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The EU Financial Services Action Plan By
Jeremy Barnett St Pauls Chambers
A wave of new
regulation threatens the City of London’s pre eminent postion as Europe’s
most important financial centre. Because of the increase in regulation in the
USA, largely due to the 2002 Sarbanes- Oxley Act, London now has a chance of
overtaking New York, but the introduction of the FSAP may allow ambitious and
epanding centres such as Bermuda, Dubai, Shanghai and Zurich to step into
London’s position. The FSAP is a major initiative by the European Commission
aimed at creating a single European market in Financial Services. It was
adopted by the European Commission in 1999, endorsed in 2000 and involves the
implementation of 42 separate initiatives which will affect banking,
securites, trading, insurance, fund management, pensions and both public and
private listed companies.
The FSAP has
introduced three key directives related to securites trading.
They are; The MiFID Directive, codified as Directive 2004/39/EC on 21 April
2004, which is an acronym for Markets in Financial Instruments Directive. It
aims to promote fair competition between exchanges and banks, enhanced pre –
trade transparency and enables investment firms to apply for a passport that
enables them to conduct business anywhere in the EU. In his address to the
Manchester Insitute of Chartered Accountants on 17th November 2006, Jon
Moulton, the founder of Alchemy Partners, a leading private equity house,
related the unfortunate history of policitcal wrangling between member
states, which concluded with UK voting against adoption of MiFID at the Finance
Ministers Council on 7th October 2003, where Paul Boateng took a last minute
‘return’ from Gordon Brown, and failed to persaude the Council to adjourn the
decision following a rushed briefing late in the day. The mishandling of the
directive were recognised both by the Chairman of the FSA and Paul Boateng
who described key elements of the directive as being ‘misguided and anti
competitive, speculating that the provisions would send £300 m of business to
New York. When MiFID is implemented, there will be stricter requirements on
how and when the price of a security should be revealed to the market, with
the focus on aining ‘best execution’ in trading. Criticism of MiFID includes
the failure to conduct a cost benefi t analysis, significant IT and
compliance costs, a regime of pre- trade transparency which requires sellers
to publish the price of the share prior to sale which will force smaller
firms out of business. Estimates of the cost of implementation have been
vast.
A recent in depth
survey by investment bank JP Morgan predicts that European banks earnings per
share could be reduced by as much as 7% in the first year, making a reduction
in the European banks capitalisation of 19 Billion Euros. The Market Abuse
Directive codified as Directive 2003/51/EC, adopted on 18th June 2003,
relates to insider dealing and market manipulation abuse. The new changes
adopt mandatory reporting of suspicious transactions and the keeping of lists
of staff who have access to inside information, [in line with other new regulation
for example in the General Product Safety Regulations]. In the UK the cost of
implementation of MAD is put at £50m, yet the Treasury recognise that there
will be ‘ no incremental change in benefits’. It is unclear whether the names
of family members of the board and office cleaners are included. The
obligation placed on bank employees that all transactions with a reasonable
ground for suspicion should be reported without delay creates uncertainty.
Some feel that the restriction of information creates greater fluctuations in
price, thereby helping the insiders. There is also a possible Clearing &
Settlement Framework Directive, aimed at cross border transactions, aimed at
proper handling of post trading paperwork to promote efficiency. [This
dovetails with new high level guidance from the FSA issued to regulate
reinsurance contracts, in consultation paper 144 in July 2002] Other
directives to wrestle with include:
-The Takeovers Directive
-The Prospectus Directive
-The Capital Requirements Directive
-Cross Border Pensions ; UCITS III [Collectve
Investments]and the Occupational Retirement Provision Directive
-The Insurance Mediation Directive.
The conculsion of Keith Boyfield, author of the report ‘Impact of the
Financial Services Action Plan’, is that the FSAP puts in jeopardy the global
competitivness of London, the EU’s most productive and valuable financial
centre. The estimated cost to the UK economy of implementation is £17 – 23
Billion, the largest proportion of the costs falling on the London financial
services industry. Compliance costs will soar, in IT infrastructure, staff
and external compliance. Boyfield calls for political overhaul of FSAP, with
a recognition that failure to act might increase calls for London to follow
the lead from Switzerland, and go it alone and withdraw from the EU entirely.
• It is estimated that London Generates €60 bn per
annum and the total cost to the UK Economy of FASP implementation will be £17
- £23 bn by 2010
• EU Enterprise Commissioner, Gunter Ver- heugen, has said that the overall
cost to the European economy resulting from EU regulation is now €600bn per
year.
• Future measures include the Pensions Directive and the Consumer Credit
Directive.
• By 1985, the eurobond securities market was worth $2 trillion, with between
70 to 80 per cent of this annual turnover arranged in London.
