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The Reform of the Transparency Directive: Minimum or Full Harmonisation of Ownership Disclosure?

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Abstract

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.

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References

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  19. Ibid.

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  21. See the Explanatory Notes on the Government Bill for the Risk Limitation Act, BT-Drs. 16/7438, at p. 14.

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  26. In detail, Fleischer, supra n. 23, with additional references.

  27. For more details, see the references supra n. 26.

  28. A quick overview is provided by Fleischer and Schmolke, supra n. 26, at p. 847 et seq., with additional references.

  29. See Federal Government, supra n. 26, at p. 23 et seq.

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  31. These national provisions are of course based on the regulatory option provided in Art. 1(1) of the Transparency Directive I.

  32. For details, see the Commission Staff Working Document, supra n. 31.

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  37. For more detail, see Mazars, Transparency Directive Assessment Report (2010) 3.3.7 (p. 106 et seq.), 3.6.1.4 (p. 123 et seq.) and 3.8 (p. 144 et seq.).

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  71. With regard to the uniform distribution of goods and services throughout the single market, see Roth, supra n. 5, at p. 38 et seq.

  72. Sceptical in view of the particularities of local markets, Moloney, supra n. 14, at p. 8 et seq.; with regard to the legislative aim of fostering ‘investor competence’, see also Moloney, supra n. 62, at p. 46 et seq.

  73. Recently taking stock of the situation in respect of different fields of the law, N. Reich, ‘Von der Minimal- zur Voll- zur “Halbharmonisierung” — Ein europäisches Privatrechtsdrama in fünf Akten’, ZEuP (2010) p. 7, with additional references.

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  76. See European Commission, Communication from the Commission on Cross-Border Business to Consumer e-Commerce in the EU, 22 October 2009, COM(2009) 557 final; making reference thereto, European Commission (2006), supra n. 76, at p. 5 et seq. (sub 3.1.).

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  84. Generally on all harmonisation measures regardless of their type, see Moloney, supra n. 14, at p. 28: ‘Inadequate harmonization which sits uneasily with national enforcement remedies and domestic rules is not only unlikely to deliver efficiencies but is likely to significantly increase costs and public choice risks’; see also R. Zimmermann, ‘Consumer Contract Law and General Contract Law: The German Experience’, 58 Current Legal Problems (2005) p. 415, at p. 458 et seq.

  85. Gsell and Schellhase, supra n. 2, at p. 27; Riehm and Schreindorfer, supra n. 6, at p. 249; Tamm, supra n. 6, at p. 760; Wilhelmsson, supra n. 6, at p. 227 (‘legal mess’).

  86. See H. Kötz, ‘Rechtsvereinheitlichung — Nutzen, Kosten, Methoden, Ziele’, 50 Rabels Zeitschrift für ausländisches und internationales Privatrecht (1996) p. 1, at p. 11; Möllers, supra n. 8, at p. 502; on harmonisation measures in general, but in particular on ‘high level regulatory centralisation’ in financial markets law, Moloney, supra n. 14, at p. 28, with n. 37.

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  87. See ESME, supra n. 46, at p. 5, marg. no. 4: ‘However, a major complaint among investors is the cost to investigate and report according to 27 systems cross Europe (and around 60 systems internationally) with differing approaches to what holdings are required to be reported, as well as when.’

  88. See the description of the general mood in Moloney, supra n. 14, at p. 34.

  89. Mazars, supra n. 39, at 3.1.1, p. 94: ‘It is when the stakeholders start expressing an opinion on more detailed or practical measures of the Directive that their dissatisfaction becomes visible. This is mainly due to the fact that the possibility for Member States to adopt more stringent requirements has undermined the Directive’s attempt to harmonise. To clarify: the Transparency Directive has not succeeded in simplifying the notification of major holdings in the EU. One of the consequences of the lack of harmonisation is that the burden to declare thresholds has not diminished despite the adoption of the Directive. It is a missed opportunity to reduce compliance costs.’ The study provides a detailed picture of the general opinions surveyed. See also the results of a further study carried out by CRA International, Evaluation of the Economic Impacts of the Financial Services Action Plan (March 2009), at p. 174; and the Commission Staff Working Document, supra n. 38, at Annex 5 sub D), p. 52 et seq.

  90. See Commission Staff Working Document, supra n. 31, at marg. no. 12, with n. 22, reporting that asset managers in particular have complained about the current level of legal fragmentation.

