I. Introduction
There are several reasons why the European Banking Authority (EBA) should be the subject of a dogmatic and systematic legal study. First, it can be observed that legal scholarship has offered much valuable analysis regarding the European Central Bank (ECB) in the context of EU banking law studies.Footnote 1 However, the EBA has been somewhat neglected, albeit with some authoritative exceptions.Footnote 2 Yet, it is not only the need to fill this gap that drives research concerning the EBA in question. Arguments in favour of the systematic scrutiny of the role and powers of the EBA in the context of the European financial and banking system are becoming particularly compelling following the jurisprudential approaches established by the European Court of Justice (ECJ). Indeed, the ECJ, in the context of a case concerning precisely the EBA, has opened up unprecedented scenarios with regard to the delegability and expansion of discretionary functions to the European supervisory agencies (ESAs), thus eroding the Meroni doctrine: a milestone on this matter.Footnote 3 Thus, it might be useful to analyse the innovations in light of the role and powers of the EBA in the context of the EU legal system to understand the opportunities, criticalities and risks associated with the EBA’s increasing discretionary powers and to offer a different perspective on their use within the European banking and financial market.Footnote 4
Section II explores the legal framework and scope of EBA intervention in the European banking and financial system (EBFS), analysing and discussing the legal basis and functioning of some basic instruments, such as binding technical standards, available to the banking authority to contribute to the homogenisation of supervisory practices for the benefit of national competent authorities. Section III discusses an analysis of the powers of the EBA, arguing for the multifaceted nature of the EBA’s operating apparatus. The research focuses on hard law and soft law powers, contending that the EBA’s binding and incentive acts are respectively derived from these two categories of powers and that the institutional purpose of the protection of the public interest pursued by the authority in the EBFS must be linked to them. A different definition of public interest as the protection of individual spheres is proposed here.
Section IV frames the study on the functional characteristics of the EBA within the broader landscape of the ECJ’s case law concerning the scope and limits of administrative agency powers, starting from the landmark Meroni and Romano Footnote 5 judgments, advocating the erosion of the theory of the non-delegability of discretionary powers to the ESAs through the landmark ESMA-Short Selling Footnote 6 and Fédération bancaire française judgments.Footnote 7 Section V concludes and presents the outcomes of the research. It first discusses the opportunities, concerns and risks embedded in the expansion of the EBA’s discretionary powers. Then a different interpretation of the use of these powers is presented, proposing the contention of functional constraint in the pursuit of public interest. This interest is construed as safeguarding the individual and collective spheres (financial stability, public resources, competition and savings) that the EBA is called upon to safeguard in the context of the European banking and financial market.Footnote 8
II. The Legal Framework and Scope of the EBA’s Intervention in the EU Banking and Financial System
The objective of this section is to delineate the European legal context within which the EBA operates, with a view to acquiring a more profound comprehension of the legal foundation of this public authority and the scope of its discretionary powers. To achieve this objective, it is necessary to provide an overview of the general legal framework, with specific reference to the Lamfalussy procedure on the formation of first- and second-level legislative acts, as well as the specific legal framework concerning technical standards within the competence of the EBA. Subsequently, I proceed to delineate the principal competencies of the EBA in its capacity as the administrative authority tasked with guaranteeing the uniform, efficient and effective implementation of the various legislative acts within its purview.
It seems pertinent to begin by outlining the overarching legislative framework within which this agency operates. This will include an examination of the Lamfalussy process, which concerns financial regulation in EU law.Footnote 9 The first level of the Lamfalussy process, of course, regards EU legislative acts, namely regulations and directives within the competence of the institutional bodies, the European Parliament and the Council. The second level involves the adoption of non-legislative acts, binding Community rules adopted by the Commission with a view to drawing up the so-called single rule book; they take two main forms. The first type of this secondary level of the Lamfalussy process consists of delegated and implementing acts, which are rules that fall within the competence of the Commission itself. The second type consists of binding technical standardsFootnote 10 in the form of regulatory and implementing technical standards, which are the responsibility of the Commission, but whose drafting falls to the competent supervisory authority, as in the case of the EBA in the banking system, due to the highly technical regime that such standards require for their drafting in the specific market sector of reference and in the broader context of EU financial regulation.
The first group are regulatory technical standards (RTS), which can be defined as general non-legislative acts supplementing or amending certain non-essential elements of the legislative act. The second group consists of implementing technical standards (ITS) which determine the conditions of application of legislative acts. The legal basis in the Treaties refers primarily to Articles 290 and 291 of the Treaty on the Functioning of the European Union and confers the power to adopt legislative acts binding on the Commission and not on others. This explains why the EBA, as mentioned above, cannot adopt RTS/ITS directly but must draft them and submit them to the Commission for approval. Within this regulatory framework, the EBA plays a crucial role in the drafting and monitoring of binding RTS/ITS. Suffice it to say that, from the point of view of positive law, Regulation (EU) No 575/2013 on capital requirements (CRR),Footnote 11 and Directive (EU) 2013/36/EU,Footnote 12 also on capital requirements as most recently amended, contain more than 100 mandates for RTS/ITS, while the Bank Recovery and Resolution Directive (BRRD)Footnote 13 envisages another 40 mandates. It is noticeable from the empirical data that, with a view to creating a level playing field for financial institutions across the EU, in 2021, 10 years after its formal establishment, the EBA drew up 200 draft RTS/ITS concerning prudential supervision and resolution.
RTS/ITS should not imply strategic decisions or political choices and their content and conditions of application are specifically defined by the legislative acts on which they are based. However, at first glance, one might underestimate the practical relevance of such a large and ever-expanding set of standards as the empirical investigation seems to indicate, directly affecting the business operations of the entire EU banking sector. Indeed, although some RTS/ITS aim, by their very nature, to standardise reporting and highly specialised procedures, others have a considerable impact. One thinks of RTS/ITS in two crucial areas of the banking sector, such as own funds under the CRR and the Minimum Requirement for Own Funds and Eligible Liabilities, which concerns minimum own funds holdings and liabilities eligible for bail-in under the BRRD. In both cases, the highly technical role denoting the de facto control of the definitions determining the scope of application of the regulatory criteria has non-indifferent material repercussions for banking intermediaries, as it may bring potentially onerous changes into the liability structures and lead to higher funding costs for the banks themselves. This aspect is not insignificant from the perspective of economic analysis and the law, as it will have a monetary impact to the extent that banks respond to a more demanding regulatory capital environment, thereby changing their lending practices.
