Thursday, 5 December 2019

Pilate washing his hands. The CJEU on pre-trial detention

By Adriano Martufi (Assistant Professor, Leiden University) and Christina Peristeridou (Assistant Professor, Maastricht University)


The very recent ruling of the CJEU in DK (C-653/19 PPU, 28 November 2019) came to verify two quite depressing suspicions about the current status of European criminal law. First, Directive 2016/343 on the presumption of innocence remains an instrument with staggeringly limited applicability especially in the field of pre-trial detention. Second, pre-trial detention stands as a political and legal hot potato: neither the CJEU nor the EU legislator are eager to provide common standards on pre-trial detention, even if the lack of these standards is partly to blame for problems of mutual trust between judicial authorities in the Member States.

The facts

In DK, the Bulgarian Specialised Criminal Court requested a preliminary ruling for the compatibility of the national code of criminal procedure with Article 6 of the Directive on the presumption of innocence, and Articles 6 (right to liberty) and 47 (fair trial and effective remedy) of the EU Charter of Fundamental Rights. In Bulgarian criminal procedure, when the case of an already detained suspect reaches trial, the trial court is responsible to deal with the detention, next to the merits of the case. Once the trial court finds the detention lawful, it becomes indefinite and can only be reviewed on application of the defendant; in such application the defendant must convince the court of changed circumstances that would justify release.

The Bulgarian court wonders whether this national rule shifts the onus from the prosecution to the defendant in providing evidence for release, thereby conflicting with Article 6 of the Directive on the burden of proof, which states that the burden of proof in proving guilt is for the prosecution. DK has been in custody since 11 June 2016 and has filed various applications for release to the trial courts (first and second instances). All of these were rejected since he failed to provide evidence of changed circumstances pointing towards release.

The ruling

The Court, ruling under the urgent procedure, delivered a short and to the point judgement where it found that Article 6 of the Directive on the presumption of innocence and Articles 6 and 47 of the Charter do not apply to the situation at hand (para 42). The syllogism is based on a collection of arguments from the wording of the Directive together with previous jurisprudence. First, the Directive only provides for minimum harmonisation and it does not lay down rules on pre-trial detention exhaustively. Indeed, in previous case law the Court verified that the examination of reasonable suspicion, the evidence used and the judicial reasoning in ordering pre-trial detention remain subject to national law (Milev). Second, a grammatical reading of Articles 4 and 6, and recitals 16 and 22 of the Directive reveals, according to the Court, an implicit distinction between judicial decisions on guilt and other procedural acts such as remand procedures. Following AG Pitruzzella’s Opinion, the argument is that, in contrast with Article 4 (public reference of guilt) which applies only to decisions of pre-trial nature, Article 6 (burden of proof) applies solely to decisions on guilt. Thus, the burden of proof must be borne by the prosecution only for judicial decisions pertaining to a finding of guilt, and not for other decisions of pre-trial nature. Third, since this case falls outside the realm of the Directive – and thus EU law – the Charter is not applicable (Article 51). Articles 6 and 47 of the Charter cannot be invoked ad hoc, as there is no application of EU law.


The Court in DK confirms the European Union legislator’s view on the presumption of innocence being a thin, limited concept. The Directive on the presumption of innocence had little ambition, putting forward a minimalistic presumption. To this extent, DK has no transformative effect: there is no brave expansion of EU law with some sort of judicial activism. The Court upholds the status quo. Yet this mundane result does not sit well with the increasing discomfort of having judicial cooperation without common pre-trial detention standards. Given that the overuse of detention on remand has become increasingly problematic in numerous EU legal systems – even leading to exceptions to the once unyielding mutual trust in Aranyosi – one could hope that this Directive would form a stepping stone to regulate certain aspects of pre-trial detention.

After all, the ECtHR has repeatedly linked the presumption of innocence and pre-trial detention, as the latter may negatively affect the former. In the absence of legislative harmonisation, it would arguably fall to the CJEU to fill the ‘gaps’ of protection left by the EU legislator. DK could offer such opportunity: very recent ECtHR case law has taken aim at practices of shifting the burden of proof within remand proceedings similar to those seen in DK. It would have been quite easy for the CJEU to fall back to ECHR standards, which seemed tailored to the problem raised in DK. Yet the Court did not engage into a carpe diem moment. What is more, the arguments developed by the Luxembourg judges are far from flawless and deserve closer scrutiny.

Interpretation of the Directive

To begin with, the Court held that the situation in DK escapes the scope of the Directive in a simplified and incomplete manner. The Court draws the strength of its arguments from the grammatical reading of the Directive as provided by AG Pitruzzella. According to the latter, while some provisions of the Directive cover trial and pre-trial measures alike, others target exclusively trial measures. This is extracted from references made in Article 4 (public references to guilt) to all ‘judicial decisions’ other the one on guilt. An all-encompassing notion is surely not repeated by Article 6 (burden of proof) and the elucidations on this article provided by the preamble. This grammatical analysis, according to the AG and the Court, points to the conclusion that the two provisions are meant to apply to different stages of criminal process. It is indeed the case that Article 6 speaks of the ‘burden of proof for establishing the guilt’ of the suspect, and not of any burden of proof. Having said that, one could argue that if the legislator had made such distinction between pre-trial and trial stage pertinent for the applicability of these articles, it would have made that more explicit in the text.

