Banking and Financial Markets Law

Info
Exam:
4-5 åbne spørgsmål som vil afspejle en case.

Understand and get passioned about things

Exam date: 23 of august

Lesson 1 (PUBLIC BANKING LAW)

Legislator/Regulator:

Cost benefit analysis of where to put the line which decides what is banking and what is not
banking.

The financial system is about people who have a surplus of money, and on the other side guys who
are in need of money.

Actors in the financial system:

- Legislator/regulator
- Banks
- Finciancial Market
- Lender/saver
- borrower/spender

 Banking and financial markets categorized as direct finance and indirect finance
o Banking = indirect.
o Financial markets = direct finance.

Characterizing features of banking sector: a lot of public pressure of the dynamics.

The advantages of banking intermediation over direct finance

Coase Theorem
Advantages of monitoring of people, projects and the creation of incentives to do things in a
certain way.

Make people behave in a certain manner, with a specific parameter

Value of efficiency – most of the regulation is the result of trying to reach an efficient market.

Concept of market figures = most important push of banking figure.

Impact assessment (did we get to the goal we set)

Types of market failures

A. Externalities and public goods
a. Externalities: Situations where you have, a person (an economic actor, who doesn’t
give a shit about their behavior) you develop a new engine to challenge TESLA. But
to develop this engine you have to pollute. Externalities = you put your burden on
others shoulders.
b. Public goods: a good or service that is very valuable, but the market cannot itself
provide its allocation. The public/government has to step in and support it. Services
that have a social impact.

B. Increasing returns
C. Market imperfections
D. Distributional inequity and other societal concerns (income and wealth)

Market failures in banking and financial markets

 - Asymmetric information
o Banks have more knowledge than the consumer
o Vs. public authority

- Imperfect competition
o Risk that exist in financial markets. The number of players in the market vs. the
number of players wanting to enter the market.
 i.e. entry barriers: if one wants to open a bank, you have to get a license and
you will be regulated.
- Negative externalities
o
- Public goods
o
- Biases in individual decision making
o

All these market figures provoke law and supervision

Macroprudential- and systemic risks

Banks are interlocked between bank-bank and bank-economy.

Financial stability is the overarching goal of financial legislation

Public goods can create positive externalities

Supervision: the way to control that the law is complied with.

If no supervision – no incentive to behave.
Supervision: challenging

1. Law:
a. Why to regulate
i. Why regulation emerges
b. How to regulate
i. Types of regulatory instruments and techniques
c. Where to regulate
i. Which actors contribute to that emergence
2. Supervision:
a. ?

Why:
- Because we do realize that along the spectrum of different preffered worlds we stay
somewhere between the perfect and the worst world. We need to have the efficiency as
 idea. We need regularly to gather information Impact assessment after a regulation is
issued  used to judge which direction we have moved.
The theory of government fear: governments at times, in trying to correct the market failure they
do worse. Cost and income in government’s are not treated as in a company.

Theories of Regulation:
Public interest theories:
- Theory building upon the market failure, there is a problem with the market: we need the
law as a tool to the public good.

Private interest theories:

- Lobbyists and private actors are pushing for governments to form the law in a specific way.
Institutionalist theories:
- The law is the result of the institutions is forming the law, within the framework.

Professor thinks: the law is a mix of the above 3 theories.

How:

Rules-based: specific, and easy to pull the trigger of the gun

Trigger: when the law is applied or not. Very clear in this system.

Principles-based: generic, and harder to pull the trigger of the gun.

Projects what they are trying to achieve.

Types of regulatory instruments and techniques

Consensus
In some areas of banking – banks know better than the regulator so they get to self-regulate.

Communication based
- i.e. images on smokes,
consequences are too risky.

Where:
Presumptions of the theory and the reality

Supervision
Public power of checking the compliance with the law.

New form of supervision: looks at the entire system of the banks.

Supervision:
1. Micro (ex post)
a. Check of the bank on the individual level, looking at corporate governance.
2. Macro (ex ante)
a. Looking at the banking system, how do the single banks interact together, systemic
risk, and the possible spread of risk between banks.

Professor does not agree: professor means they are both forward looking in the sense of ex ante.

