By Eric Olson

Photo: Hémicycle (Strassbourg), License: Public Domain

European market watchers nervously anticipate the effects of the second Market in Financial Instruments Directive (MiFID II), the newest iteration of European Union investment services regulations. Called the European Union’s “most ambitious, yet controversial, packages of financial reform” by the Financial Times, MiFID II applies to European Union member states plus Iceland, Liechtenstein, and Norway starting on 3 January 2018.

The original MiFID took effect in September 2007 with the aim of increasing the competitiveness of the European markets through uniform controls, ultimately fostering the development of a European single market. The launch of MiFID, however, unluckily coincided with the onset of the financial crisis, the effects of which underscored the shortcomings of the regulations. Because MiFID I primarily focused on equities markets, the regulations were ill-equipped to handle the systemic pressures caused by the 2007 crisis.

In October 2011, the European Union began the process of revising MiFID I, spending the next two years debating various proposals and approving the final version of the regulations in 2014. Although MiFID II was originally set to take effect in 2017, in October 2015, the European Securities and Market Authority (ESMA) - the regulators in charge of MiFID II implementation - announced that due to the technical challenges of such a large-scale implementation, they would not be ready for a 2017 MiFID II launch. Because the law did not contain enough detailed guidance, the European Union delayed implementation by a year so ESMA could produce technical implementation standards.

MiFID II’s changes to investment regulation touch practically every aspect of investing. One of the largest changes in MiFID II is a shift from phone trading to electronic trading in order create a reliable record of trade transactions. For example, trades will now be timestamped to the millisecond, and traders must keep this data on file for at least five years. MiFID II also imposes new regulations on research data used by asset managers to make investments. Previously, traders received data for free, imposing the research costs on their clients through trading fees. Now, traders must budget for trading and research separately, with the goal of providing clients a research trail that allows them to evaluate the efficacy of their asset managers.

Proponents of MiFID II argue that the regulations will achieve their goals of increased transparency, while also creating uniform, efficient market structures. However, financial analysts fear that the wide-reaching regulations could negatively disrupt the market. Regardless of one's opinion, to prepare, market traders must effectively understand how the 1.4 million paragraphs of new rules will affect their work in the European financial markets.

Importantly, non-European traders must also carefully examine the new regulations because any European investments and research data could fall under the purview of the MiFID II regulations. U.S.-based firms especially should heed any guidance the SEC, which has the power to waive some MiFID II rules (such as the prohibitions on direct payment for research) as applied to U.S. traders. On 26 October 2017, the SEC issued three letters providing temporary guidance to financial markets investors detailing how the MiFID II regulations apply to U.S. investors, promising permanent guidance regarding the regulations in thirty months. The SEC, and the global financial sector as a whole, will surely be watching Europe closely after MiFID II’s commencement in early January 2018 to see the positive or negative effects of MiFID II on the market.

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November 08, 2017

By Trevor Schmitt

On October 4-6^th, 2017, The George Washington University Law School hosted the 3^rd annual Privacy + Security Forum. The event, organized by GW Law’s Daniel Solove and Berkeley’s Paul Schwartz, is a veritable who’s who of the global privacy and data protection law landscape with hundreds of speakers addressing a range of topics. As with any privacy and data protection event held in the last five years, the General Data Protection Regulation (“GDPR”) was a primary focus of panel discussions.

For those unfamiliar with the massive European Union (“EU”) regulation, the GDPR is a privacy and data protection law going into effect May, 2018. As a replacement for the EU’s current data protection law, the GDPR regulates the collection, use, and storage of personal information related to individuals in the EU. Key to this regulation is its inclusion of non-EU organizations that offer goods or services to individuals in the EU. This means that organization with any identifiable information related to individuals in the EU should be worried about the GDPR. And with fines up to €20 million or 4 percent of global annual turnover (whichever is higher) for non-compliance, that concern seems justified.

The event continued many of the ongoing conversations relating to issues involved in private sector efforts toward compliance. But that’s not all. Among these issues several overarching themes rose above the normal fray of navigating technical GDPR compliance. Those charged with conforming to the GDPR should be aware of these emerging perspectives: 

“Do what you say. Say what you do. Be able to prove it.” This quote, brought to light by Constantine Karbaliotis, exemplifies the need for entities regulated by the GDPR to provide extensive documentation of their compliance efforts. Doing the right thing is great. But show your work. Not being able to prove compliance with the GDPR is just as damaging as not being compliant at all.

