Revenge Of The Trilogues

They sound like something from a sci-fi horror movie, but the Trilogues are actually already among us. In an excellent article, Vicky Marissen, MD of PACT European Affairs, has explained how these "three-way discussions" have moved further and further away from their rightful place in the latter part of the ordinary European legislative procedure and are now being used informally as a legislative shortcut - something the new EU agreement seems likely to make even worse.

Relying more on trilogues means that about 90% of EU legislation is adopted on first reading without any genuine legislative debate; and secondary legislation is being used to kick more sensitive cans down the Rue du Luxembourg. Indeed, trilogues are now happening within just a few days of each other without publishing the changes agreed, so it's impracticable for those outside the trilogues to follow or attempt to engage in what is really a closed debate. This was a frequent problem in the course of agreeing the new Payment Services Directive, for example.

The recent EU institutional agreement on better regulation won't fix this, as the Commission is able to use its participation in trilogues to (wrongfully) assume the role of legislator - note that its proposal for better regulation didn't even mention the word "trilogue" and merely stated that "The three institutions will ensure an appropriate degree of transparency of the legislative process, including of trilateral negotiations between the three institutions." If anything, that agreement promises more informal trilogues:

"Where appropriate, the three institutions may agree to coordinate efforts to accelerate the legislative adoption process, both during each institution's internal preparatory steps and during the inter-institutional negotiations."

Not only does this increasingly closed shop raise the risk of poor, ill-considered drafting that creates costs for the broader community, but the mere perception of an opaque process also widens the gap between EU legislators and EU citizens - a gap that is already wider than the one between national legislators and their citizens.

The EU's legislative process needs to be more transparent than national processes, not less, if the EU is to be respected or seen as a Good Thing.

I'm amazed the Brexit fans aren't sounding the alarm over this...

Oh, wait, no I'm not. The Brexit 'debate' is pure politics, not connected to anything real.

Developing EU Policy On #Crowdfunding

I've finally had a chance to catch up with the minutes of the initial meeting of the EC's "European Crowdfunding Stakeholders Forum" (ECSF) in late September. Clearly these are still early days and the Commission is rightly (and rather atypically!) waiting to see how the various types of crowdfunding develop at national level, rather than rushing to regulate.

Unfortunately, it seems there was no time to take account of the UK regulations on P2P lending and crowd-investment, which took effect on 1 April 2014. These are cited in either the European Banking Authority's submission to last December's EU crowdfunding consultation, or the AK Wien high level review of various platforms.

That's a pity, since the UK regulation addresses all the various issues raised in those reports relation to peer-to-peer lending and crowd-investment.

It's interesting that the AK Wien report calls for rewards/donation-based crowdfunding to be regulated like in similar fashion, the UK declined to include that activity - and even the US has excluded donation-based funding from the otherwise all-embracing US securities framework. Perhaps AK's concern is that Europeans won't even start rewards/donation platforms without explicit permission to do so. That would be consistent with the civil law expectation that governments should specify which activities are lawful, rather than the common law view that the law should follow commerce where necessary to resolve issues that arise. But, unfortunately, that's no way to foster the growth of a nascent industry, as the Commission has recognised in its subtle approach to this area so far.

It's encouraging, however, that both the Commission and the ECSF seem to be taking a holistic approach to crowdfunding generally. That also reflects the Commission's approach to regulating payment services, on which the UK industries' self regulatory approach to crowdfunding has been based. At least that may produce a more unified set of rules, rather than the FCA's multiple rule books governing the same operational risks at the platform level. Perhaps a more unified approach will emerge from the FCA's review of the effectiveness of its rules in 2016.

In the meantime, the ECSF should also consider whether there are any tax incentives for personal investors that may be impacting the growth of alternative financial services. Again, the UK policy work in this area should be instructive, as discussed in the Treasury's consultation on proposals for including P2P loans in Individual Savings Account 'wrappers'.

#RedTape Redline - Mark-up Your Laws!

During any respectable contract negotiation, the party 'holding the pen' produces a mark-up or "redline" of each draft of the contract showing the changes it has accepted so far from the previous version. In fact, it's considered offensive and sneaky not to show those changes. It's as if you're hiding something and don't want to make it easy for the other side to understand the deal they're being asked to sign up to. 

Not so for the people drafting our laws and regulations. No. While they have their own internal mark-up of how a piece of legislation is being amended from time to time, they keep it to themselves and only use it for the purpose of writing up an amending 'statutory instrument' that shows only the change and where it is supposed to be plugged into the original. Nuts, unless of course you're still writing with a goose feather, or you're the one proposing the changes and you want to slow your opponents down by making them reverse-engineer what the changes looks like in context. Or you're one of the legal publishers everyone is forced to pay in order to get an up-to-date version showing all the changes once they are passed, since not even the government's own legal publishing unit has the resources to keep up-to-date with how all our laws have changed.

I am not the first to complain about this, as I pointed out in 2009 in the context of the Free Legal Web initiative, which you can now see is defunct. Dragged under the waves by the combined weight of institutional inertia, investor scepticism and despair... but I'll leave it to Nick Holmes to tell that story.