  91. See AMF, Promoting Better Regulation: Outcome of the Consultation (November 2010), at p. 10.

  92. For the (long-term) legislative goal of a ‘single rule book’ for financial services law in the EU and its contribution to uniform ownership disclosure requirements, see European Commission, supra n. 9, at p. 11. The creation of an integrated EU financial market was the stated goal of the FSAP Regulation: see Tison, supra n. 5, at p. 443 et seq. If nothing else, according to some authors the application of the minimum harmonisation approach to the Transparency Directive has limited its potential to reach its stated goals: see, for example, Moloney, supra n. 14, at p. 183 et seq.

  93. On these advantages, see Buchmann, supra n. 42, at p. 36, with additional references. Given that this entails the lowering of specific costs for investors who are active EU-wide, the legal basis for full harmonisation is provided by Art. 114(1) TFEU — under the condition that the measure brings actual cost benefits. The competence required for full harmonisation in financial markets law is covered in detail supra section 3.

  94. See Tison, supra n. 5, at p. 443 et seq.

  95. Generally on the (full) harmonisation of the ownership disclosure requirements in securities markets, see E. Ferran, Building an EU Securities Market (Cambridge, Cambridge University Press 2004), at p. 159: ‘The strongest potential justifications for these features [i.e. maximum or rigid minimum harmonisation] of the new issuer disclosure regime appear to lie in the achievement of more standard, and therefore more easily comparable, information relevant to investment decisions.’ In comparison, on the current regime under the Transparency Directive II, see European Commission, supra n. 9, at p. 11: ‘More stringent and additional rules at national level as well as provisions in the Directive allowing for derogations/discretion at national level results in an insufficient harmonisation level… The consequence of the lack of harmonisation and of unclear rules is that compliance costs are higher for investors and issuers and that disclosed information may not always be comparable.’ [emphasis added]

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  96. See the 18th recital of the Transparency Directive II, supra n. 3.

  97. In this context, see European Commission, supra n. 9, at p. 11; sceptical with regard to adopting investor confidence as a core regulatory objective and political leitmotif for EU capital markets law, see also Moloney, supra n. 62.

  98. See generally A. Oehler, M. Rummer and S. Wendt, ‘Portfolio Selection of German Investors: On the Causes of Home-biased Investment Decisions’, 9 Journal of Behavioral Finance (2008) p. 149, with additional references.

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  99. See Möllers, supra n. 8, at p. 503, who points to numerous studies that predict that harmonisation in the European securities market leads to positive growth; see also Moloney, supra n. 14, at p. 10 et seq.

  100. For a general view of the post-Financial Services Action Plan financial markets regime see Moloney, supra n. 14, at p. 4: ‘Following the completion of the FSAP in 2005 and an explosive reform period, the EC can now be regarded as the primary regulator of the EC’s financial market’, and at p. 46: ‘[T]he FSAP, in combination with the Lamfalussy process, has heavily diluted regulatory competition in the production of laws…’.

  101. See Mazars, supra n. 39, 3.1 (p. 94): ‘The fundamental principles of the Directive are not questioned.’ As stated earlier, this article is not intended to develop an ideal disclosure regime from scratch but builds on the regulatory status quo.

  102. In more detail, W.W. Bratton, J.A. McCahery and E.P.M. Vermeulen, ‘How Does Corporate Mobility Affect Lawmaking? A Comparative Analysis’, 57 American Journal of Comparative Law (2009) p. 347; H. Fleischer, in H. Fleischer and W. Goette, eds., Münchener Kommentar zum Gesetz betreffend die Gesellschaften mit beschränkter Haftung — GmbHG (Munich, C.H. Beck 2010), Introduction, marg. no. 227 et seq.

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  103. S. Deakin, ‘Two Types of Regulatory Competition: Competitive Federalism versus Reflexive Harmonisation. A Law and Economics Perspective on Centros’, 2 Cambridge Yearbook of European Legal Studies (1999) p. 231, at p. 260; Ferran, supra n. 97, at p. 50 et seq.; see also Moloney, supra n. 14, at p. 10: ‘The minimum harmonisation model … in principle, accommodated flexibility, innovation, and, of particular importance in the EC context, local market sensitivity. [T]his model was not successful, however…’; Moloney, supra n. 8, at p. 1373 et seq.

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  104. See Schouten, supra n. 8, at p. 180; see also J. Armour and D.A. Skeel, ‘Who Writes the Rules for Hostile Takeovers, and Why? — The Peculiar Divergence of U.S. and U.K. Takeover Regulation’, 95 The Georgetown Law Journal (2007) p. 1727, at p. 1750 et seq.

