What are periodic penalty payments?

Periodic penalty payments are one of the enforcement measures available to the ECB under EU legislation. They exist for very good reason – to get banks to comply, as soon as possible, with requirements laid down in ECB supervisory decisions or ECB regulations.

If the ECB imposes them, the bank has to pay a penalty of up to 5% of its average daily turnover for every day that it fails to fulfil a requirement, for a maximum period of six months.

How does the ECB impose periodic penalty payments?

Stage 1

The ECB tells the bank – via an ECB decision setting requirements - that they need to take specific action to fix an identified shortcoming by a particular deadline.

Stage 2

If a bank complies by the given deadline, the process ends and the bank is not subject to any measures.

But if a bank doesn’t comply in time:

• If the first decision was combined with a decision that penalties automatically start accruing in case the requirement isn’t met, the penalties begin accruing after the deadline passes, i.e., no subsequent decision imposing periodic penalty payments is needed.
• In case the first decision wasn’t combined with a decision that penalties automatically start accruing in case the requirement isn’t met, the ECB imposes periodic penalty payments in a second, separate ECB decision. These then start accruing from the date set out in the decision. 

This doesn’t mean that a bank needs to transfer money to the ECB every day after the deadline. It means that the final amount that the bank needs to pay at the end of the process increases with each day that the bank is in breach. For both methods, the periodic penalty payments can accrue up to a maximum period of six months after the start date. During the entire process, the bank and the ECB have regular exchanges to discuss the progress the bank is making towards compliance.

Stage 3

Once a bank meets the requirements or the periodic penalty payments have accrued for a maximum period of six-months – whichever is earlier – the penalty payments stop accruing. The ECB notifies the bank of a draft final enforcement decision specifying the number of days it has been in breach and the total amount of the penalty accrued. The bank can then comment on this draft decision before it is formally adopted.

Stage 4 

After hearing the bank’s comments, the ECB adopts its final enforcement decision. The ECB then publishes information about the decision on its website, including the bank’s name, the type, nature and duration of the breach, and the final amount of the penalty that the bank needs to pay. The final amount of periodic penalty payments accrued is determined at an individual level for each bank, although it can be as high as 5% of its average daily turnover for every day that it fails to fulfil the requirement.

Can the bank appeal this decision?

It can appeal to the Administrative Board of Review (ABoR) or to the Court of Justice of European Union (CJEU), should it wish to do so. It may also first appeal to the ABoR, and follow thereafter with an appeal to the CJEU. 

What happens if a bank still isn’t compliant after six months?

If a bank still hasn’t complied after the legal maximum period, the ECB can use other measures in its supervisory toolkit to enforce its decisions, including sanctions.