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Sophie Bertin is a senior advisor to Covington in their Financial Services and Antitrust practice. Her current focus is on financial services topics, ranging from State aid, implementation of regulations, interplay between various regulations, including the new data protection rules; as well as the impact of new technologies (like Blockchain) on the financial services business models and resulting competition challenges.

Sophie has over 20 years of professional experience and she has broad experience helping banking clients on their strategy, restructuring, reorganization, risk management, regulatory and compliance, back-office operations and automation, as well as, advising on various issues around banking regulation and competition law (most notably State aid).

I.    Judgement

On 5 May 2020, the German constitutional court (Bundesverfassungsgericht BVerfG“) decided in a landmark judgment about the compatibility of the Public Sector Asset Purchase Program launched by the European Central Bank (“ECB“) in March 2015 (“PSPP“)[1] with German constitutional law.

The BVerfG expressly excluded the EUR 750 billion Pandemic Emergency Purchase Program (“PEPP“) launched in March 2020 to mitigate the economic impact of the COVID-19 pandemic from its decision.

In brief, the BVerfG ruled that with the establishment of the PSPP in 2015 the ECB by far exceeded its competences and, therefore, acted ultra vires. The main reason is that the decision of the ECB lacks sufficient proportionality considerations due to insufficient balancing of the ECB’s monetary policy objective against potential effects on this policy.

More fundamentally, the judges of the BVerfG further ruled that they are not bound by the judgment of the Court of Justice of the European Union (“CJEU“)[2]. The CJEU decided upon submission by the BVerfG in 2018 that the ECB had the power to establish the PSPP. The BVerfG argues that while generally the interpretation and application of the laws of the European Union fall within the responsibility of the CJEU (so-called principle of uniformity and coherence of EU law), there are – under the established case law of the BVerfG – exceptional cases of substantiated ultra vires challenges where the BVerfG is not bound by judgments of the CJEU. According to the BVerfG, this follows from the legal structure of the European Union which has not yet passed the threshold to a federal state. The BVerfG rejects the principle according to which the Member States, via the acceptance of the EU Treaties, have given power to the EU institutions, in particular to the CJEU. According to the BVerfG, the Member States of the European Union are still “Masters of the Treaties”. The European Union does not have the power to determine its own competences (so-called ‘competence-competence’). As a consequence,  Member States are not bound by decisions of EU institutions which would effectively amount to a treaty amendment or an expansion of competences which would in turn imply the existence of a competence-competence of EU institutions.

The BVerfG also ruled that the decision of the ECB about the PSPP does not infringe the prohibition of monetary financing under Art. 123(1) of the Treaty of the Functioning of the European Union (TFEU).

The BVerfG defined the following legal consequences resulting from the ultra vires infringement:

  • As of the end of a three months period following the judgement of the BVerfG, Deutsche Bundesbank will no longer be allowed to participate in the implementation and execution of the ECB-Decision, unless the ECB describes by the end of that period in a comprehensible and substantiated manner that the monetary policy objectives pursued by the PSPP are not disproportionate to the economic and fiscal policy effects.
  • The German government and the German parliament (Bundestag) must take active steps against the PSPP in its current form, e. they are required to take steps seeking to ensure that the ECB conducts an improved proportionality assessment.

By way of background, the BVerfG has no legal power over institutions of the European Union. Accordingly, the ECB is not bound by the judgment of the BVerfG and, thus, not legally bound to implement its orders. Only German institutions (such as Deutsche Bundesbank, the German government and the German parliament) must observe the judgement of the BVerfG.


Continue Reading Judgement of the BVerfG dated 5 May 2020: ECB’s Public Sector Asset Purchase Program

 – Final Report of the High Level Forum on the Capital Markets Union –

I. Capital Markets Union

The Capital Markets Union seeks to remove regulatory and non-regulatory obstacles to the free movement of capital across borders, thus creating new opportunities across the Single Market for businesses, savers and investors and increasing the financial and

On April 3, 2020, the European Commission launched two public consultations on a new digital finance strategy for Europe and on a retail payment strategy for Europe, which will both run until July 15, 2020.  The consultations follow two other consultations on an EU framework for markets in crypto-assets and on a potential initiative on digital operational resilience in the area of financial services, both launched in December 2019.  The efforts are part of the larger Commission’s Digital Finance Outreach 2020 to prepare the new digital finance strategy.  However, due to the COVID-19 pandemic, most events have either been cancelled or postponed.  An overview of upcoming events, such as DG FISMA’s online roundtables and other national events, is available here.
Continue Reading European Commission Launches Key Consultations Regarding Digital Finance

In a joint report (the “Report”) published on 7 January 2019, the EU’s three financial industry watchdogs considered the need for potential strategies to help coordinate and promote innovation in the EU fintech space.

