jurisconsulting? October 8, 2010
Posted by Bradley in : consultation , add a commentI think that consultation by policy-makers makes some sense as a means of gathering data about the context in which rules would operate, for example about whether a rule is needed or about how costly it would be to implement. And I understand that sometimes consultation is used for pr rather than to gather data. But I don’t understand why a regulator would use consultation to figure out what the law requires it to do. That seems to be exactly what the FSA is doing in its most recent quarterly consultation with respect to dealing with the implications of the Court of Justice’s December 2009 judgment in the Spector Photo Group Case (Case C-45/08). In that case, the Court ruled on the interpretation of Art. 2(1) of the Market Abuse Directive:
Member States shall prohibit any person … who possesses inside information from using that information by acquiring or disposing of, or by trying to acquire or dispose of, for his own account or for the account of a third party, either directly or indirectly, financial instruments to which that information relates.
The Court held that the directive involved a rebuttable presumption that a person who had inside information actually used it when trading. The FSA concludes that the statutory language in the UK is consistent with this interpretation, but that the language of the implementing rules is not:
MAR 1.3.4 E sets out our opinion that if the inside information was the reason for, or a material influence on, the decision to deal, this indicates that the person’s behaviour is ‘on the basis of’ inside information. This evidential provision suggests we would need evidence of a person’s intention, as a separate element, to prove insider dealing.
So, the FSA proposes to conform its rules to the requirements of Spector. Fair enough. But the FSA goes on to ask:
Do you agree that MAR 1.3.4 E should be deleted in light of the ECJ decision in the Spector case?
So, I want to know what possible relevance the views of respondents to the consultation document has to this question. Is the FSA here merely trying to give advance notice of the change, or is it really consulting on the question? Perhaps it is trying to save money on legal advice?
eu commission consults on basic payment accounts October 6, 2010
Posted by Bradley in : consultation, consumers , add a commentThe Commission has published a consultation document inviting stakeholders to comment on the idea of EU rules for basic payment accounts. The closing date for submissions is 17 November, and the consultation period is stated to be short because of a broader consultation last year. Some comments last year suggested that this was an issue self-regulation could not fix because those who are excluded from establishing bank accounts may not fit within banks’ economic models (see, e.g., comments of The Financial Inclusion Centre and Community Development Finance Association; Pour la Solidarité; Which?). In contrast, the Austrian Federal Economic Chamber argued that:
Forcing providers to offer a product by law is a tremendous interference with their private autonomy. Therefore, such an obligation must be rejected. Beyond that, a “one-size-fits-all”solution is not the appropriate approach for the issue at stake. The degrees of financial exclusion and the reasons for this exclusion vary significantly among the Member States. The appropriate response to the problem of financial exclusion can and must be found at the national level.
In the Consultation Document, and without noting that there was some noticeable opposition, the Commission states that the 2009 consultation:
revealed broad support for some EU action which could promote access to basic bank accounts throughout the Community.
Some action perhaps, but what should it look like? How to fix this issue through regulation? In order to ensure accessibility (but subject to the need to act to prevent money laundering and terrorist financing):
Criteria such as the level or regularity of income, employment, credit history, level of indebtedness, individual situation regarding bankruptcy or future activity of the account could not be taken into account for the opening a basic payment account.
The document suggests that the cost of basic accounts should be “reasonable”. This term is so far undefined, although the document suggests it may be defined later. The problem of charges for basic accounts was raised last year and could have merited some more detailed thought already, so this is disappointing. In thinking about the question of how to define “reasonable” charges for basic accounts one might focus on the comments of Which? that:
Banks are not charitable institutions but charging consumers fees for basic bank accounts would undermine the basis of BBAs: to achieve the aim of universal banking for all EU citizens.
On the other hand, the Irish Banking Federation argued that it would be inappropriate to regulate charges:
Although yet to crystallise in an official capacity, the features of a basic bank account being mooted in Ireland include no account-keeping fees, and no or low-cost transaction fees. However it would be
inappropriate for providers to be instructed as to the basis upon which they should construct their business
model as this is clearly a business decision.
