Directive 2013/36, administrative penalties or other administrative measures, is the situation arising as a result of the combined application of paragraphs 1 and 5 of Article 395 of that regulation.
47 As a consequence, a national provision such as Paragraph 97(1)(4) BGW, which automatically levies ‘absorption’ interest on a credit institution where it exceeds the exposure limits set out in Article 395(1) of Regulation No 575/2013 and does not provide for the possibility of verifying whether the conditions laid down in Article 395(5) of that regulation are met, is not consistent with the prudential supervision requirements established by the regulation.
48 In the light of all the foregoing considerations, the answer to the first and second questions is that Articles 64 and 65(1) of Directive 2013/36 and Article 395(1) and (5) of Regulation No 575/2013 are to be interpreted as precluding national legislation which provides that, where the exposure limits set out in Article 395(1) of that regulation are exceeded, ‘absorption’ interest is to be levied automatically on a credit institution, even if that institution fulfils the conditions laid down in Article 395(5) of the regulation under which a credit institution may exceed those limits.
49 By its third question, the referring court asks the Court whether Article 48(3) of the SSM Framework Regulation is to be interpreted as meaning that a supervisory procedure may be regarded as having been formally initiated, within the meaning of that provision, where a credit institution reports to the national supervisory authority that the limits set in Article 395(1) of Regulation No 575/2013 have been exceeded, or where that authority has already adopted a decision in a parallel procedure concerning similar breaches.
50 By virtue of Article 33(2) of the SSM Regulation, the ECB was to assume, on 4 November 2014, the supervisory tasks relating to credit institutions entrusted to it by that regulation, within the framework of the SSM.
51 As stated in recital 9 of the SSM Framework Regulation, that regulation further develops and specifies the cooperation procedures established in the SSM Regulation between the ECB and NCAs within the SSM and ensures the effective and consistent functioning of that mechanism.
52 Article 2(25) of the SSM Framework Regulation defines an NCA supervisory procedure as any NCA activity directed towards preparing the issue of a supervisory decision by that authority.
53 Moreover, under Article 149 of that regulation, if an NCA has initiated supervisory procedures for which the ECB becomes competent on the basis of the SSM Regulation, and this occurs before 4 November 2014, the procedures laid down in Article 48 of the SSM Framework Regulation are to apply.
54 Article 48(3) of the SSM Framework Regulation provides that if a ‘formally initiated’ supervisory procedure, which requires a decision, cannot be completed prior to the date on which a change in the supervisory competence occurs, the authority whose competence ends is to remain competent to complete such pending supervisory procedure.
55 In the present case, it is apparent from the file submitted to the Court that the FMA’s decision of 11 May 2015, concerning VTB’s exceeding the limits set out in Article 395(1) of Regulation No 575/2013 in October 2014, was based on the fact that that institution reported on 3 November 2014 that it had exceeded the exposure limits, that is, the day before competence was transferred from the FMA to the ECB. It is also clear from the file that that decision was given after another procedure initiated by the FMA because VTB had exceeded the large exposure limits, which was closed by decision of 30 October 2014.
56 It follows, first, from Article 2(25) of the SSM Framework Regulation that only a procedure conducted by an NCA may be regarded as a supervisory procedure within the meaning of that provision. Therefore, action taken by a credit institution cannot be regarded as falling within the definition of a supervisory procedure within the meaning of that provision.
57 Furthermore, as the Advocate General observed in point 89 of his Opinion, the adverb ‘formally’, used in Article 48(3) of the SSM Framework Regulation, refers to an express decision to open the procedure, whatever the material grounds, such as a declaration by the credit institution under supervision that led to the formal adoption of such a decision.
58 As a consequence, the mere fact that VTB reported, on 3 November 2014, that it had exceeded the exposure limit is not sufficient for it to be concluded that a supervisory procedure was ‘formally initiated’ by the FMA on that date.
59 In the second place, under Article 2(25) of the SSM Framework Regulation, a national authority supervisory procedure is directed towards preparing the issue of a supervisory decision. It is apparent from the file available to the Court that the procedure relating to the exposure limits that were exceeded during the period from March to September 2014 was closed by decision of 30 October 2014 and, therefore, before the declaration on which the procedure initiated by the FMA was based, which is separate from the first procedure, which led to the decision of 11 May 2015.
60 In the light of all the foregoing considerations, the answer to the third question is that Article 48(3) of the SSM Framework Regulation is to be interpreted as meaning that a supervisory procedure cannot be regarded as having been formally initiated, within the meaning of that provision, either where a credit institution reports to the national supervisory authority that the limits set in Article 395(1) of Regulation No 575/2013 have been exceeded, or where that authority has already adopted a decision in a parallel procedure concerning similar breaches.
61 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.