Having defined the general legal framework and presented the legal basis and operating context of the RTS/ITS, we can now examine the scope of intervention of the EBA. This will reveal that it coincides first of all with the area of powers drawn up by the Community legislator through Regulation (EU) 1093/2010Footnote 14 and the subsequent reform in Regulation (EU) 2175/2019.Footnote 15 It is worth noting, however, that the legal perimeter of the EBA’s competences has been appropriately expanded to include certain directives and regulations that appear to be relevant ratione materiae to the banking authority’s area of activity. These are rules that refer to the sector in which banking intermediaries, financial conglomerates, investment firms, payment institutions and electronic money institutions operate.
The general clause in Regulation (EU) 1093/2010, which considerably expands the scope of intervention of the EBA, gives rise to systemic problems of considerable consequence. This also includes all acts based on directives and regulations, as well as any other legally binding EU act that confers additional tasks on the EBA. Furthermore, the banking authority’s scope of action is expanded to encompass other matters not explicitly covered in the aforementioned areas, including governance, auditing and financial reporting issues. The work to be carried out on these additional areas is indispensable “to ensure the effective and consistent application”Footnote 16 of the legislative acts on which the matters falling within the EBA’s strict competence are based. This work must also consider “sustainable business models” and the integration of “environmental, social and governance related factors”.Footnote 17
Lastly, it is necessary to address the scope of intervention of the EBA, which will be discussed in greater detail later in this article. In discharging its duties, the EBA is tasked with guaranteeing the consistent, efficient and effective implementation of the various legislative instruments (directives and regulations). Furthermore, the EBA is obliged to monitor the potential for systemic risk to emerge from the failure of an individual banking intermediary, with the aim of preventing damage to the functioning of the financial system and the economy as a whole. These regulatory provisions have significant consequences, particularly with regard to any discussion of functional aspects and, in particular, the exercise of the EBA’s discretionary powers, which will be addressed in due course.
III. The Multifaceted Nature of the EBA’s Powers: Institutional Objectives and Public Interest in the EU Banking Market
In the following section, I will examine the EBA’s discretionary powers in the context of the EBFS – a topic central to the argument proposed in this article. This investigation will form the second element of our research, focusing on the functional aspect of this authority. To clarify the scope of EBA powers, I will categorise them into two distinct types, defined by the degree of legal compulsion that the authority can exert upon the addressees through its acts. To achieve this, it was deemed beneficial to differentiate between the EBA’s acts, categorising them as either soft or hard law.Footnote 18 This distinction was made to determine whether the EBA can merely encourage and incentivise the recipients of its acts to behave in a specific manner or whether it has the authority to adopt legally binding and enforceable measures in order to ensure compliance.
I shall commence by examining the hard law powers. However, before embarking upon a detailed examination of said powers, it is first necessary to clarify the institutional purposes that the European legal system sets for the EBA. This will serve as a guiding constraint on the exercise of the powers in question, with a view to safeguarding the public interest in the EU banking and financial market. It is crucial to emphasise that this categorisation of institutional objectives is not trivial; it will prove pivotal in the context of our discussion concerning the scope and limitations of the EBA’s discretionary power.
Such a limitation is not purely speculative in the sense that it serves to bind the public powers of the branches of the state, such as the EBA and the other ESAs (i.e. still public authorities). On the contrary, my argument is that public and discretionary powers – as powers that can be used flexibly by public authorities – should have the very specific institutional purpose of protecting the rights involved in the administrative regulation of the banking market.
In the context of positive European law, it appears compelling to establish that the institutional objectives of the EBA entail ensuring financial stability, safeguarding public resources, maintaining competition and safeguarding savings. Furthermore, it is imperative to acknowledge the paramount significance of these objectives in the defence of the rights of consumers, depositors and other private parties engaged in banking and financial markets. Safeguarding the public interest – in the sense proposed here of protecting the individual and collective spheres – is a role that the EBA can fulfil. This is an ambitious and complex purpose that implies multiple competences and responsibilities on the part of the EBA, hence endowing the powers of this authority with a particular character, which I define as “multifaceted”, with a view to fulfilling the institutional purposes set by the EU’s positive legal order and especially that of the protection of the rights and prerogatives of the subjects involved in economic processes in various ways.
A. Hard Law Powers and Binding Acts: RTS and ITS
Having established the institutional objectives that the EBA must achieve in order to protect the public interest and having clarified that the public interest is not merely a political objective but a normative constraint directly arising from the European legal order, we can now turn our attention to the first type of discretionary powers, namely the legally binding category commonly referred to as hard law.
In this regard, it should be noted that the ESAs and the EBA in particular have considerable regulatory powers. Two main categories of hard law powers immediately stand out. The first is the power to develop draft RTSFootnote 19 as part of the Commission’s functions under the EU financial services rules and in accordance with Article 290 of the TFEU, which regulates the scope and limits of the delegation of powers to the executive bodies about the adoption of non-legislative acts of a general nature.Footnote 20 The second is the power to draw up draft ITSFootnote 21 in the area in which European financial services legislation confers on the Commission the function of issuing uniform conditions for the implementation of EU law under Article 291(2) of the TFEU. In both cases, the rules drawn up by the EBA cannot be the result of strategic decisions or political choices, as the founding regulation expressly provides that they must be technical standards.Footnote 22
It is important to note that, whether in terms of RTS or ITS, the EBA lacks the power to adopt the relevant final measures, but can only submit the draft decisions it has prepared to the Commission, which, as the rule-maker of last resort, may approve them, in whole or in part, in the legal form of delegated acts or may amend them with ad hoc amendments or reject them altogether. This characteristic might suggest that such acts do not fall within the realm of hard law powers. However, in my view, although it is the European Commission that formally adopts the acts in question, it must be acknowledged that the regulatory substratum of these acts comes entirely from the EBA. Moreover, it must be said that, although the EBA theoretically lacks the decision-making power to adopt the final regulatory measure, this does not prevent us from considering the crucial importance of its technical regulatory functions as an administrative agency specialised in the banking sector within the single market, seeking to produce the EU single banking rule book envisaged by the EU legislator as one of the key objectives of the EU’s economic and monetary strategy.
Conversely, the EBA’s powers in the EU banking sector are shown to be significant and its ability to adopt hard law acts is substantiated by the indirect cogency of the RTS/ITS it has drawn up. These standards bind the European Commission through a series of motivational obligations. In particular, if the Commission decides not to approve all or part of the regulatory draft prepared by the banking authority, it is obliged to return the act to the latter, providing full reasons for its decision. This is in accordance with the procedure that applies when it decides to approve the draft prepared with amendments. In such cases, the European executive body must explain the reasons for its decision to the banking agency. In my view, it is mainly in these motivation-related obligations that the cogency of the EBA’s regulatory powers as hard law powers and, more generally, its fundamental importance as an administrative agency entrusted with the standardisation and homogenisation of the National Competition Authorities (NCAs)’ prudential supervisory practices lie. Hard law powers can also include single decisions that the EBA takes against financial institutions in cases where EU law is directly applicable and NCAs have failed to comply with acts issued by the banking authority itself. These are specific cases expressly covered by Regulation (EU) 1093/2010 for circumstances in which it is necessary to remedy the failure of NCAs to comply with acts adopted by the EBA to maintain or restore neutral conditions of competition in the market or to ensure the smooth functioning and integrity of the financial system.
