The post-crisis EU regulation targeting hedge funds

Tiago Ventura Mendes,
LL.M. in European Banking and Financial Law, University of Luxembourg
LL.M. Candidate in International Financial Law, King’s College London

  1. The politically driven rationales to regulate hedge funds.

It is generally agreed that modern hedge funds have made their appearance around 60 years ago when Alfred Winslow Jones, a financially educated journalist, decided to invest in stock amalgamating long and short positions.[1] A hedge fund can be considered as being “any pooled investment vehicle that is privately organized, administered by professional investment managers, and not widely available to the public”.[2] The term “hedge” leads one to believe that one important characteristic of those funds is the usage of certain financial instruments for hedging purposes[3] in addition to engaging in other trading strategies seeking to protect themselves from adverse market movements[4]. They invest very actively in liquid public markets while using short-term investment strategies and sophisticated investment techniques as derivatives trading and short-selling but also enter in heavy leveraged transactions.[5]  Hedge funds have been seen as playing fundamental roles in the market as contributing to market efficiency, promoting well-functioning corporate governance, unveiling fraudulent scandals and agitating boardrooms as active investors[6]. Continue reading “The post-crisis EU regulation targeting hedge funds”

Event review

Europe in Crisis: King’s Policy Institute on Democratic Legitimacy in Europe

Ermioni Xanthopoulou and Adrienne Yong

PhD Candidates in EU Law at King’s College London


As part of the continuing “Europe in Crisis” project (kicked off by the UKAEL Annual Lecture by Sir Nigel Sheinwald, a review of which was done earlier on this very blog) on November 12, 2013 an extremely lively panel of three Europe experts debated the question of the democratic legitimacy in Europe. Held by the King’s Policy Institute and chaired by Professor Anand Menon, the public lecture attracted a range of different attendees, from students and professors to practitioners from the Foreign Office and the like. Undoubtedly, the very topical title was a draw in itself, and the debate certainly did not fail to impress. With the personalities of the panellists clashing professionally, a heated and animated discussion fostered an exciting atmosphere for all those present to immerse themselves in, leaving everyone with food for thought as it concluded.


John Peet

The first panellist was John Peet, the Europe Editor of The Economist. Given his long serving background in the civil service, it was apt he began with establishing when the notion of a ‘democratic deficit’ was first spoken of. He cites 1979, which presents an interesting juxtaposition with how it may be perceived now. Indeed, this author was under the impression that perhaps the idea of democratic legitimacy would not simply be an institutional question. However, it was this route which the discussion followed hence the solution considered throughout was the directly elected European Parliament. Materialising itself in 1979, it persisted to be the discussed solution to the democratic deficit throughout the 1970s until the 1990s. Peet argues that whilst it was a resolution at the EU level, it was inherently unsatisfactory hence in 2013, the question would still be put forward to the public in a lecture held by King’s.


Peet argues that it was unsatisfactory for 3 reasons – firstly, the Council did not answer to national Parliaments. There was a dissonance with the national Parliaments, as they were hardly even interested. Secondly, by the 1990s, the European project had shifted away from federalising the EU and towards handing power back to national governments. Finally, and this would later be contested by the second panellist, the European Parliament never acquired legitimacy despite being directly elected. This was evident from the fall in voter turnout for the Parliament, as many in the EU still questioned the EU. Admittedly, the Eurocrisis had made everything worse. It encouraged increased intrusiveness into national legal orders somewhat by necessity, leading to Peet asking the question “Who elected Ollie Rehn?”[1]


Ultimately, Peet concludes by arguing that there needs to be a bigger role for national Parliaments considering that the European Parliament fails to resolve anything in terms of democratic legitimacy. The money in the EU is national, thereby encouraging a greater role for them in terms of their input. Germany truly believes this, given their accountability in terms of the Eurocrisis. More subsidiarity needs to be shown. Peet argues that even a return to pre-1979 may be desirable, scrapping the direct elections completely.


