Contents
Judgment of the General Court (Tenth Chamber)4 June 2025note(Economic and monetary policy — Prudential supervision of credit institutions — Specific supervisory tasks assigned to the ECB — Decision to withdraw a credit institution’s authorisation — Infringement of national legislation on the prevention of money laundering and the financing of terrorism — Article 83(2) of Regulation (EU) No 468/2014 and Article 4(3) of Regulation (EU) No 1024/2013 — Scope of the ECB’s assessment of the circumstances justifying withdrawal — Competence of the national competent authorities and of the ECB within the Single Supervisory Mechanism (SSM) — Conditions for withdrawal — Obligation to state reasons — Right to good administration)In Case T‑551/23,Baltic International Bank SE, established in Riga (Latvia), represented by M. Supe and V. Supe, lawyers,vEuropean Central Bank (ECB), represented by E. Yoo, J. Poscia, K. Drēviņa and M. Puidokas, acting as Agents,THE GENERAL COURT (Tenth Chamber),composed of O. Porchia (Rapporteur), President, M. Jaeger and P. Nihoul, Judges,Registrar: I. Kurme, Administrator,having regard to the written part of the procedure,further to the hearing on 3 December 2024,gives the following
Judgment
1By its action under Article 263 TFEU, the applicant, Baltic International Bank SE, seeks annulment of the decision of the European Central Bank (ECB) of 3 July 2023 on the withdrawal of the authorisation of a supervised credit institution (‘the contested decision’), adopted in its regard.
Background to the dispute
2The applicant is a less significant credit institution established in Latvia subject to direct prudential supervision by the Finanšu un kapitāla tirgus komisija (Financial and Capital Market Commission, Latvia) (‘the FCMC’), which has been integrated into the Latvijas Banka (Bank of Latvia).
3Finding that the applicant had been committing breaches of its banking obligations since 2012, the FCMC adopted a number of decisions concerning the applicant.
4In particular, on 9 March 2016, the FCMC adopted lēmums Nr. 61 par sankciju piemērošanu AS « Baltic International Bank » (Decision No 61 on the imposition of sanctions on AS ‘Baltic International Bank’) (‘Decision No 61’), which the applicant did not challenge. On 29 November 2019, the FCMC adopted lēmums Nr. 191 par sankciju un pasākumu noteikšanu AS « Baltic International Bank » (Decision No 191 on the imposition of sanctions and measures on AS ‘Baltic International Bank’) (‘Decision No 191’), which the applicant did challenge. On 22 December 2022, the FCMC upheld that decision by lēmums Nr. 255 par Finanšu un kapitāla tirgus komisijas padomes 29.11.2019. lēmuma Nr. 191 atstāšanu par negrozītu (Decision No 255 upholding [Decision No 191]). The applicant contested that latter decision before the Administratīvā apgabaltiesa (Regional Administrative Court, Latvia).
5Furthermore, on 12 December 2022, the FCMC adopted lēmums Nr. 215 par noregulējuma darbības nepiemērošanu Baltic International Bank SE (Decision No 215 on the non-application of a resolution measure with respect to [the applicant]) (‘Decision No 215’) and lēmums Nr. 216 par finanšu pakalpojumu sniegšanas apturēšanu un pilnvarnieku iecelšanu Baltic International Bank SE (Decision No 216 on the suspension of the provision of financial services and the appointment of an authorised representative for [the applicant]) (‘Decision No 216’).
6On 30 December 2022, the FCMC submitted to the ECB a proposal for a decision entitled ‘Proposal for withdrawal of the authorisation of a supervised credit institution’ to be adopted in relation to the applicant (‘the proposal for a decision’).
7On 10 March 2023, the ECB adopted Decision ECB-SSM-2023-LV-1 WHD-2022-0014 on the withdrawal of the authorisation of a supervised credit institution (‘the original decision’) withdrawing the authorisation issued to the applicant as a credit institution.
8The original decision is based on three grounds, alleging:– first, that the applicant committed serious breaches over a long period of time, and was still in serious breach as at the date of the original decision, of core provisions of the Noziedzīgi iegūtu līdzekļu legalizācijas un terorisma un proliferācijas finansēšanas novēršanas likums (Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing) of 13 June 2019 (Latvijas Vēstnesis, 2008, No 116), which individually and jointly establish grounds for withdrawal of an authorisation;– second, that the applicant breached, over a long period of time, its obligation to establish effective internal control systems, as laid down in Article 341(1) of the Kredītiestāžu likums (Law on credit institutions) of 5 October 1995 (Latvijas Vēstnesis, 1995, No 163);– third, that the applicant breached its obligation to develop and implement a prudent strategy and prudent policies and procedures allowing it to manage its risks, including the timely identification, assessment, analysis and monitoring of its risks as referred to in Article 342(1) and (2) of the Law on credit institutions.
9By judgment of 24 March 2023, the Ekonomisko lietu tiesa (Economic Court, Latvia) declared the applicant to be in liquidation.
10On 6 April 2023, the applicant submitted a request for review of the original decision to the Administrative Board of Review of the ECB.
11On 3 July 2023, the Governing Council of the ECB replaced the original decision with the contested decision, which is identical in content to the original decision. The contested decision took effect on the day after the date of notification of the original decision.
Forms of order sought
12The applicant claims that the Court should:– annul the contested decision;– order the ECB to pay the costs.
13The ECB contends that the Court should:– dismiss the action as unfounded;– order the applicant to pay the costs.
Law
Admissibility of the action
14The ECB expresses doubt as to the admissibility of the action, calling into question the validity of the power of attorney of the applicant’s lawyers. It notes in particular that the applicant’s former management board had authorised those lawyers by means of an authority to act of 5 September 2005 and a representation agreement of 23 March 2023, but that the liquidator of the applicant revoked, with effect from 6 April 2023, all powers of attorney issued by that management board, thus invalidating the power of attorney under which the applicant’s lawyers represent the applicant in the present case.
15In response to a measure of organisation of procedure addressed by the Court, on 23 October 2024 the applicant produced additional documents, including a letter from its administrator, as proof of its lawyers’ power of attorney. It also relied on the judgment of 5 November 2019, ECB and Others v Trasta Komercbanka and Others (C‑663/17 P, C‑665/17 P and C‑669/17 P, EU:C:2019:923), to argue that its lawyers’ powers of attorney could not be invalidated, as the Court held in that judgment. It claims that its former management board was authorised, on 23 March 2023, to enter into the representation agreement with its lawyers. The applicant adds that, while its liquidator did subsequently revoke all powers of attorney issued by that management board, account cannot be taken of such revocation with regard to the powers of attorney issued to its lawyers in relation to the present case, because there is a risk that the liquidator may not challenge the measure adopted by the FCMC or with the latter’s support, which led to winding-up proceedings being opened in its regard, which would run counter to the principle of effective judicial protection. The conduct of the liquidator could undermine the right of the applicant, as a legal person governed by private law, to a fair trial. The applicant has produced the same letter from its administrator as a formal document to provide proof of its lawyers’ powers of attorney.
16In that regard, it should be recalled that, under Article 19 of the Statute of the Court of Justice of the European Union, which applies to the General Court pursuant to the first paragraph of Article 53 of that statute, in order to be able to bring proceedings before the Courts of the European Union, legal persons, such as the applicant, must be represented by a lawyer authorised to practice before a court of a Member State or of another State which is a party to the Agreement on the European Economic Area (EEA) (see, to that effect, judgment of 8 February 2024, Pilatus Bank v ECB, C‑256/22 P, EU:C:2024:125, paragraph 35).
17In view of that need for legal persons to be represented by a lawyer authorised to practise before a court of a Member State or of another State which is a party to the EEA Agreement, the admissibility of an action brought by such a person is subject to proof that the person concerned has indeed made the decision to bring the action and that the lawyers who claim to represent that person have in fact been authorised to do so (see, to that effect, judgment of 8 February 2024, Pilatus Bank v ECB, C‑256/22 P, EU:C:2024:125, paragraph 57 and the case-law cited).
18It is precisely to ensure that that is indeed the case that Article 51(3) of the Rules of Procedure of the General Court requires lawyers, where the party they represent is a legal person governed by private law, to lodge at the Registry of the General Court an authority to act given by that person, as failure to produce that authority may entail, in accordance with Article 51(4) of those rules, the formal inadmissibility of the application (see judgment of 8 February 2024, Pilatus Bank v ECB, C‑256/22 P, EU:C:2024:125, paragraph 58 and the case-law cited).
19In the present case, it is not in dispute that the applicant’s former management board was duly authorised to issue, on 5 September 2005, the authority to act and to enter into, on 23 March 2023, the representation agreement with the applicant’s lawyers in the present case.
