ECB banking supervisors impose one of its biggest fines to date

Background

Under Article 430(1)(a) CRR, institutions are required to report all necessary information on the leverage ratio and its components, as their capital requirements depend on the risk content of the transactions and investments they enter into.

Risk-weighted assets measure the extent to which a bank’s assets are affected by possible losses in value. The higher an institution’s risk profile, the more capital it needs. Larger banks are permitted to calculate capital needs on the basis of internal models instead of the standardised approach set by regulators. By making changes to its internal models without prior consent of the ECB and not taking into account the increased price fluctuation, Helaba's calculation of risk-weighted assets for market risk produced lower numbers than with its original internal model. Consequently, it reported lower capital needs to the ECB and a higher capital ratio (CET1). In doing so Heleba went beyond the temporary relief measures introduced by the ECB in 2020.

Assessment of the misconduct

Since its publication in March 2021 the ECB has been applying its Guide to the method of setting administrative pecuniary penalties to determine the amount of any fines imposed. The ECB introduced the guide following its defeat before the EU courts in proceedings brought by members of the Crédit Agricole group in which the General Court criticised the ECB for insufficient transparency on its methodology.

Of the five categories of severity, namely ‘minor’, ‘moderately severe’, ‘severe’, ‘very severe’ and ‘extremely severe’, the ECB classified the breach as severe.

The ECB arrives at this categorisation by considering both the degree of misconduct and the impact of the breach. The ECB assessed Helaba’s level of misconduct as ‘high’ since it regarded the breach as intentional. The impact of the breach was however classified only as ‘medium’ based on the effect that it had on the prudential situation of Helaba and its effective supervision.

The ECB considered the importance of reporting obligations for day-to-day supervision, the extent to which the reported figures differed from the actual prudential situation and the duration of the breach, which prevented the ECB from obtaining a comprehensive view of the risk profile of the entity in the relevant period.

With the categorisation of “severe” the ECB’s penalty grid for an institution of the size of Helaba (EUR 219 billion in 2020) would suggest a base penalty of around EUR 10 million. In line with the proportionality principle, ECB however adjusts the base penalty individually for each institution according to its size.

Additionally, the ECB took certain mitigating factors into account, in particular Helaba’s cooperation with the ECB in the aftermath of the breach and the remedial actions taken to prevent further breaches.

Helaba’s position

In a same-day press release, Helaba admitted to the adjustments to its models in the wake of the Covid-19 pandemic, yet rejected the idea that it had intentionally breached its prudential obligations. Helaba does not deny the circumstances under which the interferences happened, but says it acted in good faith. While at the time it believed the actions were permissible and not subject to ECB approval, it now concedes that this was an incorrect reading of the applicable rules.

The press statement does not suggest that Helaba intends to challenge the penalty (or related ECB findings) before the CJEU during the two-month appeal window.

Further reading

See the ECB’s penalty notice here.

Read the ECB’s accompanying press release.

Read Helaba’s statement here.