The Report by the European Securities and Markets Authority (“ESMA”), European Banking Agency (“EBA”) and European Insurance and Occupational Pensions Authority

Introduction

On December 3, 2018, the Dutch Authority for Consumers & Markets (“ACM”) published a speech from its board member, Cateautje Hijmans van den Bergh, regarding potential competition law concerns in the financial technology (“FinTech”) sector.

In particular, further to the European Parliament’s study on FinTech and competition law (the “Study”) – as discussed in

On July 9, 2018, the Economic Affairs Committee of the European Parliament (the “EP”) published a study identifying potential competition law concerns in the financial technology (“FinTech”) sector (the “Study”).

This Study follows the Consumer Financial Services Action Plan launched by the European Commission in March 2017, which aimed to promote greater choice and better

On 13 February 2018, the Spanish Markets and Competition Commission (“CNMC”) fined four major Spanish banks €91 million for colluding to fix the price of interest-rate derivatives (“IRDs”) attached to syndicated loans above market price.  The decision is an additional indication that syndicated loans are increasingly coming under the scrutiny of competition authorities, after the European Commission last year commissioned a study on competition issues in this market that will be completed by the end of the year 2018.

Continue Reading Is the heat on in the syndicated loans market? Spanish Competition Authority fines banks for price fixing on interest rate derivatives

In response to questions from a Member of the European Parliament, the European Data Protection Board (EDPB) has provided much needed clarification on the overlap between the General Data Protection Regulation (GDPR) and the EU Payment Services Directive (PSD2) in an open letter.  As we identified in a previous blog post on this topic, the interaction between PSD2, aimed at increasing the seamless sharing of data, and the GDPR, aimed at regulating such sharing, raises complicated compliance concerns.  The EDPB’s letter aims to clarify some of these difficult compliance questions.

Continue Reading European Data Protection Board Provides Clarification On PSD2

Blockchain technology has the potential to revolutionise many industries; it has been said that “blockchain will do to the financial system what the internet did to media”.  Its most famous use is its role as the architecture of the cryptocurrency Bitcoin, however it has many other potential uses in the financial sector, for instance in trading, clearing and settlement, as well as various middle- and back-office functions.  Its transformative capability also extends far beyond the financial sector, including in smart contracts and the storage of health records to name just a few.

A blockchain is a shared immutable digital ledger that records transactions / documents / information in a block which is then added to a chain of other blocks on a de-centralised network.  Blockchain technology operates through a peer network, where transactions must be verified by participants before they can be added to the chain.

Notwithstanding its tremendous capabilities, in order for the technology to unfold its full potential there needs to be careful consideration as to how the technology can comply with new European privacy legislation, namely the General Data Protection Regulation (the “GDPR”) which came into force on 25 May 2018.  This article explores some of the possible or “perceived” challenges blockchain technology faces when it comes to compliance with the GDPR.


Continue Reading The GDPR and Blockchain

The Payment Services Directive (PSD2), which took effect on January 13, 2018, puts an obligation on banks to give Third Party Providers (TPPs) access to a customer’s payment account data, provided the customer expressly consents to such disclosure. The new legislation is intended to improve competition and innovation in the EU market for payment services. The General Data Protection Regulation (GDPR), which is due to take effect from May 25, 2018, enhances individuals’ rights when it comes to protecting their personal data. The interaction between PSD2, aimed at increasing the seamless sharing of data, and the GDPR, aimed at regulating such sharing, raises complicated compliance concerns.

For example, where banks refrain from providing TPPs access to customer payment data for fear of breaching the privacy rights of their customers under the GDPR, competition authorities may consider this a breach of competition law. This concern is already becoming a reality for banks – on October 3, 2017, the European Commission carried out dawn raids on banking associations in Poland and the Netherlands following complaints from fintech rivals that the associations were not providing them with what they considered legitimate access to customer payment data.


Continue Reading Overlap Between the GDPR and PSD2