These are measures that the authority may issue in exceptional cases where it is necessary to coordinate action by NCAs to address situations that may threaten the normal functioning and integrity of financial markets or the stability of the EU financial system as a whole. In essence, with such decisions, the EBA asks national authorities to take the necessary measures to address emergency situations, ensuring that financial institutions and NCAs comply with the obligations set out in the relevant EU legislation. The EBA’s regulatory power, as embodied in individual decisions, can also be used to resolve disputes arising between NCAs in cross-border situations. This is a power related to compliance, whereby the banking authority directly requires a financial institution to implement all measures necessary to comply with its obligations under EU law, including the cessation of a given practice.
It should be clarified, however, that individual decisions of the EBA do not preclude intervention by the European Commission through the procedure laid down in Article 258 of the TFEU, which governs cases where a Member State has failed to fulfil an obligation under the Union Treaties. In this case, the Commission issues a reasoned opinion on the matter after giving the state the opportunity to submit its observations. If the state in question does not comply with this opinion within the time limit set by the Commission, the latter may take legal action by addressing the ECJ directly.
The EBA is empowered by the relevant legislation to prohibit, or otherwise temporarily restrict, the marketing, distribution and sale of products, activities or financial instruments that may cause harm or other negative externalities to consumers. These measures, which may be referred to here as “bans”, may be applied to products and other financial instruments that pose a significant risk to the integrity, stability and smooth functioning of the EU’s financial system. However, given the considerable intrusiveness of these powers in the economic sphere of companies, the European legislator has sought to impose limitations on the EBA’s discretion. Specifically, the legislator has stipulated that this authority must review its decisions at short intervals, with a minimum requirement of at least one review every six months. If the EBA confirms the initial decision twice in a row, it may extend the review period to a longer timeframe, typically one year.
The systematic reconstruction of the structure of legally binding acts in the category of hard law measures appears to be a highly beneficial undertaking in the context of rationalising the powers of the EBA in order to pursue its institutional objectives within the EBFS. This is achieved by ensuring public interest in the banking market arena. The realisation of its hard law binding powers for institutional objectives can be seen in the fundamental activity of standardisation and unification of prudential supervisory practices that the EBA carries out for the benefit of NCAs. This activity is not only beneficial and valuable for the NCAs themselves but also for all private actors – depositors and investors – who, in various ways, participate in the dynamics of the European banking and financial market.
B. Soft Law Powers and Incentive Acts: Guidelines, Recommendations, Q&A, Opinions and Informational Activity
Having conducted a comprehensive analysis of the binding powers inherent to the category of hard law acts, it is now appropriate to direct our attention to the second type of powers available to the EBA, namely the soft law powers. The soft law powersFootnote 23 already appear at first sight to be particularly interesting, especially in the case of the ESAs and particularly the EBA,Footnote 24 as they guide the behaviour and actions of the NCAs and consequently the credit institutions,Footnote 25 without thus interfering excessively in the decision-making sphere of the banking and financial market players.
From this perspective, it can be observed that the EBA’s soft law powers are significant insofar as they pertain to its role of interpreting relevant positive EU law with a view to influencing the supervisory practices of the NCAs of the Member States and those participating in the euro area, in order to ensure their effectiveness and efficiency.Footnote 26 For this reason, the EBA is responsible for adopting guidelines and recommendationsFootnote 27 towards peripheral actors of prudential supervision and other financial institutions to create prudential standards capable of ensuring the uniform implementation of EU law in the banking sector over time.
Let us look at this type of soft law power in more detail. In essence, Article 16 of Regulation (EU) 1093/2010 empowers the EBA to issue two types of acts, namely guidelines and recommendations. Yet, Article 16 does not provide an adequate procedural legal foundation for the EBA to adopt soft law, as the acts in question can only be issued if they are also grounded in substantive law (rectius: EU financial law), which delineates the scope of this authority. Guidelines and recommendations essentially share the same legal regime, while they differ in that the former are generally addressed to all competent authorities or market operators, whereas the latter are addressed individually to one or more specific competent authorities or market operators. To guarantee the efficacy of these soft law acts, the European legislator devised the so-called comply-or-explain regime, which requires addressees to exert their utmost efforts to comply with the guidelines and recommendations.
In the event that an authority or market participant does not intend to comply, it must inform the EBA within two months of the issuance of the relevant acts, providing justifications for its non-compliance. In addition, a soft law power that serves as a reputational incentive and generally works to enhance the effectiveness of such acts is provided through the so-called “name-and-shame” mechanism. This is a system whereby the EBA can publish on its website a list with the names of national competent authorities (but not market participants) that have not complied with the recommendations and guidelines (“name”), with a view to incentivising them to comply with the guidelines or recommendations issued by the banking authority in order to avoid incurring damage to their reputation from being listed as non-compliant on the EBA’s website.
On this point, it should be noted that the 2019 reform of the ESAsFootnote 28 addressed this very issue, introducing the Opinions and Q&AsFootnote 29 as new soft law acts that the EBA may use when exercising its powers of direction and guidance vis-à-vis the national competent authorities and other institutional actors in the EBFS.Footnote 30 Soft law acts can also include the power to issue “opinions” on matters relating to the EBA’s area of competence. In particular, with the power to issue such opinions, the EBA performs a typical administrative activity of a consultative nature, which is made available to the main constitutional bodies of the EU (Parliament, Council and Commission) as a means of advising in the resolution of controversial and complex banking and financial sector issues, such as the prudential assessment of mergers and acquisitions falling within the scope of Directive 2006/48/ECFootnote 31 and requiring consultations between the competent authorities of two or more Member States.
