We offer three basic mechanisms to improve the governance of ‘normal times’ financial supervisors (as opposed to resolution agencies and systemic risk boards). To enhance supervisory effectiveness, we propose first to institutionalise strong CEOs, with boards or commissions being limited to basic policy decision-making and to monitoring. Second, lower-level staff would get increased line responsibilities. Finally, subjecting supervisors to reinforced disclosure requirements would improve market responsiveness.

The ability of the UNCITRAL Model Law on Cross-Border Insolvency to enhance unity in bankruptcy (i.e., universalism) has been doubted. Unlike the EC Regulation on Insolvency Proceedings, it does not provide rules on international jurisdiction and automatic recognition. Thus, both recognition of foreign proceedings and relief should be sought. The Model Law (like the EC Regulation) also lacks rules for corporate groups. For these reasons, commentators have predicted that countries implementing the Model Law will exploit the discretion and flexibility enshrined in this regime to protect local interest and will avoid maximum cooperation and deference to foreign jurisdictions. Nonetheless, this paper suggests that the Model Law has the potential of facilitating unified and centralised proceedings both for single and group companies. Moreover, the paper reports the results of a comparative empirical study (which investigated Model Law decisions) demonstrating that the Model Law is in fact on the road to universalism. Recognition under the Model Law has become something of a routine, group centralisations are being facilitated and a wide range of relief is being granted. The paper nevertheless points to the current shortcomings in the application of the Model Law and where it can be improved.

Iceland was hit hard by the financial crisis in 2008, especially by the spill-over effects of its banking failure when all of its three major banks collapsed. This article examines the Icelandic regulatory response to the crisis. The Icelandic case is special as the banks were not only too big to fail but also too big to rescue. Thus, legislation dealt with the failure of the banks and the aftermath of the crisis. First, the most important legislation was the Emergency Act that provided the Financial Supervisory Authority (FME) with emergency authority over banks in danger of becoming insolvent. The role of banks is integral to any economy. In order to ensure normal banking services and the safety of deposits in Iceland, three new banks fully owned by the Icelandic government were established on the basis of the Emergency Act. The most controversial provision of the Emergency Act granted depositors' claims priority over other unsecured claims in the winding up of the collapsed banks. Now the EFTA Surveillance Authority has concluded that this did not constitute a breach of the EEA Agreement. The Emergency Act made necessary amendments to the Act on Financial Undertakings concerning the reorganisation and winding up of financial undertakings. Second, a Special Investigation Commission was established by law. To enable a search for the truth, the legislation was far-reaching. The primary role of the Commission was to seek the truth. The report of the Commission discloses information that otherwise would not have been disclosed because of bank secrecy laws and sheds a unique light on the practices of the banks. Third, it was considered important that the law would be enforced by all necessary means. Thus, the temporary position of Special Prosecutor was established by law. Fourth, cross-border banking in the EU/EEA is examined in the light of the so-called Icesave dispute between Iceland on the one hand and the UK and the Netherlands on the other. It sheds a light on some of the major flaws of cross-border banking in the EU/EEA already known and criticised long before the crisis. When the Icelandic banks collapsed, the government of Iceland declared that all deposits in domestic banks and branches were guaranteed but not those in foreign branches. This gave rise to the question of whether Iceland could be held liable on the basis of the EU Deposit Guarantee Directive or because of discrimination of depositors based on nationality. In any case, the financial crisis has shown that there is a gap between law and reality. The conclusion of this article is that it is questionable whether the potential economic benefits of full integration in the field of cross-border banking outweigh the dangers and risks that come with it. If not, the price of full integration may be too high.

The purpose of this article, and of its earlier companion article (Part (1) Rule-making, 12 European Business Organization Law Review (2011) p. 41), is to examine the implications of the new European Securities and Markets Authority which was established in January 2011.

In the wake of the financial crisis, the case for institutional reform and for conferring regulatory and supervisory powers on a central EU authority became compelling. But any institutional design would have struggled given the necessity for compromise. The central difficulty is one of nuance. Where on the spectrum from national powers to EU powers, and with respect to regulation and supervision, should any new body's powers be placed if optimum outcomes are to be achieved? The question is further complicated by the different dynamics and risks of centralising rule-making and of centralising supervision, even if there is considerable symbiosis between these activities.

This article considers ESMA's supervisory powers. It argues that, by contrast with its rule-making powers, the current and potential extent of ESMA's supervisory powers has pushed ESMA too high up the spectrum towards EU intervention. Local supervision of the EU rule-book represents an important safety valve for the EU financial market but this safety valve may be obstructed by ESMA's undue standardisation of supervisory practices. ESMA's extensive direct supervisory powers are also troubling given concerns as to their effectiveness. It was always going to be a challenge to draw the dividing line between ESMA's supervisory powers and those of national competent authorities. But the line may have been drawn too far on the side of operational centralisation.

