Is there an unwritten rule mandating that we read all Advocate Generals’ Opinions opening with a quote from the Game of Thrones (GoT)? If not, it is high time we adopted one.
‘What is dead may never die’. Opening with this line from the popular show, AG Bobek is alluding to an important EU law question: can the ECJ invalidate a soft law act, i.e. a non-binding EU measure, under the preliminary reference procedure of Article 267 TFEU? If not, can the Court provide (binding) interpretation of such a measure?
In his Opinion in Case C-911/19 FBF v ACPR, published on April 15th, the AG offered his own answers to these thorny questions. In this post, the background to the case will initially be set out. The key legal issues that arise will then be dissected, and the AG’s findings will be critically assessed.
The facts of the case, as presented by the AG and summarised in the Court’s press release, are relatively straightforward. In 2017, the European Banking Authority (‘EBA’) issued Guidelines on product oversight and governance arrangements for retail banking products. Thereafter, the French Autorité de contrôle prudentiel et de résolution (Authority for Prudential Supervision and Resolution) (‘ACPR’) announced in a notice that it complied with those guidelines, thus making them applicable to all financial institutions under its supervision. The Fédération bancaire française (French Banking Federation; ‘FBF’) sought the annulment of that notice before the referring court, claiming that the EBA did not have the power to adopt those guidelines. In other words, French banks are “attacking” the notice of the French supervisory authority by going after its source of inspiration, i.e. the EBA’s guidelines, and claiming that the latter should be annulled as being ultra vires.
Key legal issues
In a nutshell, three main questions arise from an EU law perspective. Firstly, did the EBA, by adopting the disputed guidelines, go beyond the scope of its powers under Regulation No 1093/2010? Secondly, if yes, what should the consequence be? Is the Court able to declare a non-binding measure invalid under the preliminary reference procedure (Art. 267 TFEU), even though it is not able to do so following an action for annulment (Art. 263 TFEU)? Thirdly, and finally, if national law, contrary to EU law, allows for broader access to direct judicial review of soft-law measures (including national acts ‘implementing’ non-binding EU-law acts), is the national court obliged to refer questions regarding the validity of non-binding EU measures like EBA’s Guidelines, or can it simply annul the national implementing measure on its own?
Relevant Legal Framework and National Proceedings
The most important piece of secondary EU legislation in the context of this dispute is Regulation No 1093/2010. Article 1 of the latter establishes a European Banking Authority. Article 16 on ‘Guidelines and recommendations’ states, in paragraph 1, that the EBA ‘shall, with a view to establishing consistent, efficient and effective supervisory practices within the [European System of Financial Supervision (ESFS)], and to ensuring the common, uniform and consistent application of Union law, issue guidelines and recommendations addressed to competent authorities or financial institutions’. Paragraph 3 continues to stipulate that the ‘competent authorities and financial institutions shall make every effort to comply with those guidelines and recommendations’.
The contested guidelines of the case at hand have been adopted on the basis of the aforementioned Article 16 (Sec 1, point 1 of the Guidelines). In September 2017, the French banking supervisory authority published a notice declaring that it complied with those guidelines.
In November 2017, the French Banking Federation lodged an application, before the Conseil d’État (French Council of State), seeking the annulment of the notice. Its principal claim was that the EBA’s guidelines, which were made applicable by the notice, are invalid due to the EBA’s lack of competence to issue such guidelines.
Harbouring doubts as to both the admissibility and the merits of the plea that the contested guidelines are invalid, the Conseil d’État decided to refer a series of detailed questions to the ECJ, via the preliminary reference procedure. In his Opinion, AG Bobek advises the Court on how best to answer them.
The Advocate General’s findings: Soft or hard law?
AG Bobek does not follow the order of the questions as submitted by the referring court, considering that it might obfuscate the true complexity and significance of the issues raised (paras 36-39). Rather, he chooses to start by examining whether the EBA’s Guidelines are genuinely soft law,. He then proceeds to determine whether, in adopting them, the EBA exceeded its powers. The logically subsequent questions are then addressed, namely those concerning the relationship between articles 263 and 267 TFEU, and the proper role of national courts in similar scenarios. This post follows the order of the AG’s Opinion.
