In the UK both the Bank of England and the Financial Conduct Authority have recently carried out experiments using new digital technology for regulatory purposes. The idea is to replace rules written in natural legal language with computer code and to use artificial intelligence for regulatory purposes. This new way of designing regulatory rules is in line with the UK government’s vision for the country to become a global leader in digital technology. It is also reflected in the FCA’s business plan. The article reviews the technology and the advantages and disadvantages of combining the technology with regulatory law. It then informs the discussion from a broader perspective. It analyses regulatory technology through criteria developed in the mainstream regulatory debate. It contributes to that debate by anticipating problems that will arise as the technology evolves. In addition, the hope is to assist the government in avoiding mistakes that have occurred in the past and creating a better system from the start.
Current scholarship emphasises the correlation between enforcement of corporate and securities laws and strong capital markets. Yet, the issue of how private and public enforcement may achieve the objectives of compensation and optimal deterrence remains controversial. While enforcement strategies have been studied extensively in the US and the UK, comparatively less attention is placed on Asia, where concentrated shareholdings are the norm. This study fills the gap by focusing on Hong Kong and Singapore, two leading international financial centres in Asia. Post Asian financial crisis of 1997, Hong Kong and Singapore have changed their laws to strengthen the private enforcement framework. Public enforcement activities have also been significant. The question is whether these reforms and enforcement activities succeed in reaching the afore-mentioned objectives. Based on our study of ex post enforcement actions, which are actions that may lead to sanctions (such as prosecutions or administrative proceedings) or compensation orders, arising from breaches of directorial duties and corporate disclosure violations involving listed companies from 2000 to 2015, we find that (1) public enforcement dominates over private enforcement; and (2) there are important, but limited, substitutes for private enforcement: securities regulators use public enforcement to obtain compensation for investors, and shareholders file requisitions to remove errant directors. We argue that: (a) there is a significant gap in enforcement strategies for directorial wrongdoing in Singapore; (b) for public enforcement of corporate disclosure violations, the beneficiaries of the compensation should be the investors (rather than the company) and the defendants should only be the errant directors (and not the company). Our study is relevant to those jurisdictions considering the powers of regulators and improving their enforcement framework.
As the ongoing shareholding structure reform continues to reduce the level of ownership concentration of Chinese listed companies, hostile takeovers have been on the rise in China, so has the use of takeover defences. The recent high-profile case of Vanke vs Baoneng has generated an intensive social debate on the use of takeover defences and their regulation in China. This paper undertakes an in-depth study of the Chinese regime for takeover defences both in the books and in practice. From a comparative perspective, it reveals that Chinese law is a mixture of experiences transplanted from overseas jurisdictions, but functions differently due to the unique local conditions in China. It then empirically examines how takeover defences are used in practice, finding that takeover defences, particularly ex ante defences, are widely adopted by Chinese listed companies. This is a matter of concern given that takeovers have important economic functions particularly at the present stage of China’s economic development. In spite of this, the paper refutes the idea of a blanket ban on the use of takeover defences, because takeover defences have both beneficial and detrimental effects. In regulating takeover defences, there needs to be a delicate balance between allowing the use of takeover defences and protecting shareholders’ rights. It is submitted that the primary power to decide on the use of takeover defences should be vested in the hands of shareholders. Considering the local situation in China where the main agency problem of corporate governance is between majority and minority shareholders, it is further argued that the issue of takeover defences should not be left entirely to shareholders in the name of corporate autonomy, but rather need to have some legal intervention to protect the rights of shareholders, particularly minority shareholders, in relation to the use of takeover defences.
This article analyzes market reaction to the introduction into Italian legislation of a statutory system of (IPO) prospectus civil liability enacted in April 2007 on the basis of Directive 2003/71/EC. In particular, we study the effects of the new regulation on gatekeepers, such as underwriters and auditors who are commonly qualified as information intermediaries. We analyse the effects on average underpricing, fees charged by the underwriters, syndicate composition and reputation, and auditor participation. Although we find only weak statistical evidence that the level of underpricing has increased after April 2007, there is a statistically significant tendency to have one of the Big Four auditors in post-April 2007 IPOs, with lower participation of international banks in syndication and sharing of prospectus liability. Moreover, after April 2007 we observe an increase in the reputation of the underwriters acting as responsabile del collocamento with lower underwriters’ fees charged.
The difficulties of the effective rescue of multinational corporate groups (MCGs) in the EU have long been recognized. The limitations of the existing MCG rescue solutions, including substantive consolidation, procedural consolidation and procedural cooperation, mean that there is no panacea for preserving the value of financially distressed MCGs for creditors. It seems that a possible way to preserve the value of the MCGs worth rescuing is to avoid their free-fall insolvency at an early stage. In practice, many pan-EU groups decide to use English schemes of arrangement to stave off group-wide insolvency. This phenomenon corresponds to the recent European Commission’s proposal for a Directive on preventive restructuring frameworks which aims to provide Member States with a minimum harmonization of restructuring tools to rescue financially distressed companies and to avoid their insolvency. Also, the new EU Regulation on insolvency proceedings has expended its scope to incorporate preventive restructuring procedures. This article will explore how preventive restructuring frameworks can work as a supplementary solution to preserve value for MCGs and examine whether this may improve the undesirable status quo.
