ABLV Bank asks the Court of Justice of the European Union to review the decisions of the European Central Bank and the Single Resolution Board

Riga, Latvia, May 7, 2018, 08:50

On 3 May of this year, ABLV Bank and its largest shareholders filed applications to the Court of Justice of the European Union and requested a review of the decisions adopted on 23 February by the European Central Bank (ECB) and the Single Resolution Board (SRB) which forced the shareholders to decide on a voluntary liquidation of the bank.

The bank stresses that the decision on liquidation is not suspended by the applications, but bringing the claims is important for the reputation of the bank, its employees and partners, as well as for claiming potential losses if the court decides in favour of the bank and its shareholders.

A review by the European Courts is also important in order to create legal certainty after the ECB's and the SRB's decisions have already been harshly criticised by a Luxembourg Commercial Court. There were even comments by a representative of the SRB in a hearing in the European Parliament which suggest that the SRB itself believes that its decision may have been based on an erroneous understanding of the legal position.

The attorneys of ABLV Bank have commented: "There are a number of important issues on which only the European courts can provide authoritative guidance. Guidance by the court on these issues will be beneficial for everyone and will undoubtedly also be welcomed by the ECB and the SRB."

The questions raised by this case include whether the SRB and the ECB can decide that a bank is to be liquidated under its national law. Even a representative of the SRB has acknowledged, following a very critical decision by the Luxembourg Commercial court, that the SRB may have erred in this respect and that this is a decision solely for the national authorities and courts. In addition, both the Latvian Financial and Capital Market Commission (FCMC) and the Latvian Ministry of Finance have acknowledged that a liquidation would have been only one of the options.

Another key question is whether a "failing or likely to fail" assessment was warranted. The Luxembourg Commercial Court has already strongly rejected the ECB's and SRB's assessment in this regard. Even the ECB and the SRB have neither criticised ABLV's strong capitalisation nor its good profitability. They have merely assumed potential liquidity issues in the foreseeable future. At least with respect to ABLV’s Luxembourg subsidiary the Luxembourg Commercial Court called this "pure speculation" without any factual basis.

It is important that neither the ECB nor the SRB have based their decisions on AML-issues. The chairman of the FCMC (the authority responsible for supervising AML-compliance) has commented that the draft FinCEN measure contained no new information from the FCMC's point of view and that the matter was adequately dealt with by the further improvements that had been agreed between ABLV and the FCMC.

ABLV's application stresses: “ABLV and its Luxembourg subsidiary were neither illiquid nor was their illiquidity imminent in the foreseeable future. ABLV and its Luxembourg subsidiary were in an extraordinarily strong financial position not only as regards their capitalisation and profitability but also and particularly as regards their liquidity. ABLV was merely experiencing temporary delays as regards access to its liquidity and this was caused by a failure by the ECB to provide clarity as to the regulatory position following the FinCEN Draft Measure.”

One of the issues in this context was that the ECB did not promptly and adequately respond when the governor of Latvijas Banka - a member of the ECB's Governing Council claimed that no one (not even the Latvian central bank) was allowed to transact with ABLV following the publication of the FinCEN Draft Measures. Nobody disputes that this statement was grossly incorrect. The chairman of the FCMC has commented emphatically at a hearing in the European Parliament that the FinCEN Draft Measure was "never meant to kill a bank". And yet the ECB failed to respond adequately and in a timely manner to this grossly misleading statement by a member of its own Governing Council. This led to temporary delays in settling ABLV's transactions.

It has become clear because of the recent hearing in the European Parliament that the European institutions were not prepared for the special situation which has arisen as a result of the Draft FinCEN measure. This included misunderstandings as to the legal position. The best and in fact the only way to achieve clarity on this is a review by the European courts.

In total four applications have been submitted by attorneys from the German office of DLA Piper on behalf of ABLV Bank and its two largest shareholders: two against the European Central Bank and two against the Single Resolution Board being an institution of the European Union that decides on the possible resolution in such situations with regard to credit institutions. The applications specify several possible violations that could have been committed by the European Central Bank and the Single Resolution Board. They include violations of powers, proportionality and equal treatment and other possible violations, and list a range of serious objections to the manner how the decision whether the bank was failing or likely to fail was taken.