Soft law powers may encompass the information activity conducted by the EBA with regard to the NCAs and financial institutions, with the objective of achieving its institutional objectives. In the event that the information activity is to be carried out on a periodic basis, responsibility for its completion is assumed by the NCAs of the Member States, who are required to complete the relevant forms and templates. In specific instances, such as when information is absent or delayed in transmission, the EBA may submit a well-founded request to another NCA, the ministry responsible for finance, the national central bank or the statistical office of the Member State concerned, which is presumed to possess the data in question. It should be noted that the EBA may encounter legal limitations regarding the collection of information, due to the existence of legislation concerning professional secrecy and other constraints on the disclosure of sensitive data relating to credit institutions. Indeed, the 2019 reform underscored the significance of information management, as evidenced by the European legislator’s endorsement of collaboration between the banking authority and the European Data Protection Board, established by Regulation (EU) 2016/679.Footnote 32 This partnership was forged with the objective of circumventing redundancies, inconsistencies and legal ambiguity in the domain of data protection.
In conclusion, it is pertinent to mention the power to develop common methodologies for assessing the impact of product characteristics and related distribution processes on an institution’s financial situation and consumer protection. This is a soft law power that forms part of the prudential supervision activity performed by the EBA with a view to issuing guidelines to unify and standardise the supervisory practices of national competent authorities on sensitive issues such as corporate governance and product governance. This topic will be addressed in greater detail when discussing the discretionary power of the EBA. It will be examined through the lens of a case study involving the valuation of retail banking products and the associated issue of corporate governance.
In light of our analysis, it is evident that there are valuable indications that can be drawn to support the paradigm of the functionalisation of these powers to the institutional tasks of the EBA. This is particularly evident given that we have also reconstructed the structure of soft law acts. It is therefore useful to observe that the incentive-driven powers of soft law acts can be modelled in pursuit of the institutional objectives of the banking authority more effectively than other powers. The conforming power, typically associated with guidelines and recommendations, can be used flexibly to achieve effective results in terms of compliance by NCAs and economic operators. This favours good market performance and efficiency, together with greater protection of the individual sphere.
IV. The Scope and Limits of EBA Discretionary Powers in Light of ECJ Case Law
The aforementioned aspects are of particular interest and prompt further investigation into the EBA’s discretionary power structure within the context of EU law. Consequently, building upon the comprehensive analysis conducted thus far concerning the distinction between hard and soft law powers, the research on the functional aspects of the EBA’s operations now turns to an examination of the scope and limitations of these powers within the European legal system. The following sections will present an overview of the current scope and limits of the EBA’s powers, primarily through the lens of the ECJ’s case law. Particular attention will be paid to the exercise of discretion in the utilisation of these powers, with a view to ascertaining their compatibility with the protection of both collective and individual legal interests, as defined by positive EU law.
In examining the scope of the EBA’s powers, it is inevitable that my research will, albeit briefly, be compared to the European doctrine on the constitutional limits to the delegation of discretionary functions to administrative agencies. This doctrine was established by the historic Meroni judgment, which was handed down by the ECJ in the 1950s and is still considered valid and effective by the prevailing EU jurisprudence.
A. The Meroni and Romano Doctrines and the Constitutional Limits on the Delegation of Discretionary Powers
The Meroni doctrine represents a fundamental juncture in the development of the Community legal order, as it constitutes a veritable pillar of much of the case law of the European courts, following the well-known ECJ ruling. It is notable that EU courts have consistently demonstrated a willingness to uphold the delegability of administrative power when justified by the circumstances of the case. However, they have also consistently acted within the parameters of the legal reasoning outlined by the Meroni doctrine, indicating a reluctance to deviate from the logical pattern of the historic ruling.Footnote 33
The Meroni case dates back to the European Coal and Steel Community, when the ECJ ruled that the delegation of powers by the High Authority to two private-law bodies was invalid, having been granted executive powers that could not involve a wide margin of discretion. In this case, the political discretion that could not be eliminated from the exercise of powers was defined as the ability to reconcile different purposes on the basis of circumstances. Conversely, the delegation of powers had to be precisely circumscribed and entirely controllable by the delegating institution in order to be considered legitimate. Furthermore, it was required to be subject to rigorous judicial review based on objective criteria established by the delegating authority.
It is noteworthy that, despite its remote origin and its placement within a transformed constitutional European context, the Meroni doctrine continues to serve as a foundational element of the EU legal order with regard to the delegability of powers to agencies and other European administrative bodies. From this perspective, it is useful to note that the principles established in Meroni have been indirectly reinforced by Article 290 of the TFEU. This provision states that the delegation of powers to the European Commission is legitimate when the legislative act defines the essential elements pertaining to the field. Therefore, the Commission is precluded from making discretionary policy choices in the form of delegated acts. Furthermore, the same rigour applies a fortiori to the exercise of similar powers by agencies, as is also evident in the regulations governing financial supervisory authorities.
The Meroni doctrine was subsequently reinforced and further detailed by the well-known Romano case, which was decided by the ECJ in the early 1980s.Footnote 34 The Romano judgment and its relationship with the Meroni case continue to be a topic of debate in academic circles.Footnote 35 It is therefore worthwhile to set out briefly the key assumptions underlying the judgment, noting from the outset that the ECJ’s intention was to reinforce the doctrine on the non-delegability of discretionary powers to entities other than those explicitly provided for in the Treaties but only referred to in secondary European law, as previously ruled in the Meroni case. In essence, the Romano judgment ruled that it was incompatible with the EU Treaties to authorise the adoption of legislation by bodies established through secondary legislation. This ruling applies to European administrative agencies, including the EBA and the other ESAs.
In this regard, a pertinent issue emerges from the fact that the rationale employed by the ECJ in the Romano case, which invalidated the actions of the European Commission established under Regulation (EEC) 1408/71 concerning social security disbursements, was partly grounded in Article 155 of the EEC, the primary Treaty provision empowering the Commission to fulfil its duties, and partly in Articles 173 and 177 of the EEC, which addressed direct and indirect judicial review by the ECJ.
Yet, the ECJ did not elucidate the extent to which the limitation of the exercise of delegated powers to administrative bodies is derived from a combination of these rules. This is because, at the time, no explicit provision for judicial review of a body such as the Commission existed, thus casting more shadow than light on the doctrine of the (non-) delegability of discretionary powers to European bodies other than the Commission. In the absence of a clear position on this matter, it is our view that the Romano judgment gives rise to several legal uncertainties with regard to the administrative agencies entrusted with the performance of their functions on the basis of the delegation of powers by the institutional bodies of the EU.
B. The ESMA-Short Selling Ruling and the Erosion of the Doctrine on the Non-Delegability of Discretionary Powers to ESAs
Since the Romano judgment, while other decisions of the ECJ have addressed the subject of the discretionary powers of administrative agencies, there have been no significant developments with respect to the Meroni doctrine.