In light of the above, it is perplexing that in the previous case of RH the Court dealt with the issue quite differently. There it provided a different reading of Article 6 of the Directive by stating that this provision broadly refers to ‘any obligation on the judge or the competent court to seek both elements of inculpatory and exculpatory evidence’ (para 56 in RH). In doing so, it established a conceptual connection between Articles 4 and 6 of the Directive, implying that Article 6 would be relevant for pre-trial detention. By contrast, the Court in DK tried to nuance this link, in an effort to rule out the relevance of Article 6 for pre-trial detention proceedings. This is however surprising as, in reality, the presumption of innocence does indeed apply to those proceedings under ECHR standards and under most, if not all, national legal systems.

Conclusively, even if the Court’s reading of the Directive is not prime facie implausible, the lack of any further argumentation against extending Article 6 to pre-trial detention leaves much to be desired. All in all, the AG’s Opinion offers a more complete and holistic account to support such a thin understanding of the presumption of innocence. The travaux preparatoires showed that the Commission had insisted on excluding pre-trial detention from this Directive all together (point 33 of Opinion). The Court's reading of the Directive would have appeared less legalistic and more convincing, had it explained its change of heart from RH by referring to the telos of the Directive as intended by the drafters.

The Charter

But the Court was also asked to interpret Articles 6 (right to liberty) and – surprisingly – 47 (effective remedy and fair trial) of the Charter. Based on the facts of the case, one would have expected the Bulgarian court to request the interpretation of Article 48 (presumption of innocence). It is not apparent why the right to an effective remedy (or generally to a fair trial) is relevant here, although one may argue that the shift of the burden of proof described above challenges the effectiveness of the remedy: being in custody, DK could not easily provide new circumstances to challenge his detention. Having said that, an (additional) argument including the presumption of innocence (Article 48 Charter) would have been stronger. This is confirmed by the Opinion, as AG Pitruzzella groups Articles 47 and 48 together although no reference to Article 48 was made by the referring court.

In spite of these inconsistencies, the Court’s way of dealing with the interpretation of the Charter is bizarrely introvert. With a few laconic sentences (para 40-41), it dismisses the national court's requests stating that the situation at hand did not fall under EU law (the Directive) and therefore the Charter's safeguards could not be consistently triggered. Relying on Article 51, the Court aseptically reiterates that the Charter comes into play only when national authorities are ‘implementing EU law’.

Yet, the Court has taken the view in the past that the Charter could be applicable not only when EU law is implemented, but also when a more tenuous connection exists. In our case, whereas pre-trial detention is not exhaustively regulated by the Directive, some parts are indeed affected (Article 4 prohibits references to guilt in pre-trial detention orders). Thus, a connection with EU law does exist, and there could be an argument in favour of using further the Charter following Åkeberg Fransson. Furthermore, the Charter has been used in the past to cover lacunas. In Aranyosi, while the EAW Framework Decision did not provide any ground for refusal on grounds of (potential) fundamental rights' violations, the Court used the Charter to fill up this lacuna and substantially created one.

In Aranyosi, the Court followed a more principled approach, even going against a literal or teleological interpretation of the legal instrument in question. Remarkably, this happened even though the Luxembourg judges were under huge pressure to uphold mutual trust and maintain the EAW procedure unaltered. Why didn’t the Court do the same in DK?

Notably, we are not the only ones to raise this question. AG Pitruzzella himself criticises heavily (and in a rather strong tone) the lack of common standards for pre-trial detention and urges the EU legislator to move forward with this subject (points 20-22). Quite interestingly, however, he concedes that he has ‘no choice’ but to conclude that the facts in DK fall outside Union law. Similar remarks were expressed by the Opinion in Milev, with AG Wathelet disagreeing strongly with the Commission’s view that the Directive did not include any substantial provisions for pre-trial detention (points 55-57).

Explanation of Court’s approach

So why didn’t the Court extend Article 6 application on the burden of proof to pre-trial detention, following an application of the Charter?

One plausible explanation is that the Charter is not automatically conducive to an expansion of the protective scope of this Directive. The Court has reiterated in Milev (para 47) and in DK that harmonisation is not exhaustive. In this sense, this Directive provides for a partial (and minimum) harmonisation as only certain aspects of the presumption of innocence are dealt with. Thus, in this case the Charter cannot expand the scope of the harmonisation more than the way the Directive already defines it. In constitutional terms, one could argue that the Court may have been wary to step beyond the red lines set by the principles of subsidiarity and conferral. Of course, the Luxembourg judges could easily shield themselves behind the inherent vagueness of the presumption of innocence. This is a notoriously elusive concept, poorly implemented in practice and theoretically divisive. Some national laws hardly go any further that a statement of principle and, despite sincere and sophisticated efforts, scholarship is deeply divided on its meaning. In this sense, the EU legislator was quite brave to consider touching upon it. In our view, the Directive would have enjoyed more success and less uncertainty, had the harmonisation of the presumption of innocence been complete.