The purpose of this article, and its companion article, is to examine the implications of the new European Securities and Markets Authority, established in January 2011.

In the wake of the financial crisis, the case for institutional reform and for conferring regulatory and supervisory powers on a central EU authority became compelling. But any design for institutional reform of EU financial market regulation and supervision would have struggled to deliver an optimum model, given the necessity for compromise. The central difficulty is one of nuance. Where on the spectrum from national powers to EU powers, and with respect to regulation and supervision, should any new body's powers be placed if optimum outcomes are to be achieved? The question is further complicated by the different dynamics and risks of centralising rule-making and of centralising supervision/enforcement, even if there is considerable symbiosis between these different activities.

This article considers ESMA's rule-making powers; it is accompanied by a companion piece on ESMA's supervisory powers. It examines the considerable powers which ESMA has been granted in the rule-making sphere and argues that ESMA is likely to lead to significant intensification of the EU rule-book for financial markets. While a uniform rule-book carries risks, there are countervailing benefits. There are also promising signs that ESMA may become an effective rule-maker and may prove an effective mechanism for managing the risks of the intensifying rulebook. But the institutional design model is flawed. Treaty restrictions have led to a troublesome compromise in terms of ESMA's design, particularly with respect to Commission control and ESMA independence. Overall, ESMA's design is under-ambitious with respect to rule-making.

By contrast, as the companion piece argues, the extent of ESMA's supervisory powers, real and potential, may have pushed ESMA too high up the spectrum towards EU powers. Local supervision of the EU rule-book represents an important safety valve for the EU financial market, and should not be obstructed by over-centralisation. Once supervision was placed on the reform agenda, however, it was always going to be a challenge to draw the dividing line between ESMA's powers and those of national competent authorities. The line may, however, have been drawn too far on the side of operational centralisation.

In the fifteen year period to 2008, the private equity industry grew enormously in Europe, to the point where it began to be seen as a rival to the public markets. This gave rise to concerns and calls for the private equity industry to be regulated. The financial crisis, and in particular the contraction of the market for debt prompted by the collapse of Lehman Brothers in September 2008, has led to a significant reduction in the number and value of private equity deals. However, if anything, the financial crisis has led to increased calls for regulation of the industry. This paper examines the development of private equity transactions in Europe, and analyses the nature of these transactions. It then considers whether the concerns raised in relation to private equity are justified. Broadly, the arguments in favour of regulation of private equity may be divided into two kinds: the need to increase transparency in the industry by imposing disclosure obligations, and systemic risk concerns. These arguments are considered, and the terms of the Alternative Investment Fund Managers Directive (AIFMD) are examined in the light of these issues. It is argued that the arguments in favour of regulation of private equity are weaker than has been suggested and that this Directive does not adequately differentiate between hedge funds and private equity when imposing this regulatory regime.

This article discusses the management of systemically important banks in distress with the primary aim of creating a platform for further discussion. As a backdrop, the experiences gained in Sweden from two crises in less than 20 years are presented. After a discussion of the liquidity factor and central banks' role as lender of last resort, the focus is on handling the initial acute phase of a crisis. The appropriate goals of a crisis management system are discussed, as are ways of achieving immediate control of a bank in distress and principles related to the valuation of a bank in need of assistance. The main point presented is that the analytical building blocks are universal and by identifying them a common ground for further analysis could be established. One conclusion is that the proposed EU regime for crisis management in the financial sector will not be the final word. Finally, some thoughts regarding a pan-European system for crisis handling, based on a common corporate law for banks, are presented.

This article examines the recent development of EU regulatory policy with respect to the alternative investment industry up to and including the adoption of a major new Directive. This Directive is just one part of a much larger package of new EU measures relating to the financial markets but its emergence merits being singled out for three reasons. First, the account of how it came about and what it sets out to do touches upon two overarching concerns that are frequently expressed about laws that are made in the immediate aftermath of a crisis: opportunistic use of crisis situations to achieve unrelated goals, and crisis-induced regulatory overreaction. Second, with the regulation of alternative investments being addressed internationally as well as in Europe, close examination of this area provides revealing glimpses of ways in which key players in the EU policy formation process have simultaneously used the financial crisis to exert influence internationally and used international developments to further an internal agenda. Finally, out of the exceptional level of controversy that surrounded the legislative process for the Directive come some important insights on relations between the EU Institutions and, in particular, on the European Parliament's increasing deftness in putting its mark on EU financial market regulation.

