Market Abuse Regulation in Europe

Please click here for an article on the European Market Abuse Regime.

Ulster Bank Ireland Limited -v- Healy

Decision of Justice Barrett dated 28 February 2014

  • This case focused on whether a person who borrows money to invest in a number of investment properties is engaged in the business, trade or profession of a property investor, and therefore loses the protection of the Consumer Credit Act 1995 (the “CCA”) as they are no longer a consumer within the meaning of the CCA.
  • In this case the Defendant had availed of a number of loan facilities from the Plaintiff bank, to which he was now in default, to purchase investment properties in the United Kingdom. The Plaintiff instituted summary proceedings seeking recovery of the outstanding monies. The Defendant sought leave to defend the proceedings as he stated that he was a consumer for the purposes of the CCA and the Bank had not acted in compliance with the CCA.
  • In order for the Defendant to be deemed a consumer under the CCA the borrowing must have been made outside of his business, trade, or profession. The Defendant was an accountant employed by a company which manufactured construction material and was also personally engaged in property investments to provide for his retirement and his family.
  • The Court found that Mr Healy did in fact meet the test laid down for leave to enter a defence. The Court noted that an individual who, on one or more occasions, uses saved monies or borrowed monies to avail of an investment, such as property, in the hope of funding a better quality of retirement, does not necessarily become a person whose trade, business or profession is that of a professional investor or property investor, and therefore no longer a consumer for the purposes of the CCA.
  • The Court did recognise that there was a point where a “person crosses the Rubicon from consumer to professional” and ceases to become a consumer for the purposes of the CCA. The Court also found that while the Plaintiff’s classification of the Defendant as a business customer was of “interest” it was not of determinative significance when deciding whether he was a consumer under the CCA.
  • The Court considered the decision of Mr Justice Kelly in Allied Irish Bank plc v. Higgins and Others where it was found that an individual could be “regarded as a consumer in relation to certain transactions and as an economic operator in relation to others”. In this case Mr Justice Barrett found that the borrowings and ventures in the Higgins case were quantitatively and qualitatively “different from the level and form of speculation engaged in” by the Defendant than in the Higgins case where the borrowings were very extensive.  
  • The case will be watched with interest by both financial institutions and borrowers alike. It emphasises the importance for lenders, when lending money to individuals, to carefully consider whether a borrower is a consumer and, if so, to take all appropriate steps to ensure the requirements of the CCA are fully complied with.
  • To see a copy of this judgement please click here.

Danske Bank A/S Trading National Irish Bank -v- Ken Mulvaney 

Decision of Justice Birmingham dated 5 February 2014

  • In this case the Plaintiff bank sought to enter final judgment by way of summary proceedings in the amount of €1,434,340.10 against the Defendant. The Defendant sought leave to have the matter remitted to a plenary hearing. The test for whether a Defendant has a bona fide Defence has been the subject of much jurisprudence. In this case, the trial Judge, Mr Justice Birmingham applied the test as whether it was ‘very clear’ that the defendant has no case. If that was the situation then the Plaintiff would be entitled to summary judgment. 
  • The Defendant did not deny that monies had been lent to him by the Plaintiff, and that these monies had not been repaid. However, the Defendant asserted that the agreement entered into with the Plaintiff had been a non-recourse agreement.
  • The Plaintiff provided the Defendant with a loan facility to fund an investment in the Sawgrass Marriott Resort in Florida. The Defendant claims that he was assured by a representative of the Plaintiff bank, on a bus journey while visiting the property, that the loan would be a non-recourse loan and that any recovery would be limited to the investment shares. This claim was refuted by the Plaintiff, who stated that no such assurances were given and that it was not the bank’s policy to give non-recourse loans, as to do so would result in the bank assuming the downside risk of the investment.
  • The Court noted found that the loan letters issued by the Plaintiff which were accepted by the Defendant, were absolutely clear and were inconsistent with the position that the loan was a non-recourse loan. The Court also noted that the loan letters also stated that in explicit and unambiguous terms that no person had authority, on behalf of the bank, to orally vary the terms.
  • The Court refused the Defendant leave to enter a defence as the Court stated his defence was too “far-fetched” and was clearly contradicted by the documentation before the Court.
  • To see a copy of this judgement please click here.

European Parliament Adopts the “Omnibus II” Directive

New European Framework for Insurance Regulation and Supervision

  • On 11 March 2014 the European Parliament adopted the Omnibus II Directive, which will complement the Solvency II Directive (Directive 2009/138/EC) and provide for a new framework for insurance regulation and supervision throughout the EU.
  • Commissioner for the Internal Market, Michel Barnier, has hailed the move as a very important step towards the introduction of a modern and risk-based solvency regime for the insurance industry in Europe, which will create a safer and more competitive market.
  • The Omnibus II Directive will enact the powers of the European Insurance and Occupational Pensions Authority (“EIOPA”) and will lay out specific roles for the EIOPA and for the European Securities and Markets Authority (“ESMA”).
  • The Omnibus II Directive will also make certain amendment to the Solvency II Directive and the Prospective Directive in order to clarify the role of the EIOPA and to ensure harmonised technical approaches for the calculation of capital requirements.
  • It clearly defines the areas in which the EIOPA (for the purposes of the Solvency II Directive) and the ESMA (for the purposes of the Prospective Directive) will be able to propose technical standards, in order to promote supervisory convergence. It also details how the EIOPA and ESMA will settle disputes between national supervisory bodies.
  • Furthermore the Omnibus II Directive contains measures to provide clarity on the treatment of insurance products with long-term guarantees in order to mitigate the effects of artificial volatility. These measures include a matching adjustment, a volatility adjustment, extrapolation of the risk free interest rate, transition measures and extension of the recovery period.
  • For more information on the Omnibus II Directive please click here.     