As regards the question whether the EBA’s Guidelines are genuine soft law, i.e. genuine non-binding measures that do not produce binding legal effects, the AG referred to the test established in the ECJ’s jurisprudence. According to settled case law, in order to determine whether the contested act produces binding legal effects, it is necessary to examine the substance of that act and to assess those effects on the basis of objective criteria, such as the content of that act, taking into account, where appropriate, the context in which it was adopted and the powers of the institution which adopted the act.
After treading a meandering argumentative path and indirectly critising the Court for its manichaeistic approach (black/white, binding/soft law) to similar issues so far (paras 53-54), AG Bobek concludes that the contested Guidelines are unlikely to be considered by the Court as being binding and, as a consequence, reviewable under Article 263 TFEU (para 55). They are, therefore, genuine soft law measures.
As regards the question whether the EBA exceeded its competence by adopting the 2016 Guidelines, the AG follows a very methodical approach. This part of his Opinion is one of the longest, spanning more than 50 paragraphs. The point of departure, from paragraph 56 onwards, is whether the EBA’s Guidelines may, if assessed generally, fit “roughly” within Regulation No 1093/2010.
The contested guidelines concern the establishment of product governance for retail banking products. More specifically, they apply to manufacturers and distributors of products offered and sold to consumers in relation to four provisions of four legislative acts, namely four EU directives, whose scope is discussed in paras 61 et seq. of the AG’s Opinion. In his view, there is a clear mismatch between the subject matter of those directives and that of the guidelines; while ‘the latter have set out specific “rules” that concern product governance, the former all relate to corporate governance’.
The AG goes on to compellingly explain how the difference between product governance and corporate governance as a regulatory subject matter is not merely academic but has real practical ramifications (paras 68 et seq). Even if a partially valid legal basis for the Guidelines could be found, as the Commission had asserted, the AG considers that it is more sensible to argue that they must either stand or fall as a whole. In his view, the contested Guidelines as a whole do not fall within the scope of the legislative acts referred to in Regulation No 1093/2010 or the ones conferring specific tasks upon the EBA and are, therefore, ultra vires (para 75).
What standard of judicial review?
However, the AG then takes a step back. Such a conclusion, he contends, is only merited if one applies the “normal” standard of judicial review, i.e. the one the Court applies to binding acts (para 76). But should one be that strict with soft law measures too? With regard to genuine soft-law measures, should one perhaps adopt a more lenient review, if one is to apply any judicial review at all? A range of arguments of this sort had been submitted by the French banking supervisor, the EBA and the French government.
The AG’s response is clear: although he acknowledges these arguments, he ‘cannot subscribe to them, neither in this specific case, nor in general’ (para 81). A mélange of counterarguments is presented in support of his stance (paras 82-94). First, allowing soft law to be issued without being subject to rigorous judicial review would ‘encourage a further spread of “crypto-legislation” in the form of soft law in the Union’. Second, legitimacy is at stake. Third, a number of policy areas would keep resorting to soft law instruments to escape the Court’s normal review. Fourth, subpar judicial review of agencies’ soft law could lead to overlapping or even conflicting instruments being issued. The fifth and final reason is that, before it is established whether a given measure is a genuine soft-law measure, it cannot be excluded that it does in fact generate binding legal obligations.
Ultra vires: what should the consequence be?
The AG then moves on to, perhaps, the most important practical consideration: assuming a soft law measure would indeed be found ultra vires by the ECJ in the context of the Article 267 TFEU procedure, what should the consequence of this finding be? It is interesting to note that, in March 2021, the ECJ held that an EBA recommendation should be declared invalid for contradicting the proper interpretation of Directive 94/19. The EBA is clearly not having a great 2021 so far… Should the Court, in general, follow the path of invalidation, or should it simply endeavour to interpret the instrument or its binding legal basis in a way that cuts the Gordian knot, thus avoiding the paradox of having to kill (invalidate) what was never alive (binding) to begin with?