20In its letter of 10 October 2024, provided by the applicant on 23 October 2024 in response to a measure of organisation of procedure of the Court and as power of attorney for the applicant’s lawyers, the applicant’s administrator argues that the revocations of powers of attorney by the decision of the liquidator, published on 11 April 2023 and 29 January 2024, did not affect the validity of the powers of attorney granted by the former management board to the applicant’s lawyers in the present case. The administrator adds that the applicant’s lawyers are authorised to represent the applicant on the basis of those powers of attorney.
21In that regard, it is sufficient to observe that, although the FCMC is neither the author of the contested decision nor the defendant before the General Court, that person being the ECB, the fact remains that the FCMC participated in the adoption of the contested decision, which was adopted at its suggestion. Having regard to the task conferred on it pursuant to Latvian law, the liquidator has a conflict of interests because the challenge, before the General Court, to the withdrawal of the authorisation of the legal person which it represents could have led it, contrary to that task, to deprive the liquidation proceedings concerning that person of any legal basis (see, to that effect, judgment of 5 November 2019, ECB and Others v Trasta Komercbanka and Others, C‑663/17 P, C‑665/17 P and C‑669/17 P, EU:C:2019:923, paragraph 74).
22Accordingly, account cannot be taken, as regards the lawyers’ representation of the applicant in the present case, of the revocation of their powers of attorney by the decision of the liquidator, since that would infringe the applicant’s right to effective judicial protection as enshrined in Article 47 of the Charter of Fundamental Rights of the European Union (‘the Charter’) (see, to that effect, judgment of 5 November 2019, ECB and Others v Trasta Komercbanka and Others, C‑663/17 P, C‑665/17 P and C‑669/17 P, EU:C:2019:923, paragraph 78).
23In such circumstances, it must be held that the applicant’s lawyers are duly authorised to represent the applicant.
24It should be added that the administrator does not contest the powers of attorney originally issued to the applicant’s lawyers.
25Moreover, the ECB did not challenge the power of attorney produced by the applicant most recently as a formal document.
26The action is therefore admissible.
The admissibility of the documents produced by the applicant on 2 December 2024
27By act lodged at the Registry of the General Court on 2 December 2024, the applicant offered new evidence, dated 21 July 2023 and 5 and 6 September 2023, that is to say, in the first case, after the application had been lodged and, in the other cases, after the reply had been lodged. At the hearing, the ECB expressed doubts as to the admissibility of those documents.
28It should be recalled that, under Article 85(3) of the Rules of Procedure, the main parties may, exceptionally, produce or offer further evidence before the oral part of the procedure is closed or before the decision of the General Court to rule without an oral part of the procedure, provided that the delay in the submission of such evidence is justified.
29In that regard, the applicant was invited at the hearing to respond to the possible inadmissibility of the documents produced and to set out the reasons justifying why those documents could be communicated only the day before the hearing. The applicant simply stated that those documents had been sent to it by the liquidator, without indicating the date on which they had been sent or explaining why it was impossible for it to obtain the documents from the liquidator earlier.
30In those circumstances, the documents produced on 2 December 2024 must be declared inadmissible.
Substance
31In support of its action, the applicant raises four pleas in law. By the first plea, it alleges that the ECB erred in its assessment by disregarding the fact that the FCMC had failed to fulfil its obligation to issue national regulations establishing the criteria applicable to serious breaches of the regulatory acts in the field of anti-money laundering and countering the financing of terrorism and proliferation (‘AML/CFT’). By the second plea in law, it alleges, in essence, infringement by the ECB of the obligation to carry out its own assessment and not simply reproduce the assessment made by the FCMC. By the third plea in law, the applicant alleges, in essence, infringement of the obligation to state reasons in relation to the second and third grounds for withdrawal of the authorisation and errors committed by the ECB relating to those same grounds. By the fourth plea in law, it alleges infringement of the right to good administration, which includes the right to be heard and the right to have access to the file.
32The Court will examine the first and second pleas in law together, before considering, in turn, the third and fourth pleas in law.
The first and second pleas in law
33In the context of the first and second pleas in law, the applicant calls into question the ECB’s assessment of the applicant’s compliance with the AML/CFT legislation. In essence, it claims that the ECB did not itself undertake the assessment which it was required to carry out, rather it based that assessment on decisions taken by the FCMC, which were open to challenge, and on acts previously adopted in the context of the national administrative procedure, which the applicant was unable to contest before the national court.
34In the context of the first plea in law, the applicant argues that the ECB erred in its assessment by disregarding the fact that FCMC had not complied with the obligation, laid down in Article 196(4) of the Law on credit institutions, to issue national acts establishing the criteria applicable to serious breaches of AML/CFT legislation.
35It claims that the ECB infringed the obligation, laid down in Article 83(2) 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 (‘the SSM Framework Regulation’) (OJ 2014 L 141, p. 1), to undertake, in adopting a decision to withdraw an authorisation, its own assessment of the circumstances justifying that withdrawal.
36In the applicant’s view, the contested decision is based on the FCMC’s assessment contained in the proposal for a decision and on the documents provided by that authority, which – in accordance with Article 83(2) of the SSM Framework Regulation – is insufficient.
37The applicant points to the provisions of Article 4(3) of Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (OJ 2013 L 287, p. 63; ‘the Basic SSM Regulation’), of Article 83(2) of the SSM Framework Regulation and of Article 18(f) and Article 67(1)(o) 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 well as those of Article 27(1)(8) and of Article 196(3) and (4) of the Law on credit institutions.
38In the light of the abovementioned provisions, the ECB should have applied the Law on credit institutions and found that national regulatory acts establishing the criteria applicable to serious breaches of AML/CFT legislation had not been adopted.
39The applicant adds that it cannot be ruled out that, if the national acts referred to in paragraph 38 above had been adopted, the criteria applicable to serious breaches would have been different from those contained in the report of 31 May 2022 drawn up in the context of the Single Supervisory Mechanism (SSM) by the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA). That report does not have binding legal force and cannot take the place of the regulatory acts which ought to have been adopted. The same applies to the FCMC’s recommendations.
40The FCMC should have stated the criteria for regarding the breaches committed by the applicant as serious, and the ECB should have found that the FCMC’s decisions lacked one element, that is, a statement of reasons for such seriousness.
41The failure to adopt the relevant regulatory acts within the periods prescribed also undermines the principle of legal certainty, since the applicant is entitled to know in advance the criteria used to categorise the breaches of which it is accused as serious.
42Furthermore, the ECB relied on an incorrect legal basis. The applicant states that the lack of criteria was acknowledged by the legislature to be a significant shortcoming, since the legislature had provided in paragraph 84 of the transitional provisions of the Law on credit institutions that the FCMC was to establish those criteria before 1 August 2019, by issuing regulatory acts with the same force as decrees adopted by the Council of Ministers, in accordance with Latvian law. The applicant states, however, that those acts had not been adopted.
43The applicant adds that the ECB is required to apply not only the provisions of EU law but also, where that law takes the form of directives, the national law transposing those directives. In the present case, Directive 2013/36 was transposed into Latvian law by the Law on credit institutions, which the ECB was meant to apply. Moreover, the ECB has confirmed that it is required to examine whether the conditions laid down in national law, read in conjunction with Article 18(f) and Article 67(1)(o) of Directive 2013/36, are satisfied. It should therefore have established the relevant facts and decided whether they were such as to demonstrate that the applicant was deemed liable for a serious breach within the meaning of national law.
44In that context, if the ECB had found, pursuant to the Law on credit institutions, that the FCMC had not issued regulatory acts in the field of AML/CFT, it should not have based the contested decision on the findings made by the FCMC, which had failed to comply with its obligation.
45The applicant states that Decision No 61, upon which the contested decision is based, was adopted prior to the adoption of the regulatory act which was to establish the criteria of seriousness in the field of AML/CFT, in accordance with Article 196(4) of the Law on credit institutions. The FCMC based its decision on an internal regulatory act, which it is not authorised to do under Article 67(6) of the Administratīvā procesa likums (Law on administrative procedure) (Latvijas Vēstnesis, 2001, No 164). Similarly, the regulatory acts establishing the criteria of seriousness had likewise not yet been issued when Decision No 191 was adopted.
46As for the second plea in law, which is divided into three parts, the applicant claims, with regard to the first part, that the ECB infringed its duty of due diligence by failing to review the breaches of which it was accused in the context of Decision No 191, which was challenged at the national level. Since Decision No 191 was not final as at the date of the contested decision, the ECB should have reviewed the related facts. In its reply, the applicant states that, by decision of the Regional Administrative Court of 5 September 2023, the proceedings initiated against Decision No 191 were closed, following the application for withdrawal lodged by the applicant’s liquidator on 24 July 2023.