Simon Hix

Simon Hix, Professor at LSE on European and Comparative Politics, vehemently protested, ‘disagreeing with everything’ his previous panellist has said. He began by noting that democratic accountability today was important only to a small group of academics given that the Eurocrisis had lead to re-distributional outcomes. Accountability, however, was important because the EU was about the market, primarily. He equates democracy with legitimacy; there was some winners and ultimately and unavoidably, some losers. It was insufficient to rely solely on the national level to provide this accountability. Hix argued that unanimous agreement amongst governments would be better to achieve this.


Hix was famously named as one of the last people to believe in the European Parliament. Pre-1979, national MPs were not useful checks on the government, it were the independent MEPs who were more effective. Hix declared himself a European Parliament supporter because the Council was non-transparent in their decision making. This seemed hypocritical to him – it was supposedly the best representative of the citizens but their debates on legislative amendments were not openly available thus far. Transparency was crucial for him; national Parliaments needed to increase the scrutiny of the Council.


There were two different checks and balances with the advent of the Council and the European Parliament. As the Commission makes political choices, they must be more democratically political elected. He argues that there is potentially a need for a choice of Commission President in this sense as well. As for the position of the UK, there is also a need for a UK referendum because the EU is so different now. The UK did not sign up to this current architecture, and the question remains do we want to be isolated in the EU, or isolated outside it?


Vijay Rangarajan

Vijay Rangarajan, of the Foreign and Commonwealth Office then asserted that democratic legitimacy is a shared problem across Europe as it is primarily an issue of contact between citizens and governance. Moreover, people do not know their rights at the EU level. However, he noticed, as the other speakers also did, that the Eurozone countries are those particularly concerned about the decision-making which concerns them. He interestingly proclaimed that the new European Parliament will have a ‘significant psychotic element’ and he stressed the need for national parliaments’ further involvement. National parliaments in particular need to work together and ‘put a break on efficiency’ when it is necessary. He argued this could possibly enhance democratic legitimacy issues.


Later on, Rangarajan referred to the ‘yellow card procedure’, which national parliaments can issue to the Union legislature, requiring the institutions to reconsider a proposal. According to Article 7(2) of the Protocol on the Application of the Principles of Subsidiarity and Proportionality,[2] the draft must be reviewed where ‘reasoned opinions on a draft legislative act’s non-compliance with the principle of subsidiarity represent at least one third of the votes allocated to the national parliaments’ whereas the threshold is much higher for draft legislative acts submitted on the basis of Article 76 TFEU on the Area of Freedom, Security and Justice (AFSJ). In this second case, the threshold should be a quarter. Concerns have already been expressed on the operation and the effectiveness of this procedure, which he reiterated by reminding us that a plethora of national parliaments have voted against the Proposal for a Regulation on the Establishment of the European Public Prosecutor’s Office. Furthermore, he stressed that the Council should determine and clarify what its position is and noticed again that the legitimacy has been undermined by the call for efficiency.



What was really intriguing was the discussion that followed when the audience was given the time and chance to ask the experienced panel various questions. It was a very stimulating opportunity for everyone there. The questions ranged from the different perceptions of democratic legitimacy across countries, the impact of the CJEU rulings on decision making to the information deficit in the concept of a ‘European demos’.


Concerning the various experiences of democratic deficit across Member States, Hix mentioned that the countries facing financial and social crises feel more strongly the imbalances of power and the lack of democratic legitimacy. Peet stressed that the problems are huge in the South Mediterranean countries as people feel that they have lost control of the decision making which concerns them directly. He recommends that national parliaments should have a bigger role because people tend to vote on national issues and on the basis of national parties.


Regarding the CJEU and its potential role in legitimacy, after pointing out the significance of the division of power principle, the well-established Economist journalist stated that the Court is a rather ‘ignored’ institution and suggested that people should probably have more interest in who is appointed as a judge, given the importance of the case law. Hix then indicated this institution is interesting regarding the issue of democratic legitimacy, as it has been found that the Court quite frequently takes into account to Member States perception and tilts the balance towards a decision considering national perceptions, providing as an example the Tobacco Advertising case.[3] The need for the appointment of real judges and not diplomats or lawyers has been also underscored by Peet, after being hinted at by the bright audience.


