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Thursday, September 12, 2013

ECJ legal opinion marks important preliminary victory for UK in short selling dispute

The UK has this morning been set on the path to an important victory at the European Court of Justice, after the Advocate General Niilo Jääskinen supported the UK’s claim that the EU's short selling Regulation transfers too much power to the European Securities Markets Authority (ESMA).

The opinion is not binding, but is followed in the majority of cases.

The UK objected to the EU's short selling regulation on a number of levels, but the main concern was that Article 28 of the Regulation - which allows ESMA to impose temporary short selling bans in emergency situations, overruling national financial supervisors - amounted to a significant transfer of power to an EU institution, and therefore Article 114 of the EU treaty (the single market article) was not a valid legal base for the Regulation.

The Advocate General did not side with the UK on all points, but on this key issue, he said:
"The outcome is not harmonisation but the replacement of national decision-making with EU level decision-making. This goes beyond the limits of Article 114."
Jääskinen went on to suggest that an alternative legal base for the regulation could be found and recommended Article 352 of the EU treaties. Although this may seem a technical point, it is extremely important. Article 352 (which sets out the so-called 'flexibility clause') requires unanimity, meaning the UK could veto the proposal.

If the ECJ were to follow the advice of its Advocate General, this could prove to be an important ruling for a number of reasons:
  • First, it would halt the transfer of further powers (without national permission) to an EU agency and allow the UK to keep control over an important part of financial services regulation;
  • Secondly, it would show that the UK government can have success using the right legal channels effectively. This could bode well for other cases, such as the on-going dispute on UK rules on EU migrants’ access to benefits, or ECB demands that transactions denominated in euros be cleared exclusively within the eurozone;
  • It also highlights that the single market article, which, as we noted before, has been stretched significantly, cannot be a ubiquitous catch-all legal base for things the Commission believes fit with its view of the single market. This could become important in future negotiations, particularly over banking union.


Denis Cooper said...

Are we supposed to be grateful?

Is it not the case that there would have been no damaging EU regulation to contest if we had had a veto to block it, and that having a veto on all EU measures is a far more reliable means of defending our national interests than trusting to our luck with the ECJ, and that during the 1975 referendum we were explicitly promised by the government that we would always have a veto?

Anonymous said...

First Solvency II, then FTT and now Short-selling.

All of these have found to be biased and discriminatory against the UK. I fully expect AIFMD to follow at some point too.

The aggregate impact of these extremely poor rules will be the loss of jobs (especially in the UK) and little or no growth across Europe. It is also pushing up Europe's cost base and making the continent more and more uncompetitive.

The next pointless tax to fall will be the carbon tax - which will only work if every country in the world signs up to it.

The US, through its shale gas, has now seen a 80% reduction in gas prices. Where would you produce if you needed large amounts of energy? The US or the EU?

Barroso and et all must get real and see that they have caused and are continuing to cause the biggest destruction in value that the world has ever seen.

UK out.


Denis Cooper said...

I now read in the Telegraph:

"A spokesman for Britain's finance ministry said the UK supported the short-selling law and had engaged constructively with the European Commission, ESMA and other member states.

"Our legal challenge does not change this. We are seeking legal clarity on how powers given to ESMA to restrict or ban short selling sit with the principles established under the existing case law," the spokesman said."

As for Article 352 TFEU, that may be known as the "flexibility clause" but it is also known as the "we'll do as we damn well please clause".

Anonymous said...

Just out of interest, why does EMSA reside in Paris? Does Paris have the world's largest, second largest or even third largest financial services market? No.

The centre for EU markets regulation should be in London where the EBA reside and not in some quiet and spiteful country backwater, like Paris.

Paris had 55 private equity managers residing in the city last year and now have 3 left.

That says it all.

It makes sense to have all regulators in one central location in the country of the bloc's largest financial market.


Anonymous said...

The unelected commission want to grab all of the powers in the eussr, they want the french to aid more than the British so they give them everything and take from us best answer leave the idiotic set up.