47By the second part of the second plea in law, the applicant claims that the ECB failed to examine with due care and impartiality the facts related to the investigations to which it refers in paragraph 11 of the annex to the contested decision. The applicant recalls the Latvian rules on criminal investigations and proceedings and the fact that none of its employees, board members or shareholders has been designated as a suspect or an accused person. By referring in the contested decision to ongoing criminal proceedings, the ECB failed to have regard to Article 48(1) of the Charter, which provides that everyone who has been charged is to be presumed innocent. In the applicant’s view, the ECB could not use information relating to the initiation of criminal proceedings as the basis for the contested decision.
48By the third part of the second plea in law, the applicant disputes the legal force of the documents upon which the contested decision is based, that is to say, inspection reports and Decisions Nos 61 and 191. In the applicant’s view, it fell to the ECB to review the lawfulness of the proposal for a decision, which contains substantial defects that vitiate the legality of the contested decision.
49With regard, in the first place, to the inspection reports, the applicant claims that they are ‘interim decisions’ which, within the national legal system, cannot be challenged. They are merely letters setting out the FCMC’s point of view and not final decisions. In that context, the contested decision cannot rely on information provided in those reports.
50The applicant explains that, in the case of the 2012 inspection report and the checks carried out in 2014 and in 2015, the ECB relied on breaches of AML/CFT law which the FCMC did not categorise as such.
51The applicant also states that the 2018 and 2019 inspection reports were the subject of an appeal together with Decision No 191 and that they should not have been mentioned in the contested decision. The information contained in the 2018 inspection report cannot serve as the basis for the contested decision. The same is true of the information gathered in the context of the proceedings initiated on 13 December 2021, in which a final decision has not been given.
52As for, in the second place, Decisions Nos 61 and 191, the applicant claims that the first decision is an act which has become final that it did not challenge, and that it complied with all the obligations arising from that act. In the case of Decision No 191, the national court’s refusal of the applicant’s application for interim protection against that decision cannot prejudice the assessment of the merits of the decision.
53With regard, in the third place, to the FCMC’s letters regarding the applicant’s conduct, those letters do not constitute final decisions.
54The applicant adds that the ECB infringed the principle of the presumption of innocence by relying on two decisions of the FCMC, one of which (Decision No 191) was contested, as well as on the 2018 inspection report, which is an interim decision. In the applicant’s view, the dispute relating to the FCMC’s decisions is comparable to that of the decisions of a national competition authority imposing a fine, in respect of which all the procedural safeguards of the right to a fair trial apply. The guilt of a person accused of an offence can be regarded as being definitively established only once the decision establishing that offence has become final. However, in the case of the applicant, there is no judgment which has acquired the force of res judicata declaring it responsible for serious breaches. The ECB should have verified whether the documents upon which it had relied were final. It should have examined the merits of Decision No 191 or not relied upon it, because it was contested. The applicant adds that Decision No 255 was also challenged before the courts.
55On several occasions, the reference to the statement of reasons for Decision No 191 is incorrect because none of the inspection reports, including the 2018 inspection report, contains the alleged findings upon which the contested decision seeks to rely.
56The ECB disputes the applicant’s line of argument.
57In that regard, it should be observed that, under Article 18(f) of Directive 2013/36, the competent authorities may withdraw the authorisation granted to a credit institution where that credit institution commits one of the breaches referred to in Article 67(1) of that directive. That includes, inter alia, according to Article 67(1)(o) of Directive 2013/36, where an institution is found liable for a serious breach of the national provisions adopted pursuant to 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). The latter directive was repealed and replaced by 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 (OJ 2015 L 141, p. 73).
58With regard to the withdrawal of the authorisation of a credit institution, under Article 83(2) of the SSM Framework Regulation, ‘in taking its decision, the ECB shall take into account all of the following: (a) its assessment of the circumstances justifying withdrawal; (b) where applicable, the NCA’s draft withdrawal decision; (c) consultation with the relevant NCA …; (d) any comments provided by the credit institution pursuant to Articles 81(2) and 82(3) [of that framework regulation]’.
59Article 4(3) of the Basic SSM Regulation provides that, ‘for the purpose of carrying out the tasks conferred on it by this Regulation, and with the objective of ensuring high standards of supervision, the ECB shall apply all relevant Union law, and where this Union law is composed of Directives, the national legislation transposing those Directives’. That provision also states that, ‘where the relevant Union law is composed of Regulations and where currently those Regulations explicitly grant options for Member States, the ECB shall apply also the legislation exercising those options’.
60It is apparent from Article 4(3) of the Basic SSM Regulation that the ECB is to apply national law where that law transposes the relevant directives (see, to that effect, judgment of 7 September 2023, Versobank v ECB, C‑803/21 P, not published, EU:C:2023:630, paragraph 102).
61It should be added 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 the Basic SSM Regulation, 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, by analogy, judgment of 8 May 2019, Landeskreditbank Baden-Württemberg v ECB, C‑450/17 P, EU:C:2019:372, paragraph 86).
62The ECB’s broad discretion also stems from the fact that the contested decision entails the assessment of complex economic and financial facts and circumstances (see, to that effect and by analogy, 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).
63In those circumstances, the judicial review which the Courts of the European Union must carry out of the merits 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, manifest error of assessment or misuse of powers (see, to that effect and by analogy, 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).
64The 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).
65It is in those circumstances that the assessment made by the ECB of the first ground for withdrawal of the authorisation must be examined.
66According to the first ground for withdrawal of the authorisation, as set out in paragraph 4 of the contested decision, the ECB held that, since 2012, the applicant had repeatedly and persistently breached several legal requirements in the field of AML/CFT, requirements which concerned the internal control system (paragraph 4.2.1 of the contested decision), customer due diligence measures (paragraph 4.2.2 of the contested decision) and the reporting of suspicious transactions to the FCMC’s Financial Intelligence Unit.
67In paragraph 4 of the contested decision and in the annex thereto, the ECB sets out the grounds which, in its view, establish the serious breaches in the field of AML/CFT committed by the applicant.
68In that regard, it must be observed first and foremost that the contested decision does not simply reproduce the FCMC’s position contained in the proposal for a decision.
69It is apparent from the contested decision that the ECB carried out its own assessment based on a whole series of items of information taken from a number of decisions adopted by the FCMC, as well as other documents drawn up nationally, including inspection reports and supervisory activities.
70In the contested decision, the ECB relies on the considerations contained inter alia in Decisions Nos 61 and 191, as well as in the on-site inspection reports in 2012, 2014, 2018 and 2021, the on-site targeted inspection reports in 2013, 2015, 2019 and 2020 and the off-site targeted inspection reports in 2015 and the off-site supervisory activities in 2022.
71It should be observed that the ECB was entitled to take into account Decisions Nos 61 and 191, as well as other the other documents referred to in paragraph 70 above, in which the breaches committed by the applicant are described. The fact that those documents were drawn up by the FCMC cannot prevent the ECB from taking them into account or from carrying out, on the basis of the information which they contain, its own assessment forming the basis of the decision to withdraw the authorisation.
72In that regard, it has been held inter alia that the ECB had the power to withdraw an authorisation on the basis of breaches found by the national competent authorities (‘NCAs’) (see, by analogy, judgment of 12 September 2024, Anglo Austrian AAB v ECB and Far-East, C‑579/22 P, EU:C:2024:731, paragraph 47).
73With regard to Decisions Nos 61 and 191, it should be added, first, that the first of those decisions was not contested by the applicant. That decision was therefore final and enforceable as against the applicant on the date of adoption of the contested decision.
74As for the fact, alleged by the applicant, that the NCA had not yet issued regulations establishing the criteria for regarding the breaches committed by the applicant in the field of AML/CFT as serious, it is apparent from the parties’ written submissions and from the responses provided by them at the hearing that the obligation on the FCMC to adopt provisions determining the criteria applicable to serious breaches of the provisions of AML/CFT legislation entered into force only in 2019, following the amendment of Article 196 of the Law on credit institutions, to which a paragraph 4 was added.
75Thus, the abovementioned obligation was not in force on the date of adoption of Decision No 61, which covers the period from 2012 to 2016. It should be noted that although, as the applicant argues, Decision No 61 was adopted on the basis, as far as concerned the establishment of the serious breaches, of an internal act of the FCMC which was not made public at the time of that decision’s adoption, it is established that the applicant did not challenge that decision, and therefore, in any event, the ECB was perfectly entitled to take it into account.
