Admin law criterias (DSLA lecture 1-8)

Basic common criteria for a public authority in case it is not part of the government

1. some form of control by the government

a. supervision, inspection, appointment, mandate

2. financed by the state

b. more than 50% owned of funded

3. exercising a public function in the public interest

Different types of public bodies

a. governmental level

b. decentralised level

c. independent agencies

d. private status/hybrid authority

Qualifying a hybrid authority (cumulative criteria)

1. established link to the government

2. presence of statutes which define competences and powers of the authority

3. some form of supervision

4. financed by the state (in part)

Administrative acts

adjudication

rule making

investigations

What is a regulation?

Any control system with:

1. capacity for standard-setting

2. capacity for information gathering/monitoring

3. capacity for behavioral modification

Principal of good adminsitration

• Principle of proportionality

• Equal treatment

• Efficiency

• Effectiveness

• Transparency

• Diligence - gather all relevant information

• Absence of abuse of power, i.e. if one favors a family member as an administrative authority.

Principle of good administration 3 dimensions

1. efficiency & quality dimension

2. procedural dimension

3. public interest dimension

Principle of good administration in practice

1. getting it right

2. being customer focused

3. being open and accountable

4. acting fairly and proportionately

5. making things right

6. seeking continuous improvement

7. duty to give reasons

categories of ombudsperson

1. General Purpose ombudsman

2. Single purpose ombudsman

3. International or supranational ombudsman

4. Human rights ombudsman

5. Private sector ombudsman

Market regulation approach

1. What is the goal/outcome to be achieved?

2. What standard of conduct is required from market participants?

3. What enforcement techniques are appropriate to ensure compliance?

Scope of regulation (narrow)

1. establishing legal rules

2. monitoring their application

3. enforcing them against the violator

scope of regulation (broad)

all forms of social control, by state and non-state actors, both intentionally and not

Regulatory forms

a. self-regulation

b. public regulation

c. co-regulation

Traditional regulation

• set of legal rules which leaves little to no room for individual interpretation

• specific and prescriptive provisions

• overseen by public authority

• enforcement of the regulation through measures and fines

• the law acts as a threat

Regulatory techniques

1. command and control

2. principle based regulation

3. meta-regulation

4. enrolment of gatekeepers

5. risk-based regulation

Contract terms control

Level 1: general clauses

• formal fairness

• substantive fairness

Level ‘indicative list’ of unfair contract terms which is an essential element in determining substantive fairness

European regulatory private law by hassling

1. Market Access – Ensures that businesses and individuals can enter and participate in the internal market under fair and non-discriminatory conditions.

2. Market Conduct – Regulates how market participants behave, including consumer protection, competition rules, and contract fairness.

3. Market Accountability – Establishes mechanisms for enforcement, liability, and redress to ensure compliance with EU regulations.

Regulation of both supply & demand

• prohibition of greenwashing

• facilitate ‘green choices’

• encrouge the reparation of defective products rather than discarding the

• better regulating services to stimulate the shared use of goods through ‘servitization’ (shift from buying a product to using a product, or from selling a product to selling a service)

4 main type of financial services

• payment

• credit

• investement

• insurance

Rise of technology & consumer challenges

easy access to consumer credit

rise of crowdfunding

bitcoin

investment product lifecycle

product development

product distribution

product use

product termination

types of financial institutions

credit institutions

credit intermediaries

investment firms

insurance companies

Why do financial crises arise?

cognitive error

moral hazard

information assymmetries

consumer behavioural biases

• overoptimism

• myopia

• instantaneous gratification

• cumulative cost neglect

agency costs: conflict of interests

high-cost credit products

regulatory goals

European market integration

financial stability

orderly functioning & integrity of financial markets

consumer / client protection
sustainable development

the main building blocks of financial regualtion

Prudential regulation:

• micro-prudential regulation concerned with the safety & soundness of individual financial institutions

  • e.g. Do they have sufficient capital to meet their financial obligations?

• macro-prudential regulation with systemic risks to the financial system as a whole

Conduct of business regulation:

• concerned with the orderly functioning of financial markets and consumer/client protection and increasingly covers not only product distribution but also product development (see lecture 9)

hard paternalism

• strong form of regulation

• the law prevent individuals from taking risky choices

• usually driven by strong public interest concerns

• there is no choice left

• the law act as an authoritative father, to prevent unwise decisions

Soft paternalism

• weaker form of regulation

• the law uses not binding tools which push towards the desired option

• makes sure than individuals are well aware of the choice they make

• it preserves the freedom of choice as individuals are not prevented from choosing a risky option at the end

• the law try to lead individuals towards a preferable course of conduct

Prudential regulatory tools

• authorisation requirement

• bank capital requirement

• requirement on management bodies

  • individual level

  • group level

Prudential regulatory tools individual level

• fit & proper test fro board members

• Criteria assessed by the ECB and NCA’s

  • experience

  • reputation

  • conflicts of interest

  • independence of mind

  • time commitment

  • collective suitability

Prudential regulatory tools group level

• controlling group dynamics & decision making in the boardroom to ensure safeguards against risky behaviour

• the Financial Stability Board has come up with foundational elements of sound risk culture - financial regulators may observe to what extent board members behave in accordance with this criteria.

• e.g. prevent dominant & authoritarian behaviour

Conduct of business regulation

• general regulatory tools

• specific regulatory tools

Conduct of business regulation : general regulatory tools

prohibition of unfair commercial practices

contract terms control

Conduct of business regulation : specific regulatory tools

infromation requirements for lenders

duty to assess consumer creditworthiness

• soft paternalistic approach

• though there is no duty to refuse granting credit in case of a negative result. The duty is typically further specified by codes of conduct adopted by professional associations of lenders - e.g. Dutch Banking Association

right to withdrawal for consumers

Is the EU approach sufficient to protect consumers?

responsible lending

irresponsible lending

Responsible lending

• should not act solely in their own interests, but that they should also take into account the consumer borrowers’ interests and needs throughout the relationship in order to prevent consumer detriment

• it needs regulatory intervention

• introduce specific duties of lenders towards the interest of the consumer

• consumer credit products should be designed in a responsible way

  • in the best interest of consumers, more than just information requirements

• includes the duty to assess the consumer’s creditworthiness and the duty to judge the basic suitability of a credit-related product before considering whether to proceed with a credit transaction

  • These steps may include warning the consumer about this risk or even not granting any credit in certain circumstances

Irresponsible lending

• acting only for the lender’s own interests

• can lead to market failure

• difficult to avoid by consumers due to their less advantaged position

Is there enough protection for the consumers to should there be stricter rules?

• Potential regulatory tools which could be applied:

• stricter lenders’ duty to assess consumer creditworthiness

  • more hard paternalism in case of negative result and direct prohibition to lend

• interest rate caps

  • fixing the maximum amount of applicable interest rate

• product regulation - prohibition of potentially dangerous credit products more stringent control over risky products