The GDPR is not going away. May 2018 marks the beginning—not the end—of GDPR compliance. The regulation contains a myriad of requirements associated with individual personal information that fundamentally changes how technology will operate. These include the right to erasure (to have one’s data deleted from an entire system), data portability (to move data from one service to another), and privacy by design (keeping privacy involved in every step of engineering data systems) to name a few. Many organizations will need to overhaul their systems to become compliant. These provisions, as well as others contained in the GDPR, promise a transformation of how technology will handle personal data on a global scale.

The most obvious nails will be hammered first. The governmental organizations (Data Protection Authorities) charged with GDPR enforcement have limited resources. They cannot investigate every organization who handles EU personal data. So unless an organization falls into the spotlight realm of GAFA (Google, Apple, Facebook, Amazon), chances are it will not be an initial target of investigation. This leeway, however, only goes so far. Outdated privacy policies, overt non-compliance indicators, and massive data breaches will raise flags to regulators that an organization may not be compliant.

Brexit might leave the UK out in the cold. As of March 29^th, 2019, the United Kingdom (“UK”) will no longer be part of the EU. This means that the UK will become a third country according the the GDPR. Under the GDPR, third countries must undergo a verification process to determine if municipal data laws provide adequate protection for handling personal data related to individuals in the EU. And while lawmakers have announced their intention to adopt an almost exact copy of GDPR regulations, the former EU State must still apply for adequacy following its official exit from the EU. These means that, at least for a time, the UK will not have free flowing data from the EU.

Despite these additional perspectives on the global concerns over GDPR compliance, much is still unknown about how the regulation will impact organizations at scale. What is clear, however, is that organizations who want continued access to EU markets must be compliant or face potentially debilitating fines. These issues will continue to be explored in the Privacy + Security Forum’s internationally-focused sister event early next year. 

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October 11, 2017

By Cameron Peek

Photo: Pixabay/R. Berns, Creative Commons License

In her speech from Florence, Italy on September 22, Prime Minister Theresa May of the United Kingdom (UK) delivered words of hope and optimism, but little substance, for progressing the stalled negotiations regarding the UK’s exit from the European Union (EU) in 2019. “When we come together in the spirit of ambition and innovation…open[ing] our minds to new thinking and new possibilities, we can forge a better, brighter future for all our peoples,” said May, suggesting that the new relationship to be forged is just a matter of thinking creatively. 

The fruit of May’s creative thinking was her proposition of a two-year post-Brexit transition period, during which the UK would still abide by EU regulations and enjoy market access while the final economic relationship continues to be negotiated. Under such an arrangement, May suggested the UK and EU could avoid forcing stakeholders to adapt to a set of interim rules while the final relationship is hashed out. The EU’s chief Brexit negotiator, Michel Barnier, expressed hope that May’s proposal would allow room for negotiations to proceed, so long as UK negotiators understood that during such time there would be no wiggling out of any EU regulatory, budgetary, supervisory, judicial or enforcement instruments and structures.

Other EU leaders were less satisfied with May’s general lack of concreteness. “It is not a matter of creativity,” retorted German MEP Ingeborg Grässle, speaking specifically about the future UK-EU trade relationship, “It is a matter of logic and respect of basic EU law.” In response to May’s vague assurances that the UK legal system would continue to protect the rights of EU citizens living in the UK and that the UK was hopeful in finding a no-physical-barrier solution along the Irish-UK border, French President Emmanuel Macron simply stated, “Before we move forward, we wish to clarify the issue of the regulation of European citizens, the financial terms of the exit and the question of Ireland.”

Perhaps the best hope for progress came from the conspicuous absence of the hardline Brexiteer mantra that “no deal for Britain is better than a bad deal for Britain.” Originally put forth in her January speech at London’s Lancaster House, May’s departure from this rhetoric indicates she may intend to step away from the inflexible position that contributed to stalling negotiations thus far and towards a more realistic recognition that a hard Brexit would be catastrophic for the UK economy. Still, while this softer approach may open doors towards advancing negotiations with the EU, it is equally likely to cause problems for May back at home. There, the uncompromising faction of May’s Conservative party, who according to EU critics insist the UK be allowed to “have its cake and eat it too,” await May at the Conservative conference in Manchester being held from October 1-4. There, it waits to be seen whether May will stay the course in her optimistic reliance on “creative thinking.”

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October 02, 2017

By Anthony Ayres

2016 was a difficult year for international organizations and international governance. Many international institutions that have come to define the current world order suffered hits to their legitimacy.