76Furthermore, it is apparent from an answer given by the ECB to a question put by the Court that the authorisation could have been withdrawn, in the present case, solely taking account of Decision No 61, without Decision No 191.
77In that regard, it should be borne in mind that, given not only the importance of the prudential rules aimed at combatting money laundering and terrorist financing but also the special responsibility of credit institutions in that respect and the need to act as quickly as possible in response to breaches of those rules, a national administrative decision finding a credit institution liable for serious breaches of the national provisions adopted under Directive 2005/60 (now Directive 2015/849) is sufficient grounds for withdrawing authorisation (see, to that effect, judgment of 22 June 2022, Anglo Austrian AAB and Belegging-Maatschappij ‘Far-East’ v ECB, T‑797/19, EU:T:2022:389, paragraph 50).
78Moreover, even though the applicant has argued before the Court that it complied with the obligations arising from Decision No 61, it should be recalled that the position to the effect that certain infringements found were corrected and can no longer justify a withdrawal of authorisation would undermine the objective of safeguarding the European banking system. It could permit credit institutions that have committed serious breaches to continue their activities so long as the competent authorities do not demonstrate that they have committed new breaches (see, by analogy, judgment of 22 June 2022, Anglo Austrian AAB and Belegging-Maatschappij ‘Far-East’ v ECB, T‑797/19, EU:T:2022:389, paragraph 61).
79In the second place, Decision No 191 was adopted in 2019, at a time when, according to the applicant, the regulatory provisions had not yet been adopted to establish the criteria applicable to serious breaches of the provisions in the field of AML/CFT.
80In that regard, it must be observed that, even though Decision No 191 was the subject of proceedings challenging it at the national level, in accordance with Article 80 of the Latvian AML/CFT Law, an action brought against such a decision automatically entails the suspension solely of the effects of the part relating to the fine imposed, leaving the remainder of the decision unaffected. The ECB was therefore entitled to take account of the findings made in Decision No 191.
81As regards the argument alleging infringement of the principle of legal certainty, assuming it were established that the failure to adopt the regulatory acts within the prescribed periods covered Decision No 191, it should be noted that that argument could, where appropriate, have been relied upon in the context of the action brought against that decision at the national level. However, as far as concerns the procedure for withdrawal of authorisation, the ECB had at its disposal a decision the effects of which had not been suspended, save those in relation to the fine, as has already been observed in paragraph 80 above.
82In the third place, as for the argument that the ECB should have found that, given the failure to adopt the national regulatory acts establishing the criteria of seriousness for AML/CFT breaches, the breaches found by the FCMC concerning the applicant could not be taken into account, it should be recalled that the Court has held that, although the Member States remain competent to implement such provisions, as expressly provided for in recital 28 of the Basic SSM Regulation, the ECB has exclusive competence to withdraw authorisation, for all credit institutions, irrespective of their size, even where this is based on the ground set out in Article 67(1)(o) of Directive 2013/36, to which Article 18 of that directive refers, since Article 14(5) of the Basic SSM Regulation lays down, as a condition for the withdrawal of authorisation, the existence of one or more grounds justifying withdrawal under Article 18 of that directive (see, to that effect, judgment of 7 September 2023, Versobank v ECB, C‑803/21 P, not published, EU:C:2023:630, paragraph 141).
83In that regard, the Court has held that the SSM centralised functions relating to prudential supervision with the ECB, while providing for decentralised implementation by the NCAs of the participating Member States, under the supervision of the ECB, to which they provide their cooperation and assistance. Thus, within the SSM, first, the ECB exercises certain exclusive powers: ‘direct’ prudential supervision of significant credit institutions and the powers reserved to it under Article 4 of the Basic SSM Regulation with regard to all institutions, irrespective of their size. Second, the prudential supervision of less significant institutions is part of the decentralised exercise of power by those NCAs and is overseen and supervised, as a last resort, by the ECB, whose task is to ensure the proper functioning and effectiveness of the prudential supervision system and the consistent and uniform application of prudential rules in all participating Member States. The ECB carries out ‘indirect’ supervision of less significant institutions and, in that context, NCAs provide their cooperation and assistance to the ECB. In addition, the same NCAs remain competent in respect of matters not covered by the Basic SSM Regulation: consumer protection, markets in financial instruments, AML/CFT and the fight against corruption (judgment of 6 October 2021, Ukrselhosprom PCF and Versobank v ECB, T‑351/18 and T‑584/18, EU:T:2021:669, paragraph 131).
84In those circumstances, it is for the NCAs (here, the FCMC) to establish the facts constituting breaches of the AML/CFT legislation, with the ECB carrying out the legal assessment establishing whether those facts and the breaches found on the basis of the proposal for a decision justify withdrawal of authorisation and the assessment of proportionality (see, by analogy, judgment of 6 October 2021, Ukrselhosprom PCF and Versobank v ECB, T‑351/18 and T‑584/18, EU:T:2021:669, paragraph 197).
85Moreover, it must be observed that the applicant has not explained why the lack of criteria for establishing the seriousness of AML/CFT breaches should have led to a different conclusion from that reached by the FCMC in connection with the applicant’s actions in that respect. Nor has it explained why the criteria which should have been adopted would have been different from those contained in the report of 31 May 2022 drawn up in the context of the SSM by the EBA, the ESMA and the EIOPA (see paragraph 39 above). The applicant simply argued that the shortcomings identified in the on-site inspection reports drawn up by the FCMC were wrongly categorised as breaches.
86In the fourth place, as regards the argument relating to Decision No 191 that none of the inspection reports, including the 2018 report, contain the alleged findings upon which the contested decision seeks to rely, it should be observed, as has already been stated in essence in paragraph 72 above, that the ECB was not obliged to check all the findings made by the FCMC and was perfectly entitled to carry out its assessment of the withdrawal of the authorisation on the basis, inter alia, of the breaches found in Decision No 191.
87Lastly, as for the assessments which purportedly call into question the presumption of the applicant’s innocence and, more specifically, paragraph 4.4.4 of the contested decision and paragraph 11 of the annex thereto, it should be stated, first, that the contested decision is the product of an administrative procedure separate from the criminal proceedings initiated against the applicant. Second, while, in paragraph 11 of the annex to the contested decision and in paragraph 4.4.4 of that decision, reference is indeed made to the initiation of those criminal proceedings, that reference is made primarily, as is made expressly clear from paragraph 11 of that annex, to draw attention to the consequences of those proceedings for the property rights of certain shareholders. In addition, as is apparent in essence from paragraph 4.4.4 of the contested decision, the initiation of the criminal proceedings is mentioned to illustrate the potential consequences of that breach, which is unconnected with the question of whether or not the applicant complied with its obligations under the relevant criminal provisions.
88It follows from all the foregoing considerations that the ECB did not err, in the manner referred to in paragraph 63 above, in relying on the ground that the applicant has been found liable for a serious breach of the national provisions in the field of AML/CFT within the meaning of Article 67(1)(o) of Directive 2013/36. The first and second pleas in law must therefore be dismissed as unfounded.
89In that context, it should be recalled, as has already been stated in essence in paragraph 57 above, that, to justify withdrawing authorisation, it is sufficient that one of the breaches set out in Article 67(1) of Directive 2013/36 has been committed. In that regard, the ECB explained, in the context of the procedure, that each of three grounds referred to in paragraph 2.6 of the contested decision justified on its own the withdrawal of authorisation. In answer to a question put by the Court at the hearing, the applicant acknowledged that it had not contested that point in the written part of the present proceedings.
90Since, in the present case, the applicant has been unable to validly challenge the fact that the withdrawal of authorisation may be based on a breach as laid down in Article 67(1)(o) of Directive 2013/36, there is no need to examine whether the ECB erred in accepting other breaches, in particular pursuant to Article 67(1)(d) of that directive, which, according to the contested decision, form the basis of the second and third grounds. However, for the sake of completeness, the Court will examine the third plea in law, which seeks to contest those second and third grounds.
The third plea in law
91In the context of its third plea in law, in the first place, the applicant argues that the ECB failed to state adequate reasons for the contested decision, in so far as that decision concerns its ability to develop and implement a prudent strategy as well as policies and procedures to identify, monitor and manage its risks. The related conclusion contained in the contested decision is not based on any legal provision and the ECB failed to advise the applicant of its methods of calculation or the results of the specific calculations supporting its conclusion. The statement of reasons is based on general assertions, which can be found in paragraph 6 of the contested decision.
