Dirk Andreas Zetzsche

Shareholder Passivity, Cross-Border Voting and the Shareholder Rights Directive

This paper focuses on the low cross-border turnout of shareholders at shareholder meetings of European issuers. It presents the data that are available on cross-border voting and examines the reasons behind the low cross-border turnout, in relative terms. Opposing the traditional view among US law and economics scholars, this paper holds that law matters in the efforts to facilitate cross-border voting. This is particularly true for procedural requirements. Thus, legislative action, such as the Shareholder Rights Directive, may indeed have beneficial effects on voting turnouts across Europe. The impact of the Shareholder Rights Directive on procedural costs of shareholders is examined in the second part of the paper. The Directive seeks to lessen procedural costs through the use of the internet. While it does not force a kick-start of EUMember States into the digital age, it constitutes a significant step forward in harmonising the procedure of shareholder meetings across Europe. From a procedural point of view, cross-border investors are likely to benefit from the legal certainty that the Directive provides, as well as the lower costs for the digital exercise of shareholder rights in those states which have previously refrained from implementing digital options for shareholders. In the third part of the paper, whether—and, if so, which—additional steps are necessary in order to further reduce procedural costs of cross-border voting is assessed. It is posited that the Shareholder Rights Directive failed to mandate an efficient regime to govern the identification and authorisation of shareholders who hold their shares within a chain of intermediaries, and four remedies to be taken by the European Parliament are suggested.

Quack Corporate Governance, Round III? Bank Board Regulation Under the New European Capital Requirement Directive

After a crisis, broad and sweeping reforms are enacted to restore trust. Following the 2007-2008 Great Financial Crisis, the European Union has engaged in an ambitious overhaul of banking regulation. One of its centerpieces, the 2013 Fourth Capital Requirements Directive (CRD IV), tackles, amongst other things, the perceived pre-crisis failings in the governance of banks. We focus on the provisions that are aimed at reshaping bank boards’ composition, functioning, and their members’ liabilities, and argue that they are unlikely to improve bank boards’ effectiveness or prevent excessive risk-taking. We criticize some of them for mandating solutions, like board diversity and the separation of chairman and CEO, that may be good for some banks but are bad for others, in the absence of any convincing argument that their overall effect is positive. We also criticize enhanced board liability by showing that it may increase the risk of herd behavior and lead to more serious harm in the event of managerial mistakes. We also highlight that the push towards unfriendly boards will negatively affect board dynamics and make boards as dysfunctional as when the CEO dominates them. We further argue that limits on directorships and diversity requirements will worsen the shortage of bank directors, while requirements for induction and training and board evaluation exercises will more likely lead to tick-the-box exercises than under the current situation in which they are just best practices. We conclude that European policymakers and supervisors should avoid using a heavy hand, respectively, when issuing rules implementing CRD IV provisions with regard to bank boards and when enforcing them.

From FinTech to TechFin: The Regulatory Challenges of Data-Driven Finance

Financial technology (‘FinTech’) is transforming finance and challenging its regulation at an unprecedented rate. Two major trends stand out in the current period of FinTech development. The first is the speed of change driven by the commoditization of technology, Big Data analytics, machine learning and artificial intelligence. The second is the increasing number and variety of new entrants into the financial sector, including pre-existing technology and e-commerce companies. This paper considers the impact of these new entrants with their typically large pre-existing non-financial services customer bases. These firms (loosely termed ‘TechFins’) may be characterised by their capacity to leverage the data gathered in their primary business into financial services. In other words, TechFins represent an Uber moment in finance. This shift from financial intermediary (FinTech) to data intermediary (TechFin) raises implications for incumbent financial services firms, FinTech startups and regulators. This seachange calls for analysis to underpin regulatory approaches with a view to balancing the competing interests of innovation, development, financial stability and consumer protection.