Prudential:
- Concerned with the relationship with the regulator and the bank (vertical relationship)
(how the bank is organized financial) (financial stability)
Corporate governance: capital requirements etc.
Conduct:
- Concerned with the relationship between the bank and the clients (horizontal relationship)
- (is the bank conducting properly against the client) (“consumer protection”)
Supervisory models and approaches

Functional approach:
Bank that haves different functions such as: insurance and banking. The functional approach
divides the supervision between the banking authorities and the insurance authorities.
Theory of Banking
Legal definitions:
EU the conjunction “and” is the most important in the definition. Because there is no bank without
deposits and granting credits.

Combine both: not making money and not an institution. When a person collects money and pay
the bartender. (he makes only a collection, the others are not repayable)

Liquidity Transformation
Most of the time associated with cash.

Maturity Transformation(when something is due)

Credit Transformation
The transformation process: Two main risks
Credit risk:
- Misjudge the creditworthiness of borrowers
Liquidity risk:
- Unexpected withdrawal of funds by short-term lenders which exhausts its liquid assets

Traditional Business model – OTH

- Originate-to-hold model:

New business model – OTD

- Originate-to-distribute model:
o Transforming something into a security and sell it, thereby spreading the risk
One of the contributors of accumulating risk without knowing where the risk is accumulated.

Securitization
Structured products
- ABS :
- RMBS :
- CDO :

This “securitization” increased the risk and increased the amount of loans.

Appearance of a moral hazard problem

 Lesson 2

The actors in the financial system

- At times different authorities may overlap each other. (relates to different models of
supervision)

Manifestation of market failures and inadequacy of the regulatory setting

Realization the banks link to the rest of the economy – made regulators think that banks do not
fail.

Regulation:
Goals of financial regulation:
- Protection of financial users (investors)
- Consumer protection in retail finance
- Financial stability
- Market efficiency (informational efficiency)
- Competition
-
- Prevention of financial crime
- Gaining importance after scandals
- Thinking of the powers of EBA, all the powers of how the bank is established and
governed according to corporate governance.

Protection of financial users could be a conflict with the protection of financial stability.
On one hand the product may be good for the financial stability but on the other hand may be bad
for the investor(user) because it is too complex and may put the investor at unnecessary/too
much risk.

Strategies of Financial Regulation

Green = before the crisis
Red = after the crisis
Now combined.
Ex ante you have to pass the framework
Ex post you have to check

Areas of regulation

Rule/law – making Who does what?

Legislator (parliament, elected – represent the public)
Regulators (technical knowledge, not elected)

Cooperation – between
In making the law the private actors are delegated power to the banks(private actors) because
banks know better

National level

The institutions of international regulatory coordination

Agenda setters

Standard setters
Are making soft law

G20

Bank for international settlement (BIS)

Inside the bank Basel Committee for banking supervision (BCBS)
Has not legally binding power, but have de facto strong influence on legislative process

Decision-making process
Based on the importance of the country.

BIS: enforcing the adoption of basel standards

Checks if Basel standards are timely adopted
Assesses the consistency and completeness of the domestic regulations, and judging the
significance of any deviations

Being compliant with the Basel Committee increases a country’s chances of getting new banks

Financial stability board (FSB)

Very influential in the aspect of FinTech.

Financial stability in the aspect of the countries not the financial institutions.

How to cope with fragmentation / heterogeneity:

The authority from the home country will follow you in the other countries of business.
Rulemaking – EU level
Tried to strike a compromise of way to implement harmonization
Level 1 principal based
Level 2 rule based

Advantage of ESAs(European supervisory authority): possess technical expertise to understand the

things is banking/financial world

 Level 1
Directives:
- Least formally directives need to be transposed into national law, leaves some discretion to
the member state
Regulations:
- Immediately enforceable as law in all member states simultaneously, no need for domestic
reception.
Package:
- A package is a combination of a regulation and a directive

 Level 2
Legislation/regulation
(EBA, ESMA, EIOPA) check slide 21, lecture 2
ESAs (European supervisory authorities) fill the gaps of technical legislation, by adding some
technicalities that cannot be added at level 1. Binding technical standard, is easier and faster to
change than to change a directive or regulation.