A second explanation for not following a principled approach may derive from a general unwillingness to engage in judicial activism, especially in light of the delicate legal issue underlying the preliminary ruling. Pre-trial detention is a controversial topic, as the debate on its harmonisation at EU level clearly reveals. On multiple occasions, the EU has indicated that it may adopt minimum rules in these matters (Green Paper, EP Resolution), and yet so far the reaction by Member States has been lukewarm. Pre-trial detention is regarded as being incredibly diverse and therefore complicated to harmonise, so that EU legislator has chosen to focus on the less troubling alternative measures (with the so-called ESO Framework Decision).

Arguably, in the case at hand, the Court is reluctant to touch upon pre-trial detention given the strong opposition of both the Commission and the Council to include this within the scope of the Directive. But pre-trial detention does have a strong human component that is difficult to ignore: before excluding the situation at hand from Union law, AG Pitruzzella half-heartedly admits that the defendants in the domestic proceeding had as only option to bring their case before the ECtHR – a scenario which, as the AG himself recognises, may take years to materialise (point 21). This is a simple but powerful remark, shifting the perspective from the European courts, with their intricacies and conflicts, to the one of the defendant. The question – implicitly but ever so powerfully posed – is whether or not the time has come for the EU to address pre-trial detention as an EU matter.

A third explanation invites us to look at DK in the light of the prior case law concerning references issued by Bulgarian courts. Before DK, two more cases were raised by the same court, challenging the compatibility of domestic pre-trial detention regime with EU law. Both in Milev and in RH, the Bulgarian court requested clarification for the same national legislation and its relation to the Directive. As explained by AG Wathelet in Milev, the pre-trial detention regime had been amended due to ECtHR developments but the status quo divided the judges. In RH, the Bulgarian court even revealed some details of the internal judicial struggles amongst the Bulgarian Supreme Court and the lower courts: the former had ordered the latter not to wait for the response of the preliminary reference procedure, in order to rule on the pending status of the detention ‘within reasonable time’. Due to the defiance of the lower court, even disciplinary proceedings were launched. This occurrence was even put forward as a question to the CJEU regarding judicial independence (a rather fashionable topic these days), with regard to the power to prevent lower courts from waiting for the CJEU’s response in preliminary reference procedure. With this background in mind, we could see DK as a request for the CJEU to play the referee for a national debate. This may provide further leads to understand the Court's reluctance to rule on this topic.

But leaving aside the domestic quarrels between Bulgarian courts, the fact remains that a struggle is taking place in that country to uphold human rights standards and enhance their level of protection in criminal proceedings. It is only natural that the Directive on the presumption of innocence – especially in light of the wider interpretation given in RH – would be used by Bulgarian judges as a breeding ground to achieve that result. DK could in fact be the opportunity for the CJEU to exercise its role as ‘competence regulator’ – aiguilleur des compétences (point 21 Opinion). Referring to Vedel’s theory of constitutional control, AG Pitruzzella advised the Court to seize this opportunity and give an indication to the national authorities of the right path for reforming their national procedure on pre-trial detention. As has become apparent, the Court did not follow his advice.

DK might have the effect of discouraging national courts to follow up with more questions on the application of the Directive in relation to pre-trial detention. Yet it is a wonderful addition to previous case law, demonstrating that pre-trial detention is increasingly becoming a candidate for intervention by the EU; the question of harmonising pre-trial detention cannot be ignored much longer if national courts keep asking the CJEU to intervene.

Barnard & Peers: chapter 9, chapter 25
JHA4: chapter II:4
Art credit: Jan Lieven, via Wikicommons 

Wednesday, 4 December 2019

The European Commission proposals on “Green” finance and the financial regulators’ initiatives on sustainability

As green politics have gained greater public attention and support, investors who mandate financial intermediaries to take investment decisions on their behalf are calling for more sustainable products and greater transparency about how and where their money is invested. 

To accommodate investors’ request, financial intermediaries are offering financial products labelled as “green”.  These products are in the process of being regulated by the European Commission whose aim is to encourage capital flows towards sustainability and to provide investors with more clarity on what constitutes a sustainable investment.

In December 2018, the European Commission mandated a group of social, financial and academic experts to develop a strategy on sustainable finance which incorporates Environmental, Social and Governance (ESG) considerations into investment decisions and ensures that clients are accurately informed.

To implement the sustainable strategy, the European Commission adopted a package of proposed measures:

- Regulation on the establishment of a framework to facilitate sustainable investment (the “Taxonomy Regulation”)

- Regulation on disclosures relating to sustainable investments and sustainability risks and amending Directive (EU) 2016/2341 (the “Disclosure Regulation”)

- Regulation amending the benchmark regulation (the “Low Carbon Benchmark Regulation”)

This article analyses each proposed Regulation, explains the proposed requirements for a product to be labelled and branded as “green” and the regulators’ initiatives towards sustainability.

The Taxonomy Regulation

The Taxonomy Regulation establishes uniform criteria to determine whether an economic activity is environmentally sustainable and can, therefore, be labelled as green.  When offering green funds, financial intermediaries must indicate the extent to which the criteria for environmentally sustainable economic activities were used.  This is to avoid raising capital for “green” purposes without clear benefits to the environment.

