Judgment of the CJEU in C-312/14 Banif Plus Bank Zrt. v Márton Lantos and Mártonné Lantos delivered on 3 December 2015
The Hungarian District Court of Ráckeve (Ráckevei Járásbíróság) in referred an interesting question to the CJEU: can the foreign currency exchange transaction be legally separated from the underlying foreign currency denominated loan, and if so, what are the implications for the consumer?
As we have reported earlier, AG Jääskinen first of all considered that the reference for preliminary ruling is inadmissible. However, should the CJEU decide to proceed on the merits of the case, AG Jääskinen was of the opinion that the CJEU should answer the question negatively. The AG disagreed with the referring national court that the foreign currency exchange can be legally separated from the underlying loan contract and be considered a separate, derivative contract, a forward currency transaction.
The CJEU did consider the request for preliminary ruling admissible (see paras. 35-42), and following AG Jääskinen's opinion, ruled that foreign currency exchange transactions connected to foreign currency denominated loans are not 'investment services or activities' within the meaning of Art. 4(1)(2) of MiFID (para. 76). Consequently, consumers of foreign currency loans are not considered to be investors and do not enjoy the protection guaranteed by Art. 19 MiFID (para. 75).
First, the CJEU rejected that the transaction in question is an investment service or activity listed in section A Annex I of MiFID, because it is incidental to the granting and repayment of the loan (para. 55), and serves no other purpose than to perform the credit contract.
Second, the CJEU rejected the argument that the transaction falls within the scope of 'dealing on own account' under Section A(3) of Annex I MIFID, because this means trading proprietary capital that results in contracts for one or more financial instruments (paras. 58-59). In the present case however the transaction did not result in concluding a contract for a financial instrument. Instead, it served to secure the granting and the repayment of the loan (para. 60-61).
Third, according to the CJEU, the transaction cannot be considered to fall under Section B of Annex I MIFID, under which a grant of loan or credit may constitute an ancillary service, because this includes only loans granted for the purpose of concluding one or more contracts for financial instruments, and this was not the case here (para. 63-68).
Finally, the CJEU rejected the argument that the foreign currency exchange transaction falls under any financial instrument listed in Section C of Annex I MIFID, particularly futures. Futures, such as forward currency transactions, are a type of derivative where two parties undertake to buy or to sell, on a subsequent date, an underlying asset at a price fixed at the time of contract conclusion (para. 69). The transaction in question however does not serves the purpose of a sale of a financial asset at a price which is fixed at the time of contract conclusion. In fact, according to the CJEU, there is no distinction between the loan agreement and the future currency sales transaction, since the latter serves the performance of the loan contract, that is, the payment of the capital and the scheduled repayments (paras. 70-71). In addition, the value of the currency (that is to be taken into account for the calculation of repayments) is not fixed in advance.It is rather determined on the basis of the sales price of the currency on the date of each monthly installment (para. 74).
Consequently, 'clauses of such a loan agreement relating to currency conversion accordingly do not constitute a financial instrument distinct from the operation which is the object of the agreement, but merely a term of the agreement which is an inseparable part of the performance.' (para. 72). This also means that in foreign currency denominated credit contracts consumers may be protected by Directive 1993/13 on unfair contract terms and by on Directive 2008/48 on consumer credit (paras. 48-49), but not by MiFID.
As we can see, the CJEU did conduct a more thorough analysis than AG Jääskinen (perhaps it also had more information to rely on), but it arrived to the same conclusion. The CJEU thoroughly analyzed whether the foreign currency transaction meets the requirements of MiFID and did some unpacking whether elements for a forward currency contract are met. It is now clear that foreign currency exchange transactions are not separate contracts for financial instruments, and consumers do not enjoy the protection MiFID guarantees for investors. The question is whether this is detrimental for consumers given that they do enjoy protection under Directive 1993/13 (allows for challenge of fairness of foreign currency exchange clauses) and Directive 2008/48 (provides for information requirements).