The Eclipse of Contract Law in the Investment Firm-Client- Relationship: The Impact of the MiFID on the Law of Contract from a German Perspective

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1 University Press Scholarship Online You are looking at 1-7 of 7 items for: keywords : investment services The Eclipse of Contract Law in the Investment Firm-Client- Relationship: The Impact of the MiFID on the Law of Contract from a German Perspective Peter O. Mülbert in Investor Protection in Europe: Corporate Law Making, The MiFID and Beyond acprof:oso/ Articles 19 to 24 of the Markets in Financial Instruments Directive (MiFID) establish a new regulatory framework for the legal relationship between an investment firm and its clients. At first glance, the regulatory framework and the contractual framework are completely independent of each other. In particular, Article 19 (7) only recognizes that investment services are provided on a contractual basis by requiring an investment firm to establish a documentary record regarding the contractual terms, but does not mandate any specific contents of such a contract. However, a more detailed analysis shows the MiFID framework to have a profound impact on the structure and contents of the respective contractual relationships. In this respect, Article 20 dealing with the provision of services received through the medium of another investment firm, and Articles 31 and 32 providing for maximum harmonization of the conduct of business rules, are of particular importance. Investor Protection in Europe: Corporate Law Making, The MiFID and Beyond Guido Ferrarini and Eddy Wymeersch (eds) Item type: book acprof:oso/ EU policy in the area of corporate governance and capital markets is being reoriented. Harmonization is less frequently seen as a concept in company law, regulatory competition is on the rise, and experiments in soft law are being carried out. Several member States have recently Page 1 of 5

2 reformed their corporate laws, either as a reaction to financial scandals or in an effort to enhance investment. Convergence has increased as a result, particularly towards Anglo-American standards. Yet, differences still exist, profoundly rooted in national systems of corporate governance. By contrast, capital market law would seem to be an exception having undergone intense harmonization in the last few years through the Lamfalussy regulatory architecture. Nonetheless, a European system of securities regulation is not yet in place. Regulation is predominantly domestic, each country having its own securities supervisor, while private laws affecting capital markets are still divergent. This volume examines the on-going debate on corporate and financial law reform from an interdisciplinary perspective. Part 1 explores the political determinants of corporate governance and evaluates the likelihood of convergence and the role of regulatory competition. Part 2 considers the Markets in Financial Instruments Directive (MiFID), its central role in the harmonization of EU securities trading, and the intense debate that preceded its adoption. Part 3 provides deeper legal analysis of the MiFID and other core harmonization measures, including the Prospectus and Transparency Directives. Part 4 takes this analysis one step further by offering future perspectives on the post-fsap era. Conflicts of Interest in Investment Services: The Price and Uncertain Impact of MiFID's Regulatory Framework Luca Enriques in Investor Protection in Europe: Corporate Law Making, The MiFID and Beyond acprof:oso/ The Markets in Financial Instruments Directive (MiFID) lays down organizational and conduct-of-business rules on conflicts of interest of investment firms and banks providing investment services. It is easy to predict that, as a consequence of the home country control principle, the MiFID will lead to de facto complete harmonization of the rules on conflicts of interest: Member States will refrain from enacting further rules on conflicts of interest so as to avoid putting domestic firms at a competitive disadvantage vis-à-vis EC firms. This chapter inquires into this prospective uniformity, making two points. Firstly, the uniformity will be more apparent than real. Secondly, that the uniform rules on conflicts of interests will lower the degree of investor protection in at least some Member States (namely, Italy) where regulation would be most needed in light of the lower degree of competition in the financial services industry, Page 2 of 5

3 the lower level of investor education, and the unimpressive record of the financial services authority. Introduction Published in print: Published Online: May acprof:oso/ This chapter introduces the four BRIC states, namely Brazil, Russia, India and China, as well as the concept of outward foreign direct investment (FDI). These four BRIC states became the leading global economic factors in the 21st century. They are now symbolic of the modern concept of globalisation. The regulation of outward FDI in services involves a complex interplay of national, regional, and multilateral rules. Outward FDI can decrease the one-sidedness of globalisation. FDI also brings capital, skills, and technology that nations need to prove and sustain competitive industries. The various bilateral and regional agreements that contain provisions regarding the protection of investments are the most vital means of regulating outward FDI. The substance of Multilateral Agreement on Investment in Services (MAIS) highlights the common elements of the BRICs multilateral commitments. The Multilateral Agreement on Investment in Services: Scope and Obligations Published in print: Published Online: May acprof:oso/ This chapter reviews the principle obligations of multilateral treaties. It first provides an overview on a proposed Multilateral Agreement on Investment in Services (MAIS). It then outlines the major obligations contained in the proposed global foreign direct investment (FDI) in services treaty. The MAIS aim to regulate investment in services only. It will not deal with double taxation issues. All forms of intellectual property should be included in the definition of investment in the MAIS. In addition, a definition of services must be supplied. The MAIS should also state that parties have the right to expropriate foreign investments. Page 3 of 5

4 It must elaborate that host states are not under any obligation to compensate for inherent disadvantages that foreign investors may suffer. The MAIS would be advantageous, since it would be sector-specific in its focus. Its purpose would also be to liberalise FDI. India Published in print: Published Online: May acprof:oso/ This chapter explains the process of outward foreign direct investment (FDI) from India. Since the liberalisation of its economy in the early 1990s, India has experienced significant economic reforms. The Indian government had loosed regulations for the outbound flow of capital and had eliminated the requirement of approval for foreign joint ventures during the various stages of economic liberalisation. The concentration of Indian outward FDI in the developed countries, especially Europe, is its most prominent characteristic. It has also developed in response to the government's relaxation of the laws governing outward expansion from the 1990s onward. The most important barriers to India's accession to a multilateral services investment treaty seem to be its desire to assure knowledge transfer in connection with FDI and its foreign ownership limits in financial services and telecommunications. The Multilateral Agreement on Investment in Services: Exceptions Published in print: Published Online: May acprof:oso/ This chapter explains the exceptions of Multilateral Agreement on Investment in Services (MAIS) to address sustainability and public interest concerns. It addresses the public policy exceptions that could be raised by states to rationalise departure from the primary obligations of the MAIS on investor protection. The first category of exceptions includes environment protection, labour and human rights, culture, safeguarding of national security, and the prevention of economic Page 4 of 5

5 crises. A second set of exceptions are those relating to quality control of services in domestic markets. Environmental protection exceptions need a careful consideration of the measure that has been imposed, its purpose, and the factual context. The MAIS must also excise a balance between the protection of workers from exploitation and the undue interference with legitimate commercial activities. The principle of sustainable development must appear in the preamble of the MAIS in order to lead arbitration tribunals in the interpretation of MAIS obligations and exceptions. Page 5 of 5