ABoR: quick, inexpensive and confidential review of supervisory decisions

Interview with Pentti Hakkarainen, Chair of the Administrative Board of Review, Supervision Newsletter

17 May 2023

Pentti, since the beginning of this year you have been chairing the ECB’s Administrative Board of Review (ABoR). What is the role of this board?

The role of the ABoR has two important dimensions. First, banks can contest supervisory decisions of the ECB though the ABoR procedure. The ABoR gives banks the possibility to obtain a review on the topics on which the bank disagrees with the ECB. More precisely, any natural or legal person may request a review of a supervisory decision of the ECB which is addressed to that person, or is of a direct and individual concern to that person. Secondly, the ABoR is also very useful to the ECB because the ABoR process ensures that all relevant elements are taken into account in its supervisory decisions. As the ABoR is the only body of the ECB to which external parties can turn to contest the decisions taken by the Governing Council, the functioning of the ABoR also carries a reputational element. The ABoR therefore performs an important function not only for the supervised banks but also for the ECB itself.

Is the ABoR procedure well known?

The ABoR has already functioned for eight years and we felt that it is now the right time to ask what banks think about it. We carried out 20 interviews with chief legal officers or persons with similar positions in supervised banks to collect direct feedback. One outcome was that little is known about the role of ABoR and there is a need to raise awareness about it. The more professional the ABoR review is, the more it is respected not only by the ECB’s decision-making bodies, but also by the banks. In recognition of that, in ABoR we strive for the highest professional standards while maintaining in-depth knowledge of banking supervision and the banking business, both from practical and legal points of view.

The ABoR process is impartial, quick and uncomplicated, but should it be used more?

The ECB issues over 2,000 supervisory decisions annually. It is imperative that supervised entities are fully entitled to check that a supervisory decision is correct and challenge it if need be, without necessarily having to go to court. When setting up the ABoR the legislator followed the example of EU Member States that have in place a mandatory or optional administrative review procedure in addition to a formal court proceeding. Such a review process itself has its value, but few decisions are contested. Requesting a review by the ABoR does not in any way adversely affect the relationship with the supervisor, nor does it impede the bank from going to court should it disagree with the ABoR’s opinion. And the fact that banks have requested ABoR reviews shows that there is no unnecessary hesitancy for seeking a second opinion on the decision.

And what are the benefits for banks?

A review by the ABoR is quick, inexpensive, and confidential. Let me elaborate a bit on these three aspects. It is quick because the ABoR prepares its opinion and submits it to the ECB’s Supervisory Board within two months. It is inexpensive because the process is straightforward and the related costs are moderate. And the review procedure is fully confidential as there is no public disclosure of the issues addressed by the applicant and the ECB. In all three aspects the ABoR is therefore very different from a court.

I would also like to highlight that the ABoR is not an alternative to court proceedings, but complementary. After the ABoR has issued its opinion banks will receive a second decision from the ECB that replaces the contested decision. The ABoR proceeding does not prevent banks from going to court. This second ECB decision can be challenged before the Court of Justice of the EU. In the past, some banks have taken an ECB decision straight to court whereas they might have benefited from an easy review of the contested decision through ABoR before deciding whether to pursue a lawsuit. In some cases the court proceedings may not have been necessary.

Can you tell us about the review process – what steps are involved?

When banks request a review by the ABoR, we carry out an internal administrative review of the ECB decision. This means that we thoroughly examine all the arguments put forward by the applicant and assess whether the contested decision and its grounds are well-founded. The review process can include an oral hearing when it is deemed necessary. Then we provide our opinion directly to the ECB’s decision-making bodies, the Supervisory Board and the Governing Council.

What have been the issues and cases that the ABoR has dealt with so far?

Since its establishment in 2014, the ABoR has examined a broad variety of matters. Cases presented to the ABoR have concerned the classification of credit institutions as significant, the breach of prudential rules (for example, large exposure limits), the power to adopt supervisory measures based on national law, compliance with supervisory requirements, withdrawals of banking licences, administrative sanctions (including anonymising an ECB sanction), the use of internal models to calculate required regulatory capital, and on-site inspections.

Has the ABoR process yielded concrete changes?

Yes it has. For example, in a case concerning a supervisory sanction, the ABoR had proposed to the Supervisory Board that the contested decision should be amended to reflect the principle of proportionality, in particular by adjusting the amount of the fine. The ECB consequently reduced the fine imposed on the bank. In a case related to internal models the ABoR found that the bank had not been sufficiently heard before the ECB took its decision. The ABoR had therefore proposed to the Supervisory Board that the contested decision should be abrogated and, after an appropriate hearing of the applicant, be replaced with a new decision.

These and other cases show that the ABoR can make a difference. Even in cases where the ABoR review does not lead to an abrogation of the contested decision it may still provide additional information or clarification which may benefit the banks.

What is your workplan for the coming years?

The ABoR is well established and operates effectively. The Board has consisted of highly skilled and experienced members from the start. We can thank the previous Chairs and all members for their good work over the first eight and a half years of European banking supervision.

It is now time to build on these achievements and forge ahead. And there is always room for improvement. In addition to maintaining the effectiveness of ABoR’s regular work, I would like to focus on information sharing and process improvements. Following interviews with chief legal officers we have already improved the website. We have also recently published an overview setting out the main issues the ABoR has worked on. We are adjusting our procedures according to the complexity of the case, i.e. the simpler the case the more straightforward the procedure.

Note: The current composition of the ABoR is: Pentti Hakkarainen (Chair), André Camilleri (Vice-Chair), Javier Aríztegui Yáñez, René Smits and Christiane Campill (members), and Damir Odak (alternate).