Level 2 is based on level 1.

Level 2 Must have a specific well documented rule in level 1 to regulate/legislate the BTS(binding
technical standards)

 Level 3
ESAs release recommendation and guidelines.
- Very important in terms of good practice.
- governments kind of have to comply, if you do good, if not – you have to explain yourself.

EBA is also the watchdog if someone is not complying with the law

Meroni Doctrine
Romano Doctrine

- boundaries and substance of the powers delegated are important. If these are very well
defined then it is okay.
C-270/12 Shortselling case:
It is recognized that agencys that have delegated powers enjoys the power of flexibility as long as
it is clear they are in pursuit of the goal (in this case financial stability)
EBA
Concerned with drafting the law, in the sense of complementing the law.
Does much more than just draft these binding technical standards. EBA is the supervisor of the
national supervisors

Supervisory practices: How to cope with fragmentation / heterogeneity?

The home country control principle.
You have to inform different authorities to move to another EU country. Home member state has
the competent authority.

Problems with the home country control (i.e. blind spots)

 They might lack the capacity to deal effectively with supervision in a cross-border context.
 They might not have the interests of the host state investors or consumers in mind.
 Or more generally, they might fail to integrate in their calculations the consequences of
their courses of action for host Member States.

EU supervisory repair part 1

The board is a consultalt to the ECB and the national competent authorities to secure the makro
prudential supervision.

Three part system  EIOPA(insurance)EBA(banking)ESMA(financial markets)

Macro: system and the inter linkages.

Micro: supervisors European level (national domestic supervisor)

Joint committee: exchange views and practices to ensure they are on the same page at all times.
Main objectives of the EBA (article 8)
Single rule book: all the body of law that is applicable to banks. Object to have something that is
harmonized.
EBA oversight tasks

Quite important in overcoming a single authority to be singled out of the other authorities.

The new solution

EBA 17,18,19
Denmark vs Estonia. In Danske Bank money laundering scandal
No rule about conflict of interest. Important, regulation: when you are part of EBA and are looking
at possible breaches, you should be neutral/objective.
What are the tasks of the EBA?
- EBA reaches out to all member states

Lesson 3

3 pillars interconnected to each other, all of them make up the European Banking Union.
Not always all of the pillars apply to the EU ( different in monetary policy, for those who adopted
the euro)

Cross country supervision,

Supervisor of the supervisors

The idea was to have a centralized institution of checking all the big players operations in the
market, without bothering about the physical borders of the eurozone

SSM checks your capital, fit and proper people, “daily check”
If SSM finds anything bad you move on to SRM, who have more intrusive power when you have
problems with insolvency, liquidity etc.
SSM and SRM communicate all the time “two faces of the same coin” – the transfer from SSM to
SRM is subtle also in terms of responsibility. SRM deals with a lot of legal risk – suing the bank
because it did not do its job properly.

If a bank has to fail – then SRM makes sure it does it in orderly fashion. Trying to save the good
parts of the bank.
DGS
Class of stake holder that needs to be protected.
We don’t have a single deposit guarantee scheme yet; the EU are trying to harmonize it. The idea
is to have a unified authority.

The European union want to ensure that all the people in the member states can have up to
100.000 euro in seven days if a certain bank should fail.

Single rulebook
The pillars are based on the single rulebook principle
In the pillars you find the single rule book. Single rulebook = Constellation of law
BRRD

European scope: single rulebook is applicable to all 28 states

Single supervisory handbook

Monetary policy art. 127 TFEU

The European Central Bank are according to art. 127 TFEU the ECBs only function is to maintain
price stability.

SSM was started because of highlighted lines in slide 6 in lecture 3

Credit institutions = banks.

Other financial institutions = investment banks, and entities that gives out loans.

But not insurance undertakings.

Prudential / conduct regulation and supervision

The ECB in responsible for only Prudential supervision.

