Capital Markets / Banking
Four new European financial supervisory authorities
On 17 November 2010, the Council of the European Union adopted legislation to establish the European Systemic Risk Board (ESRB), which will provide macro oversight of the European financial system. The Council also approved setting up three other authorities that will supervise at a micro-financial level:
- The European Banking Authority (EBA)
- The European Insurance and Occupational Pensions Authority (EIOPA)
- The European Securities and Markets Authority (ESMA)
These four new bodies will be part of a European system of financial supervisors, which will include the existing supervisory authorities of the member states. The ESRB and the EIOPA will be located in Frankfurt, the EBA in London and the ESMA in Paris. The new system is expected to be operational as from 1 January 2011.
More information on the new financial supervisory bodies
New rules limit bankers’ bonuses
During the financial crisis it became clear that banks' remuneration policies may have led their managers to seek short-term success at the expense of long-term profitability. On 11 October 2010, the Council of the European Union adopted the Capital Requirements Directive (CRD III). This directive sets among other things a whole range of requirements for remuneration policies to comply with. Especially bonuses that might induce risk-seeking behavior will be restricted. Limits will be introduced for bonuses paid out in cash in advance, and at least half of a bonus will need to be paid in contingent capital and shares.
On 1 January 2011, the provisions of CRD III dealing with remuneration policies should become effective by implementation in the national laws of all 27 EU member states. The rules will apply to all credit institutions (e.g. banks) and certain investment firms (e.g. hedge funds managers) incorporated in the EU (which includes EU subsidiaries of non-EU institutions). It is expected that member states will also extend the applicability of CRD III rules to EU branches certain financial institutions (including EU branches of non-EU institutions).
More information on the Capital Requirements Directive III
Investment Management
Stricter European supervision for hedge funds and private equity funds
On 11 November 2010, the European Parliament adopted the Alternative Investment Funds Managers Directive, widely known as the ‘hedge funds’ directive. This directive aims to tighten supervision of hedge funds and private equity funds. It also enhances protection for investors by curtailing some of the riskier behavior of those funds.
Funds will be subject to registration and extended reporting requirements, and those funds who intend to be active within the EU need to have a responsible remuneration policy. Funds from outside the EU will be able to apply for a special European passport allowing them to operate throughout the EU.
Private equity investors will be subject to specific provisions aimed at countering asset stripping of companies. Restrictions will be placed on making distributions and reducing capital over the first two years after a company has been taken over by a private equity investor.
Our Legal Alert on the EU ‘hedge funds’ directive
Competition / Anti-trust
Still no legal privilege for in-house counsel
On 14 September 2010, the European Court of Justice (EJC) confirmed in the Akzo ruling that communications between a company and its in-house lawyer are not protected by legal professional privilege in EU competition/anti-trust investigations.
An in-house lawyer, despite his being a member of a national Bar or Law Society and the professional ethical obligation to which he is subject, does not enjoy the same degree of independence from his employer as a lawyer working in an external law firm does in relation to his client.
As a result of this ruling, European Commission officials remain authorised to seize and use communications between an in-house lawyer and the company in their investigations.
Our Legal Alert on the Akzo ruling
Energy
Implementation EU Renewable Energy Directive
In order to reduce greenhouse gas emissions and to become less dependent on the import of energy, the EU issued the Renewable Energy Directive in 2009 (2009/28/EC). This Directive requires 20% of all energy within the EU to be generated from renewable sources by the year 2020 (compared to 8.5% in 2005). To achieve this goal, each of the 27 EU Member States has been attributed a target ranging from 11% to 49%, depending on the starting point and the potential for renewable energy in each country.
By June 2010 each Member State had to submit an action plan, setting out how it will achieve its target. These plans contain a whole range of government policies favouring renewable energy investments, like tax cuts, subsidies, feed-in tariffs, and green certificates. Many of those policies are also available for non-EU investors. Member States are now obliged to have the Renewable Energy Directive implemented into their national laws by this December, which should provide the necessary legal backup to make countries meet their individual targets.
More information on the Directive and access to each Member State’s action plan
Intellectual Property
European trademark law – The handbook
The book “European Trademark Law” was published in October. This is the only available English language handbook dedicated to Community trademark law and harmonised national trademark law. European trademark law has changed dramatically over the past 15 years. Not only have national trademark law systems been harmonised on a European level to a very high degree, a completely new trademark system was added: the Community trademark. The book aims to provide an overview of both.
European Trademark Law describes all relevant developments in both legislation and case law, in particular of the ECJ, offering not only a introduction to the theory, structure and nature of trademark law, but also insightful suggestions for resolving and answering a range of practical problems.
