Conflict of interests & "revolving doors":what the European Ombudsman said in May 2020, the European Banking Authority agreed in August.Three lessons

The concern of Conflict of interest is in the core of Regulatory & Compliance Law. The Impartiality and Independence of the Regulatory and Supervisory Authorities require that their members have no interests linked with the sector that the public body regulates or supervises. Accordingly to this Impartiality and Independence legal rules, this reality must be seen by everyone, condition of Trust.

The absence of link of interests is required not only during the functions' members in the body but also afterwards. On the contrary, a person risks to anticipate his/her job in the sector in a near future, personal perspective influencing his/her attitude during his/her present fonctions.

Legislation and Regulations have tried to impose rules to organize a sort of "period of emptiness" to prevent immediate reconversion in the section without blocking any career and the necessary exchange between Regulator and Sector through people themselves, increasing expertise and trust.

But it is impossible to organize everything in details before, as this concrete case built by exchange of "letters" between the European Ombudsman and the European Banking Authority - EBA shows.

THE COURSE OF THE CASE

The European Banking Authority - EBA is an European Supervisory Body, which exercices binding legal powers (technical rules, guidelines, participation to the "European Single Rulebook"). It is governed by a Chairperson and an Executive Director. The European Ombudsman created in 1995, is " an independent and impartial body that holds the EU’s institutions and agencies to account, and promotes good administration. The Ombudsman helps people, businesses and organisations facing problems with the EU’s administration by investigating complaints about maladministration by EU institutions and bodies, but also by proactively looking into broader systemic issues."

First, on August 2nd 2019, the Executive Director of the EBA informed the latter of his intention to engage in a new occupational activity, wishing to become CEO of an association, the Association for Financial Markets in Europe - AFME, representing the interests of the wholesales financial industry, and requested the Authority's approval for this move.

Second, the EBA approved this perspective.

Third, Change Finance complained before the European Ombudsman. Change Finance is a civil coalition. As the European Ombudsman said in general terms: "The European Ombudsman, Emily O'Reilly, works with the institutions, agencies and bodies of the European Union to achieve the highest standard of administrative practices possible for the benefit of European citizens. She does so through addressing people's concerns voiced in complaints made to her Office and on her own initiative through her strategic work. The Ombudsman believes that the European Union already has high administrative standards however needs to set the 'gold standard' in terms of public administration and in its interaction with citizens. Therefore, she supports the institutions, bodies and agencies of the European Union through suggestions and recommendations on how to improve their work.".

Change Finance did it in 2019. It argued that this professional move would create "an unavoidable conflict", concluding that the EBA should have forbidden its Executive Director from accepting the job offer.

Fourth, The European Ombudsman has opened an inquiry and asked numerous written questions to EBA, answered by the latter, justifying the concrete behavior of its Executive Director (to leave and take a job in the professional association) and the EBA (to approve it).

Fifth, the European Ombudsman reacted on May 7, 2020 by sending to the EBA a general Recommendation on how the European Banking Authority handled the move of its former Executive Director to become CEO of a financial industry lobby.

In this "recommandation", the first part is based on the facts analysis, the European Ombudsman focusing on the concrete past facts. It said : "...the EBA should have forbidden the job move. While the EBA adopted extensive restrictions, these are not sufficient when measured against the risks involved. The Ombudsman considers that if this move does not justify the application of the option, set out in the Staff Regulations, to forbid a staff member accepting a job offer, no move would. Second, there was maladministration in that the EBA did not, once notified of the planned move, immediately withdraw its Executive Director’s access to confidential information".

This is more a judgment than a "recommandation". But the second part of this document sent to the EBA expresses general behavior rules for the future. The Ombudsman expressed: " ... three recommendations to the EBA, which should (i) where necessary in future, invoke the option of forbidding its senior staff from taking up certain positions after their term-of-office. Any such prohibition should be time-limited, for example, for two years; (ii) set out criteria for when it will forbid such moves in future so as to give clarity to senior staff. Applicants for senior EBA posts should be informed of the criteria when they apply; and (iii) put in place internal procedures so that once it is known that a member of its staff is moving to another job, their access to confidential information is cut off with immediate effect.".