Conduct supervision has not been centralized

And is not under the
ECB – The objectives of EU Banking Supervision

Based on the TFEU art. 127.6

The macro is not excluded in the law, but not well defined either.
Didn’t use 114 to create the SSM
Why did the EU decide to use 127
- Because of the emergency situation , when the eu policy makers understood there should
be something else than the ECB. Some countries were not happy about it. Complicated for
the council to reach a law from 114 out of nothing.
And what are the consequences
The problem is 127 is that it is a conceived as a monetary policy of the ECB, the eurozone is the
collection of 19 countries that decided to adopt the euro. The ECB can only have a say on 19
countries. Weak spot.
The ECB in Frankfurt cannot be spread, over the member states why it will be centralized.
Composed by different components of authorities.

SSM – Distribution of tasks – art. 4 SSM Regulation

It is to be confied to the big big banks

ECB responsible for the day-to-day supervisory of the BIG banks.

The ECB is exclusively competent to carry out for prudential supervisory in relation to all credit
institutions in the member states.

The ECB has the authority to let a new player enter the market or push a player out of the market.

The NCA will channel everything from the new bank to the ECB

There is room for the authority to question your plan. I.e. make you re calculate based on how the
market is currently. Can i.e. say it is not feasible for the bank to enter the market because of the
fierce competition.
SSM – Distribution of tasks – art. 6 SSM Regulation

G-SIB = Globally Systemic important banks.

If we are in a country that adopted the euro, not all the banks are under the supervision of the
ECB, only the BIG banks, the other banks are subject to the supervision of the NCAs.(national
competent authority)

Slide 12 there are more than listed in the slide.

The reason why we look at the asset side is because its here where all the risk is in the balance
sheet.

Single supervisory handbook is more an assurance that all the authorities in EU are on the same
page.
Channels of contagion between banks, even if there are no linkages to other banks.
Old rationale:
No focus on stability
Procyclicality: a certain practice that sets in motion of something negative. i.e. banks giving people
loans who are not worth the loan.

Capital regulation: regarded as procyclical. Capital regulation is a %.

In upswings everyone seems good: which means more loans  procyclical (snowball effect)
Cross-Sectional:
The possibility of spillovers of banks, financial markets and insurance and other markets.
(shadow banking) phenomenon entails all the entities that are not banks, but offers services the
like of banks. “Quasi banks” escape the definition of a bank in legal sense. Not within the scope of
definition.

Time Series:
Over time risk can build op.
The macroprudential risk across.

Substitutability and interchangeability of products.  gives wider options.

Macroprudential Tools

Recent problems relates to shadow banking.

ESRB is responsible for all the financial sectors in its entirety.

ESRB does not have power to do anything else than analyze and communicate it findings to the
ESAs (competent authoritys). Its findings and recommendations are not binding. No legal sanctions
if not following – but have to explain why one is not following.

In EUROPE
ESRB Can be relating to Europe as a whole, or to a specific country or institution.
ESRB is inside the ECB

Comparing number 1 with number 3

Different style. Shall = obligation
May request = asking permission
Article 3 is about systemic risk.

1 (messages projected towards member states)

Wrap up:

Institutional isssues:
No legally binding.
Information
The only way to enforce the effectiveness of the ESRB is based on reputation and public opinion
when not complying with the ESRB.

Lesson 4

The 2 Pillar of the BU:

Why save collapsing banks?

When banks fail, they are systemic.

The mindset was: “banks can’t fail” we can't afford to let it fail.
The 2 pillar of the BU
The bailouts: State Aid to the financial sector
The second pillar is trying to break the above spiraling of breaking banks.

Condition of the banks and condition of the government.

The Banking Union

Package rules regulation and directive.

Resolution is much more elaborate than insolvency etc.

DGSD possibly becoming EDIS – has the single resolution board as authority.
The 2 pillar of the BU
Finacial stbility vs market discipline: a trade-off?

Market discipline: letting the market decide who is good enough to fail or not to fail.
BRRD: at very early stage interventions supposed to manage in early stages of a crisis.

Living wills: one of interventions in the first stages

Resolution tools: different tools that can be use when resolution is applied.
Resolution fund: ex ante + ex post contribution by private banks (European level) to help manage a
crisis in Europe.

SRM:

SRB: are responsible for the banks(big big banks with operating in a state that has euro as its
currency) which are under the first pillar. The powers of the SRB extends to the same banks that
are under the ECB
This directive is applicable to all EU states.
Prudential supervision is not to encompass

It is an agency.