The Taxonomy Regulation applies to the Union, Member States and financial market participants.  Manager of UCITS, AIFs, EuVECA and EuSEF, insurers and pension products providers fall within the definition of financial market participants and are referred to in this article as participants. 

Environmentally sustainable investment

To be considered as environmentally sustainable, an investment must fund one or more economic activities which:

- contribute substantially to one or more of the environmental objectives
- do not significantly harm any of these objectives
- comply with the minimum safeguards and the technical screening criteria

The environmental objectives set out in the Taxonomy Regulation are climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, waste prevention and recycling, pollution prevention and control and protection of healthy ecosystems.

The above activities must comply with the criteria set out in Article 12 of the Taxonomy Regulation which determines whether an economic activity harms any of the environmental objectives significantly.

Minimum safeguards

The economic activities must be carried out respecting the minimum social and governance safeguards, being the principles and rights set out in the International Labour Organisation’s declaration on Fundamental Rights and Principles at Work.

This is to ensure that financial intermediaries do not neglect social factors while promoting environmentally sustainable products.

Technical screening criteria

The economic activities must comply with the technical screening criteria set out in Article 14 of the Taxonomy Regulation:

- identify the most relevant potential contributions to the given environmental objective, over the short and long-term impacts 

- specify the minimum requirements to avoid significant harm to other objectives 

- be qualitative or quantitative, or both, and contain thresholds where possible

- build upon Union labelling and certification schemes, methodologies for assessing environmental footprint, and EU statistical classification systems, and take into account any relevant existing EU legislation

- be based on conclusive scientific evidence, high quality research and market experience

- consider the life-cycle of an economy activity 

- take into account the nature and the scale of the economic activity 

- consider the potential impact on liquidity in the market, the risk of certain assets becoming stranded as a result of losing value due to the transition to a more sustainable economy, as well as the risk of creating inconsistent incentives

- cover all relevant economic activities within a specific sector and ensure that those activities are treated equally if they contribute equally towards one or more environmental objectives, to avoid distorting competition in the market

- be set so as to facilitate the verification of compliance with those criteria whenever possible

If the investment funds one or more of the environmental objectives without causing significant harm to any of them and complies with the minimum safeguards and technical screening criteria, that investment can be labelled as green and EU compliant.

It must be noted that the Taxonomy Regulation considers E (environmental) factors only.  Social and governance related investments are expected to be regulated through separate legislative proposals.

The Disclosure Regulation

While the Taxonomy Regulation establishes the framework to define an environmentally sustainable activity, the Disclosure Regulation sets out how managers must disclose certain information to provide greater clarity and transparency to investors.


Participants are required to publish policies on the integration of sustainability risks in their investment decision-making process on their websites and keep these policies up to date. 

The website must have:

- a description of the sustainable investment target
- information on the methodologies used to assess, measure and monitor the impact of the sustainable investments, including its data sources, screening criteria for the underlying assets and the relevant sustainability
- an index or target as appropriate
- the information included in the periodical reports (discussed below) 

The methodology used for calculation of indexes and benchmarks must be made readily available for investors. 

Pre-contractual disclosures

The following descriptions must be included in pre-contractual disclosures:

- the procedures and conditions applied for integrating sustainability risks in investment decisions
- the extent to which sustainability risks are expected to have a relevant impact on the returns of the financial products made available
- how the participants’ remuneration policies are consistent with the integration of sustainability risks and are in line, where relevant, with the sustainable investment target of the financial product

Financial products with an index

If a financial product has as its target sustainable investments or investments with similar characteristics and an index is designated as a reference benchmark, the information to be disclosed must be accompanied by the following:

- information on how the designated index is aligned with that target

- an explanation as to why the weighting and constituents of the designated index aligned with that target differ from a broad market index

Financial products with no index

If a financial product has as its target sustainable investments or investments with similar characteristics and no index is designated as a reference benchmark, the information must include an explanation of how that target is reached.

Periodical reports

Periodic reports (i.e. annual and/or interim) must include:

- the overall sustainability-related impact of the financial product by means of relevant sustainability indicators

- if an index is designated as a reference benchmark, a comparison between the overall impact of the financial product with the designated index and a broad market index in terms of weighting, constituents and sustainability indicators

The Low Carbon Benchmark Regulation

The Low Carbon Benchmark Regulation establishes a new category of benchmarks comprising low-carbon and positive carbon impact benchmarks, which provides investors with better information on the carbon footprint of their investments. 

A low-carbon benchmark is defined as a benchmark for which the underlying assets are selected to have fewer carbon emissions than the assets that comprise a standard capital-weighted benchmark.

A positive carbon impact benchmark, by comparison, is defined as a benchmark for which the underlying assets are selected on the basis that their carbon emissions savings exceed the asset's carbon footprint.

Recently, there has been an increase in ESG benchmarks.  The users of those benchmarks do not always have the necessary information on the extent to which the methodology used to establish the benchmark considers ESG objectives.  The Low Carbon Benchmark Regulation requires disclosure of how the methodology takes into account the ESG factors for each benchmark or family of benchmarks to enable investors to make well-informed choices.