92Although the applicant developed a separate strategy to ensure that an appropriate level of own funds was maintained over the period from 2022 to 2024 and the applicant complied with the requirements laid down in the Finanšu un kapitāla tirgus komisijas normatīvie noteikumi Nr. 227 (Regulation No 227 of the FCMC) (‘Regulation No 227’) of 1 December 2020 entitled ‘Iekšējās kontroles sistēmas izveides normatīvie noteikumi’ (Provisions relating to the establishment of an internal control system), it is not apparent from the contested decision that such compliance was examined. The applicant adds that the information requested by the FCMC was much more detailed than that provided for in Regulation No 227 and that the deficiencies reported by that authority were not based on any regulatory provision. The ECB failed to examine the substance of the breaches of the legal provisions committed by the applicant to which the ECB refers in paragraph 6 of the contested decision.
93The applicant states that the FCMC did not adopt any decision on the compliance of its strategy, its policies and its procedures to identify, monitor and manage its risks with Article 342(1) and (2) of the Law on credit institutions. That prevented the applicant from challenging the decisions adopted in the context of the administrative procedure which culminated in the contested decision.
94Furthermore, the applicant contests paragraph 6 of the contested decision in so far as it states that Article 342(1) and (2) of the Law on credit institutions transposes Article 74(2) of Directive 2013/36, which is incorrect. Neither Article 74 of Directive 2013/36 nor any other provision of that directive lays down the requirement to develop and implement a prudent strategy and policies and procedures to identify, monitor and manage its risks. It was Article 74(1) of Directive 2013/36 which was transposed by Article 341 of the Law on credit institutions, with Article 74(2) of that directive having been transposed by paragraph 5 of the Finanšu un kapitāla tirgus komisijas normatīvie noteikumi Nr. 233 (Regulation No 233 of the FCMC) of 1 November 2012 entitled ‘Iekšējās kontroles sistēmas izveides normatīvie noteikumi’ (Provisions on the establishment of an internal control system). That alleged error notwithstanding, paragraph 6 of the contested decision does not contain any analysis of the compliance of the applicant’s policies and procedures with Article 342(1) and (2) of the Law on credit institutions, which prevents the applicant from understanding the scope of the measure adopted in relation to it.
95The ECB did not base the third ground of the contested decision on specific legal provisions, and there are no uniform guidelines upon which the ECB could have relied to determine any non-compliance of the applicant’s strategy with prudential requirements. Moreover, the criteria set out by the ECB in the course of these proceedings are vague and imprecise and are not defined either in guidelines or as criteria for assessment of the prudence of a strategy. Furthermore, the reference made in paragraph 6.1.3 of the contested decision to the FCMC’s letter of 10 February 2022, in which the requests were made, has no bearing on the requirement set out in paragraph 1 of the operative part of Finanšu un kapitāla tirgus komisijas lēmums Nr. 105 (Decision No 105 of the FCMC) (‘Decision No 105’) of 20 August 2021 requiring the development of an action plan to remedy the issues observed.
96The ECB focussed on the 2022 to 2024 strategy and failed to examine the strategies of the previous years. In paragraph 6.2.2 of the contested decision, the ECB referred to the fact that the strategy to be implemented in 2018 did not allow the applicant to generate capital to sustain its development and comply with prudential requirements. The reference made to the strategy’s non-compliance with the high-risk level of the applicant’s operations is worded generally. The ECB erred in its assessment because the applicant was still solvent when it brought its action and does not have any tax debt.
97The applicant adds that the ECB also made errors of assessment as regards the implementation of the applicant’s strategy. The consideration contained in paragraph 6.2.3 of the contested decision concerning the inability to review the flawed strategy and the attraction of new shareholders is ‘ineffective’, since the applicant was unable to adopt any strategy, given the application of the supervisory and early intervention measures imposed on it by the FCMC. Furthermore, the assessment contained in paragraph 6.1.5 of the contested decision is not based on legal provisions.
98The applicant adds that the contested decision does not state which procedures and policies it is alleged not to have developed or implemented. Nor does that decision state where those findings of fact were made nor which breaches it committed. The ECB cannot rely on Decision No 105 as a statement of reasons for the contested decision.
99In the second place, the applicant contests the second ground for withdrawal of the authorisation, namely the persistent failure to comply with the obligation laid down in Article 341(1) of the Law on credit institutions to establish an effective internal control system in the context of the credit institution’s activity. In the contested decision, the reasons stated for the withdrawal of the authorisation are not the lack of an internal control system or of elements referred to in Article 341(1) of the Law on credit institutions nor systemic and pervasive shortcomings, but rather the fact that, in the ECB’s view, deficiencies were found in the functioning of the internal control system established over the period from 2019 to 2021. The ECB disregarded the information provided by the applicant and did not conduct its own assessment in the light of the applicable legal provisions.
100The ECB did not specifically identify how each of the applicable provisions was infringed and did not assess the risk associated with the institution’s policy. With regard to the specific content of the applicant’s activities, it did not identify any specific non-compliance with the applicable provisions and, in paragraph 5.2 of the contested decision, it simply referred to serious deficiencies in the applicant’s internal control system and excessive risk taking. It is impossible to determine which provisions of Regulation No 227 were not observed.
101The ECB relies solely on Article 341(1) of the Law on credit institutions and did not state that it used the provisions of Regulation No 227 in its assessment. Moreover, when it referred to the inspection carried out by the FCMC in 2019, the ECB refers to Regulation No 227, which entered into force only from 10 December 2020. Furthermore, a mere description of the facts is not sufficient to establish that a breach has occurred. The applicant is unable to verify the content of the ECB’s conclusion contained in paragraph 5.2.3 of the contested decision, namely that the applicant was unable to establish and operate a comprehensive and effective internal control system. The wording of that paragraph is ambiguous and there is no clear and direct reference to Article 341(1) of the Law on credit institutions.
102The ECB disputes the applicant’s line of argument.
103It should be observed that, as the applicant confirmed at the hearing, notwithstanding its heading, which refers to infringement of the obligation to state reasons, the third plea in law may be broken down, in essence, into two parts: the first alleging that the reasons stated are inadequate as far as concerns the second and third grounds for withdrawal of the authorisation, and the second referring to errors committed by the ECB in its assessment of such grounds.
104With regard to the first part of this plea in law, alleging a failure to state adequate reasons, it should be recalled that, according to the case-law, the statement of reasons required by Article 296 TFEU, by the second subparagraph of Article 22(2) of the Basic SSM Regulation and by Article 33(1) and (2) of the SSM Framework Regulation 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).
105Compliance with the requirement to state reasons must be assessed by reference to the circumstances of the case, in particular the content of the measure, the nature of the reasons given and the interest which the addressees of the measure, or other parties to whom it is of concern within the meaning of fourth paragraph of Article 263 TFEU, 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 for a measure 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).
106As regards the second and third grounds, for which inadequate reasons are stated in the applicant’s view, they should be examined in the order in which they appear in the contested decision, it being understood that they are intrinsically linked.
107Specifically, in considering, in paragraph 5 of the contested decision, the second ground, which concerns the obligation to establish effective internal control systems (Article 341(1) of the Law on credit institutions), the ECB framed its analysis within a broader context than that of the third ground, which is the subject of paragraph 6 of that decision and concerns the applicant’s management of its risks by means of implementing a prudent strategy and prudent procedures and policies. Thus, as early as in paragraph 5.1.1 of the contested decision, reference is made to supervised entities managing their obligation, as laid down in Article 74(1) of Directive 2013/36, to have robust governance arrangements, which include a clear organisational structure with well-defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks they are or might be exposed to, and adequate internal control mechanisms, including sound administration and accounting procedures. Furthermore, paragraph 5.1.2 of that same decision refers to the applicant’s situation vis-à-vis its risk management.
108In the first place, it should be stated that the contested decision gives adequate reasons in relation to the second ground, which is addressed in paragraph 5 of the contested decision.
109In paragraph 5.1 of the contested decision, the ECB sets out the facts on the basis of which, in its view, a breach of the obligation to establish effective internal control systems can be found to exist. Those facts are explained in detail in paragraphs 5.1.1 to 5.1.12 of that decision.
110Furthermore, in paragraph 5.2 of the contested decision, the ECB sets out the various provisions which, in its view, have been infringed. It refers in that regard to Article 341(1) and Article 27(1)(8) of the Law on credit institutions which transpose, according to it, Article 18(f) of Directive 2013/36, in conjunction with Article 67(1)(d) and Article 74 of that directive. Those provisions, the obligations laid down therein and the breaches of which the applicant is accused are set out in detail in paragraphs 5.2.1 to 5.2.5 of the contested decision.