In the wake of the financial crisis considerable momentum has built up behind proposals to extend central counterparty (CCP) clearing in the over-the-counter derivatives markets. However, implementation is proving complex. This paper argues that one cause of this complexity is that the public sector is seeking to incorporate into legislation (and require the wider use of) a privately owned and operated risk management mechanism. As a matter of law, the paper argues that CCP clearing can be understood as a market-generated ‘legal device’; in other words, one designed to support the markets by means of the interaction of various private law techniques. Following this analysis through, the paper highlights the benefits and drawbacks which derive from the legal techniques underlying CCP clearing (standardisation of contracts, asset-backing, netting and so on) and argues that these qualities are inherent to the device. It concludes that the inherent capacity of CCP clearing gives rise to a qualitatively different set of challenges for policymakers to those arising from technical implementation and it explains that both types of problem need to be addressed if the CCP prescription is to be effective.

A Danish Green Paper published in July 2010 provides an in-depth analysis of current EU law on insider dealing against the background of the case law of the Court of Justice of the European Union, and provides some very useful examples that illustrate the extent of the ban on insider dealing and thereby also when trading may be considered lawful.

EC Recommendation 2008/473/EC of 5 June 2008 concerning the limitation of the civil liability of statutory auditors and audit firms presented three methods for limiting auditor liability: (1) the establishment of maximum financial amounts of compensation (liability caps); (2) adoption of proportionate liability; and (3) limitation of liability by agreement between the auditor and his client. The Recommendation was based on several arguments according to which the limitation of liability would be necessary to guarantee the sustainability of the audit profession given the enormous threats posed by civil litigation against auditors, especially against the member firms of the biggest international networks.

The paper starts with an analysis of the arguments presented by the European Commission for issuing the Recommendation. Each of the proposals made is also discussed separately. This preliminary approach serves as a platform for the treatment of issues not considered during the groundwork for the Recommendation, such as the risks of ‘veil piercing’, that threaten the shielding structure of international audit networks and the impact of the recent financial crisis. As regards the latter, the paper carries out an assessment between the increasing risks of the crisis-related lawsuits for the audit profession and the need to strengthen investor confidence in auditors' work. Moreover, it includes a discussion of recent developments in EU audit policy as a result of the crisis and particularly of the findings (e.g., Valukas Report) that arose from some of the major bankruptcies occurring in the US and in Europe.

The results of the analysis of the first arguments used by the EC together with the impact of the crisis lead to a conclusion regarding the need for an updated interpretation of the 2008 Recommendation.

To promote a smooth and effective exercise of minority shareholders' rights attached to voting shares in publicly held companies, some regulators and law-makers have recently enacted provisions granting key rights only to minority shareholders who have been continuously holding a stake for a minimum holding period (‘long-term shareholders’).

This article argues that making certain shareholder rights dependent on continuous ownership is a good way of developing corporate governance because it helps management to act in the long-term interest of the company. In other words, fostering long-term shareholders' activism may be a tool for strengthening the long-term best interest of the corporation because it allows directors to manage their enterprises in a manner that emphasises the long term over the short term.

This article also explores whether the new laws and regulations have an impact on the shareholders' equal treatment norm and briefly addresses certain practical issues that these new laws and regulations could raise.

Commission Regulation (EC) No 2273/2003 regulates price stabilisation activities for equity initial public offerings (IPOs) in Europe as a form of permitted market manipulation. To test the actual practices and effects of stabilisation we empirically analyse the support provided by underwriters of 141 Italian IPOs from 2000 through to 2008. We find that underwriters support the share prices not only by short covering, but also by posting pure stabilisation bids. Pure short covering is mostly used by more reputable underwriters for IPOs with higher institutional participation and more secondary shares in the offer, whereas the opposite is true for pure stabilization IPOs. We try to identify some patterns in underwriters' aftermarket activities and analyse the extent to which the stabilisation activity, permitted for four weeks after trading begins, produces temporary or permanent effects on share prices.

We contribute to the literature on cross-shareholdings and board interlocks in Italy which finds possible evidence of enlarged collusion, that is, collusion established through board interlocks among companies that do not necessarily operate in the same business sector. We focus on Italian blue chips (about 80% of total market capitalisation) in 1998 and in 2008, examining the entire network of cross-shareholdings higher than 2% of total voting rights which we compare to the entire network of interlocking directorates among these blue chips. We find that in 1998 enlarged collusion only takes place among those blue chips that are also linked by cross-shareholdings (Mediobanca Galaxy), which reinforces the hypothesis that in Italy this form of collusion is functional to shareholder expropriation. In addition, we find that in 2008 new shareholders appear at the top of the Galaxy and the Galaxy extends its reach through board interlockers to the rest of the blue chips.

