EBA欧洲银行-Session-1.-Proportionality-vs-simplicity-Prof-Eilis-Ferran_13页_300kb

Summary of the Application of the Principle of Proportionality in Institutional and Regulatory Reforms

Core Content

The principle of proportionality (PoP) is a fundamental element of EU law, ensuring that EU institutions exercise their competences in a manner that is appropriate, necessary, and not excessive in relation to the objectives they aim to achieve. It is enshrined in Article 5(4) of the Treaty on European Union (TEU) and is operationalized through the Better Regulation agenda, which seeks to design EU policies and laws with minimal cost and maximum effectiveness.

Main Views

The principle of proportionality has three key components:

1. Suitability: The measure must be an appropriate means to achieve the intended objective.
2. Necessity: The measure must not go beyond what is necessary; it should be the least onerous option available.
3. Strict Proportionality: A weighing-up exercise must be conducted to ensure that the disadvantages caused are not disproportionate to the benefits achieved.

Key Information

Better Regulation and Proportionality

• Better Regulation operationalizes PoP in the decision-making process, focusing on minimizing costs and ensuring transparency and stakeholder involvement.
• The Better Regulation process itself must be proportionate, with Impact Assessments (IA) only applied to initiatives with significant economic, environmental, or social impacts.
• IA involves evaluating whether:
  • The measure is necessary to achieve its objectives.
  • The scope is limited to areas where the EU can achieve better results than Member States.
  • Costs are minimized relative to the objective.
  • The instrument chosen is as simple as possible and coherent with the objective.

Proportionality and Cost-Benefit Analysis (CBA)

• CBA is a specific tool used to express the principle of proportionality in certain situations, particularly when balancing benefits and costs.
• It is a narrower concept than PoP, which involves the balancing of multiple principles.
• In the context of the European Central Bank (ECB), CBA is used to assess whether the benefits of exceptional interventions outweigh the risks of moral hazard and financial instability.

Proportionality and Complexity

• The EU rulebook is complex but must be applied in a proportionate manner, ensuring that it is fit for purpose, modern, and as simple as possible.
• The challenge lies in maintaining proportionality while avoiding "one size fits all" approaches that may not be suitable for all institutions.

Proportionality and the Single Rulebook

• The principle of proportionality is essential in ensuring that the single rulebook for financial services is not overly burdensome.
• It is applied in various legal texts, such as the Capital Requirements Directive (CRD) and the Bank Recovery and Resolution Directive (BRRD), to tailor requirements based on the nature, scale, and complexity of institutions.
• For example:
  • CRDIII and CEBS guidance allow for the neutralization of certain remuneration requirements for different types of institutions.
  • BRRD Art 4 introduces simplified obligations for recovery and resolution plans, but not complete exemptions.
  • SREP (Supervisory Review and Evaluation Process) is applied proportionately, considering the size, systemic importance, and complexity of the institution.

Delegation and Institutional Balance

• Level 1 texts (such as directives) define the scope of discretion for EU institutions, and any waivers, exemptions, or thresholds must be based on a legal basis.
• Level 2 texts (such as Regulatory Technical Standards or Delegated Acts) must act within the scope of Level 1 mandates.
• Delegated Acts (DA) may be used to correct Level 1 disproportionality, but they must respect the constitutional and institutional limits on delegation, as outlined in TFEU Article 290.
• The EBA Regulation (Art 10) emphasizes that Regulatory Technical Standards (RTS) should be technical and not imply strategic or policy decisions.

Conclusion

The principle of proportionality is a cornerstone of EU regulatory and institutional reform, ensuring that EU actions are appropriate, necessary, and balanced. It supports the development of a comprehensive and effective single rulebook while respecting the diversity of Member States and financial institutions. The application of PoP is dynamic, involving a calibrated approach that considers the specific context and needs of each institution.