The authors, Tobias Cohen Jehoram (partner at De Brauw), Constant Van Nispen (former partner at De Brauw) and Tony Huydecoper (Advocate-General to the Dutch Supreme Court), view the law from different perspectives; they take both the European perspective and the perspective from harmonised national trademark law.
Our Legal Alert on the handbook and Information on the book from the publisher
Litigation / Arbitration
Dutch Court has jurisdiction over international collective settlement of mass claims
On 12 November 2010, the Amsterdam Court of Appeal delivered an important decision regarding an international collective settlement of mass claims in the Converium decision. The Court assumed jurisdiction to declare an international collective settlement binding in a case where none of the potentially liable parties and only a limited number of the potential claimants were domiciled in the Netherlands.
The Netherlands is the only European country where a collective settlement of mass claims can be declared binding on an entire class on an “opt out” basis. This makes the Netherlands an attractive venue for settling international mass claims, irrespective of whether any (class action) litigation has taken place in the Netherlands. This is even more so since the U.S. Supreme Court recently denied non-U.S. claimants in securities and anti-trust cases the right to bring their claims before U.S. courts.
Our Legal Alert on the Converium decision
Mergers & Acquisitions
European M&A market back to life
In 2010, the European M&A market rebounded. Compared with 2009, there were 16% more deals and the average deal value went up by an incredible 58%. Private equity deals, in particular, picked up considerably. In the first three quarters of 2010, private equity buyouts represented more than 20% of the European M&A market, up from a mere 8% in 2009. The growth in private equity buyouts was fuelled by newly available funding sources and is expected to continue in the fourth quarter and throughout 2011. Sectors that saw most M&A activity include Industrial & Chemical and Energy, Mining & Utilities.
Dutch M&A
In the third quarter of 2010, the Dutch M&A market made an impressive recovery, especially in view of a very slow second quarter. The number of deals in the first half of 2010 decreased by 19%, but the deal value increased by 26% compared to 2009. Another notable fact is the increasing presence of Asian investors in the market. In the Netherlands, the number of deals involving an Asian buyer rose from 3% in 2008 to 13% in 2010. The recent surprise EUR 1 billion public offer by Chinese company Xinmao for the Dutch cable company Draka may be a clear example of this trend.
De Brauw Blackstone Westbroek is the leading M&A counsel in the Dutch market according to Mergermarket in terms of total deal value in 2010.
Sources: Mergermarket, Overfusies, Rabobank
Corporate
European market standards for general meetings
Cross-border communications between listed companies and their shareholders will be standardised throughout the EU. On 9 September 2010, a working group of listed companies, shareholders and banks published EU market standards for such communications. It includes standards for the general meeting notification, communication by shareholders on how many shares they represent, and how to inform shareholders of the voting procedure (including distance voting).
Implementation of these standards should take away the operational (technical and legal) difficulties investors now often face in casting their votes at general meetings in a cross-border environment and in accessing general meeting related information. The European Commission supports these market standards, which also easily fit within the EU directive on shareholder rights.
The EU market standards for general meetings
EU Green Paper "Audit policy: Lessons from the Crisis"
The independence of auditors should be strengthened, according to a green paper drawn up by European Commissioner Barnier. The EU Commission wants to completely overhaul the auditor sector. It proposes to make it mandatory for listed companies to engage two auditing firms for a “joint audit”. One of the auditors would have to be a small-sized firm. Barnier also suggests that a third party, possibly a regulator, rather than the company itself, should decide on the appointment of the auditor. Reactions to the Green Paper can be submitted until 8 December 2010. On the basis of the feedback it receives, the Commission will formulate further policy proposals.
Full text of the Green Paper
EU Commissioner Barnier talks about improving corporate governance
In a recent speech to a conference in Brussels, EU Commissioner Barnier presented a number of far-reaching plans aimed at improving management and good corporate governance in Europe. Barnier mentioned five key lines of action that need to be taken to improve corporate governance. These are:
- better supervision of senior management by directors, particularly non-executive directors, limiting the number of directors’ memberships of (other) boards, widening directors’ expertise and more diversity within the board
- giving more authority to risk managers: their standing should be equal to that of the CFO
- paying more attention to conflicts of interests: ‘the issuer pays’ principle in the area of credit rating agencies and audit firms needs to be evaluated
- responsible remuneration policies are imperative: pay should be focused on medium- or long-term achievements
- it is time to talk not just about shareholders’ rights but also about shareholders’ obligations.
Full text of EU Commissioners Barnier's speech
