Editors’ Note

Before putting pen to paper for this, my first, Editor’s Note I sought inspiration from the Notes of those who have gone before me. Reading the Note from the beginning of 2021 I was struck by how the very uncertain future mentioned then has become, against all our hopes, even more uncertain in 2022. We now have the impact of Russia’s unlawful invasion of Ukraine to add to the list of uncertainties we face, alongside things such as the not insignificant matters of how economies can recover from the impact of Covid-19 and how we can cope with climate change. In the midst of all of this uncertainty one thing that is certain is that the global capital markets will have a vital role to play in addressing the challenges 2022 throws at us, making CMLJ essential reading for those wanting to understand how they work.

While real life travel is still disrupted, this issue of CMLJ will take you on a journey through the legal systems of Europe, then to the USA and ending up in Asia. The articles in this issue will also take you on something of a journey through time. Some of them look back at the origins of the approach taken by long-established regulatory bodies or certain aspects of legislation, with others looking to the future of currencies and the application of emerging technologies in the capital markets arena.

Our journey begins with Andrea Minto’s analysis of the principles guiding the enforcement and sanctioning powers of the European Central Bank (ECB) vis-à-vis optimal deterrence theory. This article examines those powers as an essential component of the wide array of powers attributed to financial supervisory authorities. The author contends that, whilst the methodology and approach adopted by the ECB strive to strike the right balance between promptness and appropriateness, questions still remain as to the effectiveness of the architecture of the European Union (EU) banking enforcement system. This is due to the multifaceted relationship between centralized and decentralized authorities (ECB and National Competent Authorities (NCAs), respectively) in preventing misconduct risk of credit institutions often operating in a cross-border fashion—a theme which is picked up again later in this issue of CMLJ.

We move on to Royce de R Barondes’s look at New York’s requirements for contractual definiteness with application to the formation of investment vehicles. In this article, the author reviews a collection of New York litigated cases relating to a material term of a contract being specified with insufficient definiteness. He considers, in particular, how a lack of specific detail in relation to parties’ equity interests in investment vehicles in their formative stages could render such promises unenforceable. The author reaches a challenging conclusion for those who draft contracts intending to create binding obligations in situations where contracting is sequenced such that employees are brought on board before a venture’s economics are finalized.

Next up is Helene Andersson who examines the EU’s market abuse regime (set out in the EU Market Abuse Regulation (MAR)) against the backdrop of the ruling of the European Court of Justice in DB v Consob on the right of those suspected of market abuse to remain silent. The author discusses the implications of pursuing a market abuse regime with a ‘one-eyed focus’ on effectiveness at the expense of procedural safeguards and fundamental rights. The author argues that while MAR ensures that the NCAs have far-reaching enforcement powers enabling them to guarantee the integrity of the EU’s financial markets, it provides few safeguards against abuse or arbitrariness for those on the receiving end of those powers. Absent clear and adequate procedural safeguards, there is a risk not only that measures taken by the NCAs will infringe both the right to privacy and the defence rights of those targeted, but also that the level of fundamental rights protection will vary between Member States.

Leaving the inherent tension between centralization and decentralization in EU financial services regulation behind us, the next article looks at the benefits which come from an EU-wide approach. In it, Dirk A Zetzsche and Jannik Woxholth consider the distributed ledger technology (DLT) sandbox under the Pilot-Regulation (known as PilotR), which is a centrepiece of the European Commission’s Digital Finance Strategy of September 2020. The PilotR Proposal foresees a regulatory sandbox approach for the European Single Market, offering firms a set of exemptions from EU financial law that allow them to test DLTs for trading, clearing and settlement. The PilotR Proposal is characterized by an innovative ‘Business Plan Approach’ where the DLT operator defines governance functions and liabilities of entities operating, and connected to, the DLT. The authors are of the view that this is a bold regulatory move, but one which prompts legal questions. They also raise concerns that the PilotR Proposal’s narrow scope with a relatively long timeline and availability to authorized MiFID firms and central securities depositories (CSDs) only will reduce its benefits.

Also looking to the future, Cheng-Yun Tsang and Ping-Kuei Chen assess the trans-border effects of digital yuan in their article. They discuss the challenges which arise when a central bank digital currency (CBDC) circulates across national borders, namely the crowding out effect on local currency; challenges to capital control for regulators; and infringement of user privacy. The article proposes unilateral, bilateral and multilateral strategies to cope with the corresponding spillover effects and suggests that the adverse effects of the cross-border uses of CBDCs can be addressed and mitigated by adequate institutional design, and by multilateral coordination efforts.

Staying in Asia for the end of this issue’s journey, Shue Sing Churk looks at Hong Kong’s rules and practice on public takeover bids as applied in the case of China Oriental. This was a dispute which went on for nearly a decade and the unusual fact pattern of which put the rules on mandatory general offers to the test. The case reflects the Hong Kong Takeovers Panel’s regulatory style which tends to prefer an intuitive understanding of the facts of a case over a strict interpretation of the text of the Takeovers Code. The author proposes ways in which procedural inadequacies in the practices of the Hong Kong Securities and Futures Commission and the Takeovers Panel highlighted by the case might be addressed.

Happy ‘travels’!