111In addition, in paragraph 5.3 of the contested decision, the ECB explains the conclusion which it reached to justify the withdrawal of the authorisation, with the reason stated being the failure to comply with the obligation to establish the internal control systems in question. It points to non-compliance with that obligation over a long period of time (paragraphs 5.3.2 and 5.3.5 of the contested decision) and repeatedly (paragraph 5.3.2 to 5.3.6 of the contested decision).
112Even assuming that the ECB did not set out all the information relating to the second ground, it is nevertheless apparent that, in view of the requirements recalled in paragraph 105 above, the facts presented in the contested decision are sufficient to understand the ground in question and the reasons which led to the withdrawal of the authorisation on that basis.
113With regard to the applicant’s argument that the ECB did not specifically refer to the non-compliance of the applicant’s alleged deficiencies with the applicable provisions, it should be observed that, in paragraph 5.2 of the contested decision, the ECB did indeed mention, in relation to the substance of the obligation covered by the second ground, all the provisions which it considered applicable, namely Article 341(1) of the Law on credit institutions which, according to it, transposes Article 74 of Directive 2013/36, as well as paragraphs 6 and 53 of Regulation No 227, which – contrary to what the applicant claims – do thus make it possible to determine the provisions which were not observed.
114Furthermore, while the applicant criticises paragraph 5.2.3 of the contested decision because it is unable to verify its content, it must be stated that that content can however be verified on the basis of the findings made during the 2019 and 2021 on-site inspections, to which that paragraph refers. The applicant does not claim that it was unable to contest the content of paragraph 5.2.3 of that decision by referring to the findings of the inspections mentioned in that paragraph.
115In the second place, as regards the statement of reasons for the third ground, which is dealt with in paragraph 6 of the contested decision, a reading of that statement is likewise sufficient to find that the reasons given are not inadequate.
116In paragraph 6.1 of the contested decision, the ECB sets out the facts on the basis of which, in its view, it is possible to find a failure to comply with the obligation to develop and implement prudent policies and procedures allowing the applicant to manage its risks, including the timely identification, assessment, analysis and monitoring of its risks. Those facts are explained in detail in paragraphs 6.1.1 to 6.1.7 of that decision.
117In paragraph 6.2 of the contested decision, the ECB sets out the various provisions which, in its view, were infringed. It refers in that regard to Article 27(1)(8) and Article 342(1) and (2) of the Law on credit institutions which transpose, according to it, Article 18(f) of Directive 2013/36, in conjunction with Article 67(1)(d) and Article 74(2) of that directive. The provisions concerned and the obligations laid down therein are set out in detail in paragraphs 6.2.1 to 6.2.4 of the contested decision.
118In paragraph 6.3 of the contested decision, the ECB sets out the conclusion which it reached to justify the withdrawal of the authorisation, in view of the breach found to exist with effect at least from Decision No 105, which imposes early intervention measures on the applicant.
119It should be stated that the applicant participated in the procedure which led to the adoption of the contested decision, and it was therefore aware of the context in which that decision was adopted.
120In that context, it is apparent that the information set out, which is contained in the contested decision in connection with the second and third grounds, enabled the applicant, and enables the Court, to understand the reasons why the authorisation was withdrawn.
121That conclusion is confirmed by the fact that the applicant disputes, in the context of the present plea in law, the merits of the contested decision, claiming that the ECB made errors of assessment or in law, or relied on incorrect facts, in relation in particular to paragraphs 5.2, 6.1.5, 6.2.2 to 6.2.4 and 6.3.1 of the contested decision.
122In those circumstances, the first part of the third plea in law, alleging infringement of the obligation to state reasons, must be dismissed as unfounded.
123As regards the second part of the third plea in law, which concerns the merits of the second and third grounds, it is necessary, in accordance with the case-law cited in paragraph 63 above, to verify whether the contested decision is vitiated by the alleged errors.
124With regard, in the first place, to the second ground, the ECB decided to withdraw the authorisation on account of the applicant’s persistent failure to comply with the obligation laid down in Article 341(1) of the Law on credit institutions to establish an effective system of internal control in the context of their activities, that obligation being clarified in paragraphs 6 and 53 of Regulation No 227.
125It is established that Article 341(1) of the Law on credit institutions provides:‘A credit institution shall ensure the establishment and operation of a comprehensive and effective internal control system suitable for the nature, scope and complexity of its activities. The internal control system shall include the following basic elements:(1) an organisational structure appropriate to the size and operational risks of the credit institution, in which a clear, unequivocal and systematic division of duties, powers and responsibilities is defined regarding the execution and control of transactions between the structural units and the responsible employees of the credit institution;(2) a system of identification, management, monitoring and reporting of risks inherent and probable in the credit institution’s activities;(3) internal control procedures;(4) a remuneration system, including a gender-neutral remuneration policy.’
126Article 74(1) and (2) of Directive 2013/36 provides as follows:1. Institutions shall have robust governance arrangements, which include a clear organisational structure with well-defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks that they are or might be exposed to, adequate internal control mechanisms, including sound administration and accounting procedures, and remuneration policies and practices that are consistent with and promote sound and effective risk management.2. The arrangements, processes and mechanisms referred to in paragraph 1 shall be comprehensive and proportionate to the nature, scale and complexity of the risks inherent in the business model and the institution’s activities. The technical criteria established in Articles 76 to 95 shall be taken into account.’
127It is important to add that the FCMC adopted Regulation No 227 in accordance with Article 341(1) of the Law on credit institutions.
128Paragraph 6 of Regulation No 227 provides that an institution’s internal control system is to be organised such that the management of the institution is reasonably confident, first, that the assets of the institution are secured against losses as well as against any unauthorised management or use and against risks related to the activities of the institution, second, that those assets are, in the light of the institution’s capital, its constituent elements and their proportion, adequate to cover the risks inherent in the institution’s activities and, third, that the institution operates soundly, prudently and effectively, in full compliance with the requirements of the law and other legal acts.
129In addition, paragraph 53 of Regulation No 227 sets out the requirements in relation to the institution’s policy towards risk, which include:– the drawing up of an action plan determining the guidance from the supervisory and management boards (tone from the top) regarding the behaviour expected of all employees and managers to ensure that risks are managed, having regard to the institution’s core values;– the provision of information to the institution’s employees and managers whose duties include risk taking on behalf of the institution about their roles and responsibilities in the performance of their respective duties;– the establishment of effective communications within the institution, which facilitates the critical evaluation of the views expressed in the field of risk management;– activities related to risk taking, in line with the institution’s risk profile, with its long-term interests and the objectives which it has set for itself.
130It is apparent from the abovementioned provisions, inter alia, that the arrangements and measures concerned must be tailored to the risks involved.
131In addition, in the present case, the ECB observed in the contested decision that, since 2018, the applicant had had a high-risk business model, which the applicant did not contest.
132In that context, the applicant was the subject of two on-site inspections: from 7 March to 30 April 2019 and from 10 May to 16 July 2021. At the end of the first inspection, deficiencies were identified in the internal control system for risk management, which was out of step with the level of risks incurred by the applicant. On completion of the second inspection, it was observed inter alia that the shortcomings identified during the first inspection had not been remedied and that the applicant had not established criteria or limits for the management of its risks. It is apparent from the findings made that the applicant continued to have persistent inadequate practices.
133Furthermore, in paragraph 5.1 of the contested decision, reference is made to a series of illustrative situations and other examples arising from the inspections which point to the inadequacy of the internal control framework given the applicant’s high-risk business model. In view of the shortcomings identified in the applicant’s internal control arrangements, as well as its inability to adopt and to implement corrective measures, the ECB did not err in considering that the relevant provisions had been infringed.
134It should be explained that, as previously stated in the context of the first part of the third plea in law, the ECB did indeed indicate the provisions of EU law and of national law which it regarded as being infringed in the context of the second ground. It referred specifically to Article 341(1) of the Law on credit institutions, but also to paragraphs 6 and 53 of Regulation No 227.
135As for the other arguments raised by the applicant, and with regard first of all to the argument that reference was made only to deficiencies in the context of the applicant’s activity concerning the functioning of the internal control system which it had established and that those deficiencies are neither systemic nor pervasive, it is not apparent from the provisions recalled in paragraphs 125 to 129 above that deficiencies of that kind cannot be regarded as sufficient. As has already been observed in paragraph 130 above, the arrangements and measures must be suitable for the risks incurred and, if the risks are high, deficiencies and their persistence must be capable of constituting breaches of the obligations arising from the provisions at issue.