• In 2004, London accounted for 31 per cent of worldwide turnover in foreign
exchange transactions, while New York accounted for 19 per cent.
• One of the main reasons why London has been catching up with New York is
Sarbanes Oxley. Just one piece of heavy-handed regulation has caused a
haemorrhage of business out of the New York. In 2001, before Sarbanes Oxley,
New York attracted nine out of ten of the largest international IPO’s. It now
attracts just one in ten, the remainder having migrated, predominantly to
London.
• KPMG,
Capturing value from MiFID, (April 2006) reveals that 48% of UK firms have a
poor or very poor understanding of MiFID’s implications
Recent
Case Law Alun Jones St Pauls Chambers
The Council for the Regulation of Healthcare Professionals (CRHP) appealed
against a decision of the Fitness to Practise Panel (FPP) of the first
respondent GMC to stay proceedings against a Doctor as an abuse of process.
The Doctor concerned was caught by an undercover journalist who asked for a
sick note making it clear that she was not sick but just wanted time off
work. The Doctor agreed to this course of action if she returned nearer to
the time when she wanted to be off work. The principle issue in this case was
whether situation concerning entrapment by non-state agents (e.g.
journalists) differed from the position involving state agents (e.g.
policemen). The Court first had to consider if it had the jurisdiction to
intervene against the FPP’s decision. The Administrative Court firstly
decided that the appeal by the CRHP related to a criminal law application.
The imposition of a stay for abuse of process in a criminal case meant that
it would be an abuse of the process of the court for the case to be tried and
such a finding was the effective end of a case. In other words, it amounted
to a final determination and it meant that the case against the doctor could
never be decided on its merits and no penalty at all could be imposed. The
Administrative Court considered the position if the decision to stay the case
on the basis of abuse of process was manifestly wrong. It was held that the
court should intervene. In the current case, the actions complained were
committed by a non-state agent. The position was therefore different than
misconduct by a state agent. The Doctors rights under Article 8 of the
Convention may have been infringed but the fact that there was entrapment did
not mean that the evidence in question had to be excluded. The Court held
that the FPP had wrongly applied the law as it had failed to consider
proportionality properly and had appeared to substitute journalists for
policemen by relying on the case of Attorney-General’s Reference (No 3 of
2000). Furthermore, the issue of Section 78 of PACE does not become a live
issue until the decision not to stay proceedings has been made.
INTERNATIONAL RUGBY BOARD
(IRELAND) -V- JASON KEYTER
Jason Keyter is a
Professional Rugby Union player for Esher Rugby Club. During a random drugs
test, his urine sample was found to be positive for a banned stimulant. His
‘B’ sample was also found to be positive. Mr. Keyter admitted that the result
of the samples was accurate. He claimed that he may have been the unwitting
recipient of having his drink spiked with cocaine when in a nightclub. He
provided evidence of his good character and the disciplinary tribunal
accepted the account and suspended him from playing for a period of 12
months. The IRB appealed against this ruling. Under IRB regulations, the
minimum suspension period for such a drugs offence was 2 years, unless there
was exceptional circumstances such that he either bears no fault or
negligence or that he didn’t know or suspect after proceeding with the utmost
caution that he may have taken a prohibited substance.
The IRB argued that Mr. Keyter had failed to provide evidence to the
requisite civil standard to support his assertion. He failed to exercise the
utmost caution given that at the nightclub he had consumed almost half a
bottle of vodka, champagne cocktails and vodka and red bull. Mr. Keyter made
no submissions. The panel held that the IRB were correct and that it would
create a dangerous precedent to allow drunken sportsmen to obtain an
unwarranted reduction in the length of any suspension by claiming exceptional
circumstances. Accordingly, the period of suspension was increased to a
period of 2 years.
JAMES PARKER -V-
FINANCIAL SERVICES AUTHORITY
This case review only
addresses the issue of how the tribunal can decided what is an appropriate
punitive element to a penalty for market abuse.
Mr. Parker, a Senior Accountant, had engaged in market abuse in the form of
spread betting relying on information no generally available. He pursued this
action whilst working for his employer, a listed company on the stock
exchange. A penalty of £300,000 was subsequently imposed.
In dealing with the amount of the penalty, the Tribunal only considered the
actual gains made and the losses avoided by the abusive
conduct. If there was doubt, this was resolved in Mr. Parker’s favour. In
this case, the total abusive profit made was £121,742.
In addition to the above, the tribunal considered the approach as to how it
could quantify the punitive element to the penalty. The tribunal noted that
there are surprisingly few precedents in this area as it only became a civil
offence in 2001. The tribunal considered the actual conduct by offenders was
a useful guide but was by no means conclusive. This was not a victimless
crime as there was a loss in the confidence of the financial markets. The
penalty should not just recover the abusive profit but there must also be a
deterrent element. The punitive element must mark the gravity of the offence.