It is important to note, however, that in the evolution of the case law of the ECJ concerning the use of discretionary powers by European agencies, a key decision is the relatively recent ESMA-Short Selling judgment of 2014. This was rendered in a dispute between European Securities and Markets Authority (ESMA) and the UK concerning the latitude of the intervention powers of that authority, as well as more generally the scope of discretionary powers exercised by European administrative agencies. In our view, the ECJ appears to have opened the door to the possibility of delegating discretionary powers to administrative bodies, such as European agencies and ESAs in particular, without encountering the strict constraints of the Meroni doctrine on the non-delegability of such functions to bodies not constitutionally provided for by the Treaties but only by secondary legislation. This is particularly evident in the aforementioned ruling.
In the case at hand, the ECJ established that the discretionary intervention powers of a European agency, such as ESMA, must be deemed to be circumscribed to the substantive and procedural conditions and criteria of the reference legislation. However, the ECJ also admitted, albeit indirectly, that such powers may be delegated if their exercise by the administrative authority is sufficiently constrained. In particular, the ECJ ruled that discretionary powers must be precisely defined and subject to judicial review in light of the objectives set by the delegating authority.Footnote 36 This is because broad powers of a non-binding nature cannot be unconditionally conferred on bodies other than the European Commission.Footnote 37
From this judgment, it is evident that the discretionary power can be vested directly in an EU administrative agency. Notably, Regulation (EU) 236/2012Footnote 38 bestowed upon ESMA the authority to intervene in matters pertaining to short selling of equities and derivative contracts that hedge the risk of default of the issuer, including credit default swaps. However, the UK, as the plaintiff in this case, advanced four arguments in support of the measure’s illegality, three of which will be discussed here. The UK initially argued that the direct empowerment of ESMA under Article 28 of Regulation (EU) 263/2012 with regard to short selling breached the core principles set out in the Meroni case concerning the discretion that can be granted to ESAs. However, the ECJ rejected this argument, stating that the powers exercised by ESMA under Article 28 of said regulation were sufficiently delineated so as not to violate the principles contained in Meroni.
Second, the UK advanced the argument that the attribution to ESMA, under Article 28 of Regulation (EU) 236/2012, of the powers to adopt those measures of general application, which can be defined as “quasi-regulatory”, is at odds with the principles established in the Romano case. The ECJ rejected this argument, holding that ESMA was entitled, by virtue of Article 28 of the Regulation, to adopt quasi-regulatory measures of general application in strictly circumscribed circumstances. It was therefore concluded that this was not inconsistent with the Romano ruling. Furthermore, it should be noted that, at the level of EU law in general, the European institutional framework of the Treaties, in particular Articles 263(1) and 277 of the TFEU, expressly permit European agencies to adopt acts of general application. It thus follows that the conclusions drawn from the Romano case regarding the conditions governing the delegation of powers to an administrative agency such as ESMA cannot be in conflict with those set out in the Meroni judgment.
Third, the UK advanced the argument that Articles 290 and 291 of the TFEU impose constraints on the circumstances under which powers may be conferred upon the Commission. Furthermore, it was asserted that neither the Council nor the European Parliament is entitled, in accordance with the provisions of the Treaties, to delegate powers of the nature of those in question to an EU agency. Indeed, the ECJ acknowledged that Article 28 of Regulation (EU) 236/2012 did not vest the power in the Commission, but rather in an EU agency. This necessitated a determination by the ECJ as to whether the provisions of Articles 290 and 291 of the TFEU are designed to establish a unified legal framework under which specific delegated and executive powers may be conferred exclusively upon the Commission or whether the EU legislature may provide for alternative systems of delegation of such powers to EU bodies, offices or agencies, including ESAs.
It is my view that the discretionary power granted to ESMA must be contextualised within the broader regulatory framework on financial market integration and the prevention of financial contagion risk. This is the only way to ensure that the public interest is served in the most effective manner. This may entail a delegation of powers to ESMA to impose provisional limitations on the short selling of specific securities, with the objective of preventing an unregulated decline in the prices of those financial instruments. Although it is accurate to conclude that such a delegation of powers to an ESA does not align with the scenarios outlined in Articles 290 and 291 of the TFEU, it is also evident that such a delegation of executive functions does not impact the same conditions as those established in the Treaty rules.Footnote 39
It can be argued that the legal reasoning followed by the ECJ with the ESMA-Short Selling ruling marks a historic and decisive opening in the area of the delegation of executive powers. This is in comparison to the previous orientation crystallised in the Romano doctrine, which saw the adaptation of the functions of the ESAs and therefore also of the EBA to the altered context of the European legal system. This was done with a view to achieving greater and more effective administrative integration in the Union.Footnote 40
Furthermore, the Romano judgment has been subjected to considerable criticism from scholars, who have highlighted a breach of the principle of institutional balance.Footnote 41 Consequently, the judgment is also partly superseded, at least insofar as it concerns the possibility of quasi-regulatory acts of general scope being adopted by EU bodies and agencies.Footnote 42 This has the effect of increasing the opportunities for conferring discretionary powers on European agencies, rather than on the Commission, which is the constitutionally mandated executive body of the Community legal order. As a result, there is a corresponding decrease in the guarantee of democratic control by Parliament and the Council over this body.
Nevertheless, it seems reasonable to suggest that there are at least two reasons to view the stance adopted by the ECJ in the ESMA-Short Selling case in a favourable light. First, ESMA was granted some discretion in determining the circumstances under which Article 28 of Regulation (EU) 236/2012 should be applied. Therefore, the ECJ did not refute the possibility of such an interpretation, but rather emphasised that the discretion was constrained in substance and subject matter by procedural safeguards. It was therefore concluded that this interpretation was consistent with the Meroni doctrine.
It is important to note that the European legislator may delegate the power to adopt legal acts that are not only binding on the addressees but also, in general, directly on the agencies. However, it is submitted that such delegation to the agencies is permissible only if the scope of the power thus delegated remains circumscribed by criteria and conditions. This is to ensure that the powers are sufficiently delineated and subject to judicial review, thereby preserving the principles carved out in the Meroni decision. Second, it should be noted that the interpretation and implementation of the concept of EU institutional balance remain a matter of contention. It is not a static concept; rather, it is dynamic and evolves over time. Consequently, the meaning of the concept can change. Administrative agencies, such as the ESAs, reflect a conscious decision by the European legislator to create bodies with greater powers than before and to limit the extent to which the Commission can interfere with their regulations.
