April 23
Anjum Shabbir
Anjum Shabbir
8th April 2021
Banking & Finance Institutional law Justice & Litigation

Op-Ed: “Is Dialogue between Courts and Quasi-courts possible without formal communication channels?” by Elia Cerrato García


The expression ‘there’s more to this than meets the eye’ refers to situations where the apparent simplicity of the situation on the surface can mask a deeper issue lying underneath. This expression can aptly describe the recent A v ESMA, Decision D 2021 02. In that case, the Board of Appeal (BoA) found inadmissible an appellant’s challenge of ESMA’s decision not to take any action against a national authority (NCA) for breach of EU law. On the surface, it appears to be a further decision simply reiterating well-settled precedents. In reality, with a prudent stance it lays open a series of thorny issues in the recent EU architecture of financial supervision, ranging from the balance between EU and national remits of competence, to the reviewability of acts by EU agencies, and the ability of natural and legal persons to set such review in motion.

In the BoA’s case, the appellant challenged ESMA’s refusal to initiate investigations into the NCA’s methodology to estimate the ‘fair value’ of SRPs instruments. This translates, in the appellant’s view, into a misguided reading of MiFID I, MiFID II and PRIIPs and a breach of EU law, a position it made known to ESMA, asking it to initiate proceedings for breach of EU law under Article 17(2) ESMA Regulation 1095/2010 (ESMA Regulation). That provision refers to ESMA’s power to initiate proceedings on its own initiative, and ESMA refused to do so. The appellant then filed an appeal against ESMA. The BoA denied jurisdiction (A v ESMA, Decision D 2021 02, paragraph 102).


The amended Article 17(2) ESMA Regulation raises doubts as to how the ESAs should exercise their discretion

Article 17 ESMA Regulation is drafted oddly. Its paragraph (1) states that, where the national authority has breached Union law, ‘the Authority shall act’. Its paragraph (2) states that, ‘upon request’ from a series of actors (European Parliament, the Council, the Commission, the Securities and Markets Stakeholder Group) or ‘on its own initiative’, including when this is based on well substantiated information from natural or legal persons’, ‘the Authority shall outline how it intends to proceed with the case and, where appropriate, investigate’ (Emphasis added). The question is how to interpret this seeming ‘sandwich of discretion between two loaves of command’.

In the past, the General Court indicated, and the Court of Justice of the European Union (CJEU) confirmed, that discretion prevailed (SV Capital, C-577/15, paragraphs 40-41), and the BoA heeded this view in precedents such as Andrus Kluge (BoA 2016 01), and B v ESMA (BoA D 2018 02). This approach was however clearer when the text under Article 17(2) read that ESMA ‘[might] investigate’ the alleged breach. Now the question is whether the added use of ‘shall outline’ (in paragraph (2), on top of the use in paragraph (1)) to indicate that ESMA ‘shall outline’ how to it intends to proceed, and where appropriate shall investigate, change the scope of discretion in any way, for example, if ESMA ‘shall outline’ regardless of who makes the request.

This seemingly abstruse language raises three of the thorniest issues of the new EU architecture of financial supervision. One, whether the ESAs’ decision to take action against NCAs is a ‘legal’ decision (governed by considerations of fact, evidence and legal interpretation) or also a ‘non-legal’ decision (governed by considerations of ‘political’ expediency). Two, whether one, or the other, kind of discretion, is admissible under a Meroni standard (C-9/56). Three, how does this affect the power of review of judicial bodies (like the General Court) and quasi-judicial ones, like the BoA. Arguably, this kind of case placed the BoA between the proverbial rock and hard place: it is not the BoA’s place to either dictate whether Article 17’s new drafting corrects the CJEU’s previous case law, or updates Meroni in this concrete context. Yet, these considerations lie at the core of the decision, and the BoA would hope that the CJEU would decide on the broader matter of principle. How to move forward? Arguably, the BoA solved the conundrum with prudence and some elegance.