Technical report on the Taxonomy

The European Commission mandated a technical expert group (TEG)  to develop a unified classification system known as a Taxonomy.

In June 2019, the TEG published a report containing technical screening criteria for 67 activities that can make a substantial contribution to climate change mitigation across the sectors of agriculture, forestry, manufacturing, energy, transportation, water and waste, ICT and buildings. 

The report also contains methodologies and worked examples for evaluating substantial contribution to climate change adaptation, guidance and case studies.

The TEG’s mandate was extended until the end of the year to refine and further develop some incomplete aspects of the proposed technical screening as well as issuing further guidance on the implementation and use of the Taxonomy.

While the TEG is working on finalising the criteria, in order to avoid disproportionate costs for participants, a number of provisions were put in place to ensure that the Taxonomy will only be used once it is stable and mature.  Each activity fund managers would like to invest in must be analysed carefully to ensure that it satisfies the criteria set out in the Taxonomy.

The financial regulators’ initiatives towards sustainability

While some countries are regularly monitoring the EU’s proposed regulations on green finance, others have already enacted domestic legislation to safeguard investors in green products.  This will be analysed alongside third countries’ initiatives like China and Hong Kong that are significantly contributing towards a greener economy.

EU Member States


France is the most active country when it comes to sustainability.  Article 173-VI of the Law on Energy Transition for Green Growth (LTECV) requires asset management companies and institutional investors to provide information on the social and environmental consequences of their activities.  This includes disclosing impact on climate change, social factors, the circular economy, the fight against food waste, discrimination and promoting diversity.  However, the “comply or explain” principle applies to Article 173-VI giving flexibility to asset management companies and institutional investors to providing valid reasons for the non-compliance (Article 173-VI: Understanding the French regulation on investor climate reporting).

In July 2019, the Autorité des Marchés Financiers (AMF), the financial regulator in France, established the AMF’s Climate and Sustainable Finance Commission made up of experts mandated to ensure collective progress in understanding the challenges around sustainability. 

The AMF is reviewing KIIDs and prospectuses of French authorised funds to ensure that the information provided by asset management companies on their investment strategy and climate-related risks is clear, accurate and not misleading.  The AMF’s supervisory power was reinforced by the law on Business Growth and Transformation (the “PACTE Law”).

United Kingdom

The Financial Conduct Authority (FCA), the financial regulator in the United Kingdom, issued a Discussion Paper (18/8) on Climate Change and Green Finance last month saying it will challenge firms which provide misleading information on their “green” activities to investors.  The FCA will take appropriate action (e.g. issuing further policy and guidance) to prevent consumers from being misled and to align UK rules with EU regulations.  

The UK’s exit from the EU should, in theory, not compromise the UK's compliance with the EU legislative proposals.  The Taxonomy Regulation, the Disclosure Regulation and the Low Carbon Benchmark Regulation were all listed in the Financial Services (Implementation of Legislation) Bill 2017-2019 as pending EU legislation to be onshored.  It is likely that these regulations will be onshored into UK law under the legislation relating to the UK’s withdrawal from the EU and for the purposes and duration of any transitional or implementation period. 


The Commissione Nazionale per le Società e la Borsa (CONSOB), the financial regulator in Italy, recently established a Steering Committee to regularly monitor EU proposals, studies, researches and analysis on sustainable finance.

As to the domestic legislation, the Regulation establishing the provisions for implementation of Legislative Decree no. 58 of February 24, 1998, on intermediaries (Decree 58) requires intermediaries to provide accurate information (i.e. objectives and characteristics, general criteria for selection, policies in exercising voting rights, income generated) on products and services defined as “ethical” or “socially responsible”.  That information must be made available on the firm's website and disclosed yearly. 

Non-EU Member States


In December 2017, the China Securities Regulatory Commission (CSRC) issued standards for the content and format of the information provided in the semi-annual and annual reports produced by listed companies.  These standards include requirements for companies to report on relevant ESG matters. The requirements are mandatory for key polluters and apply on a comply-or-explain basis for all other listed companies.  CSRC is expected to introduce requirements for all listed companies and bond issuers to disclose environmental risks associated with their operations by 2020 and the requirement will become mandatory for all listed companies by then.

It is important to note that China’s guidelines for establishing a green financial system encourage securities regulators to increase penalties for listed enterprises and bond issuers that falsify environmental information (Sustainable Stock Exchanges Initiative).

Hong Kong

The Securities and Futures Commission of Hong Kong (SFC) issued a circular applicable to SFC-authorized funds incorporating ESG factors into their investment objective or strategy.

Under this circular, offering documents of SFC-authorized funds must contain information (i.e. description of key investment focus, relevant green or ESG criteria or principles…) necessary for investors to make an informed judgement of whether or not to invest in these products.  The manager of a green fund must regularly monitor and evaluate the underlying investments to ensure their fund meets the investment objective and requirements set out in the SFC’s circular.

The SFC is also in the process of launching a central datable of green funds on a dedicated webpage on its website.  Only SFC-authorized green funds complying with the requirements set out in the SFC’s circular will be listed.  The webpage is expected to be launched by the end of this year.