So the Commission’s choice to use an indeterminate term such as “reasonable” looks like an attempt to postpone the arguments over charges to a point in time after the basic idea of EU rules on basic bank accounts has been agreed.
financial stability oversight council October 1, 2010
Posted by Bradley in : financial regulation , add a commentAdopted a Transparency Policy, published a Roadmap, and announced an ANPR Regarding Authority to Require Supervision and Regulation of Certain Nonbank Financial Companies and a Notice and Request for Information Regarding the Council’s “Volcker Rule”Study and Recommendations. These documents will not be available from the Council’s web pages until they are published in the Federal Register.
animal welfare in the eu October 1, 2010
Posted by Bradley in : eu , add a commentThere’s a conference today and tomorrow, and a new web game called Farmland, which I haven’t tried, but which is meant to teach kids that animals are sentient beings and:
which aims to help tomorrow’s citizens to make informed choices about the food they will be buying when they grow up.
From a quick look it doesn’t seem that the game is designed to promote vegetarianism, but to encourage looking after farm animals well until they become our food.
The Commission held a Big Competition of Drawing for Children 6-13 years old Animal Welfare is Freedom (note the euro-english). The theme of the Competition was “Making Animals Happy”. By coincidence, this week I read James Wright’s A Blessing for the first time.
kadi: rights of defence must be protected in substance, not merely in form October 1, 2010
Posted by Bradley in : fundamental rights , add a commentThe EU’s General Court yesterday annulled the EU’s latest attempt to freeze Yassin Abdullah Kadi’s funds, noting that the funds had been frozen for a period of 10 years:
In the scale of a human life, 10 years in fact represent a substantial period of time and the question of the classification of the measures in question as preventative or punitive, protective or confiscatory, civil or criminal seems now to be an open one
The Court neatly ducks the issues of whether the Court of Justice’s 2008 Kadi judgment is consistent with international law:
..the appellate principle itself and the hierarchical judicial structure which is its corollary generally advise against the General Court revisiting points of law which have been decided by the Court of Justice. That is a fortiori the case when, as here, the Court of Justice was sitting in Grand Chamber formation and clearly intended to deliver a judgment establishing certain principles. Accordingly, if an answer is to be given to the questions raised by the institutions, Member States and interested legal quarters following the judgment of the Court of Justice in Kadi, it is for the Court of Justice itself to provide that answer in the context of future cases before it.
The General Court states that developments since 2008 (for example the appointment of an Ombudsman) have not ensured an effective judicial procedure for review of decisions of the Sanctions Committee. And that the Commission never really engaged in any real attempt to give effect to Kadi’s rights of defence:
In the context of a judicial review which is ‘in principle the full review’ of the lawfulness of the contested regulation in the light of the fundamental rights .. and in the absence of any ‘immunity from jurisdiction’ for that regulation .., the arguments and explanations advanced by the Commission and the Council — particularly in their preliminary observations on the appropriate standard of judicial review in the present case — quite clearly reveal that the applicant’s rights of defence have been ‘observed’ only in the most formal and superficial sense, as the Commission in actual fact considered itself strictly bound by the Sanctions Committee’s findings and therefore at no time envisaged calling those findings into question in the light of the applicant’s observations.
..By the same token, the Commission … failed to take due account of the applicant’s comments and as a result he was not in a position to make his point of view known to advantage.
.. Furthermore, the procedure followed by the Commission, in response to the applicant’s request, did not grant him even the most minimal access to the evidence against him. In actual fact, the applicant was refused such access despite his express request, whilst no balance was struck between his interests, on the one hand, and the need to protect the confidential nature of the information in question, on the other…
In those circumstances, the few pieces of information and the imprecise allegations in the summary of reasons appear clearly insufficient to enable the applicant to launch an effective challenge to the allegations against him so far as his alleged participation in terrorist activities is concerned.
speculation: more con September 25, 2010
Posted by Bradley in : markets , add a commentThe UN’s Special Rapporteur on the Right to Food, Olivier de Schutter, writes:
a significant portion of the increases in price and volatility of essential food commodities can only be explained by the emergence of a speculative bubble.
