Regulators have recently clarified two important aspects of the prospectus regime that applies across the European Economic Area pursuant to the Prospectus Directive (Directive 2003/71/EC as amended by Directive 2010/73/EU). The Prospectus Directive provides the overarching European regulatory framework for the publication of prospectuses in connection with debt and equity securities being offered to the public or admitted to trading on regulated markets in the EEA.
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Prospectus Disclosure Regime in Europe — the Proportionate Disclosure Regime and Supplementary Prospectuses
Britain, home of Europe’s biggest financial center, is challenging a recent decision by European lawmakers to begin capping banker’s bonuses in 2014. The cap affects bankers with a salary of 500,000 euros a year or more. Bonuses would be limited to a banker’s fixed pay, or twice that amount with the approval of a majority of the shareholders.
The British Banker’s Association, which requested the caps on bonuses be postponed, projected that about 35,000 bank employees around the world would be affected by the new rules—the vast majority located in London.
In response to widespread public anger over the financial crisis, European legislators moved to rein in outsize banker’s bonuses with the proposed cap. A spokesman for the Treasury objected to the cap, saying that it will actually push banker’s fixed pay upward, ultimately making the banking system riskier and failing in the original objective of limiting banker’s compensation. Britain has also repeatedly warned that tighter regulation could push banks toward moving their business to the U.S. or Asia.
[Editor’s Note: The following update is authored by Davis Polk & Wardwell LLP]
The move toward stricter regulation of remuneration in the financial services industry in the European Union has resulted in a confusing web of overlapping European Directives and local EU Member State law and regulation, each of which seeks to place limits on remuneration. This client memorandum aims to assist in navigating the new European labyrinth by providing a snapshot of the three main European Directives that regulate remuneration:
- Capital Requirements Directive IV (CRD IV)
- Alternative Investment Fund Managers Directive (AIFMD); and
- Fifth Undertakings for Collective investment in Transferable Securities Directive (UCITS V).
In addition, this memorandum discusses the European Securities Market Authority’s (ESMA) recent Markets in Financial Instruments Directive (MiFID) Guidelines on remuneration policies and practices. The memorandum then considers the additional requirements on remuneration that the UK is planning to impose in relation to the financial services industry. Read the rest of this entry »
The Commodity Futures Trading Commission (CFTC) and European Commission (EC) have reached a landmark deal on regulating cross-border derivatives trading. The deal distributes responsibilities between US and European regulators in order to prevent the disruption of global markets.
The deal would allow European regulators to monitor the actions of international branches and subsidiaries of American companies and their derivatives deals that occur in the 28 countries of the European Union. The CFTC would defer regulatory monitoring of international derivatives to European agencies in cases where the rules are similar to those in the United States. Read the rest of this entry »
[Editor’s Note: The following post is authored by Arnold & Porter LLP]
On June 5, 2013, a committee of the two Houses of the German Parliament reached a long- awaited compromise on the reform of the German competition law. The 8th Amendment Bill of the German Act against Restraints of Competition (ARC) is now expected to be formally adopted and enter into force in the month of July this year. Read the rest of this entry »
A recent article by Dan Amiram, Andrew M. Bauer, and Mary Margaret Frank examines the issue of corporate tax avoidance as a product of incentives. The authors suggest that “corporate tax avoidance by managers is driven by the alignment of their interest with shareholders.”* The tax role of the manager is made clear by studying the “effects of corporate tax avoidance on shareholders’ after-tax cash flows” in both classical tax systems and imputation tax systems. The authors conclude that there is higher corporate tax avoidance in classical tax systems if managerial and shareholder interests are closely aligned. Read the rest of this entry »
The Alternative Investment Fund Managers Directive – UK Treasury Releases Near-Final Draft of Implementing Regulations
[Editor's Note: The following Post is authored by Goodwin Procter LLP's Glynn Barwick.]
The UK Treasury has recently published a new, and near final, version of the implementing Regulations for the Alternative Investment Fund Managers Directive (the “AIFMD”). (We have commented on the consequences of the AIFMD for EU managers and non-EU managers in our 4 January, 11 January, 27 February and 27 March client alerts.) This updated version of the implementing Regulations represents a considerable improvement for managers compared to the initial draft.
In summary, with effect from the implementation date (22 July 2013), European managers of Alternative Investment Funds (“AIFs”) – essentially:
(a) any European manager of a PE, VC, hedge or real estate fund will need to be authorised in its home member state and comply with various requirements regarding the funds that it manages concerning information disclosure and third-party service providers; and
(b) any non-European manager of a PE, VC, hedge or real estate fund will need to comply with various marketing and registration restrictions if it wishes to obtain access to European investors.
This Client Alert discusses the major changes to the AIFMD implementing Regulations.
Click here to read the complete story.
On April 17, legal practitioners, bankers, scholars, and students met at the Federal Reserve Bank of San Francisco to discuss recent developments in sovereign debt restructuring. Sovereign debt restructurings date to at least 300 B.C. and are a practical fact of life in today’s global economy. Recent developments in the realm of sovereign debt restructurings include Greece’s recent restructuring, the Second Circuit’s potentially destabilizing decision in NML Capital v. Argentina, and the seemingly perpetual Eurozone debt crisis.