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  105. See also the Commission Staff Working Document, supra n. 38, at para. 26 in n. 76, according to which ‘more stringent national measures may be a driver of possible future convergence’.

  106. Fundamentally, D.C. North, Institutions, Institutional Change and Economic Performance (Cambridge, Cambridge University Press 1990), at p. 80 et seq.; the application thereof to capital markets, H. Fleischer and D. Zimmer, in H. Fleischer and D. Zimmer, eds., Effizienz als Regelungsziel im Handels- und Wirtschaftsrecht (Frankfurt a.M., Verlag Recht und Wirtschaft 2008) p. 9, at p. 15.

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  107. Already discussed in Fleischer and Schmolke, supra n. 8, at p. 408.

  108. On the advantages of such a retrospective evaluation of legislative consequences, see the brief remarks by Schmolke, supra n. 43, at p. 918, in respect of the Lamfalussy process; see also Moloney, supra n. 14, at p. 29: ‘Paradoxically, it [i.e., regulatory competition] may also provide valuable evidence on how harmonization should proceed, where clear evidence emerges of market support of particular regulatory choices.’

  109. See generally, Schmolke, supra n. 43, at p. 912 et seq.

  110. See previously Fleischer and Schmolke, supra n. 8, at p. 408; now also in this vein, the recommendations in Mazars, supra n. 39, 3.1.7 (p. 97); and generally, K.U. Schmolke, ‘Die Einbeziehung des Komitologieverfahrens in den Lamfalussy-Prozess — Zur Forderung des Europäischen Parlaments nach mehr Entscheidungsteilhabe’, EuR (2006) p. 432, at p. 444 et seq.; for a contrasting opinion, see Thieme, supra n. 42, at p. 285, with additional references.

  111. Also to this effect, Mazars, supra n. 39, at 3.1.7, p. 97: ‘In order to ensure validity of the legislation over time, more market-resistant principles of transparency of ownership should be included in the Level 1 Directive and the harmonised figures and practical details specified in a Level 2 implementing measure under the Lamfalussy approach. In short, a better combination of Principle and Rules based approaches’; for a critique of the expanding regulatory stranglehold of the prevailing Level 1 Directives, see Schmolke, supra n. 112, at p. 446 et seq., with additional references; for an overview of the most recent developments in regulatory strategy at the EU level, following the financial crisis and taking into account the upcoming change in the regulatory architecture, Moloney, supra n. 8, at p. 1335 et seq.

  112. See Questions 19 and 20 cited from the Commission Consultation Document supra n. 9. In favour of the more frequent use of the regulation as a regulatory instrument, see Bachmann, supra n. 54, at p. 633. A survey has indicated that the majority of affected market participants across Europe favour more uniform regulation, while the majority of regulatory bodies are against it, see Mazars, supra n. 39, at 3.8.3.1, p. 147.

  113. Mazars, supra n. 39, at 3.1.7, p. 97.

  114. Ibid.

  115. See Commission Staff Working Document, supra n. 38, at para. 25.

  116. Commission Staff Working Document, supra n. 38, at para. 25, with n. 74 and Annex 7, as well as Question 22 in European Commission, supra n. 9, at p. 12.

  117. See also Clerc and Demarigny, supra n. 50, at p. 26, favouring the full harmonisation of these elements of the ownership disclosure regime.

  118. Particularities reflecting the law of individual Member States could of course still be taken into account in a standard form; see Mazars, supra n. 39, at 3.2.13, p. 98.

  119. See Art. 7 of the Commission Proposal for a Directive of the European Parliament and of the Council amending Directives 1998/26/EC, 2002/87/EC, 2003/6/EC, 2003/41/EC, 2003/71/EC, 2004/39/EC, 2004/109/EC, 2005/60/EC, 2006/48/EC, 2006/49/EC and 2009/65/EC in respect of the powers of the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority, 26 October 2009, COM(2009) 576 final.

  120. See Mazars, supra n. 39, at 3.8.3, pp. 146–150; also Clerc and Demarigny, supra n. 50, at p. 27, speaking of a ‘simplification substantielle’.

  121. As already discussed in Fleischer and Schmolke, supra n. 8, at p. 409.

  122. It is only with regard to the annual financial reports — which are of no further interest to us here — as mentioned in Arts. 4–6 of the Directive and the obligation to disclose additional information of Art. 16 that Art. 7 requires Member States to provide for the responsibility and liability of the issuer or its administrative, management or supervisory bodies.