It can be argued that, although the power conferred on ESMA by Article 28 of the Regulation (EU) No 263/2012 mentioned above does not fall within the limits of Articles 290 and 291 of the TFEU, the decision of the European legislator to confer such a power directly on this agency is nevertheless consistent with the general view on the role of ESAs in the EU decision-making process. It thus appears that the legal reasoning adopted by the ECJ is consistent with the fundamental EU rules that underpin the exercise of power by the ESAs. Nevertheless, the precise details of this complex issue remain unclear. The majority of issues pertaining to the ESMA-Short Selling case remain contentious and unresolved. Consequently, they have been raised once more in another pivotal decision, the most recent in chronological terms, which directly concerns the EBA. This decision will now be examined in detail.
C. A Game of Thrones? The Fédération Bancaire Française Case and the Expansion of the EBA’s Discretionary Powers
“What is dead may never die”. In his robust conclusions, the Advocate General of the ECJ, Michal Bobek, draws inspiration from George R.R. Martin’s masterpiece, A Game of Thrones.Footnote 43 He poses the question of whether an EU act that was never binding can be annulled by the ECJ on a reference for a preliminary ruling or whether a binding interpretation can still be advanced for a non-binding EU act.Footnote 44 The conclusions of Advocate General Bobek represent the latest stage in the judicial development of the ECJ of the EU in the area of discretionary powers exercised by European administrative agencies. As previously stated, this case concerns the EBA.
For the purposes of this research, it is particularly interesting to understand how the EBA exercises its discretionary power and how this can be effectively applied to pursue its institutional objective in the public interest.Footnote 45 This case constitutes a pivotal element of the present research. It provides invaluable insights that will be utilised to examine the potential opportunities, challenges and risks associated with the augmentation of discretionary powers in favour of the EBA. Furthermore, this case will serve to elaborate on the functionality of these powers in the pursuit of the public interest. The term “public interest” is understood to denote the protection of individual and collective spheres within the EU financial system, namely: the safeguarding of financial stability, the preservation of public resources, the maintenance of competition and the protection of savings.Footnote 46
The case under examination is of considerable significance, as it has far-reaching implications within the framework of the EU legal system. It not only transcends the boundaries of the case from which it originated but also addresses pivotal issues pertaining to the powers of the EBA and, more broadly, the scope of ESAs. This case is particularly complex, primarily with regard to the scope of the EBA’s competencies and the exercise of its discretionary powers.
In particular, the case in question involved the Fédération bancaire française (FBF) and the Autorité de contrôle prudentiel et de résolution (ACPR) as the principal parties and was decided by the Grand Chamber of the ECJ.Footnote 47 The dispute originated from the publication of the EBA Guidelines on “governance and control arrangements for retail banking products”,Footnote 48 which were primarily directed towards NCAs. In essence, the guidelines set out the product governance requirements for financial and payment institutions subject to various banking and financial market directives. Subsequently, the ACPR, the French competent authority in banking and financial matters, issued an opinion on its website in compliance with the guidelines. The opinion also clarified that these soft law acts applied to all credit institutions subject to its supervision.
The FBF, an association representing the interests of the major credit institutions in France, challenged the ACPR’s opinion before the Conseil d’État, the country’s highest administrative justice body. The association requested the annulment of the challenged guidelines on the grounds that the substantive legal bases do not include requirements for product governance, but rather for corporate governance. The Conseil d’État, having considered certain fundamental points, submitted three questions to the ECJ, which can be summarised as follows: (1) whether the Guidelines in question can be challenged by an action for annulment and whether the FBF has standing to do so; (2) if not, whether the Guidelines can be challenged by an action for a preliminary ruling; and, if so, (3) whether the EBA has exceeded the scope of its powers under Regulation (EU) 1093/2010 by issuing the challenged Guidelines. Although they are of great interest, questions (1) and (2) fall outside the remit of our investigation, as they concern aspects pertaining to constitutional law and administrative procedural law, respectively. Consequently, we will address question (3), which addresses certain problematic aspects of economic law and appears to be of considerable relevance with regard to the discussion on the scope and limits of the EBA’s discretionary powers.
It is important to note the generally broad mandate of the EBA in light of the reading of Article 1(2) of Regulation (EU) 1093/2010. As previously discussed, the EBA can operate within the context of the powers conferred by the 2010 founding regulation and specific European legislative acts. Then, any resolutions derived from the aforementioned acts and any other legally binding EU measures that confer supplementary responsibilities upon the banking authority must be incorporated. In essence, therefore, it can be stated that the relevant provisions of these directives constituted the substantive legal basis for the contested guidelines. It is also important to note that, in accordance with Article 1(3) of Regulation (EU) 1093/2010, the EBA is permitted to act within the sphere of activity of credit institutions, financial conglomerates, investment firms, payment institutions and electronic money institutions.
It is also necessary to clarify, on the basis of this provision, that the EBA is competent in matters relating to governance, auditing and financial reporting, provided that such actions are necessary to ensure the effective and consistent application of these acts. It is noteworthy to place a particular emphasis on these aspects of positive law, as it is precisely through the interpretation of the aforementioned provisions that the ECJ has argued the validity of the contested guidelines in the Fédération bancaire française case.
The reconstruction of the legal framework applicable to the EBA’s powers and functions then reaches a pivotal point in the context of the overarching objectives that this authority must consider when issuing soft law instruments. This is exemplified by the controversial guidelines at issue in the Fédération bancaire française case. It is evident that the delineation of the legal reference scenario played a pivotal role in determining the outcome of the case, which resulted in a significant expansion of the competencies, functions and, most notably, discretionary powers of the EBA. In particular, the ECJ rejected the argument put forth by Advocate General Bobek that the contested guidelines, when considered as a whole, do not fall within the scope of the legislative acts set forth in Regulation (EU) 1093/2010 or those conferring specific tasks. Instead, the ECJ ruled that the legitimacy of issuing soft law acts must be assessed primarily in light of the general regulatory context in which powers and functions are exercised, rather than solely on the basis of the specific rules set out in the challenged guidelines.
The ECJ’s reasoning thus ignored the compelling argument put forth by Advocate General Bobek, who had aligned with the European Commission and opposed the ACPR. Bobek asserted that the EBA had exceeded the legal boundaries of its authority in exercising its powers.Footnote 49 It is especially important to acknowledge that, in addressing the matter of product governance in a manner that differs from the emphasis placed on corporate governance by the Advocate General, the ECJ made use of a teleological argument, thereby emphasising the fundamental objective of the EBA’s soft law power, which is to guarantee the uniform and consistent application of EU law.
This is a pivotal element of our inquiry into the expansion of the EBA’s discretionary powers as evidenced by recent ECJ case law. It is noteworthy that, in advocating for the expansion of the EBA’s discretionary powers, the ECJ cited Article 1(3) of Regulation (EU) 1093/2010 as a legal deus ex machina.Footnote 50 This article permits the EBA to exercise its soft law powers in matters beyond those explicitly addressed in Regulation (EU) 1093/2010.
