The complaint to the European Banking Authority

1. The complainant, a Cypriot citizen, provided guarantees and mortgages over immovable property as security for loans granted by a Cypriot bank (‘the bank’). Later, she sought, unsuccessfully, to set aside these security agreements before the Cypriot courts.

2. The complainant also asked the Central Bank of Cyprus (‘CBC’) to investigate the bank’s conduct. The CBC stated that it could not intervene in what was a contractual dispute with her bank. She also raised her concerns with the Attorney General and the Auditor General of Cyprus, who also informed her that they could not inquire into the matter.

3. On 19 December 2017, the complainant submitted a complaint to the European Banking Authority (‘EBA’) against the bank, the CBC and other Cypriot authorities. In particular, she complained that the CBC did not open an investigation into the bank’s breach of the EU rules on unfair terms in consumer contracts^[1], and thus failed in its supervisory role.

4. On 6 July 2018, the EBA informed the complainant that it intended to close her case without opening an investigation. It stated that under the applicable rules^[2], it could not investigate the bank directly. In addition, the complainant had not referred to any failure by the CBC to comply with its obligation under the applicable EU rules^[3]. The EBA clarified that, although it could investigate certain breaches of the EU rules on mortgage credits^[4], the security agreements in question were signed before these rules entered into force. It added that it did not have the power to investigate breaches of the EU rules on unfair terms in consumer contracts. Furthermore, the complainant had not substantiated why the CBC would have failed in its supervisory role, and had not either referred in that regard to any breach of the EU legal rules that falls under its remit of investigation. The EBA added that the complaint was not a priority for it since it had no significant, direct impact on its objectives^[5]. Finally, the EBA stated that it had no power to investigate the other Cypriot authorities mentioned by the complainant.

5. On 2 August 2018, the complainant replied, expressing her dissatisfaction with the EBA’s response. She argued that her complaint should be given priority as it related to practices that concern the majority of debtors in Cyprus, and had a direct impact on the stability and functioning of the internal market. She also contended that the CBC had failed to enforce the EU rules on taxation in relation to the accession of Croatia to the EU^[6]. She also provided more reasons why the CBC would have failed in its supervisory role^[7].

EBA’s response to the complainant

6. On 22 August 2018, the EBA closed the complainant’s case without opening an investigation. It explained that her complaint had no priority for it and that she had not substantiated how the majority of debtors in Cyprus were affected thereby. The complainant had not either referred to any clear and unconditional breach by the CBC of any of the EU legal rules that fall within the EBA’s remit of investigative powers. The EBA could not either investigate potential breaches of the EU rules on taxation in relation to the accession of Croatia. If the complainant wished to complaint about compliance with the EU rules on prudential supervision of banks^[8], she had not explained how the CBC would have breached these rules, which also appeared to have entered into force after the events in question had taken place.

7. The complainant was not satisfied with the EBA’s response and turned to the Ombudsman, on 19 September 2019. In her view, EBA should have opened an investigation into (a) the bank’s failure to comply with the applicable EU rules, and (b) the failure of the Cypriot authorities, including the CBC, to take appropriate action.

The European Ombudsman's finding

8. According to the applicable rules^[9], the EBA can intervene only in cases where the national supervisory authorities of financial and credit institutions, in this case, the CBC, have breached or have not applied certain EU legal rules that fall within the EBA’s investigative powers^[10]. In addition, in order to be admissible, a request to the EBA to open an investigation needs to set out “a clear grievance explaining how a competent authority has not applied the acts referred to in Article 1(2) of the Regulation, or has applied them in a way which appears to be a breach of Union law”^[11]. Moreover, when a “grievance does not relate to a clear and unconditional obligation” in such EU legal rules^[12], the EBA has a discretion to decide whether to open an investigation.

9. In this case, the EBA has provided the complainant with detailed and reasonable explanations as to why it decided not to open an investigation into her case.

10. In particular, the applicable rules make it clear that the EBA had no power in this case to open an investigation into the bank or into the other Cypriot authorities mentioned by the complainant.

11. In addition, the EBA explained to the complainant that it decided not to open an investigation into the CBC because she had not referred to a possible breach by the CBC of a clear and unconditional obligation in one of the EU legal rules falling within its investigative powers.

12. In light of the above and based on the information provided by the complainant, the Ombudsman finds no maladministration in this case.^[13]

 

Lambros Papadias

Head of Inquiries - Unit 3

Strasbourg, 17/04/2019

 

[1] The complainant referred to Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A31993L0013.

[2] Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/78/EC (‘EBA Regulation’): https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32010R1093. Article 17 of the EBA Regulation gives EBA the power to investigate whether relevant national authorities comply with their obligations under certain EU legal rules.

[3] The EBA referred to the legal acts set out in Article 1(2) of the EBA Regulation.

[4] Directive 2014/17/EU of 4 February 2014 on credit agreements for consumers relating to residential immovable property.

[5] The EBA referred to its objectives concerning: contributing to the short, medium and long-term stability and effectiveness of the financial system, functioning of the internal market; integrity, transparency, efficiency and orderly functioning of financial markets; preventing regulatory arbitrage and promoting equal conditions of competition; and enhancing customer protection.

[6] Council Directive 2013/13/EU of 13 May 2013 adapting certain directives in the field of taxation, by reason of the accession of the Republic of Croatia: https://eur-lex.europa.eu/legal-content/GA/TXT/?uri=celex:32013L0013.

[7] The complainant argued, among others, that the CBC had failed to check the soundness of the bank’s risk management process, to have a system in place to evaluate the quality of individual credits and the overall quality of the credit portfolio of the bank and to identify the inadequacy of loan provisions.

[8] Directive 2013/36/EU of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:32013L0036.

[9] See Article 17 of the EBA Regulation.

[10] That is, the rules referred to in Article 1(2) of the EBA Regulation.

[11] Article 3(2)(i) of Rules of Procedure for Investigation of Breach of Union law (hereafter: ‘Rules of Procedure’): https://eba.europa.eu/documents/10180/1712606/EBA+DC+174+%28Decision+on+adopting+Rules+of+Procedures+for+Investigation+of+Breach+of+Union+Law%29.pdf/404eb483-e1ec-4b56-9e31-e5988138455d.

[12] Article 5(1)(ii) of the Rules of Procedure and Annex 2 to the Rules of Procedure.

[13] This complaint has been dealt with under delegated case handling, in accordance with Article 11 of the Decision of the European Ombudsman adopting Implementing Provisions.