As a final point of discussion the panel was asked to provide its opinion on whether there is potential for a European demos, consisting of the European youth and the emerging generation. This is indeed a very interested topic considering the common financial and social problems faced by youths’ experiences of crises. There are serious limitations on their freedoms. Hix claimed that a European demos would be the result of a European democracy, and not the prerequisite. However, it should be mentioned that, contrary to Hix’ final argument, for democracy to exist, there should be a demos to rule and that European citizens, albeit unaware of the very existence of it, might actually constitute a European demos concerned with a plethora of common social and financial problems at the transnational level of the EU.



Although the Eurozone financial crisis has recently dominated the debates in relation to EU affairs and EU law, as it was noticed by the panel speakers and by EU lawyers, the discussion on the lack of democratic legitimacy in the EU is always a stimulating topic. The problem is far from resolved. It could be said that this topic is enlightened by the changes brought by the Lisbon Treaty with regard to new powers allocated to European Parliament and to national parliaments. Hence, the debate seeks new direction in view of the social and financial problems that the EU countries have recently faced. Those concerns have particularly become greater recently as the people of Europe feel disconnected from the decision-making on tough policies and laws, despite the admittedly enhanced inter-institutional balance, for which there is still much room of improvement. It has been a pleasure to attend such a great discussion, which definitely gave its audience ample food for thought. Although Euro zone financial crisis has recently dominated the debates in relation to EU affairs and EU law, as it was noticed by the panels and by EU lawyers, the discussion on the lack of democratic legitimacy in the EU is always a stimulating topic. Moreover, the problem is far from resolved. It could be said that this topic is enlightened by the changes brought by the Lisbon Treaty with regard to new powers allocated to European Parliament and to national parliaments. The debate however seeks new direction in view of the social and financial problems that the EU countries recently have faced. Democratic legitimacy concerns have particularly become greater recently as the people of Europe feel that are disconnected from the decision-making on tough policies and laws, despite the admittedly enhanced inter-institutional balance, for which of course there is still much room for improvement. It was a pleasure attending such a great speech and discussion which definitely gave its audience food for thought.

[1] Ollie Rehn is the Vice President of the European Commission, and the European Commissioner for Economic and Monetary Affairs. He has outwardly supported fiscal austerity as to the only way out of the Eurocrisis.

[2] Protocol on the Application of the Principles of Subsidiarity and Proportionality [2004] 310/207

[3] Case C-380/03 Tobacco Advertising [2006] ECR I-11573

Article, Event review

UKAEL Annual Lecture 2013 – Sir Nigel Sheinwald on ‘Britain and Europe: A New Stage in an Old Debate’

Adrienne Yong

PhD Candidate at King’s College London


A year ago I wrote on the Annual Lecture Lady Justice Arden gave on proportionality. This year I had the pleasure of attending the UK Association of European Law (UKAEL)’s Annual Lecture chaired by Prof. Sir Francis Jacobs (President, soon to be succeeded by Prof. Sir Alan Dashwood) and presented by Sir Nigel Sheinwald, the previous British Ambassador to the United States and British Permanent Representative to the EU. Needless to say, his ex-civil servant status under the auspices of the Foreign and Commonwealth Office held him in good steed to be discussing the relevant pros and cons of Britain remaining a EU Member State (MS) in light of the proposed referendum by the Conservative Party (should they remain in government come 2017).


Sir Nigel began with the caveat that his background was not in law therefore the talk would be on Europe, as opposed to European law. For a European law researcher, this political aspect was a refreshing break from the convoluted doctrinal analysis that takes up most of a legal researcher’s time. He explained that whilst recognising the Britain-Europe discussion was not novel, the stage the discussion is reaching now is becoming more so. The EU is changing, and these changes are affecting British membership. Sir Nigel broke his argument down into first discussing British exceptionalism, the changes the EU is facing, the international reaction to the UK and his conclusions on British membership of the EU.