In spite of the ambiguity of Article 17(2)’s new drafting, the BoA is right to consider that Article 17(2) ‘structures’ how the ESAs are to exercise their discretion regardless of who makes a request for action (A v ESMA, paragraph 113). Article 17 seems to soften the separation between competent authorities and other actors. This can be appreciated when Article 17(2) is read together with Article 2(2) ESMA Rules of Procedure (RoP). Article 2(2) refers to both competent authorities, and natural and legal persons that bring relevant information to ESMA as ‘requesters’. Article 5 of the RoP, which states that ‘the Requester shall also be informed of appropriate alternative forms of redress’, does not distinguish between requesters either.

Recognising that natural and legal persons are requesters within the new Article 17(2) does not have to jeopardise ESMA’s discretion. Article 17(2) states that ESMA can investigate ‘where appropriate’, underpinning the idea that ESMA’s decisions are discretionary. Article 5 of the RoP offers clarity on this: ESMA retains power to initiate an investigation ‘as a matter of discretion’.


The BoA’s considerations as to the reviewability of the determination not to initiate an investigation within Article 17(2)

In the BoA’s case, the BoA considers that it would be reasonable to consider that under Article 17(2) any ‘requester’ is entitled to challenge a determination of ESMA not to open an investigation. In the BoA’s view, a ‘prudent reconsideration of the rigid divide’ between competent authorities and any other natural or legal person would be consistent with Articles 2 and 5 of the RoP. This means that even if the CJEU confirmed that ESAs’ determinations are challengeable under Article 17(2), ESMA would be able to close the request without opening an investigation ‘as a matter of discretion’ (A v ESMA, paragraphs 116, 120).

In other words, the factors that lead ESMA to close the request would remain unchallengeable. The BoA, following SV Capital, and pursuant to Article 5 of the RoP, explains that the scope of the procedural rights for those persons who lodge a complaint with the BoA are limited, in contrast, to the procedural rights that individuals may have under Regulation 1/2003 (A v ESMA, paragraph 119). As a result, challenges on the merits of the determination are not covered by the regulation.

Another plausible argument raised by the BoA is that encouraging natural and legal persons to draw potential breaches of EU law to ESMA’s attention contributes to ‘effective information-gathering’ and this, ultimately, promotes the enhancement of supervision convergence (Article 1(5) ESMA Regulation; A v ESMA, paragraph 118).

As regards the BoA’s control on review, the BoA is subject to a strict limitation. The BoA can only verify ‘that the ESAs’ determination states its reasons as required by Article 296 TFEU and Article 41(2)(c) of the Charter’ (A v ESMA, paragraph 121). Therefore, even if the BoA assumed that the determination of ESMA not to open an investigation might be challenged, it could not come to a conclusion on Article 17’s new reading. Since the BoA follows settled EU case-law in its decisions, and the CJEU has not taken a stand yet on the new version of Article 17(2), this provision may lead to reach different conclusions from the ones adopted in SV Capital, the BoA, placed between a rock and hard place, adopted a prudent approach in this case.



The BoA denied jurisdiction in this case and, all things considered, it will likely continue to deny jurisdiction until the CJEU, the only institution that can offer necessary clarity on the application of Article 17(2), takes a stand on this.

This case invites a reconsideration of the legal standing of any requester. It also reflects the need to provide European bodies with effective channels of communications through which they can enter into dialogue and close the ‘gap’ that the lack of action by the authorities can cause in the internal market.

The answers to our initial questions should be ‘time will tell’. Integrating Article 17(2)’s new considerations in the EU jurisprudence may be desirable because deterring natural and legal persons from drawing potential breaches of EU law does not contribute to the improvement of good supervisory coordination and convergence that ESAs aim for, and, in turn, integrating interested parties (with substantiated concerns) in the appeal system would be more convenient for the sake of the proper functioning of the internal market. Subsequently this may require, in the interest of promoting ‘information-gathering’, implementation of digital mechanisms through which NSAs can process the (relevant) information on potential breaches of EU law they receive from third parties. The improvement of the communication channels between European authorities may be desirable because it might make authorities more accountable within the rule of law.


Elia Cerrato García is a PhD candidate at the University of Bologna and Carlos III University of Madrid and Adjunct Professor at CUNEF (Centro Universitario de Estudios Financieros).


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