European Parliament and Council Back Proposal for a Single Resolution Mechanism

20 March 2014

  • José Manuel Barroso has hailed the political agreement reached between the Council, the Parliament and the Commission over the Single Resolution Mechanism (“SRM”) as a major step towards the banking union. 
  • The Parliament and Council backed the Commission’s proposals on the SRM which is designed to strengthen confidence and stability in financial markets and help to restore lending to the economy.
  • The agreement comes in time for the current European Parliament to put it to a vote in April’s final plenary session, before the parliamentary elections in May of this year.
  • The SRM will complete the Single Supervisory Mechanism, which once fully implemented in late 2014 will result in the European Central Bank directly supervising all banks in the Euro area as well as any banks in non-euro area Member States which opt into the Banking Union. It is envisages that the SRM will ensure that where a bank faces serious difficulties these difficulties will be addressed with minimum recourse to the taxpayer and therefor will have a minimum impact on the real economy.
  • The SRM will be governed jointly by the Single Resolution Mechanism Regulation and by an intergovernmental agreement relating specifically to certain aspects of the Single Resolution Fund.
  • It is envisaged that decision making functions will be centralised in a Single Resolution Board, which will consist of representatives of the ECB, the European Commission and the relevant national authorities. Where a financial institution is facing difficulties this board will be given broad powers to determine an approach to resolve the difficulties and the extent to which the European Resolution Fund will be employed to resolve those problems.
  • Once the board has agreed on a proposal for resolving the financial institutions difficulties this will be presented to the Commission for its approval. The Council will also be given the opportunity to object to the board’s proposal. Where the Commission or the Council do object to the board’s proposal the proposal will be sent back to the board to be amended. Where no objections are raised the proposal will be carried out by the relevant national resolution authority.
  • Where the board’s proposal involves State Aid the Commission will be required to approve the aid prior to the adoption of the of the board’s proposal. This will in effect prevent a situation, as occurred in Ireland, where a government unilaterally bails out a financial institution.
  • A Single Resolution Fund will be established under the control of the board. This will be funded by contributions from relevant financial institutions and will replace the current national resolution funds. The fund will have a target level of €55 billion and will be able to borrow from the markets, if so directed by the board. It is envisaged that the fund when initially established would be made up of national funds, the size of which would correspond to each participating Member State, which will be mutualised over a period of 8 years into a single European fund.  
  • It is envisaged that the Parliament will approve the creation of the SRM in April 2014 and that it will enter into force on 1 January 2015.
  • For more information on this agreement please click here.

Central Bank Published Consultation Paper on the Handling of Protected Disclosures

Central Bank (Supervision and Enforcement) Act 2013

  • The Central Bank (Supervision and  Enforcement) Act 2013 (the “Act”) has introduced provisions to provide protection for persons who, in good faith, make disclosures regarding a possible or actual breach of financial services legislation. 
  • The legislation also provides for an obligation on those performing pre-approval controlled functions (a list of these functions can be found here) to report certain prescribed breaches of financial services legislation. 
  • The consultation paper published by the Central Bank is designed to increase awareness of these provisions and to seek stakeholders’ views in relation to the arrangements and policies to be put in place to encourage compliance with the legislation. The Central Bank will accept comments from stakeholders up until 19 June 2014.
  • The main provisions of the consultation paper are as follows:
    1. The Creating of a Whistleblower’s Desk – This will receive and manage disclosures made as well as answering questions in relation to the process of making disclosures;
    2. Handling of Complaints as Usual Disclosures – Consumer complaints, which fall within the definition of a protected disclosure under the Act, will be dealt with under the existing regime, i.e. through the Financial Services Ombudsman. Similarly, disclosures from regulated financial services providers, their employees or agents, in the course of their normal engagements with the Central Bank, will not be dealt with under the new regime.
    3. Feedback to whistleblowers – The Central Bank does not propose to inform the whistleblower of what action, if any, is taken as a result of their disclosure; and
    4. Disclosures by Persons Holding Pre Approval Controlled Function Roles – Section 38(2) of the Act imposes an obligation on these persons to make certain disclosures; in order to assist in compliance with this section the Central Bank will establish a dedicated email address and postal address.
  • It is important to note that while under the new legislation the Central Bank will accept anonymous disclosures, they will not be considered protected disclosures for the purpose of the Act.
  • For a copy of the Central Bank’s consultation paper please click here.    

EU Agreement Reached on Proposed Payment Accounts Directive 

European Parliament’s Committee on Economic and Monetary Affairs Reaches Agreement with European Council

  • This proposed directive will guarantee anyone residing in the EU the right to open a basic payment account, even those groups who had been excluded in certain Member States in the past such as refugees, foreign students and blue card holders.
  • The Directive is also designed to ensure that fees and rules for all payment accounts are transparent and comparable. It further requires that it should be easy to switch payment accounts.
  • The Directive will be now be put the Parliament as a whole during a plenary session in April 2014.
  • For more information on the Payment Accounts Directive please click here.

The Central Bank has reached the following Settlement Agreements:

  1. Settlement Agreement with Ava Capital Markets Limited. For more information please click here.
  2. Settlement Agreement with UniCredit Bank Ireland Plc. For more information please click here.
  3. Settlement Agreement with LGT Capital Partners (Ireland) Limited. For more information please click here.