Hidden Ownership in Europe: BAFin's Decision in Schaeffler v. Continental

This is a case study of the German securities regulator’s (BAFin) decision on the Schaeffler case of 21 August 2008, which concluded that the Schaeffler Group’s strategy for building up a controlling stake in Continental AG did not violate German disclosure rules. Moreover, it assesses whether the Schaeffler strategy would have been disclosed if the amendments to the German disclosure rules made by the Risk Limitations Act of 21 August 2008 had been in force at the time Schaeffler built up its swap position in Conti. In contrast to BAFin’s decision, I hold that Schaeffler’s swap long positions prompted disclosure requirements under the ‘holding on behalf’ provision of Article 10(g) of the European Transparency Directive 2004/109 as implemented in German securities and takeover law. While BAFin’s decision was subject to the specifics of the case at hand, inadequate enforcement rules help explain why Schaeffler took the risk of regulatory action in the first place. Rather than relying on ex-post enforcement, I argue in favour of developing a self-regulatory, ex-ante enforcement scheme using the model provided by antitrust leniency programmes.

Against Mandatory Disclosure of Economic-only Positions Referenced to Shares of European Issuers - Twenty Arguments against the CESR Proposal

Following recent developments in some European jurisdictions, the Committee of European Securities Regulators (CESR) proposed, on 9 February 2010, ‘to extend major shareholding notifications to instruments of similar economic effect to holding shares and entitlements to acquire shares’. This initiative pushes for mandatory Economic-only Disclosure of Major Shareholdings in Europe (EOD). By providing twenty arguments against the CESR proposal, this paper seeks to spur a lively discussion as to whether mandatory EOD is desirable. It puts forward that European institutions are well advised to refrain from implementing the CESR proposal in its current form. If at all, implementing a requirement to report to regulators (Economic-only Reporting — EOR) and limiting EOD to very large positions serves social welfare better than EOD and avoids major differences between European securities law and US securities regulation.

Cross-Border Crowdfunding – Towards a Single Crowdfunding Market for Europe

Crowdfunding has experienced rapid growth in some EU Member States. However, home bias by investors and regulatory barriers prevent the crowd and the project from moving freely across borders. Crowdfunding has, for the most part, remained a phenomenon of those larger Member States that ‘draw a crowd’, with a population large enough to make a crowdfunding website an economically feasible undertaking. In turn, crowdfunding has remained a mainly national issue, prompting the European Commission to conclude that there is no need for a harmonization of crowdfunding rules in Europe. In contrast to the European Commission’s Capital Market Action Plan, this paper takes the view that national limitations on crowd investing and crowd lending de facto are the result of limits de iure. Given that no European passport is tailor made or fits crowdfunding, this source of financing is doomed to remain national. Moreover, with different legal requirements in Member States, European law hinders the development of cross-border crowdfunding within the region. This is particularly true for smaller Member States whose populations are too small to constitute ‘a crowd’. This paper details how European regulators could facilitate a Single European Crowdfunding Market while limiting both the risks for investors and the regulatory burden for crowdfunding platforms and recipients. In light of the regulatory experience with other financial products and the segregating effect of product-based approaches, many of which exist in the EU/EEA Member States, we believe existing product regulation is insufficient to enable a European cross-border crowdfunding market. Instead, regulation based on the ‘MiFID light’ framework could function as basis for a cross-border crowdfunding manager passport, given the minimum protection it affords both investors and the financial system, and the low costs it imposes on the platform. Following the (1) too-small-to-care, (2) too-large-to-ignore, and (3) too-big-to-fail development path of FinTech business models, we suggest adding a relevance threshold of EUR250,000 in transaction volume to the MiFID light framework and imposing regulation to address systemic risk concerns for very large crowdfunding platforms that may arise in the future.

Verordnung über europäische langfristige Investmentfonds (ELTIF-VO) – Langfristigkeit im Sinne der Kleinanleger?

Zusammenfassung Die ELTIF-VO soll der europäischen Realwirtschaft langfristiges Kapital zuführen. Der Beitrag ordnet die maßgeblichen Verordnungsregeln in den Kontext des europäischen und einzelstaatlichen Finanzmarktrechts ein und untersucht, ob eine Balance erreicht wurde, die den ELTIF zu einem für Anleger und Volkswirtschaft gleichermaßen nützlichen und damit potenziell erfolgreichen Finanzprodukt macht.

Fondsregulierung im Umbruch – ein rechtsvergleichender Rundblick zur Umsetzung der AIFM-Richtlinie

Zusammenfassung Der Beitrag behandelt die durch die AIFM-RL initiierte grundsätzliche Neuordnung des Rechts der Investmentfonds in Deutschland, England, Frankreich, Irland, Liechtenstein, Luxemburg, den Niederlanden, Österreich und der Schweiz.