July 8, 2020 / 9:38 AM / a month ago

ECB suffers rare loss in EU court

FILE PHOTO: A woman, wearing a protective mask walks past the head quarter of the European Central Bank (ECB) during sunset in Frankfurt, Germany, April 29, 2020, as the spread of the coronavirus disease (COVID-19) continues. REUTERS/Kai Pfaffenbach

FRANKFURT (Reuters) - The European Central Bank suffered a rare legal loss on Wednesday when Europe’s second highest court said the ECB did not provide adequate justification for a fine imposed on Crédit Agricole (CAGR.PA) and several subsidiaries in 2018.

The General Court said the ECB was right to sanction the French bank for failing to gain approval before classifying capital instruments as Common Equity Tier 1 (CET1) but gave inadequate reasons for how it arrived at the penalty.

The ECB fined the bank along with Crédit Agricole Corporate and Investment Bank, and CA Consumer Finance for a combined 4.9 million euros ($5.52 million), a sum that was annulled in Wednesday’s ruling in a case brought by Credit Agricole and several subsidiaries.

“The contested decisions do not provide details of the methodology applied by the ECB in determining the amount of the penalties imposed,” the Court said, adding that the bank had a right to receive a sufficient statement of reasons for the decision at issue.

But the court also made clear that Crédit Agricole was required to obtain permission from its supervisor before classifying its capital instruments as CET 1 and it should have understood this legal provision so it committed negligence.

“The Court finds that the applicants have not demonstrated that the ECB’s decisions were unlawful,” the General Court said.

In challenging the fine, Crédit Agricole had argued that the ECB did not have to give prior approval to its move to classify ordinary shares as Tier 1 capital but even if it did, its error was so minor, the fine was disproportionate.

Although many ECB decisions are challenged in court, the euro zone’s central bank wins most of them, including the landmark challenges to its bond purchase programmes, key planks in monetary policy.

Reporting by Balazs Koranyi, editing by Louise Heavens and Jane Merriman

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