136Next, with regard to the application of Article 341(1) of the Law on credit institutions and of paragraphs 6 and 53 of Regulation No 227 to the deficiencies and to the examples detailed in paragraph 5 of the contested decision, it must be observed that there is no basis for concluding that those deficiencies and examples could not be covered by those provisions.
137The applicant has argued that the ECB is barred from referring to the provisions of Regulation No 227, since the inspection to which it had been subject had been carried out by the FCMC in 2019, whereas the regulation in question entered into force only from 10 December 2020. However, it must be observed that the contested decision is also based on an on-site inspection conducted in 2021 and that it refers to the persistence of the deficiencies after 2020, which covers facts subsequent to the entry into force of Regulation No 227, meaning that reference may be made to that regulation.
138Lastly, the applicant contests paragraph 5.1.2 of the contested decision on the ground that the ECB failed to take account of the information provided to it by the applicant. That is not, however, sufficient to call into question the findings made by the ECB in that paragraph, which, while observing that the applicant’s deficiencies could have been remedied, states that that did not prevent the occurrence of other deficiencies or their persistence.
139With regard, in the second place, to the third ground, the ECB decided to withdraw the applicant’s authorisation on account of the latter’s failure to comply with the obligation to develop and implement a prudent strategy and prudent policies and procedures that allow it to manage its risks, including the timely identification, assessment, analysis and monitoring of its risks as referred to in Article 342(1) and (2) of the Law on credit institutions which transposes Article 74(2) of Directive 2013/36.
140Under Article 342(1) of the Law on credit institutions, a credit institution is to develop and implement a prudent strategy and prudent policies and procedures that allow it to manage – including the timely identification, assessment, analysis and monitoring – the credit risk and the counterparty credit risk, concentration risk, securitisation risk, market risk, operational risk (including the risk inherent in the business model), risks arising from outsourcing and events with a low probability of occurrence (but a significant impact), interest rate risk in the non-trading portfolio, credit spread risk in the non-trading portfolio, residual risk, liquidity risk, excessive leverage risk and other risks relevant to the credit institution.
141Article 342(2) of the Law on credit institutions provides that the strategy, policies, procedures and systems of the credit institution are to correspond to the complexity and scope of its operations, as well as to the permissible level of risks determined by the supervisory board of the credit institution, and are to be developed taking into account the systemic importance of the credit institution in each Member State in which it operates.
142The applicant claims that Article 342(1) and (2) of the Law on credit institutions introduces an obligation to establish a prudent strategy, whereas the provisions of Directive 2013/36 lay down no such requirement.
143In that regard, it should be observed that the purpose of Article 74(2) of Directive 2013/36 is to ensure that the arrangements, processes and mechanisms referred to in paragraph 1 of that article are proportionate to the nature, scale and complexity of the risks incurred by the institution. Article 74(1) of that directive requires that the governance arrangements, the identification, management, monitoring and risk reporting processes, the internal control mechanisms and the remuneration policies and practices are robust, effective and adequate in order to be consistent with and promote sound and effective risk management.
144However, within the context thus determined by Article 74 of Directive 2013/36, there is no basis for concluding that the ECB committed any manifest error of assessment in reviewing, having regard to the risks incurred by the applicant, whether the latter had established a prudent strategy in the light of Article 342(1) and (2) of the Law on credit institutions. Establishing such a prudent strategy can be one of the very actions which enables the objectives defined in Article 74 of Directive 2013/36 to be achieved and guaranteed.
145The applicant’s argument based on the question of which provision of national law transposes Article 74 of Directive 2013/36 is therefore ineffective as regards the examination of the merits of the third ground.
146With regard, furthermore, to the question of whether the ECB committed a manifest error of assessment by failing to analyse the compliance of the applicant’s policies and procedures with Article 342(1) and (2) of the Law on credit institutions, it should be stated, as the ECB has rightly observed, that the third ground is manifestly consistent with the finding made in the context of the second ground, which consisted in an analysis of the applicant’s internal policies and procedures, with the result that it cannot be held that those policies and procedures were not examined.
147In any event, since Article 342(1) and (2) of the Law on credit institutions concerns an obligation covering a number of aspects, there was nothing to prevent the ECB from focussing on some of those aspects (here, the applicant’s strategy) to determine whether the applicant complied with its obligation under that provision. Article 342(1) and (2) of the Law on credit institutions does not provide that a breach can be established only provided that it is found that both the strategy and the policies and procedures do not comply with the criteria laid down.
148With regard, lastly, to the various factors taken into account by the ECB to find a breach of the obligation constituting the third ground, it is apparent from paragraphs 6.1.1 to 6.1.7 of the contested decision that the ECB relied on a number of exchanges between the applicant and the FCMC. It is apparent from those exchanges that the applicant’s various attempts to revise its strategy were deemed insufficient to fulfil the criteria laid down by the applicable provisions.
149The applicant has contested several of the factors taken into account by the ECB. In that regard, it must be observed that, even assuming that the ECB somehow erred in its assessment in relation to one or other of those factors, or even all of them, there is no basis for taking the view that the conclusion reached by the ECB would have been different without those alleged errors. For that to be the case, such errors, considered individually or jointly, would have to have been decisive in the demonstration of the third ground. However, given the number of other findings made in the context of the exchanges between the FCMC and the applicant regarding the strategy adopted by the applicant in order to safeguard its financial situation, findings set out in paragraph 6.1 of the contested decision, and in particular in view of the fact that it is established that the applicant had recorded losses since 2017, was unable to restore its profitability and took excessive risks, the ECB was entitled to rely on the third ground to justify withdrawing the authorisation.
150In addition, with regard, in particular, to paragraph 6.1.5 of the contested decision, the applicant stated that it had submitted a new version of its strategy for the 2022 to 2024 period and that the FCMC had requested much more detailed information from it than that laid down in the provisions of Regulation No 227. However, as the ECB has observed, the FCMC was entitled, in accordance with the provisions of the Law on credit institutions, to request that the applicant implement the capital strengthening measures which it had announced.
151With regard to paragraph 6.2.2 of the contested decision, the applicant relied on its financial position to dispute the fact that, according to the ECB, the strategy to be implemented did not allow it to generate capital to sustain its development and to comply continuously with prudential requirements. It has pointed out that insolvency proceedings had not been initiated in its regard. However, as the ECB observed, the FCMC had found that the applicant had recorded losses since 2017 and had been unable to restore its profitability. It had also pointed to a number of factors demonstrating the precarious nature of the applicant’s financial position, as well as, in particular, the continuous increase in losses year on year, also triggered by certain investments, as well as the unrealistic nature of the planned issuance of additional capital bonds. In that context, there is no basis for concluding that the considerations set out in paragraph 6.2.2 of the contested decision concerning the applicant’s financial position were incorrect.
152With regard to paragraph 6.2.3 of the contested decision, the applicant argues that the consideration relating to the impossibility of revising its flawed strategy and of attracting new shareholders was ‘ineffective’, since, during the period prior to August 2021, it had been unable to implement any strategy at all, given the application of the supervisory and early intervention measures imposed on it by the FCMC. However, such an argument cannot demonstrate that the ECB was wrong to conclude that the lack of a prudent strategy and of a viable business model made the applicant dependent on additional investments, in view of the losses accumulated over a long time.
153With regard to paragraph 6.2.4 of the contested decision, the applicant claims that the ECB wrongly concluded that the applicant had been operating on the basis of its 2018 strategy and that, in that regard, the ECB had failed to take a number of factors into account. However, since those factors simply reproduce arguments which have already been examined, arguments which were raised to contest the ECB’s assessment and have been deemed unfounded, they cannot demonstrate any manifest error in the ECB’s assessment.
154As for paragraph 6.3.1 of the contested decision, the applicant submits that the ECB cannot refer to the seriousness and the duration of the breach, whereas paragraph 6 of that decision does not contain any examination of its seriousness or duration. However, it should be observed that paragraph 6.3.1 of the contested decision is presented as the conclusion of all the factors referred to in paragraphs 6.1.1 to 6.2.4 as facts constituting breaches following assessment of those facts in the light of the applicable provisions. In the context of such an assessment, the ECB was manifestly entitled to conclude rightly that the breach at issue was a serious breach of a certain duration.
155The applicant therefore fails to show that the ECB committed errors such as those set out in paragraph 63 above by relying on the second and third grounds as the basis for withdrawing the authorisation.
156The third plea in law must therefore be dismissed as unfounded.
The fourth plea in law
157The applicant claims, in essence, that the ECB infringed the principle of good administration, which corresponds to the right of every person to be heard, as enshrined in Article 41(2)(a) of the Charter, and to the right to have access to his or her file, as enshrined in Article 41(2)(b) of the Charter, and which covers the right to effective judicial protection enshrined in Article 47 of the Charter.
