I. Introduction

Question 1

What is financial law?

Answer 1

• The law regulation the financial markets.

Question 2

What is the function of the financial markets?

Answer 2

• Money / credit supply
• Channeling the money to where it is needed:
  
  • Financial markets as channels through which private savings find their way to industrial and commercial investments.
• Intermediation between excess of money and demand of money.
  
  • Collection of savings, which are invested in credit or other financial transactions
  • Also intermediation by volume: collection of relatively small amounts (“retail”) and supplies them in relativelly large amounts.

Question 3

What is the sectoral approach? What are the advantages?

Answer 3

• Approach on the basis of traditional financial sectors.
  
  • Banking law: invluding law on deposit, payment and credit services
  • Securities law
• Advantages:
  
  • European legislation has a grosso modo sectoral approach
  • Large domain is cut into smaller pieces which can be studied separately
  • Clarity

Question 4

What are the disadvantages of the sectoral approach?

Answer 4

• Sectoral approach does not reflect reality
• “Blurring of sectors”:
  
  • Product level: complex products: eg. PRIPS
  • Level of financial intermediary: providing several services
    
    • = Allfianz strategies, bancassurance, assurfinance, bancassurfinance
• Different legislation for economically similar financial products or intermediairies: bv. beleggingsverzekeringsproducten
• Risk of regulatory gaps and inconsistencies
• Risk of regulatory arbitrage

Question 5

What is the cross sectoral approach? What are the advantages and disadvantages?

Answer 5

• Approach on the basis of the key-elements in each financial sector.
• Advantages:
  
  • Insight in parallels, overlaps, gaps, contradictions and unsubstantiated differences:
    
    • Different rules for financial instruments which are formally part of different sectors, but which serve similar aims and have similar features.
• Disadvantages:
  
  • Not all elements are as imporant in each financial sector: eg. venues
  • The difference between different elements is not always clear:
    
    • Investment funds
    • Consumer credit

Question 6

What are the three layers of financial law?

Answer 6

• International law:
  
  • Basel Committee on Banking Supervision
  • IOSCO: International Organization of Securities Commissions
  • FATS: Financial Action Task Force
• European law:
  
  • TFEU: four freedoms, especially services and capital: ECJ case law
  • EU directives and regulations
  • Recommendations
  • Guidelines, interpretations, Q&A’s,…
  • Codes of conduct, usages and best practises of professional organisations
• National law

Question 7

What are the goals of financial law?

Answer 7

• Goals of financial law in general:
  
  • Market stability and integritiy
  • Protection of retail customers
• Additional “European” goal of financial law:
  
  • Market integration

Question 8

What is the market integrity and stability?

Answer 8

• Macro rules: public interest:
  
  • Avoiding systemic risk
• Systemic risk is particular to financial sector
• In a globalised financial world, avoiding/managing systemic risk requires regulation on a supra-national level:
  
  • Cfr. crisis

Question 9

What is the goal of financial law with regards to protection of retail customers?

Answer 9

• Protection / confidence of retail customers
• Micro rules - Private interest
• Not particular to financial sector
• Need for regulation increases with the complexity of goods and services
• Consumer protection and market stability as 2 sides of a coing:
  
  • Public interest and private interest are hardly separable: eg. responsible lending, “run on the bank”.

Question 10

What is the additional European goal of financial law?

Answer 10

• Integration: harmonisation:
  
  • By law: directives and regulations
  • By the market: eg. SEPA
    
    • Easier access to European market by:
      
      • Financial institutions
      • Professional clients
      • Retail clients
• Not particular to European financial law
• Particularly important for European financial law
  
  • Smooth functioning of financial markets as motor for economic growth.

Question 11

What are the 4 freedoms?

Answer 11

• Currently art. 28 TFEU.
• Art. 8 EEC Treaty: common market was to be estabilished by 31 december 1969 –> restrictions on free movement of goods, persons, services, services and capital should have been abolished
• Free movement of services and freedom of estabilishment:
  
  • ECJ recognised direct effect quite early: Reyners (2/74)
• Free movement of capital and payments:
  
  • This is to a large extent the flip side of the other freedoms.
  • For a long time, no direct effect: Casati
  • Directive and Treaty of Maastricht: direct effect - Sanz de Lera-case
• Negative integration:
  
  • No impediments to free movemeent of financial services / capital and payments

Question 12

What was the White Paper?

Answer 12

• 1985: Completing the Internal Market:
  
  • Aim: removal of all barriers to trade in the EC
  • Liberalisation of the movement of capital and payments
• Realisation of an internal market for financial services on the basis of:
  
  1. Minimum harmonisation
  2. Home state control
  3. Mutual recoggnition
• First generation directives on banking and investment services

Question 13

What are the drawbacks of the white paper?

