Week 3 Flashcards
regulatory techniques
traditional
* command and control regulation
new governance
* principle-based regulation
* meta-regulation
* enrolment of gatekeepers
* risk-based regulation
traditional regulatory form
command and control regulation
what
* Rules which contain specific, often prescriptive and detailed, legal rules that leave little to no room for varying interpretation.
* Backed by strict administrative or criminal sanctions overseen by a public authority → using the law as a threat.
example
1. **Speed limit **→ To combat the effects of Nitrogen, the Dutch Government introduced a speed limit between certain hours
2. Lockdown rules → to regulate COVID-19, authorities introduced rules.
3. Markets in Financial Instruments Directive II, article 5(1), 70(4) Requirements for Authorisation → Each MS should set certain rules which investment companies must satisfy in order for them to receive authorisation to do business.
strength
* provides legal certainty for the public regulator and the regulatees
* can be enforced
weakness
* excessively prescriptive
* detailed rules can become quickly outdated
* hinder innovation
new governance
principles-based regulation
what
* Broad, general, purposive rules that may or may not be expanded up in further rules and/or legal guidances.
* This forms a ‘backstop’ for more detailed rules, meaning that they may act as a guide to their interpretation and application in particular instances.
* Public regulation that prioritises achieving the intended goals or outcomes rather than just following detailed rules.
example
1. **Environmental Protection Act 1990 (UK) **Duty of care in relation to waste → every potential polluter has the duty to take all such measures that reasonable in the circumstances to prevent the escape of the wast from his control or that of any person.
2. **Markets in Financial Instruments Directive II, art. 24(1) Investor Protection Regulation **→ MS should ensure that an investment firm acts honestly, fairly and professionally in accordance with the best interests of its clients.
3. Dutch Financial Supervision Act 2006, art. 4:24a A General Duty of Care of Financial Service Providers → financial service providers shall act in the best light of the consumer of beneficiary by considering their justified interests.
advantage
* Ensures that regulatees achieve the regulation’s goals rather than just following detailed rules.
disadvantage
* Less legal certainty because it leaves the public regulators to do what they want.
* This approach does not work with those without principles (Hector Sants 2009).
* Places considerable demands on public regulators and regulatees.
new goverance
meta-regulation
what
* Management-based regulation relies on firms’ internal management to achieve public goals set by regulators.
* Regulated entities must create their own compliance systems and prove adherence to regulators.
examples
1. Fast Fashion (Corporate Sustainability Due Diligence Directive, Art. 7(1))→ Companies must integrate due diligence into their policies and risk management systems, ensuring a risk-free approach.
2. Market in Financial Instruments Directive II, Article 9(3) → Investment firms’ managing bodies must establish policies that uphold market integrity and protect clients’ interests.
strength
* Relying on firms’ internal management.
* More flexibility in ensuring compliance.
* Granting legitimacy to market governance.
weakness
* Internal systems may focus on achieving a firm’s goals rather than those of the public regulator.
* Over-reliance on firms having the right culture and incentives, and regulators having the skills, industry experience, and political support to challenge firms.
new governance
enrolment of gatekeepers
what
* Public regulators involve private actors as gatekeepers to ensure regulatees comply with regulatory requirements.
example
1. Digital Services Act, art. 23(1) + 6(1) Online Platforms → Online platforms shall suspend the provision of their services to members on it if they frequently provide manifestly illegal content.
* Real life example: Donald Trump encouraging the storming of the Capitol on January 6th via Twitter.
2. Credit Rating Agencies Regulation, Article 1→ Security agencies introduced a common regulatory approach to improve the integrity, transparency, responsibility, governance, and independence of credit rating activities.
strength
* Public regulators can boost their regulatory capacity by using their control over platform users and gatekeepers.
weakness
* Gatekeepers’ incentive structures may not always align with regulatory goals (Official at Standard & Poor’s, 2008).