And yet, in true Terminator fashion, this won't die. Yesterday, we were treated to a presentation on the new OpenLaws initiative to "make legislation, case law and legal literature more accessible" (please,  take the survey).

It's thought that OpenLaws might benefit from including European law. Certainly it brings European cash, which is smart. But if there's one institution committed to less transparency than the UK Parliament, it's the European Union. You'll see that I've previously considered launching a quest to find the source of European law, but abandoned the idea immediately. Anyone who's tried to keep track of the European Commission amendments to draft directives and regulations as they ooze their way through the European "ordinary legislative procedure" quagmire will understand the true value of the lobbyist. I can't imagine sunlight ever falling on that process.

But I may be wrong. And it could well be that the OpenLaws' social media tools concentrate enough rage against the EU machine that transparency will be introduced. In the meantime, we'll have access to case law, articles, commentary and unofficial redlines of legislative amendments, even if we can't shake the uneasy feeling that only a few officials fully understand what our Parliaments are churning out.

 

Word Count

Doing the rounds on email last week:

• Pythagoras' theorem - 24 words.

• Lord's Prayer - 66 words. 

• Archimedes' Principle - 67 words. 

• 10 Commandments - 179 words. 

• Gettysburg address - 286 words. 

• US Declaration of Independence - 1,300 words. 

• US Constitution with all 27 Amendments - 7,818 words. 

• EU regulations on the sale of cabbage - 26,911 words 

Image from DesignAndBuild.

Sailing The Wide EC?

Loyal readers will know that I usually picture the European Commission cooking breakfast.

But recently I've begun to conceive of the EC as lashed to the wheel of the good ship Eurozone amidst a howling gale and mountainous seas, courageously holding course for the mystical land known by some as the Single Market. I fancy that their struggle against all odds reveals something of the pioneering spirit that perhaps one might grudgingly admire, if only as an enthusiastic collector of red tape.

Anyhow, last week saw the publication of the EC's consumer agenda and a report on consumer policy.

Happy reading.

Business Implications Of Privacy Law

On Tuesday, I had the pleasure of presenting to the Ctrl-Shift conference arranged for MesInfos, the French equivalent of the Midata initiative, which encourages businesses to allow consumers to download their own personal transaction data. My short presentation is embedded below. 

The ensuing discussion confirmed some critical differences between the continental and British legal landscapes. The most fundamental is the difference in citizens' expectations of the civil law and common law frameworks, on which I've commented before in the context of identity. The citizens of civil law countries expect the authorities to specify in regulation how something new may be done. Whereas the common law is expected to follow commerce - so people first agree contractually how something may be done and rely on judges to solve problems in the courts - Parliament is only there to pass laws where judges can't help. Accordingly, civil law comprises civil codes or legislation made by the state, whereas a significant amount of the law in common law countries effectively comprises judicial decisions and the contractual franeworks to which they relate. 

As a result, contracts in civil law countries can be shorter, as they only need to spell out how the parties intend to modify the operation of the civil code, where that is possible - and attempts at such modification are viewed with some suspicion. But in common law countries, contracts tend to be more involved yet more readily agreed since they are heavily relied upon as the first attempt to agree how something should be done. 

Not only do these differences have significant implications for the pace of innovation in Europe as opposed to, say, the US. But they also help explain why the European Commission's (civil law) approach to life is viewed as such a drag in the UK, which doesn't have the power to ignore it. 

The approach to privacy policies is a case in point. In the online world in particular, not only have global terms of service effectively operated as the only form of enforceable international law (witness US government reliance on the terms of PayPal etc to try to control WikiLeaks), but privacy policies underpin numerous advertising-dependent business models and effectively specify how privacy works. That is something European regulators view with distaste. They believe state-made  law should specify how privacy works, and the role of contracts should be limited to merely obtaining fully-informed consent in relation to specific facts involving the use of data. The mind-numbing 'cookie law' is the product of such pompous thinking.

The incontrovertible fact remains that commerce will grind to a halt if we are to wait for the authorities to dictate the pace and shape of innovation. Life is what happens while you're making plans. The European Commission's far-reaching "General Data Protection Regulation" will be another two years in negotiation. In the meantime, businesses and their customers in the common law world will continue to hammer out their own agreements on how things should work.

Somehow the two approaches need to coincide to enable the same, consumable result.

Business implications of evolutions in privacy law mes infos 23 04 12 - simon deane-johns

View more presentations from Simon Deane-Johns.

An Integrated EU Market For Payments?

A Dog's Breakfast

We have until 11 April to weigh in on the European Commission's dream for "an integrated European market for card, internet and mobile payments."

Tedious as the EC's role and processes are, we mustn't forego these opportunities to feed into the EU's 'social dialogue'. If we don't participate we'll get legislation that's more reflective of canine culinary expertise rather than how various markets actually work (like the Payment Services Directive).

