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mutual recognition January 31, 2008

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European arrest warrants have run into problems in some Member States of the EU in the past (there is a useful resource on the European arrest warrant here). Yesterday the House of Lords (Lord Hope of Craighead) emphasised that the framework decision requires mutual recognition:

The question whether there is a case to answer on the conduct that is alleged in the European arrest warrant is not one that can be examined in the requested state. An inquiry into that question is contrary to the principle of mutual recognition on which the Framework Decision is founded.

There is a hint of discomfort from Baroness Hale of Richmond:

while I agree that every issuing State should do its best to comply with the requirements of the Framework Decision, it seems equally important that every requested State should approach the matter on the basis that this has been done: in other words, in a spirit of mutual trust and respect and not in a spirit of suspicion and disrespect. For better or worse, we have committed ourselves to this system and it is up to us to make it work.

financial risk outlook January 29, 2008

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As Americans ponder the state of the economy over their kitchen tables, the FSA publishes its Financial Risk Outlook for 2008. Last year’s version had pictures of buildings and bridges, and 2006 was architectural too. This year’s document is full of transport-related pictures, including one of an escalator (a down escalator (!)) at around the point where last year’s outlook had an attractive archway. There is a colourful picture of traffic lights to relieve the gloom. Some of the risks that the FSA notes relate to the position of consumers. For example, the FSA notes declining confidence (among consumers and market participants, and likely problems associated with high levels of consumer debt. The FSA also states :

Our assessment so far is that, while many firms have made progress on building the fair treatment of customers into their culture, there is little evidence that firms’ work on treating customers fairly is translating into improved outcomes for retail consumers.

regulatory terminologies January 22, 2008

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From Appendix D to the (UK) Hedge Fund Working Group‘s publication, Best Practice Standards and their Future Development (analysing the legal status of the standards) I learned that the standards constitute industry guidance which is not confirmed by the FSA and which therefore doesn’t establish “sturdy breakwaters”:

FSA confirmed industry guidance will be accorded “sturdy breakwater” status. This means that the FSA will not take action against any regulated firm that has adhered to confirmed industry guidance in force at the relevant time. However, the absence of “sturdy breakwater” status for the Standards does not mean that we believe they are in any way “sub-standard” for their purpose. Real practical protection for managers should we feel be provided in that where all relevant firms were acting on the basis that the Standards were reasonable, this should in our view inform any proper interpretation of that the FSA Principles required.

The standards seem to be designed to help firms avoid civil liability rather than regulatory enforcement.

The FSA’s November 2006 Discussion Paper on Industry Guidance distinguishes between regulatory safe harbours and sturdy breakwaters, and, it appears, there is industry guidance which does not establish even sturdy breakwaters. Surely this sort of guidance requires a nautical designation too? Perhaps a floating breakwater? A shipping lane? A buoy? Or a levee?

[Later: Mario Draghi, the Chairman of the Financial Stability Forum, said he liked the document.]

ftas oppose legal harmonization January 18, 2008

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I have an ongoing interest in how financial trade associations engage with multilevel financial regulation. Today a body which calls itself the Joint Associations Committee (it describes itself as being “sponsored by: European Securitisation Forum (ESF), International Capital Market Association (ICMA), International Swaps and Derivatives Association (ISDA), London Investment Banking Association (LIBA) and Securities Industry and Financial Markets Association (SIFMA)) responded to the EU Commission’s request for comments on the idea of harmonizing rules on ‘substitute’ retail investment products. As today was the deadline for submitting comments it is likely that the response was timed to make it difficult for anyone to respond to the arguments in the submission. In contrast to their common practice, these organisations oppose the idea of harmonization in this context because of the need for national regulators to be able to respond to local conditions:

Not only are national regulators best placed to understand and respond to developments in their local markets, they are also best placed to judge the type of regulatory intervention most likely to be effective in addressing a particular local market issue. Thus, effective regulation in this area must leave scope for national regulators to act in their local markets. Conversely, the imposition of Europe-wide regulation at a detailed level, if not precisely calibrated, could result in significant customer detriment in some national markets. Put simply, we doubt whether it would be possible to create a Europe-wide regime in this area capable of addressing the vagaries of all of the EU national retail financial markets.

Presumably the underlying concern here is that harmonized EU rules would provide more of a constraint on the products financial firms could develop than a lot of different national rules. But the invocation of the danger of consumer detriment does remind me of the lobbying about sub-prime lending which focused on the problem that consumers would be deprived of opportunities to borrow money if the states regulated sub-prime loans too aggressively and in ways which interfered with securitization of those loans. Some of those poor customers might have been better off had they been regulated out of those loans.

On the other hand, altough the lobbying against state rules about sub-prime lending can be portrayed as a preference for supralocal rules (harmonised national standards rather than divergent local rules) at the time it was also an expression of preference for regulation by a body which preferred not to regulate.

regulation and transparency January 18, 2008

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Legal rules are not as accessible as they should be. And consultations are not as accessible as they should be either. The UK Government’s recent response to feedback on its consultation on improving consultation states:

The Better Regulation Executive will look into the feasibility of one website indexing all central Government consultation exercises and providing an automated alert system.