* Opportunities for manipulating regulatory rules.
new governance
risk-based regulation
what
* Public regulators identify various risks to their objectives and focus resources on addressing the most critical ones.
* Priorities are clear and transparent to both the regulator’s organization and the regulatees.
example
1. Northern Italy quarantining 16 million people to control COVID-19.
2. EU taking action against products presenting a serious risk →
* If the Commission becomes aware of a product or group of products posing a serious risk to consumer health and safety, it may take appropriate measures, either on its own or at the request of Member States. These actions will be based on the severity and urgency of the situation if:
* The risk cannot be addressed through existing procedures for the specific product under Union law.
* The risk can only be effectively eliminated with measures at the Union level to ensure a high level of consumer protection and proper functioning of the internal market.(General Product Safety Regulation, Art. 28 (1))
strength
* Public regulators focus their resources and efforts on tackling the most important risks.
* Risk-based frameworks make it clear what the main priorities are.
weakness
* Risks are often debated.
* Public regulators need to appear in control while balancing the conflicting demands of risks, resources, and their reputation.
three principal issues - applicable case
Dieselgate
Goal/outcome
* to cleanse the market place of unfair commercial practices to ensure the proper functioning of the internal market and consumer protection .
* Without consumer protection, people will not buys the goods
standard of conduct
* the prohibition of unfair commercial practices including those that are misleading and aggressive (Unfair commercial practices directive)
enforcement techniques
* Public enforcement: through administrative law forms like fines
* Private enforcement: through private law means such as compensation for damage, a price reduction or termination of a contract.
–> Individual private enforcement: individuals go to court and try to invoke the remedies
–> Collective private enforcement: representative bodies like consumer protection have the power to take measures against those who have brought damage upon consumers.
the functional approach
how does eu law deal with the divide between public and private law?
- EU Legislator: in context of market integration is tasked with problem solving
- Not recognised distinction between public and private law
- Public and private law concepts used as regulatory tools in novel combinations.
- EU’s experimentation w/ regulatory tools in regulation in markets led to legal hybrids
- Combine elements of public and private law for example
* Hybrid regulation of markets (H. Collins)
* European supervision private law (O.O. Cherednychenko)
- Combine elements of public and private law for example
european regulatory private law
what
* eu secondary law that regulates relationships between private parties, regardless of whether it is implemented through public or private means in a Member State.
* private law serves as a tool for EU market integration.
purpose
* European market integrationaims to create asingle marketfor goods and services in the EU.
* Different national lawscan cause unfair advantages and unequal power between businesses and consumers.
* Harmonising lawshelps by:
* Making competition fair for businesses
* Protecting consumers
* Supporting other public goals
* New challenges ahead, like:
* Digitalisation(technology, online markets)
* Sustainability(eco-friendly policies)
* National laws alone aren’t enough, andpublic law enforcement isn’t sufficient—private law toolsare also needed.
example
1. Product Liability Directive 1985, Article 1 Thalidomide Scandal → Producers are liable for damage caused by a defect in their product.
2. Unfair Commercial Practices Directive, Article 5 Dieselgate Scandal → example of a measure that affects the relationship between traders and consumers.
3. Payment Services Directive 2, Article 73(1) → If a credit card was used by criminal to withdraw money, your bank is liable for the damage you incurred (exceptions apply)
* This doesn’t only protect you as a user, it also serves the public interest of consumer protection. This ensures the overall safety of the EU internal payment market.
european supervision of private law
what
* EU rulesregulate how firms interact with(potential) clientsin specific markets.
* Part of apublic supervision framework, ensuringfirms follow standardswhen dealing with clients.
* Aimsto protect clients by settingclear conduct rulesfor businesses.
* Main characteristics
* Regulatory nature→ focuses on rules set by public authorities.
* Ex ante standard-setting→ rules are createdbefore issues arise.
* Developed outside traditional private law→ comes frompublic regulation, not contract/tort law.
