Last week, the UK launched another legal challenge at the European Court of Justice (ECJ) against an unwanted piece of financial regulation – this time, the bankers' bonus cap. This comes in the wake of some favourable legal assessment from a UK point of view, on short selling and the FTT (though both those cases are still pending), as well as a win on benchmark regulation.The details on the exact basis for the challenge remain vague but the key points of contention seem to be:
- The CRD IV legislation transfers power to the European Banking Authority (specifically the power to regulate wages in some form). When the EBA along with other supervisors was established there were clear limits put on the powers it can have, particularly ones transferred under the single market legal base (article 114). This was also a key point in the short selling case and one that the ECJ backed the UK on. Furthermore, the use of technical standards allows a significant amount of power to the EBA officials to set the boundaries of the cap.
- The second key issue is the legal base itself, should something such as a wage cap fall under the single market legal base? Furthermore, should it even be allowed under EU treaties? This may come down to a question of to the extent to which the cap actually play a role in regulating the financial system (we would say not much).
- The next issue is related to the above. The UK claims that the law is being enacted without any significant cost benefit analysis of its impact and that it remains unfit for purpose.
- There is also an extraterritoriality point to be made potentially, given that all banks headquartered in the EU will have to apply the rules across their businesses around the world, thereby setting rules outside the EU. However, this home vs. host interpretation of regulation is not unheard of. (This obviously makes the plan flawed from a practical perspective although how strong a point it is legally is not clear).
- It highlights a growing trend that the UK is aware it has significant legal recourse on EU issues which it does not agree with. Using this effectively will be a big part of future EU engagement.
- As we have noted before, the EU is increasingly trying to push through a wider range of measures using single market articles. Showing the limits of this approach, as was done with the short selling ruling, will be key in defining the limits to what the eurozone in particular can push ahead with under the current treaties (though the cap isn't itself a eurozone-specific issue).
- If the UK is able to secure a victory or even an adjustment in the rules it will be significant since this is the first financial services issue which the UK has been directly out voted on – making it a key symbolic point.
Having said all that, on this one, the UK will have a tough time.
6 comments:
Yes , I agree wiht you. "the UK will have a tough time"
The European Court of Justice is an Orwellian misnomer. It has nothing to do with justice. It is the enforcement arm of the EU commission. It is duty bound to find in favour of ever closer union. The whole set up is to deceive the people. So do not expect a good outcome.
Surely one of the principal arguments in the case should be that the bonus restrictions are selectively applied to only one part of the economy - banking. This distorting the market in capital and personnel.
Rodney Atkinson
Cheaper and more simple option, leave the eussr, and dump it's overbearing regulations that are holding back the entire eussr.
If Osborne disagrees with this EU proposal, why doesn't he just veto it?
After all, the last time we had a referendum on our entanglement in this EEC/EC/EU project, in 1975, the government pamphlet delivered to all households:
http://www.harvard-digital.co.uk/euro/pamphlet.htm
expressly stated:
"The Minister representing Britain can veto any proposal for a new law or a new tax if he considers it to be against British interests."
Let me guess: having vigorously campaigned for us to stay in the EEC on the basis stated in that official pamphlet, Thatcher later proceeded to destroy that basis through her Single European Act - and of course she didn't think it worth asking us whether we agreed to have laws imposed upon us through transnational majority voting - and the veto that Osborne now lacks was one of those that she had abolished.
Because I suspect that the precursor of the present Article 114 TFEU in the original Treaty of Rome was its Article 100, which started:
"CHAPTER 3
APPROXIMATION OF LAWS
ARTICLE 100
The Council shall, acting unanimously on a proposal from the Commission, issue directives for the approximation of such provisions laid down by law, regulation or administrative action in Member States as directly affect the establishment or functioning of the common market ... "
Whereas now it is:
"CHAPTER 3
APPROXIMATION OF LAWS
Article 114
(ex Article 95 TEC)
1. Save where otherwise provided in the Treaties, the following provisions shall apply for the achievement of the objectives set out in Article 26. The European Parliament and the Council shall, acting in accordance with the ordinary legislative procedure and after consulting the Economic and Social Committee, adopt the measures for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and functioning of the internal market ... "
And so the decisions are no longer to be taken "unanimously", but instead by transnational majority voting under "the ordinary legislative procedure".
So let me just check whether my guess is correct, by looking at Thatcher's Single European Act:
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:1987:169:0001:0019:EN:PDF
and I find that, yes, it was her, Article 18 on page 8 made that change, which has now put Osborne in the position of having to scurry off to the ECJ rather than just saying "no".
And hasn't that Article 114 TFEU been cropping up quite a lot recently, with attempts to stretch and bend it beyond its originally intended purposes?
As an aside, it is also interesting to read the first paragraph of the preamble to the Single European Union, through which Thatcher joined others in expressing support for the transformation of relations between the states into a European Union, in accordance with the Solemn Declaration of Stuttgart she had signed on June 19th 1983.
This is a woman who some suppose to have been a strong "eurosceptic", when her actions were those of a bloody eurofederalist.
If you take a closer look at all EU regulations on UK Financial Services since 2008 you will notice one pattern to them all.
Having reviewed said regulations I concluded 2-3 years ago that they were concocted through spitefulness and jealousy.
Today, I now view them as just a Trade War inspired by spitefulness and jealousy and used by various European politicians to get themselves elected in their own countries.
What better way to get elected than to blame London's Financial Services industry for the financial mess that the EU has created in Europe via the Euro?
This constant and ongoing attack on one of the UK's primary assets is, for me, not an act of a friendly union, but an act of war. Over-regulation has kept me and many like me either working part-time or jobless.
All of the EU regulations on finance do not provide market efficiencies, do not lead to lower costs, do not encourage higher levels of Best Practice - and most importantly do not provide our customers (i.e. investors) with any benefit other than higher costs.
The UK must challenge the EU's AIFM Directive in the European Courts very soon. Nobody from investors to market players thinks that it will improve anything in the alternative investment (hedge fund) industry. Many senior legal practitioners think that it is "unworkable, unimplementable and costly". We have ended up with regulations that mean that 'sophisticated' investors are now better protected than retail investors! This is just plain nonsense.
The regulations will destroy jobs in London and lead to lower investment in Europe. What is more (and the EU haven't even considered this), since about 2-3 years ago, pension funds (yes, OUR pension funds) now form the largest investor base, holding c55-60% of global hedge fund assets. Pushing up investor costs, therefore, will only lead to less of a pension for all of us, especially in this low return/high risk economic environment.
I call for the following ;
1. The UK's Referendum Lock legislation to be amended and triggered should the EU attack our Financial Services industry again.
2. A full Cost Benefit Analysis and full Legal Opinion to be undertaken and published (and be made publicly available) by the EU BEFORE anymore regulations come into force.
3. A full impact analysis to be undertaken with input from all industry actors but especially investors. Again, this to be published in the public domain.
4. An annual 'fix' to all new regulations to be carried out to prevent economic damage and 'unintended consequences'.
5. An immediate Referendum on EU membership using EEA/EFTA membership as the baseline.
SC
PS. OE Team - You rightly point out that the UK government is using EU law well to bat back overregulation. It is also using another approach. Due to a lack of harmonisation on AIFMD and other EU financial services regulations, it is implementing damaging regulation as loosely as possible. For example, AIFMD is being implemented in a gold-plated fashion in Germany (which is leading to German alternative investment managers to head to London!).
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