The ECJ’s reasoning on this matter can be summarised as follows: while there is no explicit legal basis authorising the exercise of powers within the scope of the contested guidelines, it must also be acknowledged that there is no provision in Regulation (EU) 1093/2010 (or any other EU rule) that expressly prohibits the EBA from exercising its powers in the domain of product governance. In theory, therefore, the EBA may be entitled to issue guidelines or other soft law acts in the area of retail banking product governance, provided that the measures in question serve to ensure effective and consistent application of the rules in this area.
The Fédération bancaire française case marks the conclusion of this study’s examination of the most (ESMA-Short Selling, Fédération bancaire française) and least (Meroni, Romano) recent orientations of the ECJ’s jurisprudence on the discretionary powers of the ESAs, including the EBA. In the concluding section of this study, I will examine the potential benefits, challenges and risks associated with the expansion of the EBA’s discretionary powers. I will contextualise these issues within our broader argument on the functionality of such powers in the pursuit of the public interest in the European banking market.
The analysis presented here represents the conclusion of a research project dedicated to the functional aspects of the EBA and is of particular importance since, despite the many advances made in this crucial area of EU law within European scholarship and jurisprudence, a comprehensive systematisation and rationalisation of administrative power are still lacking, especially concerning the use of the EBA’s discretionary power within the EBFS.
In the final section of this research, I build on the findings of the investigation and put forward a different interpretation of the use and extension of the EBA’s discretionary powers. I propose that these powers should be understood in the context of the conceptual framework that views discretionary powers as instruments for achieving the functionality of public authorities in protecting the interests of the individual and collective spheres as set out in the legal order. These interests include financial stability, the preservation of public resources, maintaining competition and protecting savings.
V. Conclusion
In light of the empirical analyses of the work carried out, the EBA presents a number of substantial challenges to the original structure of banking governance as established by the founding regulation of this authority. One of the most significant challenges lies in the use of discretionary power in the performance of regulatory and supervisory tasks by banking intermediaries. This is a point that I have addressed throughout the article. This concern is exemplified by the traditional view of European law and jurisprudence, which elucidates the boundaries of its authority to prevent the arbitrary and illegal actions of public authorities such as the EBA and, more broadly, the ESAs. However, as we have previously argued, there is a lack of clarity regarding the institutional objective to which public action and the associated discretionary powers must be oriented.
It is evident that the exercise of discretionary power by this authority may give rise to significant challenges with regard to the legality of administrative action. This is particularly pertinent in view of the extralegal and, most importantly, political influences to which the EBA may be subject.Footnote 51 A crucial problem relating to the use of such powers lies in the fact that, since it has to carry out a balancing of interests every time a discretionary assessment is made, the EBA’s decisions may produce redistributive effects in the form of burdens upon taxpayers. It is evident that such effects are not covered by political legitimacy, as they originate from an authority that is inherently devoid of this quality. It is accurate to conclude that the EBA was devised to achieve its objectives without the influence of the political sphere,Footnote 52 given its technical nature as a regulator and supervisor of the banking and financial market.Footnote 53 However, as it has gained experience, the EBA has diverged from the original mission set out in its founding regulation, embarking on a new trajectory that encompasses the exercise of discretionary powers and the formulation of decisions that entail a balancing of the interests at stake. This shift has prompted a re-examination of the EBA’s legitimacy as a purely technical body.Footnote 54
It is my contention that this is a pivotal issue. Although the EBA is frequently tasked with balancing competing interests in specific cases, a responsibility that carries significant implications for the redistributive impact of its decisions, it is not directly accountable to elected institutions. This raises questions about the compatibility of the EBA with the principles of representative democracy. Conversely, this dimension is clearly subject to the logic of administrative agencies as technocratic and bureaucratic institutions. These are endowed with specialised public authority, but their activities as public authorities are not directly legitimised by representative actors, nor are they managed by elected officials. One potential solution to this issue would be to subject the EBA’s discretionary powers to the principle of legality (i.e. the rule of law).
My findings demonstrate that the EBA is subject to a multitude of legal constraints that must be observed in order to ensure that its operations within the EU legal system are conducted in an appropriate and legitimate manner.Footnote 55 Yet, these may prove inadequate or otherwise ineffectual, which is why we put forward a series of specific recommendations designed to systematise and rationalise the EBA’s exercise of its discretion.Footnote 56 In light of the extensive delegation of authority to the EBA in the banking sector, it can be presumed that the primary constraints on the use of its discretionary powers are those established ex ante at the legislative level, with clearly defined mandates and functions delineated by the European regulator. Conversely, the implementation of ex post accountability procedural mechanisms may serve to monitor the exercise of discretionary powers and to assess how they are exercised by the EBA.
It is possible to envisage the introduction of specific legitimisation instruments in the form of detailed legislative mandates and further methods of defining powers and implementing conditions. These are designed to delimit the legal space within which the EBA can operate in order to achieve its objectives, while leaving a certain margin of functional freedom for the sole purpose of fulfilling as effectively as possible the task of protecting the individual and collective spheres of market participants. The aforementioned tools comprise procedural requirements for the assessment of the impact of administrative action and related data collection and analysis requirements, in addition to consultation obligations that are particularly applicable to regulatory activities.
In this regard, positive EU law offers a definitive framework. It stipulates that the EBA (along with the other ESAs) is obliged, on the basis of its founding regulation and on a mandate from the European Commission, to conduct specific business impact assessments when preparing draft regulatory and implementing rules, as well as guidelines and recommendations. Furthermore, accountability mechanisms are a common means of legitimising authority. By rationalising and systematising administrative power, they structure the space within which discretion can be exercised legitimately, thereby obliging an authority to be answerable for its actions.
Nevertheless, it is acknowledged that the subjugation of discretionary power to the tenets of legality and its incorporation into the framework of legal norms may prove inadequate in and of itself. It is evident that the application of legal constraints and regimes may be circumvented in instances where discretionary powers are exercised. The EBA is not exempt from this. Despite being designed to perform functions of a technical and efficiency-oriented nature in the banking market, it is called upon to make discretionary assessments, also with a view to achieving its institutional objectives.Footnote 57 It should be borne in mind that the greater the complexity and uncertainty of the sector of the economy in which an agency operates, the greater the need for discretion that such an authority will require in order to perform its role effectively.