The reform of the Transparency Directive is presently on the political agenda, with one of the key questions focusing on the level of harmonisation: should the current minimum harmonisation be retained or is a move towards full harmonisation advisable? After confirming legal competence for the full harmonisation of European capital markets law, this article weighs the pros and cons of full harmonisation in the case of ownership disclosure rules. The ability to overcome the costly legal fragmentation of the current regulatory regime for notification of major shareholdings throughout Europe is revealed as the greatest benefit of full harmonisation. As full harmonisation not only reduces compliance costs but also boosts investor confidence, all market participants stand to benefit. Despite this, full harmonisation also carries certain costs as it inhibits regulatory competition, increases complexity in implementing EU law in national legal systems and carries the danger of a petrification effect. The article reveals that these cost factors are not sufficient to undermine the case for full harmonisation for financial instruments requiring notification, as well as for thresholds, timeframes and notification formats. It goes on to show that legal regimes can retain their adaptive efficiency by allowing them to conduct temporary legislative experiments. However, the article refrains from generalising this finding, encouraging a targeted full harmonisation approach for the Transparency Directive.

Financial operations and the regulation thereof have undergone drastic changes in China in the past few decades. Among these changes, the emergence and development of various financial conglomerates are quite noteworthy. At present, such financial conglomerates mainly exist in a de facto sense, due to the lack of corresponding specific laws and regulations. The regulatory structure is also immature in this respect. In particular, no meaningful coordination mechanism exists among different sectoral regulatory authorities, and the division of supervisory responsibilities in relation to financial conglomerates remains to be clarified. Different factors taken into account, it is submitted that a single mega-regulator is not desirable for the time being, while an effective coordination mechanism based on separated, functional regulation, with the central bank as the leading coordinator, is a more realistic and potentially better choice for China.

Systems of corporate governance are not static. Rather, they are constantly evolving and are shaped and redesigned through formal legal rules, judicial decisions, business practices and changes in the prevailing ideological consensus. The 2007–2008 ‘credit crunch’ and the subsequent recession call for a reconsideration of the role of labour within the mechanisms of corporate governance and control. Accordingly, employee voice mechanisms, existing and potential, will be re-assessed in the academic realm and also as part of a wider renewed political discourse. Assessing the potential for implementation and prospects of employee voice is paramount within this process, and central to its success. The analysis made below maintains that regulations and their outcomes are the result of a blend of factors which interact with one another. It constructs a sociological and political explanation for the laws and actual practices concerned with the influence of employees on the firm's strategic decision-making process. Focusing on the legal regime which governs corporate insolvency restructuring in Germany, the US and the UK, and specifically the legal crossroads where capital and labour interact, this article reaffirms the view that capitalist systems create institutional structures which are difficult to alter, whereas developing mechanisms of employee voice are likely to adjust and ultimately reflect the existing institutional structure.

Corporate governance in China has gone through enormous changes since China embraced the idea of market economy in 1978. Most of these changes were initially inspired by the German and Japanese but more recently by the Anglo-American systems. There have been varying degrees of success and failure in this process. What are the reasons behind its success and failure? What is the way forward? In this article, we focus on the evolution of internal monitoring mechanisms in listed companies to explain that the process of borrowing foreign law in China is not a simple process of convergence or persistence, as is believed by the convergence and persistence schools. It is a process of what we call sinonisation and this is the reason behind its success and failure. As we attempt to explain, the sinonisation process is the right approach for China given its current state of economic, social and political development. Thus, it is not helpful to critique the Chinese system from the convergence or persistence perspective. China needs to develop its own model and the sinonisation process allows this to happen. However, Chinese law-makers and reformers need to recognise the weaknesses in the sinonisation process and take steps to remove these impediments in order for a workable model to be developed.

Takeover has been widely accepted as a necessary method to improve the performance of certain inefficient firms. However, strict enforcement of the Mandatory Bid Rule (MBR) would make takeovers impossible in China. As a result, its operative effect has been diluted through a series of measures. First, the China Securities Regulatory Commission has always granted exemptions from mandatory bid obligations to avoid the detrimental effects of strict enforcement. Second, in practice, certain firms that do not apply for exemptions or fail in their applications are able to circumvent their mandatory bid obligations by launching takeovers within an appropriate time period when the market is booming. Third, this circumvention is facilitated by rules allowing for the adjustment of the bid consideration. Fourth, the proportional partial takeover bid rule was introduced in 2006, further weakening the regime. These realities make the MBR exist in name only in China, yet it can still create obstacles to takeovers. Therefore, it should be abolished.

Soon we can expect a new type of company: the European Private Company (Societas Privata Europaea – SPE) aimed at small and medium-sized enterprises in the EU. In this article, we analyse how creditors of future SPEs will be protected. In the first part, we identify on a general level how creditors can be protected. Then we turn to the tools used in the different draft versions of an SPE statute (Commission Draft, EP Draft and Presidency Compromise). As these do not cover all aspects of creditor protection, the next part examines how these gaps ought to be filled. Subsequently, we discuss whether, from a normative perspective, creditor protection in the EU should be further harmonised. Overall, we conclude that what emerges is a mixed picture between various levels of European and national rules. This may not be ideal but it may be the price worth paying in order to reach political agreement on SPE law.