In particular, there is a reason to believe that a significant role was played by the entry into markets for derivatives based on food commodities of large, powerful institutional investors such as hedge funds, pension funds and investment banks, all of
which are generally unconcerned with agricultural market fundamentals. Such entry was made possible because of deregulation in important commodity derivatives markets beginning in 2000.
speculation: pro and con (again) September 24, 2010
Posted by Bradley in : financial regulation , add a commentThis week the UK’s Business Department announced a review of corporate governance and economic short-termism and the Independent Commission on Banking published an issues paper and call for evidence which identifies as one concern excessive risk-taking by banks:
This separation of the costs of risk and the benefits of reward produces inefficiencies through the distortion of resource allocation and risk management; it incentivises excessive risk-taking.
And Adair Turner gave a speech in which he reiterated his concern about whether financial practices were all socially useful and said:
underlying all of these problems, and far more fundamental, were prudential rules and an entire philosophy of market regulation — embraced by policy makers throughout the world — which failed to identify and adequately address the dangers of excessive leverage and maturity transformation, and which too confidently relied on supposedly efficient and rational markets always to produce good results.
Last week the EU Commission published its proposals on short-selling and CDS and noted that one of the reasons for short selling is speculation. The Commission doesn’t say this is bad, but does suggest that disorderly markets (which may be in part the result of speculative short selling) are a Bad Thing:
in extreme market conditions there is a risk that short selling can lead to an excessive downward spiral in prices leading to a disorderly market and possible systemic risks.
In contrast, the bottom line of the ISDA Research Note on speculation published this week is:
In theory, a market could exist in which intermediaries match hedgers, investors, and borrowers with each other. But such a market would be costly and inefficient without the liquidity and price discovery provided by speculators hoping to profit from their investments in information. As discussed above, the news borne by speculators, especially short sellers is not always welcome. But the alternative is a world in which markets would function in a slow and costly manner.
financial supervision architecture sounds so much more substantial than … September 22, 2010
Posted by Bradley in : financial regulation , comments closedA regime (too directive?), a scheme (too much like the frauds it might be designed to prevent)… But the building metaphors in financial regulation seem to hark back to the days when financial institutions constructed (and owned) big solid buildings to show how sound they were. I’m not sure the metaphors have so much power. Anyway, the European Parliament has approved the new financial supervision architecture for the EU.
new chairman of uk consumer financial education body – too trusting? September 21, 2010
Posted by Bradley in : financial regulation , comments closedYesterday the FSA announced that Gerard Lemos is to be the chairman of the Consumer Financial Education Body. He seems to be a big believer in trust:
In other ways perhaps trust has even grown. Trust is not a zero sum game. I encounter what I might call new horizontal social movements of trust everywhere: millions of people have joined local book clubs. They didn’t need encouragement from the government or business; there is a global movement of people who sing in choirs from Jesmond to Johannesburg. And in politics, which is supposedly the place where no one trusts anyone anymore, environmental issues have galvanised hundreds of millions of people, leaving international organisations far behind and struggling to catch up.
transnational consultation: residential mortgage underwriting September 20, 2010
Posted by Bradley in : consultation , comments closedThe Financial Stability Board is examining residential mortgage underwriting practices and seeks:
feedback from financial institutions, industry associations, consumer groups and other stakeholders on their experiences regarding residential mortgage underwriting practices, either in a particular country or across several countries. This could include comments on: gaps in regulatory and supervisory oversight; areas where regulations or guidance from different agencies might overlap; current or best practices for measuring a borrower’s ability and willingness to repay; how market practices have evolved in recent years; and challenges faced by underwriters or originators that operate in several countries.
Responses by 25 October 2010.