It would therefore be difficult, if not impossible, to limit the EBA’s activities to technical decisions. Discretionary decisions with regulatory and political implications could inevitably arise in the performance of the various tasks entrusted to it. More fundamentally, the use of discretionary control tools and the relative reliance on technocracy that they imply in the context of banking and financial regulation are not without their critics. In addition to the well-known difficulties in isolating technical decisions from policy implications, it is important to recognise that banking and financial regulation is not an exact science and that regulators often operate under conditions of considerable uncertainty and contingency. Although the quality of regulation has improved considerably with the continued support of empirical research, data remain incomplete, indicators of market stress can be unclear and regulators often struggle to identify the behavioural changes needed and how to introduce them effectively.
One solution, as argued in this study, could then be to functionalise the discretionary power granted by the legal system to the EBA in the pursuit of the public interest. Given the risks associated with the use of discretionary powers, which, as we have seen, are substantiated by the loss of democratic legitimacy of the decisions taken by the EBA, the argument would appear convincing that these powers should be functionalised for the pursuit of the public interest. As I claimed here, the public interest is substantiated by the protection of the individual and collective rights of consumers, depositors and other private subjects involved in various ways in the economic processes of the banking and financial market.
The argumentation I propose finds an important reference in the data of positive European law and precisely in the same regulation establishing the EBA, namely Regulation (EU) 1093/2010, which, in Article 1(5), establishes how the main purpose of the banking authority is to “protect the public interest”, specifying immediately afterwards how such protection must be guaranteed “for the benefit of the Union’s economy, its citizens and its businesses”. Thus, protection of the public interest can be understood as being functional to the protection of individual spheres (“citizens”), market players (“enterprises”) and more generally the community (“Union economy”).
The functionalisation of discretion for the pursuit of the public interest and, in particular, for the protection of individual and collective prerogatives is, in my view, a robust argument, also in light of the recent orientation of the ECJ in the ESMA-Short Selling and Fédération bancaire française cases in favour of the legitimate use of discretion by agencies, in particular in the banking and financial sector.
Not surprisingly, from a positive law perspective, the Meroni and Romano doctrines can be said to be open to discretion, with reference to the provisions of Regulation (EU) 1093/2010, which entrusts the EBA with the task of contributing to the development of high quality common RTS/ITS and practices in the context of the European System of Financial Supervision through the issuance of guidelines and recommendations.Footnote 58 Also significant from a European law perspective is the reference to the general rule that the EBA may exercise “all the powers at its disposal” in order to achieve its institutional objectives.Footnote 59
Again from the perspective of positive law, the scope of the EBA’s powers is not rigid and immutable but, on the contrary, can be considered flexible and changeable depending on the authority’s scope of action, which is determined on the basis of the teleological interpretation of Regulation (EU) No 1093/2010, which, as we have seen, contains cross-references to an open list of further EU acts in the field of banking law. Thus, the link between the EBA’s regulatory output and the scope of Regulation (EU) 1093/2010 itself could indeed be interpreted in a broad and functional manner, provided that it is always subordinated to the institutional objective of protecting individual and collective spheres.
Moreover, considering the key role played by soft law instruments in the exercise of the main functions falling within the competence of the EBA, it is possible to understand the utility of the teleological element in the pursuit of the public interest and, in particular, the functionalisation of the discretionary power to safeguard rights.
In other words, it seems to us that this functional constraint may well represent the benchmark of the action of the public authority when it acts by means of its compliance and persuasive powers on NCAs and other economic actors in the banking and financial market. In this respect, as we have seen in the section on soft law powers, recommendations and guidelines are issued by the EBA with a view to encouraging the competent national authorities and financial institutions to comply with the provisions contained in such acts (“comply”), failing which they must provide the reasons for dissenting from the EBA’s requirements (“explain”).
In such a context, it is useful to note that soft law powers can be deployed by the EBA to achieve the general objective of harmonising regulation and making supervisory practices to the benefit not only of the regulated entities themselves but also for that of private entities operating in the relevant markets. In this regard, it should be noted that the powers conferred on the EBA include contributing to the consistent implementation of legally binding EU actsFootnote 60 and promoting the protection of depositors and investors,Footnote 61 supporting a common culture of prudential supervision and ensuring the uniform, efficient and effective application of all acts within its competence, relating to credit and financial institutions, as well as to national supervisory authorities.Footnote 62 It should also be noted that the EBA fosters supervisory convergence and carries out economic analyses of markets to promote the achievement of its institutional objectives.
These are indeed institutional tasks that underline the EBA’s role as an administrative authority responsible for guaranteeing the rights and protecting the individual spheres of private individuals who, for various reasons, may be involved in economic processes. It is a role that includes commitment to appropriate regulation and supervision for the effective management of credit and other systemic market risks with a view to enhancing consumer and user protection.
It should be emphasised that the use of broader and more flexible powers serves the EBA to ensure, on the one hand, the common, uniform and consistent application of EU law and, on the other, to protect the interests of depositors and investors by providing an appropriate framework for financial risk-taking. According to the premise set out here, the fundamental question is therefore not only whether the EBA exercises its discretionary power in accordance with the principle of legality, but rather how this power is exercised. In other words, it is essential to understand, also for the purposes of judicial review of its decisions, whether or not discretionary power is functional to the protection of rights and of individual/collective spheres.
The argument put forward here also takes into account the potential negative effects and drifts that the use of discretionary powers may have if they are not exercised by the EBA in line with the institutional objective of pursuing the public interest. It can be posited that a fundamental reason for this phenomenon is that the extension of the discretionary powers (and competences) of the EBA, as observed in the recent guidance of the ECJ in the Fédération Bancaire Française case and, prior to that, in the ESMA-Short Selling case, occurs without a concomitant link to the protection of the fundamental rights of subjects involved in the economic processes of the market. This would result in a significant extension of the discretionary powers of the EBA for purposes that might not be compatible with the pursuit of the public interest as defined here. Suffice it to recall, to give just one example, all the scenarios in which the regulator, and in our case the EBA, is captured by the strong interests of the market and is thus led to pander to partisan interests that conflict with the public interest and the welfare of the community.Footnote 63
Finally, it is important to note that, unlike legally binding hard law powers, the regulatory framework established by the EU legislator does not provide for specific conditions for the EBA to adopt soft law powers. This circumstance would jeopardise the minimum requirements previously established in the ESMA-Short Selling case for the extension of discretionary powers of administrative agencies without adequate political cover and has already led to a break with the past and in particular with the Meroni and Romano doctrines, opening a breach in the delegability of discretionary powers to bodies other than those constitutionally sanctioned by the Treaties. This aspect renders the issue all the more crucial, particularly considering the erosion of the Meroni and Romano doctrines and the subsequent decline of ESMA-Short Selling case. It is imperative to safeguard the fundamental tenet of protecting the individual rights and prerogatives of those engaged in various capacities within the economic processes of the European banking and financial market.