An analysis of the European Commission proposals is required for managers who are or will be offering financial products branded as green.  These products will have to comply with the criteria set out in the Taxonomy Regulation and participants disclose clear and accurate information so that investors can make well-informed decisions.  The Taxonomy Regulation will apply to climate change mitigation and adaptation activities from 1 July 2020 and appropriate measures must be taken by financial intermediaries if their funds invest in one or both of these economic activities. 

The European Commission will permit EU Member States to enact domestic legislation on green products.  This may help countries establishing national frameworks to facilitate sustainable investments, for example, issuing a special tax regime for green funds. 

However, the International Organization of Securities Commissions (IOSCO) has identified some discrepancies amongst domestic legislation on sustainable finance and this may undermine investors’ confidence.  The European Securities and Markets Authority (ESMA) stresses that coordination should be sought between countries and sustainability promoted and implemented by global regulators.  Similar and consistent measures across different jurisdictions would encourage financial intermediaries to market their green funds across the world enhancing capital flows towards sustainability.  

The Taxonomy could be a viable solution for establishing a unified and consistent classification system across several jurisdictions.  However, more actions must be taken to enhance investors’ confidence.  The SFC’s dedicated webpage listing ESG compliant funds should be considered by other regulators as this might have a positive impact on investing in green funds.

The CSRC’s initiative to making these requirements mandatory and to penalise financial intermediaries who provide misleading information could also be considered by EU regulators.  If the EU requirements become mandatory and the EU introduces penalties to financial intermediaries for non-compliance, investors would be properly safeguarded.  This would discourage financial intermediaries from offering funds labelled as green which do not have clear benefits to the environment.

Further reading:

European commission, Green Finance: Overview.  Available at

Barnard & Peers: chapter 23
Photo credit:

Wednesday, 27 November 2019

The Three Villains and the Lifeblood of the European Union Project – Advocate General Sharpton’s Opinion in C-715/17 (the asylum relocation mechanism)

Niels Kirst, PhD candidate in EU law, Dublin City University

The Backdrop of the Migration Crisis

Recently, Advocate General Sharpston (hereafter ‘the AG’) had to give her opinion on the failure to implement Decisions of the Council regarding the relocation of migrants within the European Union. The opinion deserves distinction due to its firmness and its comprehensive categorization of the concept of solidarity in the European Union legal order. The case itself has a political importance since it relates to the ongoing rule of law crisis within the European Union.

The case concerned the Area of Freedom, Justice and Security (hereafter ‘AFJS’), Article 72 TFEU (the safeguard clause) and the Dublin Regulation, which allocates responsibility for asylum applications within the EU. In the proceedings, the European Commission (hereafter ‘the Commission’) brought infringement proceedings under Article 258 TFEU against Poland, Hungary and the Czech Republic for not implementing Decisions of the Council within their legal order. The case occurred at the Court of Justice of the European Union (hereafter ‘the Court’ or ‘Court of Justice’) as a direct cause of the migration crisis of 2015 in the European Union.

In September 2015 the migration crisis in the European Union was in full swing. Italy and Greece were overwhelmed by the number of migrants arriving at their shores each day. In response, on the 14th and 22nd of September 2015 respectively, the Council decided in urgently convened meetings that provisional measures are necessary to support Greece and Italy, which under the provisions of the Dublin Regulation, had to bear the highest burden in the migration crisis. This emergency was caused by a sudden influx of migrants into the European Union due to the military conflict in Syria.

In consequence, the Council (by qualified majority), agreed on Decision 2015/1523 and Decision 2015/1601 (hereafter ‘Relocation Decisions’ – discussed further here). The Council used Article 78 (3) TFEU as legal basis for the decisions, which provides the following: “In the event of one or more Member States being confronted by an emergency situation characterised by a sudden inflow of nationals of third countries, the Council, on a proposal from the Commission, may adopt provisional measures for the benefit of the Member State(s) concerned.” The article is located in Title V of the Treaty which deals with the AFJS and the common asylum and immigration policy of the European Union.

In an earlier proceeding, the legality of Decision 2015/1601 was unsuccessfully challenged by the Slovak Republic and Hungary (the judgment is discussed here). Having said that, the Czech Republic, Poland and Hungary decided to not follow the Relocation Decisions since they regarded them as a threat to their internal security. The essential question of the present proceedings was, therefore, if the three defendant Member States can advance a claim that absolves them of their obligations under the Relocation Decisions? (see para. 69 of the Opinion)

The Factual Background

The Relocation Decisions by the Council required the allocation of, respectively, 40 000 and 120 000 applicants for international protection within the Member States of the European Union. The Relocations Decisions required Member States to pledge a certain number of applicants, which would be identified by Greece and Italy and subsequentially be transferred to the pledging Member State.

Poland, while initially pledging to take 100 applicants, did not relocate any applicant. Hungary did not pledge to the Commission to accept any applicants. The Czech Republic pledged to the Commission to take 30 applicants, from which 12 have been relocated. (see para. 72) In response, the Commission noted in its Fifteenth Report on relocation and resettlement in 2016 that, "Hungary and Poland remain the only Member States that have not relocated a single person […]. Moreover, the Czech Republic has not pledged since May 2016 and has not relocated anyone since August 2016."