The United Nations General Assembly

The United Nations General Assembly had a notable year in that it elected a new secretary general in a surprisingly quick decision. All fifteen ambassadors from the security council unanimously supported António Guterres, the former Portuguese Prime Minister, for the position. Many observers expected the selection process to last much longer, and some believed that Russia would block Guterres in favor of an eastern European. However, Russia seemed to favor the prospect of the decision coming during their time as president of the Security Council. Guterres is the former head of the United Nations High Commissioner for Refugees (UNHCR). He served in that position for ten years and as such vowed to carry on being a spokesman for refugees and those who suffer. As the head of UNHCR he appealed to the conscience of the international community over the worst refugee crises since World War II. It remains to be seen whether he will continue to speak out for human rights as the Secretary General.

Guterres ended 2016 by appointing three women to high level leadership positions. Amina Mohammed will serve as his deputy, Maria Luiza Ribeir Viotto will serve as his chief of staff, and Kyung-wha Kang will serve as the special adviser on policy. Guterres has made achieving gender parity a priority of his tenure.

The United Nations Security Council

Outside of their support for Guterres, the United Nations Security Council did not reach much consensus in 2016. The most significant example of this has been the Security Council’s continued inability to meaningfully address the six-year civil war in Syria. After an entire year in which the United States and Russia were unable to come to any real agreement on the situation, the Security Council finally agreed to support a ceasefire that was formed not by the Security Council, but by Russia and Turkey. The Security Council remains deadlocked on any sort of international accountability for the war crimes carried out in Syria by both sides of the conflict.

The International Criminal Court

The International Criminal Court experienced a crisis of legitimacy this past year as South Africa became the second African country to announce that it planned to leave the International Criminal Court. Many supporters of the institution saw this as a decision that could lead to a mass exodus from the Court. South Africa’s main critique of the Court is that it focuses disproportionately on Africa, as all the people it has convicted so far have been African.  The attempt at withdrawal by South Africa has since been blocked by South African courts.

The European Union

The European Union suffered a blow this past year with the UK voting in a referendum to leave the Union. Britain had not played a significant role in the governance of the European Union, with France and Germany playing more of a role as members of the Eurozone. But the UK was one of the most powerful countries in the European Union. Their vote to leave had immediate ramifications and continues to today. However, the nation has yet to leave the European Union as the negotiations on their departure have been slow moving.

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March 28, 2017

By Jordan Federer

The Numbers

After 2015, a year in which over one million refugees and migrants traveled to the EU, 362,376 people arrived in 2016 by crossing the Mediterranean Sea. Of the 362,376 refugees and migrants that arrived by sea in 2016, 48% entered through Greece (Eastern Mediterranean Route), 50% through Italy (Central Mediterranean Route), and 2% through Spain (Western Mediterranean Route). Once migrants and asylum-seekers entered the EU through Greece, they tried to continue their journey towards Western Europe vis-à-vis the Western Balkan Route (through Macedonia, Serbia, Hungary, and Croatia). Syrians, Iraqis and Afghanis were the predominant nationalities of those that made use of the Western Balkan Route. Overall, refugees and migrants traveled out of the following countries: Syria (23%), Afghanistan (12%), Nigeria (10%), Iraq (8%), Eritrea (6%), Guinea (4%), Côte d’Ivoire (4%), The Gambia (4%), Pakistan (3%), and Senegal (3%). In 2016, approximately 1,195,265 asylum applications were filed and the top five nationalities of asylum applications were Syria, Afghanistan, Iraq, Pakistan, and Iran. The top five destination countries for asylum seekers were Germany, Italy, France, Greece, and the UK. Approximately 56% of first instance asylum applications received a positive decision. The United Nations High Commissioner for Refugees (UNHCR) Accommodation/Relocation Program currently provides those whose applications either have not yet been reviewed or those who have received a negative decision with temporary places to stay either in “apartments, hotel buildings, host families and relocation sites with services,” which serve as alternatives to camps.

Events

In February and March of 2016, Macedonia closed its border along the northern part of Greece. The move by Macedonia was “part of a chain reaction” of border restrictions in both Slovenia and Serbia. This coordinated effort resulted in the closure of the Western Balkan Route, stranding thousands of migrants, mostly Syrian and Iraqi migrants, on the Greek side of the border. In the same month, the EU and Turkey executed a deal (The “EU-Turkey Statement”), in which “Ankara would take back all illegal migrants who cross to Greece, including Syrians, in return for the EU taking in thousands of Syrian refugees directly from Turkey and rewarding it with more money, early visa-free travel and progress in its EU membership negotiations.” The UNHCR argues that the EU-Turkey Statement’s commitment to pushing refugees back into Turkey and Syria where they face persecution is a violation of the European Convention of Human Rights. Additionally, as a result of the Balkan border closures and the implementation of the EU-Turkey Statement, migrant camps across Greece were turned into quasi-detention centers. Thousands of people fleeing war torn countries such as Syria and Iraq found themselves at the mercy of the Greek government and the EU-Turkey Statement’s directive. Organizations such as Amnesty International, Human Rights Watch, and Doctors Without Borders have publicly criticized the Greek government’s treatment of detained refugees and the conditions as “inhumane” and “fetid.”

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March 27, 2017

By Nicholas Nalbantian 

Pre-Brexit

Prior to the decision to leave the European Union, David Cameron, then the Prime Minister of the United Kingdom, attempted something new in EU politics. In January 2013 Cameron promised to negotiate a “new settlement” with the EU, including winning an array of concessions from Brussels in order to convince the British people to remain in a reformed EU. On February 20, 2016, Cameron finalized a deal with the (now dubbed) EU-27 who, even at the time, seemed incredulous of the idea that a state would leave the EU. Nonetheless, Cameron managed to secure some changes for the UK, chiefly that bloc workers will be limited to “in-work” social welfare benefits for four years and a pledge that the UK will not be responsible for the maintenance of the Euro, the European common currency. Of existential significance, Cameron also got a pledge that the UK would be excluded from any commitment “to an ever closer union” and the introduction of a “red-card” mechanism to block EU Commission proposals that were not to Britain’s liking, provided 55% of national parliaments agree.

With the UK’s vote to leave, these concessions by the EU-27 will not be implemented. However, as anti-EU sentiment grows in Europe, it will be up to Brussels to consider whether Brexit could have been avoided if Cameron’s moves for reform had been taken more seriously. Although any future EU reform may be a forlorn hope as Guy Verhofstadt’s (leader of the Liberal MEPs) decision to make a deal with Antonio Tajani’s center-right European People’s Party (EPP), which won Tajani the presidency of the European Parliament. The EPP was the same political party in power from 2009 – 2011 during the fallout of the Great Recession. The EPP now controls all three leadership roles in the EU with Jean-Claude Juncker as President of the European Commission and Donald Tusk as President of the European Council. The text of the agreement between the EPP and the Liberals, both pro-EU parties, reads like a diagnosis that the remedy for the EU’s woes is “more Europe.” The move is also seen as a rebuke of Eurosceptics and Socialist parties who had hoped for greater dialogue on systemic EU reform.

Brexit

On June 23, 2016, the United Kingdom held a referendum to decide whether or not the country should remain a part of the European Union. In the early hours of the morning on June 24 2016, the results emerged as a 52% to 48% victory for the Leave campaign, Prime Minister David Cameron would resign later that same day. The 71.8% turnout for the referendum vote was the highest turnout experienced in a British election since 1992. In the wake of David Cameron’s resignation, Theresa May, the former Home Secretary and long-time Member of Parliament, became the second woman to serve as Prime Minister on July 13, 2016.

The referendum to leave the European Union would be the first time that a nation state has voted to leave the European Union, thereby reducing its membership to 27. While Greenland voted to leave in 1985, it also remained a member of the Kingdom of Denmark so its relations with the EU are more akin to European overseas territories, like French Polynesia, than a true withdrawal. With the EU often described as the pinnacle of multinational integration, the significance of the UK’s decision to quit the bloc cannot be overstated. 

Un-United Kingdom

An almost immediate consequence of the Brexit vote, aside the falling value of the pound, was the threat to the relationship of the UK states. On October 2, 2016, the Belfast High Court heard legal challenges whether the UK Government needs the consent of the Northern Irish Assembly to leave the EU, it was rejected. In a similar vein, Nicola Sturgeon, First Minister of Scotland, announces that a second Scottish Independence referendum is likely by 2020, if not earlier. Perhaps most damaging of all is the threat to the Good Friday Agreement, with the Brexit vote splitting along sectarian lines, with 85% of Catholics voting remain, and the unsettled issue of the open border between Northern Ireland and the Republic of Ireland. 

Spilling into 2017

With little consideration for “Years in Review,” the events of Brexit continued into this year and it would be inaccurate not to mention some of the more recent developments. The UK High Court, one of the Senior Courts of England and Wales, rule in November that the May government could not invoke Article 50 of the Lisbon Treaty without Parliament’s consent. The UK Supreme Court confirmed that decision in January. Despite some difficulties with the House of Lords, Parliament has now authorized Prime Minister May to invoke Article 50. As of printing, May is expected to trigger Article 50 on Wednesday, 29 March, but with elections soon European officials suggest formal talks won’t start until June.

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March 22, 2017

By Aure Demoulin 

On June 23, British voters decided that the United Kingdom would leave the European Union. Over the summer, the results of the referendum led to a change in government. Now that Theresa May has taken over as Prime Minister, time has come for her to negotiate the best possible split with the European Union.

One of the most important issues that will be discussed during the negotiations is immigration. Indeed, more than half of the voters who chose “leave” did so because they believe that immigration originating from the EU is a threat. Unfortunately for “leave” supporters, several elements place the UK at somewhat of a disadvantage to negotiate full control over UK borders while retaining a very desirable free market.  

The issue of immigration is intrinsically linked to that of free trade: the UK wants to significantly reduce the free movement of people into the UK, and many are under the impression that it can achieve this goal while also maintaining tariff-free access to the European Union. David Davis, Secretary of State for Exiting the European Union, expressed this view and stated his conviction that “once the European nations realize that we are not going to budge on control of our borders, they will want to talk, in their own interest.”

Unfortunately for the UK, the EU paints quite a different picture: Angela Merkel has made it clear that the UK will not be able to cherry-pick only the pieces of the EU that it wants to retain. Martin Schulz, president of the European Parliament, agreed with her when he stated: “there is no intention to ensure that the UK receives a bad deal, but it is clear that there can be no better deal with the EU than EU membership. The EU moreover must look out for its members’ interests and uphold its founding principles. The single market, for example, entails four freedoms (capital, goods, services, persons) and not three, or three and a half.”

The UK’s aspirations are thus likely to collide with several important EU interests, which will make the task of UK negotiators all the more difficult. In a talk given at Georgetown “University Law Center on Europe After Brexit,” the Ambassadors to the US from France, Germany, the Slovak Republic, and the European Union made it clear, once again, that the UK could not obtain a better deal now than the one it had in the Union. That is, in part, because the EU needs to deter future exits. Because nationalist parties in other Member States will closely watch the deal that is eventually agreed upon, the EU may have to walk away even from terms of a deal with the UK that are economically attractive to the EU.

Moreover, some of the UK’s demands are simply unrealistic. Millions of UK citizens still live and work in EU member states. As a result, the UK retains a non-negligible interest in keeping barriers to the free movement of people minimal for its own citizens. Boris Johnson, the new foreign secretary, promised that “British people will still be able to go and work in the EU; to live; to travel; to study; to buy homes and to settle down.” Unfortunately, this objective is unrealistic considering the UK’s competing interest in keeping its own borders relatively closed-off to immigration from the EU: Johnson is unlikely to be able to fulfill his promise without offering reciprocal rights to citizens of other EU Member States.

Furthermore, Davis’s claim that the EU will want to reach an agreement in its own interest is perhaps true, but is even more accurate concerning the UK. Indeed, the UK seems to actually have more to lose in the case of a “no deal” scenario: while it exports about 45% of its total exports to the EU, exports to the UK are only about 10% of total EU exports. Therefore, the UK is not in a position of force and it will also be in its own self-interest to make concessions.

Finally, it is worth remembering that the entire “leave” process is playing against British interests. To start the “Brexit” process, the UK must first invoke Article 50 of the Treaty on the European Union (TEU). A decision of the British High Court held that May cannot invoke Article 50 unless the British Parliament authorizes her to do so by a majority vote. This is a first internal hurdle that May will have to overcome.

However, once the UK does invoke Article 50, the country will have only two years to negotiate its future relationship with the EU: the currently existing relationship will automatically expire when a new agreement is reached, or when the two-year negotiation period comes to an end.

For reasons highlighted above, the negotiations are likely to draw out, and reaching a compromise will be especially difficult considering the animosity some European leaders have displayed towards the British decision. If, however, an agreement is reached, it will still need to gain approval from at least a qualified majority of 72% of the Member States, representing at least 65% of the population of the European Union.

In fact, much more likely is that all 27 national parliaments will need to give approval. Indeed, if the proposed agreement is considered to be of “mixed competence,” that is to say an agreement that covers not just trade, but also foreign and security policy, the parliaments of all 27 Member States will have to ratify the agreement before it can come into effect.

As Philip Hammond, Chancellor of the Exchequer, noted, the shortest time in which all 27 national parliaments ratified an agreement in any former EU treaty is almost four years after the negotiations closed. As such, and with the two-year clock ticking, May and her negotiators will be facing an exceedingly difficult task once the negotiations begin: it may be time for the UK to reevaluate its objectives.

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November 15, 2016