Answer 13

• Invenctives for supervisory shopping
• Risk of regulatory competition resulting in a race to the bottom
• Lack of trust in other MS legislation / supervision: much goldplating
• Drawbacks of the legislative process:
  
  • Slow
  • Unable to respond to changing market condtions
  • Inclined to produce ambiguous texts, mixing broad principles with detailed technical issuesAttach Sounds

Question 14

What is the FSAP?

Answer 14

• 1999: Financial Services Action Plan:
  
  • With the introduction of the Euro: modern financial apparatus
  • New regulatory challenges
  • Five imperatives for action
• Lisbon European Council of 24 march 2000:
  
  • To accelerate completion of the internal market for fincnaisl services.

Question 15

What was the Lamfalussy report?

Answer 15

• 2002: Lamfalussy report and legislative procedure with respect to securities regulation
  
  • Aim: speeding up the legislative process
  • Four level approach
  • Often max. harmonisation
• Extended to other sectors of financial law (banking, insurance) in 2003
• Second generation directives on banking and investment services

Question 16

What is the EMU?

Answer 16

• Economic and Monetary Union: 3 stages
  
  • 1 july 1990 - 31 december 1993: realisation of free movement of capital and payments: Maastricht Treaty - Sanz de Lera Case
  • 1 Jan 1994 - 31 dcember 1998: ECB, Stability and Growth Pact
  • 1 Jan 1999:
    
    • Introduction of the EURO: although notes and coins onlly since January 2002
    • Single monetary policy under the authority of the ECB

Question 17

What is the SEPA?

Answer 17

• January 2008: launch of SEPA plan = Single European Payments Area
• Project of the European Payments Council: EPC
• Aims at standardising and thus facilitating electronic payments withing the SEPA:
  
  • Improving the efficiency and costs of cross -border cashless payments
• Strongly supported by the European Commission:
  
  • Payment Services Directive: PSD
  • SEPA credit transfer: European format
  • European Debit and Credit cards

Question 18

What was the effect of the crisis on the financial law?

Answer 18

• After the first wave of the crisis:
  
  • De Larosière report: report of the high level group on financial supervision in the EU
  • Reform of EU financial supervisory structure
  • Ad hoc changes to financial regulation: changes to banking directives, update deposit guarantee directive
  • Acceleration of work in progress: update consumer credit directive
  • New regulation: AIFMD, new consumer credit directive
• Second wave of the crisis: problems with EMU in the light of the public debt crisis

Question 19

What are the aims of the Lamfalussy procedure?

Answer 19

• Speeding up the legislative process
• Be flexible so that legislation can be quickly adapted to the rapid pace of the technical changes and product innovation in the financial market
• Help speedy implementation
• Establishing a level playing field and removing any opportunity to erect regulatory barriers to competition
• 4 level approach

Question 20

What is the level 1?

Answer 20

• Framework principles:
  
  • Basic political choices that can be translated into broad but sufficiently precise framework norms
  • To be decided by normal legislative procedure
  • Usually resulting in a framework directive = level 1 directive

Question 21

What is the level 2?

Answer 21

• Implementing measures:
  
  • More detailed technical measures
• Mandate to the European Commission
• Usually resulting in an implementing directive or regulation = level 2 directive or regulation

Question 22

What is the level 3?

Answer 22

• Common implementing standards by the newly established level 3 committees: replaced in 2011 by the European Supeervisory Authorities
• Resulting in soft law with high authroitiative value = level 3 measures, interpretations, recommendations, Q&A’s.

Question 23

What was the level 4?

Answer 23

• Compliance check by the Commission, “underpinned by enhanced cooperation between MS, national regulators and the private sector
• Resulting in enforcement measures

Question 24

What is the importance of the Level3 committees?

Answer 24

• Securities regulation:
  
  • Committee of European Securities Regulators: CESR
  • 2011: replaced by the European Securities and markets Authority: ESMA
• With respect to banking:
  
  • Committee of European Banking Supervisors: CEBS
  • 2011: Replaced by the Eurpean Banking Authority: EBA.
• CEIOPS –> EIOPA.

Question 25

What is the supervision of EU financial law?

Answer 25

• Supervision by national supervisors:
  
  • Home country control, mutual recognition, European passport.
  • Exception: prudential supervision of the banking sector: ECB
• Cooperation at European level:
  
  • ESA’s: European Supervisory Authorities
    
    • EBA = European Banking Authority
    • ESMA = European Securities and Markets Authority
    • EIOPA = European Insurance and Occupational Pensions Authority
• ESRB = European Systemic Risk Board
  
  • Exchange of information on systemic risk