Professor Christoph Paulus, Director of the Institute for Interdisciplinary Restructuring (Berlin) and graduate of Berkeley School of Law (LLM ’84), presented his framework for creating a Eurozone sovereign debt restructuring mechanism (SDRM). The IMF proposed an international SDRM in the early 2000s, but the plan lost out to market driven approaches. Market driven approaches to sovereign debt restructuring include the use of Collective Action Clauses (CACs) in debt contracts, which allow a qualified majority of bondholders to change the terms of the contracts to effectuate a restructuring.
Professor Paulus’s proposed Europe-centered SDRM envisions a “resolvency” proceeding for sovereigns – a more optimistic and palatable vision of restructuring than an “insolvency” proceeding. The proposal includes three key requirements: (1) the inclusion of a resolvency clause in bond contracts that would trigger resolvency proceedings under certain circumstances; (2) the creation of a resolvency court overseen by a president who would in turn select 30–40 elder statespersons to serve as judges in potential resolvency proceedings, and; (3) the development of the resolvency court rules of procedure. The envisioned resolvency process is roughly comparable to insolvency proceedings under most country’s corporate laws and would be intended to promote orderly negotiations between sovereigns and bondholders.
Following Professor Paulus’s presentation, Professor Barry Eichengreen facilitated a lively discussion detailing the limitations and virtues of an institutional approach as compared to market driven approaches, including CACs. Professor Eichengreen described the moral hazard argument against the creation of an SDRM – that such an institution could make it too easy for sovereigns to write down their debt. Nonetheless, Professor Eichengreen pointed out that the moral hazard argument now cuts the other way out of concerns that sovereigns borrow too much, and the market for sovereign debt requires greater discipline. The group also considered Contingent Convertibles (CoCos), an additional market driven approach, as a means to facilitate smooth sovereign debt restructurings. CoCos would convert sovereign debt to equity on the occurrence of certain measurable conditions, such as sustaining a particular GDP.
The ideas and issues raised at the Federal Reserve Bank provided a useful framework for understanding the potential of a Europe-centered SDRM to facilitate sovereign debt restructurings in the future. Limitations and questions remain. There are hurdles to applying resolvency clauses in non-European jurisdictions. Certification is required for ensuring the legitimacy of the elder statespersons who would serve as judges. Methodological questions remain about calculating accurately the effect of an SDRM on liquidity in the bond market, and an account of the insufficiency of market-based solutions (especially CACs) to shore up the argument that an SDRM is in fact needed. Indeed, these ideas are still being developed and stakeholders are not in consensus about the best way forward.
In response to the recent LIBOR scandal, Michel Barnier, the European Commissioner for Internal Market and Services, has opened a consultation document on the continuing viability of the benchmark rate. The move is unsurprising to many observers of European financial markets, where multi-state collaboration is essential to the outcome’s perceived legitimacy. As mentioned in a previous post, U.S. CFTC Chairman Gary Gensler recently commented on the LIBOR’s future. The issue is undisputedly important, as rate manipulations may seriously impact market integrity, result in significant losses to consumers and investors, and distort the real economy. The consultation document, which will be open through November 15, follows an initial legislative proposal period, and sets the stage for the EU’s final response to widespread concerns regarding LIBOR. This post will discuss the now-completed proposal process, newly adopted amendments, and the European Commission’s response to persistent criticisms and concerns.
On July 25, 2012, the European Commission adopted amendments to the proposal for a Regulation and a Directive on insider dealing and market manipulation. The long-awaited initial legislative proposal to revise the Markets in Financial Instruments Directive (“MiFID”) was made on October 20, 2011. The original MiFID came into force in November 2007—intended to enhance investor protection, improve cross-border market access, and promote competition in the financial markets across the EU. Although MiFID has arguably achieved some of these aims, many commentators have suggested that the system ought to better reflect the lessons learned from the financial crisis and developments in the markets.
On October 23, 2012, the European Commission (the executive body of the European Union) proposed a Council Decision to enhance cooperation throughout the EU with a European Financial Transactions Tax (“FTT”). The Council Decision follows a litany of previously failed attempts to enact an EU-wide FTT.
The harmonized European Financial Transactions Tax could have significant advantages for the economies of participating Member States. Lithuanian Commissioner for Taxation Algirdas Šemeta explains:
“There are EU wide benefits to a common FTT, even if it is not applied EU wide. It will create a stronger, more cohesive Single Market and contribute to a more stable financial sector. Meanwhile, those Member States that have signed up for this tax will have the added bonus of new revenues and fairer tax systems that respond to citizens’ demands.”
The legal bases for the FTT are the enhanced cooperation provisions laid out in Article 20 TEU and Articles 326 to 334 TFEU. These provisions create a special decision-making procedure whereby a minimum of nine Member States is needed to reach a binding decision. The resulting legislation is binding only on those Member States that are parties to the decision. The October 23rd initiative is the most significant instance of a small group of nations moving forward without the rest of the EU. The only other times the enhanced cooperation provision has been used is in simplifying cross-border divorces and cross-border patents.