As a practitioner, frustrated by the (often) reactive and inefficient approach of our financial regulators, the contribution of the authors of this book is both welcome and thought-provoking. Although financial regulation and civil liability are closely intertwined Olha O. Cherednychenko lucidly observes in Chapter 1 that the traditional siloed approach to financial regulation on the one hand and private law civil remedies on the other has produced piecemeal regulation combining elements of public and private law without a clear vision of how ‘various bits and pieces actually fit together in the context of policy-making, standard setting and enforcement design’ (Chapter 1, p. 11).
Olha O. Cherednychenko sets the scene by making the case for the need for greater coordination between systems of financial regulation and civil liability at EU and national levels. In my view, she correctly observes that the current ‘patchwork of rules’ governing the enforcement of EU financial regulation raises serious concerns not only in terms of interpersonal justice, but also in terms of its overall effectiveness and coherence (Chapter 1, p. 33).
The volume is divided into four parts providing what the authors refer to as both a bottom-up (micro) and top-down (macro) perspective on the relationship between regulation and civil liability. Part I provides a general framework within which the interplay of financial regulation and civil liability is set out. In addition to Chapter 1 which sets the scene, Part I also features a valuable contribution from the master of EU law principles, Takis Tridimas, in Chapter 2. Tridimas makes a helpful tripartite distinction between the approaches taken by the EU legislator to civil liability in financial services. First, some legislative measures are silent on civil liability, such as MiFID II and the Market Abuse Regulation. These measures outlaw certain conduct and positively provide for an administrative enforcement mechanism. Secondly, there is EU financial services legislation which makes a general reference to national private law remedies, for example, the Prospectus Regulation. These measures leave a wide margin of discretion to Member States, generally only subject to limitations within the text of the measure itself and the general principles of effectiveness and equivalence. Thirdly, EU measures sometimes specifically provide for EU private law remedies. For example, the Payment Services Directive II (PSD2) provides detailed rules on the allocation of losses arising from fraud, forgery and error between payment services providers and users (Chapter 2, pp. 51 to 56.). Tridimas observes that this tripartite approach reflects the lack of distinction in the EU integration model between public and private law and between rights and remedies which exists more strongly in national legal systems (Chapter 2, pp. 48 to 49 and 72).
Part I also features a chapter from Yane Svetiev who explores the role that civil liability could play in an experimentalist regime for regulating financial markets (Chapter 3) and Michael Faure and Franziska Weber who provide an economic perspective on the optimal enforcement mix in the financial sector focusing on consumer protection and investor protection in secondary capital markets. They argue that there does not appear to be a coherent approach in which the choice to use either private, administrative or criminal enforcement is made at EU level and taking a law and economics approach to this choice could provide a more coherent and efficient approach (Chapter 4, pp. 112-113).
Parts II and III feature chapters which provide a ‘micro’ insight to the relationship between ex ante financial regulation and ex post civil private law remedies particularly, in the fields of payments, credit and securities. The general message from the authors is that some form of combination of private law remedies and public enforcement provides the optimal framework. Chiara Picciau observes in Chapter 8 that the private civil liability provision under Article 35a of the Credit Rating Agencies Regulation is to be welcomed but, as currently drafted, the test is often too burdensome for investors to avail of. She suggests that more sophisticated evidential presumptions would unlock the effectiveness of these remedies. Agnieszka Janczuk-Gorywoda in Chapter 5 lauds the detailed civil liability regime in PSD2 but observes that its effectiveness is as a result of that measure’s complementary public enforcement mechanisms which provide the ‘bigger picture’ needed to achieve a socially optimal level of deterrence (Chapter 5, p. 117). In Chapter 6, in the context of consumer and mortgage credit law Reinhard Steennot also advocates that a combined approach to enforcement – both public and private – provides the optimal level of effectiveness (for those who rely on enforcement), dissuasiveness (for those who might be tempted to break the regulatory rules) and proportionality (to achieve an appropriate balance between the interests of the victim and those of the infringing party) (Chapter 6, pp. 140-141). Wallinga argues in Chapter 10 in the context of MiFID II – which is silent on private civil enforcement – that a civil liability provision for breach of the conduct of business rules would ensure investors are adequately compensated for losses suffered.
Taking a holistic approach to the subject-matter Part IV of the volume features chapters on how regulatory authorities and ADR entities can be more effectively held to account. Elena Sedano Varo argues in Chapter 12 for a greater availability of private remedies for investors against supervisory authorities for failings. Barbara Warwas similarly highlights the lack of accountability of entities providing alternative dispute resolution services in financial services law and argues that there should be greater public and private regulation (through private civil remedies for consumers) of these entities to enhance responsibility and consumer trust in the financial sector.
Whilst the authors of this volume acknowledge that further research is required to design appropriate coordination in each area of financial regulation and across different enforcement mechanisms they have started a necessary and long-needed conversation to ensure our financial institutions and regulatory bodies are fit for purpose. This is all the more important in view of the challenges the financial industry will face in the next decade such as climate change mitigation, digitisation of the market place through blockchain technology, AI and big data analytics. Whether their research ultimately produces reforms to improve the quality of legislative process in the area of financial regulation or greater availability of remedies in private civil law remains to be seen but I look forward to their future contributions to this area.
Chloë Bell is a Barrister at Outer Temple Chambers.