AG Bobek assertively stands in favour of the Court reaching a clear conclusion on the validity of the soft law measure. As explained in paragraphs 104-109 of his Opinion, the Court’s case law, as well as reasons of consistency and pure logic, militate in favour of that outcome. Therefore, he forcefully concludes this section by proposing that the Court go with ‘the simplest, clearest, and indeed most honest answer’, i.e. that the contested guidelines should be declared invalid in so far as the EBA has acted outside the powers bestowed upon it by Regulation No 1093/2010.
Article 263 TFEU versus Article 267 TFEU
This section of the Opinion opens with a detailed examination of the locus standi requirements in both Articles 263 and 267 TFEU, with the AG compellingly concluding that under Article 263 TFEU ‘a professional federation can certainly challenge, by means of a plea of invalidity, EU guidelines intended for the members whose interests it protects, even when they were not of direct and individual concern to it’ (para 120).
The Advocate General then proceeds to examine whether the Foto-Frost line of case law would apply to a scenario such as that of the case at hand. By way of reminder, Foto-Frost states that a national court is under the duty to make a reference to the Court on the validity of an EU-law measure under Article 267 TFEU, unless it considers that the grounds put forward in support of invalidity are unfounded. In his view, the very rationale of this line of case law dictates that it is not applicable to non-binding EU measures. The relevant case law’s aim is twofold: to promote uniformity as regards the validity of an EU measure, and to protect the Court’s exclusive jurisdiction to declare EU measures void.
However, a genuine soft law measure produces no binding legal effects, so its addressees can choose whether to comply with it or not. What kind of uniformity are we, thus, protecting, when discussing measures that merely may (as opposed to must) be applied? As regards the Court’s centralised jurisdiction, forcing national courts, which can freely disregard said soft law, to refer questions on its validity to the ECJ appears nonsensical (para 129).
If the AG’s recommendations are accepted by the Court, this would mean that, in practical terms, a national court is entitled to annul the national ‘incorporation’ or ‘implementation’ measure that made an EU soft-law measure applicable within its national territory, without first being obliged to submit a request for a preliminary ruling to the Court on that matter.
However, a problem remains. Soft law is not challengeable directly under Article 263 TFEU, since it is “dead”, but can be challenged and brought before the Court of Justice indirectly under Article 267 TFEU, which will then need to decide whether to “kill” (invalidate) it. How can we make sense of this dissonance? To try and borrow some of AG Bobek’s poetic aptitude, I would put it as follows: are we faced with the possibility of being stuck with Schrödinger’s soft law?
The answer to this apparently paradoxical conundrum lies, in the AG’s view, at the (dis)association between the two types of procedures. After highlighting the textual differences between the two articles, the AG employs the ECJ’s past dicta on them jointly comprising a ‘complete system of remedies’ to argue that the system can only be complete if the individual procedures are complementary. If the conditions and criteria for access under Articles 263 and 267 TFEU are identical, then the system of remedies will not be complete. Moreover, Article 47 of the EU Charter of Fundamental Rights and Article 19 TEU would not be fully respected.
For these reasons – and a few more that the AG expanded on – his overall conclusion is that, ‘as long as there is no effective legal protection against potentially detrimental legal effects of non-binding EU measures under Article 263 TFEU, submitting a request for a preliminary ruling on validity under Article 267 TFEU with regard to those same acts remains the only way in which this Court may ensure that there is at least some resemblance of a complete system of remedies provided for in EU law’ (para 155).
Therefore, he proposes that the Court rule that Article 267 TFEU allows for a request for a preliminary ruling to be submitted on the assessment of validity of non-binding EU acts, such as the EBA’s Guidelines. However, such a reference is not obligatory for the national court, which is within its right to annul, if it is itself entitled to do so under national law, the national ‘incorporation’ or ‘implementation’ measure that made a soft law EU measure applicable within its national territory.
AG Bobek’s Opinion is well-written and forceful. He does not shy away from the trickiest questions, but instead tackles them head on. His eloquent and highly argumentative writing style is, to a certain extent, reminiscent of AG Jacobs.
The AG’s points are persuasive. Although, at points, he criticises the Court’s past jurisprudence, he is pragmatic when it comes to the kind of solutions that would be palatable to and acceptable by the ECJ’s judges.
The Opinion has already attracted its fair share of media coverage. Whether it will convince the Court of Justice remains to be seen; winter might be coming for the EBA’s soft law peregrinations…