Some key issues in the current green paper are:

• whether we need more sunlight on how much we pay in interchange fees;

• whether it's overkill to make a retailer show on your receipt how much it costs to use your chosen payment method;

• whether non-financial service providers should be able to directly access clearing and settlement systems;

• whether you should be allowed to permit any service provider you like to show you your bank balance, rather than only your bank; and

• whether competition is being inhibited by the process of 'standardisation' and demands for "full interoperability".

My own personal view is that the short answer to all of the above is, "Yes."

The challenge to regulating payments is that service providers and regulators alike tend to view "paying" and "banking" as consumer activities in their own right. Whereas consumers don't actually "pay" - and retailers don't even "accept payment" - as distinct activities. The man from Visa who thinks the brand on my payment card is the most important brand in the context of me buying a gift for a friend on my way to a party is institutionally deluded. Actually paying for the gift is a barely considered sub-process in the course of getting to the party, and I might pay in cash.

Not only must we remember that payment occurs in the context of wider consumer activities, but we must also acknowledge that payment details are a subset of all the personal and transaction data used in retail services that are subject to broader market forces and other regulation. In particular, the impact of the EC's proposal for more comprehensive regulation of personal data processing cannot be underestimated. There seems little point in dealing with access to bank balance information in the context of payments regulation when the wider data protection regime would enable the "right to be forgotten", "data portability", "data protection by design and by default", the logging/reporting of personal data security breaches, personal data processing impact assessments, prior consultation and regulatory consent for potentially risky processing; not to mention enhanced internal controls, enforcement and compliance burdens, including the appointment of a data protection officer.

But let's glance away from the data protection elephant for a moment.

On the question of interchange, it's clear from Annex 2 of the green paper that the EC doesn't understand the lack of a direct contractual/settlement relationship between issuers and acquirers in four-party card schemes like Visa/MasterCard, even where a banking group has both an issuing business and an acquring business. Each acquirer and issuer contracts directly with the card scheme, and the card scheme settles independently with each of them. Besides, the issuing arm's cardholders won't always be making payments to the aquiring arm's merchant customers. Not only does this add an important nuance to the interchange debate, but it also has far wider implications for payment services regulation than there's time to cover here.

As consumers, of course we want retailers to keep a lid on their interchange costs (like any other overhead). That would enable them to improve their services, increase product selection or maybe reduce their prices. But unless the retailer has its own specific surcharge, I don't need the receipt to tell me the cost of using my chosen payment method, any more than I'd need to know what it cost to get the item from the warehouse to the shop. The underlying cost might be fascinating to EC officials and payments geeks, but the all-in price of the item should be enough for me to compare the efficiency of retailers' operational processes. Whether those retailers are competing properly in their own markets is a separate issue to the cost of payments in any event.  

I can also see that the cost of payments might be reduced by enabling sophisticated businesses to directly accessing clearing and settlements systems, rather than relying on financial institutions whose systems are geared to servicing the broader market. And such businesses shouldn't need to become regulated financial institutions or to join cosy industry bodies for that privilege. However, I should point out that developing an internal acquiring and settlement capability is very likely to prove an unwelcome distraction for non-financial corporate groups.

Similarly, as a consumer, I should be able to appoint a single service provider to enable access to my various bank, card and other payment accounts, without being in breach of the obligation to keep my account access details confidential. It's not beyond the wit of man to work out which provider is liable for any security breaches that might occur in that data sharing process.

Finally, we need to be really careful about requiring "standardisation" and "full interoperability" rather than merely enabling the market to develop this naturally, free of anti-competitive activity. Entrepreneurs don't have the time or resources to sit around in policy and standards meetings. Nor do they wish to telegraph to incumbents their disruptive plans. Yet there is also little meaningful distinction between "technologicial interoperability" and "commercial interoperability" in a digital world where business models are automated or 'hard coded'. I'm struggling to understand the EC's intention here. On the one hand the EC wants to see competition (which generally means less consolidation and more fragmentation - plenty of new players and competing, disruptive solutions), and on the other hand it wants to "avoid fragmentation of the market". So these aims seem incompatible. 

Interoperability and standards may be important to enable efficient, straight-through processing between participants at either end of an overall business process or system. But the more tightly that process is bound together - or the narrower the group of entities involved in the development of standards/interoperation - the harder it is for new entrants to compete by disintermediating or improving any one element of that process. This is a key reason we have been trying to avoid any preoccupation with mandating standards in relation to data release formats in the context of the 'midata' initiative, for example (formerly 'mydata'). This avoids creating an extra hurdle to the release of the data, while opening up a market for the supply of data transformation applications that collect such data in multiple formats and display or transfer it in another format. 

Paradoxically, the EC's own concerns on this front are reflected in the green paper questions as to whether card scheme management should be separated from control over card payment processing (Q's 9 and 10), as well as the competition challenge to standards-setting by the European Payments Council:

"Joaquín Almunia Commission, Vice President in charge of Competition Policy, said: "Use of the internet is increasing rapidly making the need for secure and efficient online payment solutions in the whole Single Euro Payments Area all the more pressing. I therefore welcome the work of the European Payments Council to develop standards in this area. In principle, standards promote inter-operability and competition, but we need to ensure that the standardisation process does not unnecessarily restrict opportunities for non-participants."

I rest my case.