The Substance of the Case

After rejecting a long line of merely procedural challenges of admissibility the AG declared the infringement proceedings brought by the Commission admissible. The challenges of admissibility by the Member States were unfounded in so far as they did not undermine the valid purpose and the legal interest of the Commission in bringing the proceedings.

The AG started her substantive assessment of the case by pointing out that Decisions of the Council pursuant to Article 288 TFEU are binding upon the Member States and that the relevant Decisions are intra-vires as in so far the earlier challenge on legality of one of the Decisions brought by the Slovak Republic and Hungary was dismissed as unfounded by the Court. (para. 153 – 157)

The Commission alleged in its claims that the Member States failed to comply with the pledging requirement on the one hand, and with the relocation requirement on the other hand. By failing to pledge to take any asylum seekers the three Member States consequently also failed to effectively take any asylum seekers. This argument was supported by the AG since the failing to pledge necessarily also fails to relocate. (para. 170 – 171) 

After supporting the Commission’s arguments concerning the factual basis, the AG shifted to the assessment to the justifications of the defendants for their non-compliance with the Relocation Decisions. This gave the AG the possibility to comment extensively on very fundamental concepts of European Union law – namely, the principles of sincere cooperation, the rule of law, and European Union solidarity.

Poland, Hungary and the Czech Republic raised two substantial justifications for their non-compliance with EU law. Respectively, that Article 72 TFEU, read in conjunction with Article 4 (2) TEU allowed Member States to disapply the Relocation Decisions, and that the Relocation Decisions created a dysfunctional system. (para. 172 – 174) The Commission countered these arguments by pointing to the necessity of effet utile of EU law and the principle of solidarity, which is a fundamental principle of EU law. (para. 175)

Article 72 TFEU, which was the main defence raised by the three Member States, provides the following: “This Title shall not affect the exercise of the responsibilities incumbent upon Member States with regard to the maintenance of law and order and the safeguarding of internal security.” The three Member States used this article as justification which relieves them from their obligation to comply with the Relocation Decisions. The Commission argued that Article 72 TFEU should be interpreted similarly to the limitations for public security, et al, that apply to the fundamental freedoms of the internal market. (para. 187)

Regarding Article 72 TFEU, the AG first touched upon the concepts of ‘law and order’ and ‘internal security’ which are essential for understanding the scope of that article. Therefore, the AG turned to the three previous occasions in which the article had been treated by the Court: respectively Adil, A and Slovak Republic and Hungary v Council. (para. 190 – 194)

The AG acknowledged that the judgment in Slovak Republic and Hungary v Council foreshadowed the arguments which had been raised by the three defendants in the present proceedings. The AG cited the following crucial paragraph of the judgment in this regard, “If that mechanism were ineffective because it requires Member States to check large numbers of persons in a short time, such practical difficulties are not inherent in the mechanism and must, should they arise, be resolved in the spirit of cooperation and mutual trust between the authorities of the Member States […].” (para. 194)

On the concepts of ‘public order and security’ the AG pointed out that there must be a sufficiently serious threat affecting one of the fundamental interests of the society to establish a public order intervention (N, discussed here) and that the concept of security cannot be determined unilaterally by each Member State without any control by the institutions of the European Union (Zh and O, discussed here). (para. 196 – 201)

The AG pointed specifically to the judgment in Bouchereau in the realm of the fundamental internal market freedoms, in which the Court found that it is the personal conduct of the individual concerned that must be assessed to determine whether there is a threat to the community of the Member State in question. (para. 199) The assessment of the personal conduct of the individual regarding the concepts of public order and security was crucial in the AG’s assessment.

Regarding Article 72 TFEU, the AG stated that the Article can only serve as a derogation measure in case the European Union legislator disregarded to take account of that obligation when drafting EU secondary law in the area of AFJS. (para. 202) However, in the present case, the European Union legislator did acknowledge the concepts of public order and security when it drafted the Relocation Decisions. Respectively, Article 5 (4) and 5 (7) of the Relocation Decisions took into account the concern of security as they gave right to Member States to refuse an applicant on reasonable grounds. (para. 203)

According to the AG, "it was perfectly possible for them to preserve the safety and welfare of citizens by refusing (on the basis of the Relocation Decisions themselves) to take applicant X, […]." (para. 207) However, they refrained to take that route and instead decided to entirely not apply the Decisions to safeguard their internal security.