Various corporate law and governance theories inform us that board independence, management ownership and blockholder ownership are important elements of the overall corporate governance system. The empirical evidence on the effectiveness of these elements is, however, mixed at best. Moreover, the results and conclusions of prior theoretical and empirical research are typically country-specific and often not universally applicable. The empirical analysis conducted in this article is based on a panel data set consisting of 43 large public companies over a time frame of 6 years in the context of the small and open economy of Switzerland. The results of this analysis suggest that a larger fraction of independent directors on the company board decreases firm value and that a combined leadership structure may also increase value. Similarly, the results suggest that the presence of a controlling shareholder decreases firm value and that the presence of institutional investors as significant shareholders may also decrease value. The new evidence of this country study casts doubt on several generally accepted good corporate governance principles and highlights the need for a reconsideration of public policy towards board governance and blockholder governance. This article examines and discusses the most relevant policy implications based on the new evidence.
The object of this work is the study of a new model of company introduced in Italy with Law No. 208/2015, the Benefit Corporation, a form of undertaking with joint lucrative and altruistic purposes. The Italian legislator was inspired by the North American Benefit Corporation, which was introduced in many states beginning in 2010, but the Italian regulation is fairly generic and incomplete. Our preliminary task is to seek a systematic framework for this model of company, identifying its rightful place among the ‘for-profit’ and ‘non-profit’ business sector, while highlighting their similarities or differences with regard to the wider issue of corporate social responsibility. Next we must attempt to try to fill in, through interpretation, the many gaps and dysfunctions we find in the regulatory body that, if unresolved, would make the new company model unappealing. This reconstruction must be carried out with reference to the traditional concepts of Italian corporate law, depending on the type of corporation chosen and insofar as they are compatible with the new model. The work thus provides a rough comparison of the new Italian corporation model and some of the North American states’ legal regulations on Benefit Corporations.
In the last decade, financial regulations have focused on issues posed by systemic risk. The derivatives market has been the subject of structural reforms which have involved both the post-trade—Regulation (EU) No. 648/2012 (‘EMIR’)—and the trading phase—Directive 2014/65/EU (‘MiFID II’) and Regulation (EU) No. 600/2014 (‘MiFIR’). In particular, the post-crisis regulation is characterized by the increasing role of the EU authorities both as a supervisor and as a regulator. The paper focuses on the role of ESMA in light of its new intervention powers. This paper analyses the regulations on over-the-counter derivatives introduced in Europe, with the goal of underlining the costs and benefits of this approach. To fully achieve its objective, the paper proposes, in the first section, a logical path that starts from an overview of the regulatory response to the crisis; then, in the second section, it focuses on ESMA’s growing role in light of the recent reforms. The third section points out the strengths and weaknesses of the law-making process with a particular reference to a highly technical topic. Finally, the analysis concludes by speculating on the potential ‘Brexit’ impact on the ESMA’s reform proposal, due to the role played by financial institutions and the activism of interested Member States.
Companies are often penalised for violating regulatory requirements of various kinds, including those under competition law. Some of the relevant statutes only impose liability on the company, but not its directors or employees, whose wrongdoing must nonetheless be attributed to the company to render it liable. Where a company infringes competition law or another regulatory statute and seeks to recover the penalty by suing its delinquent insiders for breach of duties, should courts allow or prevent the company’s recovery? This article examines this complex issue—which straddles competition/regulatory law, company law, agency law, and private law (in particular the illegality defence)—from a theoretical perspective, and makes two key contributions. First, it advances a refined concept of optimal deterrence, and argues that courts should not deprive the company of its well-established right to sue under company and agency law by interpreting the deterrence policy under competition law or another regulatory statute in light of this concept and recognising the limits of judicial law-making. Second, this article demonstrates for the first time how courts should analyse private law claims arising from corporate regulatory infringements under the ‘range of factors’ approach to the illegality defence, using competition law infringements as an illustration. Under our proposal, courts need not proceed to the stage of balancing competing and incommensurable factors to arrive at the conclusion that companies should not be precluded by the illegality defence from recovering against their delinquent insiders.
Iceland was hit hard by the financial crisis in 2008. This article discusses the criminal case law handed down in Iceland following the collapse of the Icelandic banks in October 2008. As a result of the banking failure, important legislative measures were taken. A new office of a Special Prosecutor was established by law to deal with potential economic crimes committed during the years leading up to the collapse. The extreme nature of the banking failure paved the way for criminal proceedings. Moreover, as the banks had collapsed, they were not bailed out by the State. Rather, new banks were established under new management. This facilitated investigation. Three main categories of criminal behaviour have led to charges: insider fraud, market manipulation, and criminal breach of trust. The Supreme Court has pointed out that although the information might not, on its own, be held to make a significant difference for a reasonable investor, it may, when put in the context of a mosaic of other information, be deemed to have a significant impact on the share price. Market manipulation mostly concerned systematic manipulation of the share price of each of the banks, rather than a single event of manipulation. Reckless lending can be classified as criminal breach of trust. Criminal breach of trust was often the result of market manipulation, as banksʼ funds were put at enormous risk in order to finance the purchase of their own shares by lending to borrowers whose only substantial asset was often these same shares.
Since the financial crisis, various policy initiatives have been adopted in the UK with a view to improve access to finance for SME businesses. One of these initiatives is the bank referral scheme. Under this scheme, incumbent banks must pass on information about SMEs (with an SME’s consent) that were unsuccessful in securing bank funding, to so-called finance platforms whose role is to match SMEs with alternative lenders. The scheme received attention in the UK and elsewhere as an innovative way to combine information sharing and technology in order to help SMEs gain access to external finance. It was launched in 2016. Since then, it has been closely monitored by the UK Treasury. The aim of this article is to reflect on the bank referral scheme and its raison d’être, especially by focussing on the regulations which implement the scheme, and on potential ways to improve the referral process.