Enforcement and sanctions
If a significant bank fails to comply with prudential requirements or with the measures adopted under the Single Supervisory Mechanism (SSM) to address the non-compliance, the ECB can impose enforcement measures and efficient, proportionate and dissuasive sanctions.
Enforcement measures are designed to compel supervised banks to comply with prudential requirements laid down in supervisory decisions or regulations. These measures can only be imposed in the case of on-going breaches.
What enforcement measures can the ECB impose?
Periodic penalty payments
The pecuniary enforcement measures directly available to the ECB are the so-called “periodic penalty payments” (PPPs). The bank concerned has to pay a daily amount – up to 5% of its average daily turnover – for every day the infringement continues during a maximum period of 6 months.
Other enforcement measures
The ECB can also apply the enforcement measures available in the national implementing legislation in the relevant participating Member State. It can also instruct the national competent authorities (NCAs) to adopt purely national enforcement measures.
Principle of proportionality
When exercising its enforcement powers the ECB is guided by the principles of effectiveness and proportionality.
Sanctions are intended to punish misconduct by a supervised bank. Sanctioning proceedings can be initiated not only during on-going breaches but also after the breach has ceased, as long as the limitation period is respected.
Allocation of sanctioning tasks
The ECB can impose pecuniary penalties on significant banks that breach directly applicable Union law or ECB decisions or regulations.
In the event of breaches of national law implementing EU directives, breaches committed by natural persons or when a non-pecuniary penalty has to be imposed, the ECB may request the relevant NCA to open the appropriate proceedings. The NCA conducts these proceedings and decides on the resulting penalties in accordance with applicable national law.
What sanctions can the ECB impose?
The ECB can impose pecuniary penalties on banks for non-compliance with EU prudential requirements.
Calculating the fines
In general, penalties are calculated at up to twice the amount of the profits gained or losses avoided because of the breach, or up to 10% of the bank’s total annual turnover in the preceding business year.
Principle of proportionality
When determining the appropriate amount of the sanctions the ECB is guided by the principle of proportionality. The ECB will assess the severity of the infringement and also any aggravating and mitigating circumstances of the case (e.g. duration of the breach, degree of responsibility, cooperation during the investigation, remedial actions adopted by the bank, and previous breaches committed). Penalties imposed must be effective, proportionate and dissuasive.
Investigations and sanctioning proceeding
The ECB’s independent Investigatory Unit (IU) is in charge of investigating alleged breaches of directly applicable Union law and of ECB supervisory decisions or regulations committed by significant supervised banks.
The IU can exercise the powers granted to the ECB by the SSM Regulation (request for documents, examination of books and records, request for explanations, interviews and on-site inspections). The IU can also request information internally and from the NCAs. In addition, the IU can instruct the NCAs to make use of their investigatory powers under and in accordance with national law.
Once it has completed its investigation, the IU may initiate a sanctioning proceeding by addressing a statement of objections to the supervised bank concerned. The bank will have the possibility to comment on the facts and objections raised by the IU (“right to be heard” principle).
On the basis of its initial analysis of the facts, the evidence collected and the written submissions of the bank concerned, the IU will decide on how to proceed with the case. If the IU considers that an administrative penalty should be imposed, it will prepare a proposal for a complete draft decision and submit this proposal to the Supervisory Board. Once adopted by the Supervisory Board, the complete draft sanctioning decision will be approved by the Governing Council under the non-objection procedure.