Mr. Parker’s Counsel submitted previous decisions in the range of £1,000 to
£25,000. In this case there was calculated misconduct with a repeated
flouting of the rules. Mr. Parker did not suggest any mitigation for the
misconduct itself and did not make any effort to put the matter right.
Accordingly, the total penalty in this case would be £250,000 including the
£121,742 of abusive profit.
Defras
Legislative Lacuna John Harrison and Danielle
Graham St Pauls Chambers
The Cattle
Identification Regulations 1998 (CIR) and the Cattle Database Regulations
1998 (CDR) were brought into force on the 28th of September 1998 and the 15th
of April 1998 respectively. These statutory instruments provided for the
enforcement of Council Regulation (EC) No. 820/97. This EU Regulation was
repealed by EU Regulation No. 1760/2000 with
effect from August 2000. The CIR and CDR were not amended to provide that
references to EC No.820/97 were to be construed as references to EC No.1760/2000. Defra’s initial attitude towards
this problem was to assert that no problem existed due to the direct
applicability effect of EU Regulations in domestic law. Further, EC No.1760/2000 states in Article 24(2) that
‘references to 820/97 shall be construed as
references to this Regulation’. It would appear that Article 24(2) only
applies to references in other EC legislation and not to domestic law. As a
matter of principle the EU Regulation 1760/2000
should not determine criminal liability without adoption by domestic law. The
necessity of enforcing EU regulations requires domestic legislation. Without
domestic legislation EU Regulations are applicable but unenforceable. One
potential conclusion appears to be that the CIR and CDR were not in force
between August 2000 and June 2006. Any prosecutions brought for offences
under the CIR and CDR for the relevant period may be without legal substance
and convictions for offences within the relevant period maybe unlawful. The
case of Belgium v. Kennes [REF] is of assistance in framing this argument.
The strength of this argument will be determined by how the prosecuting
authority has drafted the indictment. Clearly, if the indictment is framed to
allege breaches of the EU Regulations 1760/2000
at a time when there was no domestic enforcement provision then this argument
will have some force If the indictment is framed to allege breaches of the CIR
& CDR then this argument may be thought to have li? le weight. It is the
view of the authors that while the EU Regulations
870/1997 may have been repealed and replaced there has been no repeal
or revocation of the domestic Regulations. Consequently, so long as offences
are framed as being contrary to the domestic 1998 Regulations then the courts
will have power to hear them. This was the conclusion reached in the
unreported Crown Court case of R. v. Drake [REF]. As yet, there has been no
test of this issue at an appellate court level. Similar concerns exist as to
the validity of the Eggs (Marketing Standards) Regulations 1995 which enforce
Council Regulation 1274/91. This EU Regulation was repealed and replaced by
the Commission Regulation 2295/2003 in January 2004. The new Regulations do
not make any procedural or practical changes.There has been no update to
domestic legislation until the Eggs (Marketing Standards)(Amendment)(England
and Wales) Regulations 2006, which came into force on the 15th of June 2006.
Once again, it is the view of the authors that there is a potential gap from
January 2004 until June 2006 where domestic legislation may be unenforceable.
Recent
Statutory Law Alun Jones St Pauls Chambers
The Trade Marks
(Amenent) Rules 2006. S.I. 2006/3039) The rules, in essence, provide that
when a Trade Mark is registered, it shall be classified according to the Nice
Classification1 that had eff ect on the date of the application for
registration. This statutory instrument amends sections 65 and 78 of the
Trade Marks Act 1994 and revokes schedules 3 and 4 of the Trade Mark Rules
2000 and Rules 3 to 5 & 7 to 8 of the Trade Marks (Amendment) Rules 2001.
This means the Nice Agreement concerning the International Classification of
Goods & Services for the purposes of the Registration of Marks 15.6.57
& 28.9.79.
Cases In Chambers
Leeds
Defending Firework Manufacturer under Explosives Act & Manufacture and
Storage of Explosives Regulations
Nottingham Defending Manfacuturing Company relating to Fatal Accident,
Working at Height Regulations
Leeds
Prosecution for West Yorkshire Trading Standards – Ebay
Manchester Defending Mail Order PLC in relation to electric mosquito
repellant
Various Representing solicitors before SDT
London Defending before Professional Conduct Commi? ee of Nursing and
Midwifery Council
Portsmouth Defending retailer of Fireworks under Explosives Act and
Manufacture and Storage of Explosives Regulations
Wakefield Representing 4 serving Police Officers as interested persons at
inquest arising from Death in Custody
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