158In the first place, the applicant refers to the case-law to the effect that only the Courts of the European Union can ensure effective judicial protection against acts involving national authorities and the ECB which are intended to implement the SSM. That exclusive jurisdiction of the Courts of the European Union encompasses the review of the lawfulness of acts preparatory to certain decisions or proposals for decisions from the national authorities concerned, which may have an impact on the content of the ECB’s final decision.
159In that regard, the applicant argues that the proposal for a decision is based, in essence, on the arguments and facts set out in Decisions Nos 215 and 216.
160The applicant adds that Decisions Nos 215 and 216 are vitiated by significant shortcomings which not only unjustifiably restricted its rights and undermined its interests, but also led to the ECB adopting an incorrect and unjustified decision. The ECB should have examined all the decisions adopted by the FCMC, guaranteeing its right to a fair trial and to a reasonable and proportionate procedure. Given its general supervisory power, it falls to the ECB to ensure that the national authorities comply with the provisions on the SSM contained in the SSM Framework Regulation and in the corresponding national legislation. The ECB is obliged to carry out a comprehensive review of the lawfulness of proposals to withdraw authorisation submitted by the national authorities as well as of preparatory measures, in the light inter alia of the principle of proportionality and the basic procedural safeguards under EU law.
161In the second place, the applicant states that the assessment of compliance and Decision No 215 must be regarded as acts preparatory to the contested decision, falling within the scope of the ECB’s general supervisory powers, and that the acts submitted to the FCMC must be reviewed. The ECB did not carry out that review or did not do so adequately. The ECB did not examine the preparatory acts, which include Decision No 215. That decision is an administrative act adopted by an authority against one or more persons designated individually which establishes, amends, recognises or terminates a legal relationship or recognises a factual relationship. It contains two decisions: one on the non-application of a resolution measure and another on the submission to the ECB of a proposal for withdrawal of authorisation. The applicant adds that the ECB has discretion to decide to withdraw the authorisation and that the draft decision drawn up by the FCMC is not binding. The involvement of the national authorities in the procedure leading to the adoption of EU acts cannot call into question the characterisation as EU acts, where the acts adopted by the national authorities constitute a stage of a procedure in which an EU institution exercises the decision-making power on its own, without being bound by the preparatory acts or the proposals from national authorities.
162Furthermore, the applicant observes that Article 62 of the Law on administrative procedure requires the authorities to decide on the adoption of an administrative act liable to affect its addressee by examining that addressee’s position and arguments in the case concerned. It adds that, even in the case of a mandatory administrative act, for the legal provision to be applied, a party to the procedure has the opportunity to submit information on the relevant facts. The FCMC stated in Decision No 215 the reasons why it had not heard the applicant. However, in the applicant’s view, the fact that the FCMC agreed to the resolution plan with it was an act which did not form part of the administrative procedure which led to the adoption of Decision No 215. Thus, the justification put forward by the FCMC cannot be regarded as a sufficient ground for not hearing the applicant.
163In the third place, the applicant claims that, during the procedure for adoption of the contested decision, the ECB infringed its right to access its file. In that regard, it submits that Article 22(2) of the Basic SSM Regulation provides that the rights of defence of the persons concerned are to be fully respected in the proceedings. Those persons are to be entitled to have access to the ECB’s file, subject to the legitimate interest of other persons in the protection of their business secrets. In that context, the applicant argues that it did not have access to the compliance assessment made in the context of the adoption of Decision No 215. Nor was that assessment communicated to it when it exercised its right to access its file in the context of the procedure for adoption of the contested decision. The FCMC and the ECB therefore infringed Article 41(2)(b) of the Charter by denying it the possibility to view the compliance assessment.
164In the fourth place, the ECB gave the applicant an excessively short period of time to comment on the proposal for a decision. On 30 January 2023, the ECB sent it a letter requesting its comments on the proposal for a decision and setting a time limit of five days for those comments. The applicant submitted to the ECB a request to extend that time limit, but the ECB granted only an additional four working days and refused to grant a twenty-day time limit, and then a fifteen-day time limit. The ECB did not give reasons for its decision to grant it a shortened time limit for the provision of its comments.
165The applicant adds that, if it had been heard in the context of the procedure relating to Decision No 215 and if it had had at least two weeks to provide its comments in writing on the proposal for a decision, it could have commented on the points of fact and of law referred to in the context of its first, second and third pleas in law. It is therefore of the view that, if it had been heard, the outcome of the proceedings would have been different.
166The ECB contends that the plea in law must be dismissed as unfounded.
167In the first place, with regard to the question of whether the ECB should have reviewed Decisions Nos 215 and 216, first, it should be observed, in relation to the first of those two decisions, that it was adopted in the context of a resolution procedure separate from the procedure for withdrawal of the authorisation which led to the contested decision. That resolution procedure falls primarily within the sphere of competence of the NCAs, whereas the procedure for withdrawal of authorisation, while it begins with investigations by the NCA, ends with a decision by the ECB.
168Second, although the contested decision does refer, in paragraph 3.4 thereof, to Decision No 216, it appears that it does so as part of a summary of the facts and background. It cannot be inferred from that fact that the contested decision is based both on Decision No 216 and on Decision No 215 to justify the withdrawal of the authorisation. As the ECB has observed, the declaration that an institution is failing or likely to fail adopted by the FCMC is part of a separate procedure from that leading to the withdrawal of authorisation.
169In any event, as has been found in the context of the examination of the first and second pleas in law, while, in taking its decision, the ECB is required, pursuant to Article 83(2) of the SSM Framework Regulation, to take into account inter alia its assessment of the circumstances justifying withdrawal, this does not mean that it has to consider any other decision adopted by the NCAs within the scope of their competences. As has been observed in paragraph 72 above, the ECB is competent to withdraw an authorisation on the basis of findings made by the NCAs.
170In the second place, as regards the alleged infringement of the right of access to the compliance assessment in the context of the adoption of Decision No 215, it should be observed that the applicant’s argument concerns a procedure separate from that leading to the withdrawal of the authorisation, and therefore it must be dismissed as ineffective.
171In the third place, with regard to the allegedly insufficient time limit to exercise the right to be heard, it should be observed that the applicant was granted nine working days in total to provide its comments on the draft of the contested decision, which include four additional days in addition to the original five days. It is not disputed that the draft decision at issue contained only two documents not previously seen by the applicant.
172In that regard, it is apparent from the first subparagraph of Article 31(3) of the SSM Framework Regulation that the party to an ECB supervisory procedure is, in principle, to be given the opportunity to provide its comments in writing within a time limit of two weeks following receipt of a statement setting out the facts, objections and legal grounds on which the ECB intends to base the supervisory decision. The third subparagraph of Article 31(3) of that framework regulation provides that, in particular circumstances, the ECB may shorten the time limit to three working days in the situations covered by Articles 14 and 15 of the Basic SSM Regulation, and therefore inter alia in the case of a decision withdrawing authorisation, to which reference is made in Article 14(5) of that regulation.
173In view of the legislation in force, the possibility of shortening the time limit and the fact that the applicant had not previously seen just two of the documents attached to the draft decision, it does not appear that the ECB infringed the applicant’s right to be heard by providing for a five-day time limit, subsequently extended by four additional days, for the provision of comments on the draft decision.
174It should be observed, in addition, that the applicant has not called into question the lawfulness of the shortened time limit provided for in the third subparagraph of Article 31(3) of the SSM Framework Regulation. That being said, it has already been held that the EU legislature had carried out an assessment as to the reasonableness of the period laid down by that provision by weighing the relevant opposing interests: on the one hand, the private interests of the credit institutions in having as much time as possible to make their observations and, on the other, the public interest in having legality restored as quickly as possible (see judgment of 6 October 2021, Ukrselhosprom PCF and Versobank v ECB, T‑351/18 and T‑584/18, EU:T:2021:669, paragraph 374).
175It follows from all the foregoing that the fourth plea in law must be dismissed as unfounded and, accordingly, the action must be dismissed in its entirety.
Costs
176Under 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. Since the applicant has been unsuccessful, it must be ordered to pay the costs, in accordance with the form of order sought by the ECB.
Operative part
On those grounds,THE GENERAL COURT (Tenth Chamber)hereby:
1.Dismisses the action;
2.Orders Baltic International Bank SE to pay the costs.
Delivered in open court in Luxembourg on 4 June 2025.
Source: EUR-Lex, © European Union, 1998-2026. Reuse authorised under Decision 2011/833/EU.