Platina Bank is challenging the rules for revoking bank licenses in the Constitutional Court

Platina Bank is challenging in the Constitutional Court of the Russian Federation (CC) the interpretation of legislative norms that allow the Central Bank to revoke a banking license due to any, even minor, violations identified during one inspection. According to the bank, this violates the principles of proportionality of punishment, freedom of economic activity and the right to protection of private property. Arbitration courts refused to recognize the Central Bank’s order to revoke the license as illegal at Platina’s claim. Lawyers consider the issues raised important and count on clarification from the Constitutional Court on the limits of the regulator’s discretion.

Platina Bank appealed to the Constitutional Court, considering the interpretation and application of legal norms regarding the conditions for revocation of a banking license to be unconstitutional. Andrey Polyakovsky, adviser to the chairman of the board of directors of Platina, told Kommersant about filing the complaint. The bank’s appeal is registered under number 10767/15–01/2023 and is currently “being studied by the judges,” according to the Constitutional Court’s website.

The Central Bank revoked Platinum’s license in 2021. The bank’s attempt to challenge the order in arbitration courts was unsuccessful. Now “Platinum” asks the Constitutional Court to check a number of articles of the laws “On Banks and Banking Activities”, “On Combating the Legalization (Laundering) of Proceeds from Crime” and “On the Central Bank of the Russian Federation” for compliance with the norms of the Constitution. In particular, for compliance with Part 1 of Art. 8 (on support of competition and freedom of economic activity), part 1 of Art. 19 (on the equality of all before the law and the court), parts 1 and 2 of Art. 35 (on the protection of private property), Part 1, Art. 46 (on the right to appeal decisions of authorities and, in general, to judicial protection) and part 3 of Art. 55 (on the possibility of restricting rights and freedoms only in certain cases and only by federal law).

These provisions of the law allow the Central Bank to revoke a license in the event of repeated violations by the bank of established rules during the year. According to Platinum, this gives too broad discretion to the regulator and does not take into account the significance of the violations, which may be minor. In addition, the legislation does not specify whether several violations identified during one Central Bank inspection are considered repeated.

The Bank emphasizes the need to comply with the principle of “proportionality of punishment to the violation” and does not consider such a strict sanction as the revocation of a license for “minor errors” justified. In addition, the complaint says, the Central Bank gave Platina a period to eliminate violations, but revoked the license before its expiration.

The bank attached to the complaint the opinions of professors from the Law Faculty of Moscow State University. “The revision of these norms will make it possible to establish more fair and proportionate measures of influence on credit institutions, taking into account the nature and degree of public danger caused by violation of the law,” says one of them.

“Currently, the practice of the Central Bank and the courts to revoke licenses is killing banks that have committed only formal violations. They could very well continue to work as usual, having eliminated the shortcomings,” Andrei Gribov, head of the board of directors of Platina Bank, told Kommersant. The bank expects that the Constitutional Court “recognizes as unconstitutional the norms that allow the Central Bank to act arbitrarily.” The Central Bank did not respond to Kommersant’s request.

In recent years, the regulator has by no means abused the revocation of licenses. According to Kommersant’s calculations, 25 credit organizations (banks and non-profit organizations) lost them in 2021, only three in 2022, and not a single one in 2023. “The cleansing of the banking system of the Russian Federation can be considered completed, weak credit institutions and unscrupulous owners have left the market,” notes Dmitry Kurbatsky, managing partner of the Dmitry Donskoy Financial Group. “In general, since 2013, the number of banks in the Russian Federation has decreased almost threefold, to 360. This number seems a little excessive, but overall optimal for the system at the moment.” Now the Central Bank “exercises total control and each bank is under the magnifying glass of the regulator,” the expert clarifies, but after the outbreak of hostilities, the Central Bank “gave banks tangible benefits, which allowed them to get through the crisis period.”

The head of the MCA “Lawyers and Business” Dmitry Shtukaturov emphasizes that “disputes about the legality of revocation of a banking license are among the most difficult in practice.” “Formally, the Central Bank had the right to revoke the license, since repeated violations were established,” adds Maya Chudutova, a partner at the Yakovlev and Partners law group. “At the same time, no problems with capital adequacy and liquidity were really identified, and each violation seems insignificant.”

The fact is that “when establishing a list of grounds for revoking a license, the legislator gave the Central Bank the right to make a decision without preliminary actions and additional conditions,” explains Denis Krauyalis, adviser in the dispute resolution practice of Tomashevskaya & Partners. “The main problem here seems to be superpowers,” says Dmitry Shtukaturov. “For objectivity, it would be possible to give the Central Bank the right to initiate the procedure, but transfer the decision on the revocation to an arbitration court. Often it is the revocation of the license, and not specific violations or insufficient funds, that causes the bank to cease operating – that is, the autopsy showed that the patient died from the autopsy.”

Of the arguments in the complaint, Denis Krauyalis considers the most serious argument about the insignificant nature of the violations: “The Plenum of the Supreme Court in 2015 explained that repeated violations in themselves cannot serve as a basis for the liquidation of a legal entity; the measure must be proportionate to the violations committed and their consequences.” Igor Dubov, partner at Iontsev, Lyakhovsky and Partners, clarifies that the law on banks does not contain the concept of a “material violation”, and practice is mainly in favor of the Central Bank: “It would be good if the Constitutional Court spoke on these issues.” Mr. Dubov adds that “not everything is clear” and repeatedly: “Could these be minor violations that are of the same type and committed in a limited period of time?” Also, the law does not specify whether violations must be determined by different checks.

Maya Chudutova, however, believes that it would be better to clarify the wording in the laws in order to avoid further disputes. Because even in those isolated cases when the owners of the bank managed to cancel the revocation of the license, it was no longer possible to restore its operation.

Anna Zanina, Ksenia Dementieva