Posts by: Alexandra Keenan

The EU’s Whistleblowing Directive

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On November 26, Directive (EU) 2019/1937 of the European Parliament (EP) and of the Council of October 23 (the “Directive“) on the protection of persons who report breaches of Union law was published in the Official Journal.

Background

In light of recent information scandals including Cambridge Analytica, the Panama Papers and Luxleaks, the European Commission (EC) sought to introduce a unified measure granting protection to persons who report breaches of Union Law. These scandals have highlighted how crucial whislteblowers can be in uncovering unlawful activities, and the European Union (EU) has introduced the Directive to strengthen the enforcement of Union law and protect the freedom of expression of the whistleblower when interviewed on this topic, as explained by Maria Mollica, the EU Commission’s Policy Officer. While various Member States have addressed whistleblower protection in their own national legislation, the protection is often restricted to specific areas and thus the Directive attempts to unify and harmonize the approach taken by all Member States.

The Directive

Protection is afforded to whistleblowers to the extent they fall within the definition of “reporting person,” a natural person who reports or publicly discloses information on breaches acquired in the context of his or her work-related activities (Article 5(7)). In turn, this disclosure extents to information “including reasonable suspicions, about actual or potential breaches, which occurred or are very likely to occur in the organization in which the reporting person works or has worked or in another organization with which the reporting person is or was in contact through his or her work, and about attempts to conceal such breaches.” “Breaches” refers to any act or omission that is unlawful and relate to the Union or defeat the object or purpose of the rules in the Union (Article 5(1) and (2)).

It applies to businesses which employ at least 50 employees and they are required to implement internal channels to facilitate the reporting.

In terms of its scope, the Council of the European Union (EUCO) explains in a press release that “the new rules will cover areas such as public procurement, financial services, prevention of money laundering, public health, etc. For legal certainty, a list of all EU legislative instruments covered is included in an annex to the directive.” Further, regarding the protection awarded to reporting persons, it is stated that “the rules introduces safeguards to protect whistle-blowers from retaliation, such as being suspended, demoted and intimidated. Those assisting whistle-blowers, such as colleagues and relatives, are also protected. The directive also includes a list of support measures which will be put in place for whistleblowers.”

Next Steps

On November 26, the directive was published in the Official Journal and it will enter into force on December 16. Member States then have two years from that date to implement its terms and transpose its requirements into national legislation. Press Release. Legislative Text.

The Position on Equivalence Post Brexit

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Context and Background

On October 22, the House of Commons European Scrutiny Committee (the Committee) published its first report of session 2019/20 (the Report). In section 10, this includes consideration of the UK’s access to the EU financial services markets after Brexit and, more specifically, the European Commission’s recent review of the EU law on equivalence.

The notion of equivalence, and its importance in this context, was explained by the European Commission in a Press Release dated July 29 where it stated that:

“EU equivalence has become a significant tool in recent years, fostering integration of global financial markets and cooperation with third-country authorities. The EU assesses the overall policy context and to what extent the regulatory regimes of a given third country achieves the same outcomes as its own rules. A positive equivalence decision, which is a unilateral measure by the Commission, allows EU authorities to rely on third-country rules and supervision, allowing market participants from third countries who are active in the EU to comply with only one set of rules.”

However, the Report notes that, in light of Brexit, the financial industry of the UK will face a number of hurdles in relation to the provision of services to EU based customers. It is explained that the “current, automatic right of market access for banks, insurers and investment firms based on their UK-issued licence (known as ‘passporting’) will automatically fall away when EU law ceases to apply to and in the UK.”

Consequences

Where these rights fall away and, to the extent EU law ceases to apply in the UK, UK firms and business providing these services will have to comply with local regulations to access any of the EU’s national markets. Alternatively, the UK will need to apply for equivalence. Concerning the European Commission’s recent review of the use of equivalency, the Report notes on the one hand that “the EU would be wary of granting the UK equivalence in the most economically-important sectors (especially investment services) without safeguards that it will not substantially diverge from EU regulations.” On the other, however, it is stated that by not seeking equivalency, the UK runs the risk of seeing economic activity shift from the UK to the EU if UK firms are no longer able to provide services to their EU customers.

Equivalency is and has been addressed in the Political Declarations as annexed to the Withdrawal Agreements. Boris Johnson has indicated that parts of this document are to be renegotiated and it remains to be seen, whether equivalency is one of these points.

In the Report, the Committee asks the Economic Secretary to clarify, by October 31, if the government is seeking any changes to the sections of the political declaration related to financial services. He is also asked to confirm if the government is considering seeking equivalence under EU law post-Brexit and, if so, which specific pieces of EU legislation the equivalence is being prioritized under. In anticipation of the response, the Committee cleared the Commission’s equivalence review from scrutiny. Report. Press Release.

New Rules on European Crowdfunding

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European Parliament’s Economic and Monetary Affairs Committee (“ECON“) published a press release announcing that it has voted to adopt a draft report on the European Commission’s legislative proposal for a Regulation on European crowdfunding service providers (“ECSPs“) (2018/0048 (COD)). READ MORE →

FCA and Changes to Rules of Pension Transfer Advice

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In June 2017, the Financial Conduct Authority (“FCA“) proposed to make changes to the rules on advice relating to transfers from defined benefit schemes to defined contribution schemes along with a consultation paper with further suggested changes. On October 4, the results of this consultation and the final rules were published.

Further changes it had initially suggested were that advisers were to have the same qualifications as investment advisers and a potential ban on charging on a contingent basis. This change, where advisers are only paid where the client acts on the advice, was suggested out of fear its continued use would result in ‘potential harm to consumers’.

Although the final policy published last week did take forward most of the proposals from the consultation, banning contingent charging was not one of them. Responses to this suggestion were ‘polarised’ and concerns surrounded the impact this would have on the availability of advice in the future.

The initial suggestion was in response to a number of instances of poor advice which seemed to correlate with instances of contingent pricing. The evidence however is that ‘contingent charging is a complex area’ and that it ‘does not show that contingent charging is the main driver of poor outcomes’.

The FCA’s Executive Director of Strategy and Competition expects the interventions to ‘improve the quality of advice which will help reduce the number of complaints against advisory firms’.

CMA Toughens Action Against Lloyds Bank – PPI

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Lloyds bank has committed repeated breaches of the Payment Protection Insurance Market Investigation Order 2011 (the “Order“) by failing to inform customers that they have a policy, how much it costs and that they have the right to cancel or change providers. Under the Order, customers are meant to receive this information annually.

Breaches by Lloyds Bank had been reported to the Competition and Markets Authority (“CMA“) and discussed in 2017, with suggestions as to how the lender could prevent this from reoccurring. The latest reports, however, highlight that it failed to send PPI reports to over 14,000 customers since 2012 and had provided wrong information on premiums.

The lender has been issued with legal directions by the CMA to carry out monthly checks, provide more detailed information on its compliance, report breaches within 14 days and organise a review of its compliance systems each year by an independent body.

Although these directions can be enforced by a court, the CMA does not have the authority to impose monetary penalties for this kind of breach.