  123. Thus, M. Zimmermann, ‘Privatrecht im Kapitalmarktrecht der Gemeinschaft’, GPR (2008) p. 38, at p. 43; see also Zetzsche, supra n. 8, at p. 250.

  124. See Zetzsche, supra n. 8, p. 250: ‘Moreover, as enforcement is the practical aspect of law, enforcement measures need to be harmonised by regulation as well, in order to create the full benefit of harmonisation’; see also U. Noack and D.A. Zetzsche, ‘Verdeckter Positionsaufbau in börsennotierten Aktiengesellschaften — Anlegerschutz, Publizität, Enforcement’, in S. Grundmann, et al., eds., Unternehmensrecht zu Beginn des 21. Jahrhunderts, Festschriftfür Eberhard Schwark zum 70. Geburtstag (Munich, C.H. Beck 2009) p. 569, at p. 585 et seq.

  125. On the many problems this causes in German stock corporation law, see H. Fleischer and D. Bedkowski, ‘Stimmrechtszurechnung zum Treuhänder gemäß § 22I1 Nr. 2 WpHG: Ein zivilgerichtlicher Fehlgriff und seine kapitalmarktrechtlichen Folgen’, Deutsches Steuerrecht (2010) p. 933.

  126. See the Commission Staff Working Document, supra n. 38, at para. 26, p. 13: ‘reinforced harmonisation’. Earlier, the Commission had used the terms ‘adequate’ or ‘effective’ harmonisation, without explaining them further; see Tison, supra n. 5, at p. 449 et seq.

  127. The Commission Staff Working Document points out that the majority of affected market participants desire this, as also documented in the Mazars study, supra n. 39, at 3.3.2, p. 101.

  128. See, for example, European Commission, Communication of the Commission — Review of the Lamfalussy Process, Strengthening Supervisory Convergence, 20 November 2007, COM(2007) 727 final, at p. 5 sub 3.3; further, Commission Staff Working Document, supra n. 31, at paras. 22–24, to which the Commission Staff Working Document supra n. 38 refers explicitly with regard to its reinforced harmonisation approach, at para. 26, with nn. 78, 80 and 81.

  129. Suggested by Moloney, supra n. 14, at p. 27.

  130. Critical, however, of this differentiated approach, citing the lack of legal certainty and transparency, is Tison, supra n. 5, at p. 449 et seq. Yet these points can be countered by a sufficiently clear directive.

  131. On ‘incremental harmonisation’ in the context of matters of competence, see Roth, supra n. 5, at p. 24.

  132. Committee on the Internal Market and Consumer Protection, Draft Report, 25 June 2010, 2008/0196 COD (Rapporteur: A. Schwab), particularly in proposed amendment 59 (to Art. 4(1)) and its reasons, at p. 115; in depth on this new approach, H.-W. Micklitz, ‘The Targeted Full Harmonisation Approach: Looking Behind the Curtain’, in Howells and Schulze, eds., supra n. 2, at p. 47; critical of the actual dimensions this ‘targeted full harmonisation’ is taking in the context of the Directive on Consumer Rights, Stürner, supra n. 4; M. Loos, ‘Full Harmonization as a Regulatory Concept’, in M. Stürner, ed., Vollharmonisierung im Europäischen Verbraucherrecht? (Munich, Sellier, European law Publishers 2010), at pp. 47 and 87 et seqq.

  133. Reich, supra n. 75, at p. 38: ‘In order to render it more concrete, a new way of looking at what could be described as “half harmonisation” is being proposed, because it attempts to refine the usage of the “full” and “minimum” harmonisation principle. Thus, this is not a matter of either/or, i.e. “full” vs. “minimum” harmonization, but rather an “optimal” and “efficient” combination of various regulatory aims and levels…’; similarly, Howells and Schulze, eds., supra n. 2, at pp. 8 and 24.

  134. Commission Proposal, supra n. 4.

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    Holger Fleischer LLM (Director) &  Klaus Ulrich Schmolke LLM (Senior Research Fellow)

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Fleischer, H., Schmolke, K.U. The Reform of the Transparency Directive: Minimum or Full Harmonisation of Ownership Disclosure?. Eur Bus Org Law Rev 12, 121–145 (2011). https://doi.org/10.1017/S156675291110004X

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