UPDATE: Climate Fines are coming...

...but slowly, says Frank Elderson

Climate Fines

Back in May I noted that Frank Elderson dropped a strong hint that at least some banks would face daily fines for deficiencies in their management of climate and environmental risks:

Today, the ECB Supervisory Board Vice-Chair all but confirmed this. In a Le Monde interview Elderson repeated that “most but not all of the 22 banks complied with our requirements.” Pressed on whether that meant fines would be imposed, Elderson said “the process is ongoing. The banks have a right to be heard, and that takes time.”

Due Process

The ‘right to be heard’ is a key safeguard in the ECB supervisory decision-making process. As the ECB explains, banks (or anyone else) on the receiving end of draft decisions that would adversely affect them (e.g. by imposing a fine) “are given the opportunity to comment on the decisions before they are adopted.” This allows them to respond to the ECB’s factual or legal analysis before a decision is finalised.

Elderson’s interview comments imply therefore that at least some banks have received draft decisions and are currently in the ‘right to be heard’ window. This is usually two weeks (though in some circumstances can be shortened). The ECB must then consider banks’ representations before the Supervisory Board adopts a final decision.

Not so fast

Taken at face value, that would imply decisions on daily climate fines are imminent. But Elderson gave the ECB more time, saying “I hope to be in a position to announce the outcome later, either at the end of this year or the beginning of 2025.”

Extending the timetable looks like part of the ECB’s strategy to protect itself against legal challenge. It gives supervisors more time to review - and to be seen to review - any new information or arguments that banks may present. That should make it harder for banks to successfully challenge the fines before the European Court of Justice, as some are rumoured to be considering.

Right first time

As Elderson and Supervisory Board Chair Claudia Buch have both highlighted, the climate risk case is the first time the ECB has used its periodic penalty payment (PPP) tool. For over a year, ECB leaders have repeatedly trumpeted their willingness to use their full ‘supervisory toolkit’ to ensure banks meet their expectations. Indeed, Buch made this a key element of the SREP reform package she unveiled in May. Back in December and again last month Elderson repeated that the ECB will not hold back in using its tools for fear of legal challenge.

So to have its first ever PPPs overturned in court would be a major embarrassment for the ECB - and could undermine the credibility of any future threats to take enforcement action. In this context, it is easy to see why the ECB would want to proceed with caution and ensure every i is dotted before it finally announces any fines.