Furthermore, the AG clarified that Article 72 TFEU may not be used in this way. It is not a conflict of laws rule which give the Member States competence over measure enacted by the EU legislature; instead, it is a rule of co-existence under the principle of subsidiarity. (para. 212) To substantiate this claim, the AG cited Factortame, NN (L) International, and Commission v Hungary to find that Article 72 TFEU is not a carte blanche to disapply any valid measure of EU secondary law with which a Member State disagrees. (para. 214 – 221)

In conclusion, the AG pointed to the measures which exist in EU law, regarding the safeguarding of security and public order, which allow Member States to deny a particular applicant entrance into a Member State. However, the AG clarified that there is no general pre-emption of EU secondary law by Article 72 TFEU. (para. 223)

Regarding the invocation of the principle of national identity enshrined in Article 4 (2) TEU by the three Member States, AG Sharpston again pointed to the case-law: Commission v Luxembourg, in which the Court held that national identity cannot lead to a general exclusion of applicants due to their nationality. There are less restrictive means to preserve the social and cultural cohesion of a society. In analogy, the AG applied this concept to find that a general exclusion of asylum applicants cannot be sustained. (para. 224 – 227)

Finally, all three defendants raised the claim that the Relocation mechanism was dysfunctional and that the dysfunctionality exposed them to a hardly assessable security risk. Further, the Czech Republic claimed that it would have been pointless to pledge certain numbers to the Commission since the majority of applicants would have been undocumented in any case, and the Czech Republic would be unable to assess the risk that such undocumented migrants pose to the country. (para. 228 – 229)

The AG rebutted the arguments by pointing to the principle of solidarity which requires the Member States to support each other in a situation of emergency, which was present during the migration crisis. Further, there would have been other means for the Member States concerned to express their fear of the dysfunctionality of the system. For example, by applying for temporary suspension of their obligations under the Decisions, as done by Austria and Sweden. (para. 234 – 235) Consequently, the AG opined to uphold the infringement against the three Member States.

Additional Remarks by the Advocate General

In the final part of the Opinion, the AG commented on the concepts of the rule of law, the duty of sincere cooperation and the concept of solidarity within the European Union. Concerning the rule of law, the AG noticed its primordial importance recognised in Article 2 TEU and the case-law of the Court (the most recent rule of law judgment is discussed here). Specifically, the AG remarked, "at a deeper level, respect for the rule of law implies compliance with one's legal obligations. Disregarding those obligations, in a particular instance, [when] they are unwelcome or unpopular is a dangerous first step towards the breakdown of the orderly and structured society governed by the rule of law which, as citizens, we enjoy both for its comfort and safety." (para. 241)

Concerning the duty of sincere cooperation, the AG clarified that this principle builds upon the common values of all EU Member States as enshrined in Article 2 TEU. These common values allow mutual trust among them which subsequentially enables mutual recognition in the realm of AFJS. Against this backdrop, the principle of sincere cooperation has to be understood. The AG assessed that the principle of sincere cooperation has been manifestly mistreated by the conduct of the three Member States. (para. 242 – 245)

Concerning Solidarity, the AG referred to the founding fathers of the ‘European project’, to find that only their openness and spirit to one another enable the European Union to flourish. Famously, the Schuman Declaration recognized solidarity as a cornerstone. Subsequently, the Court echoed that call for solidarity in Klöckner-Werke v Commission and formally recognized the principle of solidarity in Eridania zuccherifici nazionali and Others. (para. 246 – 251)

Moreover, the AG recognized that the principle of solidarity requires burden-sharing as seen in Grzelczyk and Bidar. Particularly, the AG stated that "Solidarity is the lifeblood of the European project. Through their participation in that project and their citizenship of the European Union, Member States and their nationals have obligations as well as benefits, duties as well as rights. Sharing the European ‘demos’ is not a matter of looking through the Treaties and the secondary legislation to see what one can claim. It also requires one to shoulder collective responsibility and (yes) burdens to further the common good.” (para. 251 – 255)


The significance of this opinion cannot be overstated. Due to the pending departure of the United Kingdom from the European Union, this could have well been the last Opinion from the British Advocate General Eleanor Sharpston. This may explain the length, accuracy and profundity of the opinion. Indeed, the Opinion provides a fully-fledged account of some of the core principles of European Union law and their respective case-law. The opinion will likely find its way into the canon of significant AGs' opinions – most notably concerning the reconstruction of what solidarity within the European project means, entails and what it requires by the Member States.

While touching upon core principles of European Union law, the opinion also clarifies the obligations of Member States under Decisions of the Council in the realm of AFJS. The Opinion gives guidance concerning the concepts of security and public order in EU law and assess the position of Article 72 TFEU in the EU legal order. Article 72 TFEU does not serve as a general derogation clause for Member States when they do not agree with a specific measure, instead, Article 72 TFEU applies only for particular cases under individual assessment or, when the EU has failed to take security and public order into account during the legislative process.

Besides, the Opinion has also a significant relevance in the ongoing rule of law crisis in the European Union. The proceeding before the Court concerned a case of disregard of secondary EU law by Member States. This disregard was presumably based on a national preference of not taking any applications for asylum. The Opinion clarifies that the rule of law in the European Union requires not only the independence of the national legal system but also, and foremost, the respect for and implementation of valid European Regulations, Directives and Decisions.

The key take-away of the opinion is the emphasis and the account on solidarity by the AG. Solidarity is essential for the functioning of the European legal order, as well as for the flourishing of the European project. By spanning a frame from the founding fathers of the European Union project to the migration crisis in the European Union of today, the AG distils the purpose and the idea of European solidarity. The European Union is not a system of cherry-picking of only the good parts while denying the burdens and obligations which also come with the membership. Instead, benefits and burdens have to be shared equally in the spirit of European Union solidarity.

Barnard & Peers: chapter 26
JHA4: chapter I:5
Photo credit: The Malta Independent