* Monitored & enforced by public authorities→administrative lawtools are used.
purpose
Private enforcement isn’t enoughto ensure compliance with EU laws in private relationships → MS must provide public supervision and enforcement, especially in areas likeconsumer lawandfinancial law.
example
Markets in Financial Instruments Directive II, article 24(1), 70(6) →
* Investment firmsmust acthonestly, fairly, and professionallyin thebest interests of their clients(MiFID II, Art. 24(1)). Member Statesmust ensure authorities can imposeadministrative sanctionsfor violations, including fines of at least€5 millionor10% of annual turnoverfor legal entities (MiFID II, Art. 70(6)).
* Shows how EU regulations influence private relationships through things like consumer protection, enforcement, and harmonisation.
role of the public/private divide in regulated areas
Payment Services Directive (PSD) 2 vs. Markets in Financial Instruments
PSD 2
* scope: regulates payment service providers
* consumer protection: ensures the balance between interests of PSPs and consumers
* transparency: requires transparency of rights and obligations of parties
* liability rules: detailed liability rules for losses from fraud, forgery, or errors
* consumer redress: improves procedural position of consumers (e.g. burden of proof)
* harmonisation: focuses on consumer protection and transparency across the eu
MiFID II
* scope: regulates investment service providers
* consumer protection: no individual investor rights under eu law
* transparency: no private law remedies for aggrieved investors
* liability rules: no civil liability included under EU law
* consumer redress: no harmonisation effects on national contract and tort laws
* harmonisation: harmonisation of supervisory powers and sanctions across the eu
relationship betwen eu market regulation and national private law (three models)
- Separation
- EU rules that regulate private law are part of national public law and are separate from national private law.
- These public law rules don’t affect the private law rules of the country.
- Substitution
- EU rules on private law become part of the national private law and replace the old private law rules.
- These new rules can’t make the standards stricter than what the EU rules already set, especially if the EU has fully harmonised the rules.
- Complementarity
- EU rules on private law are part of national public law, but they still affect the national private law rules.
- National private law rules can set stricter standards than the EU rules, even if the EU has harmonised the rules fully or only partially.
woekerpolis scandal (nl)
what
Since 1993, about 7 million “investment insurance policies” (woekerpolissen) have been sold, worth around EUR 100 billion. Insurance companies promised high investment returns to customers, but these returns never happened. Customers ended up paying high fees and costs (EUR 20-30 billion in total) to the insurance companies. Insurance companies were supposed to follow the Third Life Insurance Directive (now called the Solvency II Directive), which is a public law rule.
court case
What customers say:
* Insurance companies didn’t tell customers about the high fees they were paying.
* This was against the law (Dutch private law), and customers want compensation for the damage caused.
What insurance companies say (e.g., Nationale-Nederlanden):
* The law they followed (the Third Life Insurance Directive) doesn’t require them to explain the costs to customers.
* Since they followed the law, they argue they don’t have to pay for any damages under private law.
solution
* Customers want compensation for not being told about the high costs.
* Insurance companies argue they don’t owe anything because they followed the public law rules.
woekerpolis scandal –> three models
- The relationship between insurance companies and policyholders is governed by private law.
- A civil court decides what extra information insurance companies must give, beyond what’s required by public law (like the Third Life Insurance Directive).
- The civil court can require additional information under private law, as long as the information is:
* Clear, accurate, and necessary for policyholders to understand their insurance.
* Ensures legal certainty for policyholders. - Related case:CJEU, 29 April 2015 (Nationale-Nederlanden/Van Leeuwen).
has the public/private divide in regulated areas become unnecessary?
- The line between public and private law has become less clear, especially because of European influence on national law.
- There has been a rise in “legal hybrids,” where both public and private law elements are combined.
- However, the difference between public and private law still matters in EU and national law:
* It’s more about focus or emphasis, not a strict separation.
* This distinction is useful for understanding how public and private law interact in setting and enforcing rules.