I’m not really sure why there is much doubt about the feasibility of such a website (the Scottish Government does seem to list current consultations in one place). It would certainly be helpful. Today I somehow stumbled across the Department for Business, Enterprise and Regulatory Reform’s (BERR) request for views on what constitutes good regulatory guidance. The document wasn’t listed on the BERR consultation page (although it carries the BERR name it is really a Better Regulation Executive document and although they are supposed to be merged maybe they are not properly llinked up yet), or on the press releases page (it’s probably not considered to be a document of major significance, unlike, for example, the 6 month prison sentence for a fraudster).

uk gift to the world – english lessons January 17, 2008

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Gordon Brown’s new idea. But I hope they are better at teaching English than they are at producing videos. Brown has odd quirks when speaking straight at the camera, and why does he have half a mantlepiece sticking out of his head?

scheme liability January 16, 2008

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Yesterday’s long-awaited decision of the Supreme Court in Stoneridge Investment Partners v Scientific-Atlanta Inc (the scheme liability case) has provoked many thoughtful comments (see 10b-5 daily, truth on the market, scotusblog, and ideoblog). The plaintiffs claimed that the defendants colluded in sham transactions to enable the issuer to make its financial statements more attractive to investors than they should have been. The court says that conduct (and not just statements and omissions) can give rise to liability under s 10(b) and rule10b-5 (“[c]onduct itself can be deceptive, as respondents concede”), but finds that the plaintiffs must establish more than indirect reliance, despite a pretty broad endorsement of the fraud on the market theory:

We have found a rebuttable presumption of reliance in two different circumstances. First, if there is an omission of a material fact by one with a duty to disclose, the investor to whom the duty was owed need not provide specific proof of reliance…Second, under the fraud-on-the-market doctrine, reliance is presumed when the statements at issue become public. The public information is reflected in the market price of the security. Then it can be assumed that an investor who buys or sells stock at the market price relies upon the statement.”

The court goes on to state that under the plaintiffs’ theory of reliance:

the implied cause of action would reach the whole market-place in which the issuing company does business.

This cannot be:

we conclude respondents’ deceptive acts, which were not disclosed to the investing public, are too remote to satisfy the requirement of reliance. It was Charter, not respondents, that misled its auditor and filed fraudulent financial statements; nothing respondents did made it necessary or inevitable for Charter to record the transactions as it did.

On this subject, I love footnote 4 to the dissent:

Because the kind of sham transactions alleged in this complaint are unquestionably isolated departures from the ordinary course of business in the American marketplace, it is hyperbolic for the Court to conclude that petitioner’s concept of reliance would authorize actions against the entire marketplace in which the issuing company operates.

Reliance is really slippery (and especially so after Basic, given that it slithers about between a subjective and an objective concept) and seems to me to defy the sort of line-drawing the court wants to engage in here. For example the court wants to distinguish between the “marketplace for goods and services” and the “investment sphere” as though they are completely separate. I don’t really understand how the court puts together the idea that conduct alone can be enough for liability with the other idea that the deceptive acts have to be “disclosed” to the investing public for the fraud on the market presumption to apply. And does it really make sense to have a rule that reliance is presumed in respect of statements which are actually made to the market but not in respect of conduct on which those statements are based (and without which the statements would not have been made)? But, of course, requiring plaintiffs to plead and prove reliance does make it harder for them to win.

ulrich beck on europe January 15, 2008

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Ulrich Beck at the Guardian today:

Both the federation of states and the federal super-state describe the same zero-sum game from different angles. Either there is one single state of Europe (federalism), in which case there are no national member states; or else the national member states remain Europe’s rulers, in which case there is no Europe (inter-governmentalism). Within this framework of thought, whatever Europe gains, the individual nations lose. And this is true whether one is for a given option or against it. Caught up in the false alternatives of the national gaze, we are given the choice between no Europe or no Europe.
The decline of the nation-state is really a decline of the specifically national content of the state and an opportunity to create a cosmopolitan state system that is better able to deal with the problems that all nations face in the world today. Economic globalisation, transnational terrorism, global warming: the litany is familiar and daunting. There are a host of problems that are clearly beyond the power of the old order of nation-states to cope with. The answer to global problems that are gathering ominously all around and that refuse to yield to nation-state solutions is for politics to take a quantum leap from the nation-state system to the cosmopolitan state system. Politics needs to regain credibility in order to craft real solutions.
More than anywhere else in the world, Europe shows that this step is possible. Europe teaches the modern world that the political evolution of states and state systems is by no means at an end. National realpolitik is becoming unreal, not only in Europe, but throughout the world. It is turning into a lose-lose game.
Europeanisation means creating a new politics. It means entering as a player into the meta-power game, into the struggle to form the rules of a global order. The catchphrase for the future might be: move over America, Europe is back.

And there’s an interesting set of reactions – both positive and negative. I particularly like this part of one:

The EU uses money for things that the various countries governments would not dream of spending it on, such as regional projects, culture, the arts and so on. The governments would probably just use that money to bail out banks..

um dean search January 11, 2008

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The University of Miami School of Law is looking for a new Dean to start in the summer/fall of 2008. Information about the position, the School, and the University is available here.


national year of reading January 10, 2008

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I don’t see a lot of point in identifying years for things which should be happening all the time. The EU’s year of intercultural dialogue makes some sense to me as a way of making more visible an important issue for the EU and trying to jumpstart conversations which need to happen. But reading seems to me to be a bit different. As part of encouraging literacy, 2008 is the National Year of Reading in the UK, beginning half way through the United Nations Literacy Decade. Again, the Brownies show that they aren’t particularly ept at the PR thing. The 10 Downing Street video which introduces the reading year would have been better with more of the kids and less of the politicians: