Private Law and Market Regulation in the Face of Contemporary Grand Challenges
Private law has been traditionally conceived as that part of the law which secures a sphere of positive freedom for private parties and is concerned with interpersonal justice. In contrast, market regulation has been commonly associated with a distinctive set of rules adopted for instrumental purposes, such as the prevention of market failures and distributive justice. While market regulation typically intervenes ex ante to prevent harm to individuals and the common good, private law generally operates ex post after the harm has already been suffered. Over the past several decades, however, the dichotomy between private law and market regulation has become blurred. In particular, traditional national private law, notably contract and tort law, has been viewed by the EU as an instrument for achieving market integration, leading to the emergence of legal hybrids, such as ‘European regulatory private law’ and ‘European supervision private law’. Conversely, the traditional private law discourse in national legal systems has been increasingly influenced by policy considerations, both in individual and interest-group litigation before civil courts.
These developments have given rise to many intricate questions about the relationship between private law and market regulation. What is more, the big societal challenges that we are facing today may add another dimension to our understanding of this relationship, prompting the need to re-conceptualise it and develop a common theoretical framework. Among such challenges are climate change mitigation; a switch to a resource efficient circular economy; and the ongoing digitalisation of the marketplace and societies at large (in particular, through the use of such technologies as digital platforms, Big Data analytics, artificial intelligence (AI), and blockchain).
The aim of this research project, which includes but is not limited to financial services, is to explore the interplay between private law and market regulation within the EU multi-level system of governance and beyond in the face of contemporary grand challenges. This topic is studied in the context of general private law (i.e., contract, tort, and property law), economic law/EU internal market law (including, e.g., consumer law, non-discrimination law, unfair trade law, financial services law, environmental law, and energy law), as well as other disciplines (such as law and economics and political science.
The project was launched at the international conference organised in collaboration with the Groningen Centre for European Financial Services Law on the occasion of the inaugural lecture of its director, Prof. Olha O. Cherednychenko, appointed as Professor of European Private Law and Comparative Law at the University of Groningen. The conference was held on 9-10 December 2019 in Groningen. For more information, please visit the conference website.
For more information on this project please visit Projects | Research & Projects | University of Groningen (rug.nl) - Legal Infrastructure of Markets - Market Regulation and Private Law in the EU Multi-Level System of Governance.
Towards Sustainable Financial Practices
Ensuring sustainable financial practices, i.e. practices of financial institutions that are not driven only by commercial interests but also by the interests of individual consumers and societies at large, is a necessary prerequisite for the sustainability of financial services as such. The pre-crisis EU and national financial regulation and supervision proved unable to control the excesses in which financial institutions were indulging prior to the crisis and to ensure adequate consumer/client protection across the EU. The crisis has clearly underlined the need for reform. At present, however, many issues still exist concerning the way in which financial services should be regulated and the supervision over the financial sector should be organized so as to ensure the financial inclusion of consumers and SMEs, trust and co-operation between financial institutions and their clients, and the resilience of the financial sector as a whole against new financial turmoils.
- improving financial services and protections for consumers and SMEs;
- enhancing the quality of management and culture in financial institutions;
- ensuring an optimal interplay between rule-making and enforcement in the financial sector in a multi-level EU governance system.
The project is funded by the University of Groningen within the framework of the investment agenda 2015-2018 - a EUR 35 million plan for improving teaching and research in the selected areas. The project budget is around EUR 800.000.
For more recent information on this project please visit Projects | Research & Projects | University of Groningen (rug.nl) - Sustainable Society - Sustainable Consumer Finance.
Financial Regulation and Civil Liability in European Law: Towards a More Coordinated Approach?
The post-crisis era has witnessed the rise of EU public regulation and supervision in many areas of financial services and activities that were traditionally governed by national private laws. Regulatory transaction-related rules aimed at protecting consumers and investors were introduced or strengthened in the areas of payment, mortgage, investment, and insurance. European supervisory authorities with far-reaching monitoring and intervention powers in these fields were established. In addition, the two central policy initiatives – Banking Union and Capital Markets Union – were launched to catalyse financial integration in the EU by making the financial sector safer and more diverse. Although effective client redress, including compensation for losses resulting from violation of regulatory standards, is important for the ability of EU financial regulation to attain its policy goals, so far the issue of civil liability across various areas of financial services and activities has not been consistently addressed neither at EU or national levels. Whereas some EU measures focussing on consumer/investor protection, such as the Payment Services Directive or Credit Rating Agencies Directive, contain some rules on civil liability, others, like Markets in Financial Instruments Directive (MiFID) or its successor, MiFID II, do not. Having translated many investment firms’ private law duties of care and loyalty towards their clients into financial supervision standards, MiFID and MiFID II only left Member States with a duty to ensure their administrative enforcement. The provisions on civil liability are even completely absent in the EU prudential regulatory measures, such as Capital Requirements Directive IV or Bank Recovery and Resolution Directive, which were primarily driven by the financial stability concerns and adopted with a view to creating the Banking Union. As a result, the ability of aggrieved parties to obtain redress for violation of European regulatory standards still largely depends on national private laws. The role of civil liability as a compensatory and regulatory device across the entire spectrum of EU financial regulation has not been analysed in a comprehensive manner in scholarly works. This international research project has brought together leading scholars and young researchers to explore the interplay between financial regulation and civil liability in the EU multi-level system of governance across different areas harmonised by the EU, both in a transactional setting (eg payments, investment services, mortgage and non-mortgage-backed consumer credit or insurance, prospectus, credit rating, trading on a regulated market) and the prudential domain (eg fit and proper test for top bankers, remuneration, bank resolution tools). The project was launched in November 2017 at the international roundtable conference organized by the Groningen Centre for European Financial Services Law (GCEFSL) in collaboration with the Institute of Advanced Legal Studies (IALS).
The book Financial Regulation and Civil Liability in European Law edited by Olha Cherednychenko and Mads Andenas was published with Edward Elgar in 2020.
Financial Literacy and Behaviors among Dutch Consumers in the Wake of the Third-Party Inducement Ban
The GCEFSL researchers from the Faculty of Economics and Business (Hermes, de Bruin, Kramer, Meyer) together with Cherednychenko (Faculty of Law) designed and launched an empirical project to investigate the experiences of the Dutch households with financial services after the introduction of the third-party inducement ban for financial institutions in 2013. During 2017 the research team developed a number of questions to measure financial literacy at the household level. In addition, a set of questions was developed with which various personal virtues can be measured. The data were obtained by adding these RUG research questions as separate modules to the DNB Household Survey run by De Nederlandsche Bank (DNB) in close cooperation with CentER of Tilburg University. This survey contains unique panel data on work, pensions, housing, mortgages, income, possessions, loans, health, economic and psychological concepts, and personal characteristics. The data contain information from over 2,000 households for the period 1993-2017. The results of the project were presented at the international conference 'Financial Consumer Protection, Financial Advice, and Changing Remuneration Structures' organised by the GCEFSL and hosted by the Dutch Authority for the Financial Markets on the occasion of its 15th anniversary.
Study for the European Commission Directorate-General FISMA on Irresponsible Consumer Credit Lending across the EU in the Post-Crisis Era
In the context of the review of the 2008 Consumer Credit Directive planned for 2019, Olha Cherednychenko has been commissioned a study on irresponsible consumer credit lending across the EU by the European Commission's Directorate-General for Financial Stability, Financial Services and Capital Markets Union. The study has explored the meaning of the concept of 'responsible lending' in the context of consumer credit, has identified the most imminent irresponsible lending practices in consumer credit markets, and has tentatively analysed their key drivers. It has also demonstrated the current lack of a coherent EU policy agenda in terms of addressing consumer over-indebtedness. In the light of these findings, the author has recommended that the 2008 Consumer Credit Directive is revised along the lines of the concept of responsible lending and has identified areas for further research.
This study has led to the following publication: O.O. Cherednychenko & J.M. Meindertsma, ‘Irresponsible Lending in the Post-Crisis Era: Is the EU Consumer Credit Directive Fit for Its Purpose?’ 42 Journal of Consumer Policy 2019.
Study for the European Parliament on the Mis-selling of Consumer Credit Products
Retail financial markets across the EU have been upset by large-scale mis-selling of financial products to consumers. The GCEFSL researchers Olha Cherednychenko and Jesse Meindertsma have conducted a study for the European Parliament's Committee on Economic and Monetary Affairs in which they have examined the problem of mis-selling with a particular focus on consumer credit. The study has identified the most problematic products and practices in consumer credit markets that may cause consumer deriment. It has also revealed some important limitations of the current EU regulatory framework for consumer credit in providing adequate consumer protection. The study is available here.
Study for the European Parliament on Access to the Single Market in Financial Services in the Wake of Brexit
In the aftermath of the UK’s vote to leave the EU, Olha Cherednychenko has conducted a study for the European Parliament Committee on Economic and Monetary Affairs (ECON) on the UK's potential withdrawal from the EU and single market access under EU financial services legislation. The study examines how the current EU financial services legislation ensures or facilitates access to the EU single financial market for EU/EEA Member States and third countries. The analysis focuses on passporting / mutual recognition regimes for EU/EEA Member States and third country equivalence regimes. The study is available here.
Study for the European Parliament on Offshore Practices in the Overseas Countries and Territories of the Kingdom of the Netherlands
GCEFSL researchers Herman Bröring and Olha Cherednychenko, together with the colleagues from the Department of Constitutional Law, Administrative Law and Public Administration of the Faculty of Law, have conducted a study for the European Parliament on the legal, political and institutional framework concerning offshore practices related to money laundering, tax evasion and tax transparency in the overseas countries and territories (OCTs) of the Kingdom of the Netherlands (ie Aruba, Curaçao, St Maarten, Bonaire, Statia, and Saba). The study was requested by the European Parliament Committee of Inquiry into Money Laundering, Tax Avoidance and Tax Evasion (PANA) set up in the wake of the 'Panama Papers' revelations. The overall aim of the study is to contribute to a better understanding of the extent to which the EU and the Kingdom of the Netherlands, as an EU Member State, can exert influence on the OCTs in the fight against offshore practices. The final report is available here.
Study for the European Parliament on the Impact of Financial Services in EU Free Trade and Association Agreements on Money Laundering, Tax Evasion and Elusion
GCEFSL researchers Olha Cherednychenko and Heinrich Winter, together with the T.M.C. Asser Institute, have been awarded the project for the European Parliament in the field of anti-money laundering (tender EPRS/IMPT/SER/15/012N). The study has explored the impact of the liberalisation of trade in financial services between the EU and third countries in Africa, America, Asia and Europe on money laundering, tax evasion and elusion. It has concluded that the liberalisation of trade in goods and services, including financial services, with developing countries increases the threat of money laundering and is therefore likely to contribute to an increase in illicit financial flows from these countries to the EU. To reduce this threat, the study provides a number of policy recommendations. The final report is available here.
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