British exceptionalism

The main event that Britain found itself lucky to have escaped was the Eurocrisis. It had always been “stubbornly negative” about the EU, but the choices made in regards to opting out of the single currency seemed to bear fruit in terms of escaping the main crisis befalling the EU at present. Its strong sense of Parliamentary sovereignty as well as common law traditions in Britain were two reasons it opted out to begin with.


However, Britain did sign up to membership of the EU for a good reason. Sir Nigel cites Dean Acherson, ex-US Secretary of State, and his lesser known quote about the UK’s roles in both the USA and commonwealth nations. He stated that in both areas, the UK’s role was “about played out.”[1] It would seem that the EU would have been the best next course for the UK, remaining in the mainstream but negotiating special arrangements for themselves considering their relative uncertainty at the outset. Membership was thus “conditional”. Modern EU conditions should seem more acceptable to the UK now, however, one must nonetheless tread lightly given the changes it is undergoing presently.


Changes in the EU

As mentioned, the Eurocrisis is the most obvious change the EU has gone through, which has severely impacted many opinions in the UK as to the value of the remaining in the EU. There is a close relationship between monetary integration, democratic legitimacy and national Member State control, rendering upholding the Eurozone and single market a more difficult task. Sir Nigel toyed with the idea that perhaps now it is not credible to be excluded from the euro given the solidarity demonstrated therein. However, the Eurocrisis left a bad impression on the UK. The EU will have to do the most they can to stabilise the crisis, with efforts focused there rather than with any other issues the UK has prioritised. Being excluded from these crucial tasks and discussions will have the negative effect of widening gap between the UK and its allies.


He also argues that it is unclear if eurosceptics have reflected the population’s sentiments accurately, leading onto the international reaction to the UK’s apparent disdain. Clearly, given the changes the EU is undergoing, stakes are higher if Britain decides to withdraw. However, the more important issue remains that the potential is more real now of this withdrawal. Interestingly, for governments in the Eurozone, survival is most important. The risk of withdrawal of the UK is peripheral in comparison. However, there is still time before this exit is decided with both European Parliament and UK elections a way off. Sir Nigel highlights that the EU may want to consider certain reforms, with the Working Time Directive and tougher action on benefit fraud given the growth of free movement of persons among his suggestions. However, convening an Intergovernmental Conference (IGC) which would be necessary to make the changes the UK so desperately wants, cannot feasibly be done in the time before the referendum.


International Reaction to the UK

The most poignant reaction comes from President Obama of the USA, and his piece of advice to David Cameron as to the UK’s membership, stating that it would be a mistake for the UK to leave the EU.[2] Similarly, the Australian government wrote to William Hague, Foreign Secretary of the UK, on this very topic on February 14 also urging reconsidering leaving the EU. These strong sentiments came off the back of David Cameron’s own speech on January 23 where he asserted that the EU was to ‘secure prosperity’[3] and that there should be a maintained role for the UK. Additionally Sir Nigel emphasised that the Japanese memo to the UK reviewing the UK’s balance of competence between itself and the EU[4] also strongly discouraged leaving, for it would negatively affect the Japanese’s entry to the EU market. Germany has begun to overtake the UK in being the key location for new inward investment projects especially from Japan, thereby incentivising the UK to consider remaining in the EU for trade reasons.[5]


Value of British Membership to the EU

If these compelling arguments in terms of the international reaction were not enough, Sir Nigel continued on to state his position believing in the benefits of the UK remaining the EU. Though quality of membership would diminish as the euro diminishes in importance, many other areas would remain unchanged. The single currency is but one of the EU’s projects. He described it as a long and winding road. The Eurocrisis may accelerate, but otherwise development in the EU will benefit the UK. The arguments to stay in are compelling and even on a business level, institutions such as the Confederation of British Industry (CBI) agree that withdrawal would be detrimental. Exports to the EU are even larger than those of growing emergent economies.


Sir Nigel thus emphatically put his position across that the UK should remain in the EU, and whilst the old debate has seen certain quite significant changes, the position – both in terms of the UK’s membership and one’s opinion as to the benefits of the UK’s membership – should remain unchanged.