By a letter of August 28, 2020, the EBA president replied. It is always difficult to define the legal qualification of a "letter", but in this case the document gives this information: " This letter sets out the EBA’s detailed opinion and has been approved by its Board of Supervisors.". This conforts the qualification of Soft Law. Addressing the European Ombudsman, the letter affirms : "the EBA agrees fully with your statement that maintaining public trust is an important interest of the EBA, and that citizens need to be reassured that the EBA is taking all possible steps to ensure that it remains independent from the banking sector. However, you set out concerns regarding the impression that EBA senior staff are allowed to maintain very close ties with the banking sector, that confidential information may be disclosed or misused, and that close personal contacts and friendships with ex-colleagues may be used to lobby. Regarding these concerns, in order to carry out its work effectively, the EBA needs input from the banking sector but maintains internal procedures to ensure that its impartiality and independence are not impaired".

After these general principles, in a first and short part, the letter exposes the measure taken in the concrete case. For instance what was requested by EBA from AFME by a letter "to ensure that they are aware of the restrictions and are putting in place internal measures to facilitate their CEO's compliance with them". EBA wrote also EU institutions in relation with AFME to inform them of the restrictions adopted. The solution adopted is not the prohibition of the moving but the restriction of contacts and the prohibition of information communication: conflict of interests management rather than conflict of interests prohibition.

In a second part, the chairperson take the general dispositions and agrees for the future to adopt as internal rules what the European Ombudsman has recommended.

• For the future, the EBA should, where necessary, invoke the option of forbidding its senior staff from taking up certain positions after their term-of-office. Any such prohibition should be timelimited, for example, for two years.
• To give clarity to senior staff, the EBA should set out criteria for when it will forbid such moves in future. Applicants for senior EBA posts should be informed of the criteria when they apply.
• The EBA should put in place internal procedures so that once it is known that a member of its staff is moving to another job, their access to confidential information is cut off with immediate effect.

THREE LESSONS FROM THE CASE

First Lesson from this Soft Law discussion: difficult but necessary articulation between trust, impartiality, independence on one hand and expertise on the other

• Not only the Ombudsman but also the EBA emphasizes the link between the prohibition of taking job in the private sector, specially in a "lobby" body, immediately after a resignation, because without this forbidding the impartiality & independence of the Regulatory & Supervisory body ceased to be seen. This rule fighting against conflict of interests is in favor of sector (the enterprises who didn't captured the civil servant...) but also of Regulators and Supervisors.
• But at the same time, the Ombudsman and the EBA agreed that the prohibition to take up a business position must be imposed but should be "time-limited". Without that, no more candidate for serving in the regulatory body.

Second lessons from this Soft Law discussion: necessity of anticipation for everyone

• The first anticipation is made by the persons concerned. The rules are certainly important in themselves, but it is more important to know them "in time": it is why Regulatory Law is a corpus in Ex Ante. This is why the prohibition must not only be limited in the time but also the duration clearly known (here two years).
• The second anticipation is made by the Regulatory or Supervisory Body. Even if the duration required is respected, some exchanges will have taken place between the Body's member and the firm, for the job discussions. This explains the Ombudsman's requirement to "put in place internal procedures so that once it is known that a member of its staff is moving to another job, their access to confidential information is cut off with immediate effect. The beginning of this "immediate mesure" is not the start of these discussion between member and firm (so difficult to find and prove) but the moment when the "moving" (term very large) is "known" (another term very large). This sort of security measure is an inducement to move as fast as possible when the wish to leave exists.
• This double anticipation (for the sector, for the civil servant and for the sector) shows that in Regulatory & Compliance Law, the most important is time, allowing to transform this concern into a legal rule (for another example).

Third lesson from this Soft Law discussion: necessity of legal security

• Both agreed to give a clearer criteria "to give clarity to senior staff", which concerns not only employees, but also maybe mostly the potential candidates. This is an application of the concern of "incentives" in the Compliance Law. The conclusion is: "Applicants for senior EBA posts should be informed of the criteria when they apply".
• Would this communication create some rights to the concerned seniors staff? For instance, if a person in 2020 reading a document mentioning a criteria of two-year, was recruited in 2022 and wishes to leave in 2030, if another document have been adopter in 2028 mentioning a three-year criteria, it is possible in 2030 to impose the new criteria or has the civil servant recruited in 2022 a right to the application of the a two-year criteria?
• Otherwise, the possibility for EBA to cut off - with immediate effect - access to confidential information for every member who is moving, even more its obligation to do so, is an expression of the legal security necessity, not in favor of person but in favor of data.
• This is a new illustration of the central balance between information - information on future rules for everyone - and secret - non information on data (for another example).

The common point between all the case's elements is : Trust. Without an effective independence, no trust, this is why Regulatory & Supervisory Body's members must stay far from the sector ; without effective technical competence, no trust, this is why Regulatory & Supervisory Body's members must be stay near the sector.

Not an easy balance.

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