114 aiming to create the single market.

Institutional setup SSM and SRB with the SRF (singe resolution fund)

Very early measures in the second pillar:

recovery plans =” Testament of the bank” if something bad happens, the bank is foreseeing what
could be done if short of liquidity etc. these are the banks options/suggestions to do under crisis.
The second pillar of the BU
Early intervention measures (art. 27-30 BRRD)

Remove management: quite expressive that the public can go in a private bank and remove a
board member.

What is resolution?

Objectives of resolution in art. 32 BRRD/18SRMR

Conditions for the activitation of the resolution:
1. Failing or likely to fail (ECB/SRB) (not completely clear, mentioned both in the law) (in
practice ECB deciding that the bank are failing and passing the papers to the SRB)
a. Public support is needed (execption Prec. Recap.)
b. The bank is in breach (or will likely brach) Breach of the law in such a manner that
the bank might loose its license, then it is ground for resolution.

2. No other way
a. Authorities ask around if anyone is interested in buying this
3. Public interest
a. We need to use resolution in order to achieve all the objectives, if your national
solvency law is not able to obtain the obejctives in art. 32 if national solvency law
can achieve the objectives use national solvency law.

Very difficult to determine what to use.

These must coexist before

Insolvency vs Resolution:
“no creditor worse off” principle

Wound up = liquidated at the time..

We need to take care of the crediors at the same time reaching the objectives of the resolution.

Fund is part of the second pillar, and is founded by the SRB. Collecting money from the banking
industry. The way it is collected is decided by the size and the riskiness of the bank. Bigger/riskier =
more contribution. We can't use the fund to rescue the bank.
The condition of this resolution to be adobted.
Price of the market.

Clear timeframe has to be given

SRF is supporting.
Art. 36 BRRD asses the net value of the firm then proceed with.
NCWO = no creditor worse off principle applies to all the tools.
Public institution, limited time 2 years +
Carve out the good.
36 BRRD evaluation has to be done.
A way to separate the toxic stuff from the bank.
Often if breach of law you end up here.

Possibility for the bank to get recapitalized by writing down and/or converting shares to debt
Purpose of bail-in: keep the bank floating.
Step 3 recapitalize and convert sub. And senior.
PIA = public interest assessment

State aid: confined  bail-outs art 32(3)(d)(iii) BRRD

Within state aid: only within liquidation.
 Lesson 5

The thing is: in banks, how interconnected banks are, and how prepared governments are to
rescue banks, creates an incentive for moral hazard, because you know someone is going to bail
out the bank.
Should also be linked to the systemic risk that the firm is posing.
The recent changes in capital regulation: is not only the capital related to the single bank but the
implications that adds on the macro perspective (the market).

Not binding at all. Basel III is the one changing the perception and approach.
The structure from Basel II and onwards.
Pillar 1 is integrated in pillar 2. In the sense that a certain process for the supervisor Is necessary to
check. Pillar 3, public disclosure: how are the banks doing etc. balance sheets.
How do we set the threshold: if we are in the shoes of the legislators/regulators?
- Emphasizing the riskiness of the banking business.
The amount cannot be a fixed amount, it has to be a percentage or “moving number in relation to
the risk and the amount”. (ratio)

Operational risk: everything that can go wrong relating to running the business.

The numerator is : the banks capital, the nominator is the assets.

Risk weighting. Not the face value, but the face value multiplicated by the amount of risk the
position brings.
Ex ante: permission
ex post: oversight

1:
2:
This is the new way.
CRA = credit rating agencies.
Using the knowledge that banks have.

You have to be allowed (ex-ante)

Tail banks: events that are very unlikely, but if they happen they cause enormous damages.

Ratio between the banks equity and the leverage the bank have. (max 3 percent)

Stress test is ex post.

EBA does stress test.
Risk that effects the system: systemic risk.

Quality of the capital is different in Basel III.

8 % made of 3 components
Order of quality:
Quality it means: how
CET1 = best quality of capital: i.e. pure cash/gold – should be 4.5 %
AT1 1.5%
Tier 2 2%
Regulatory capital = at all times freely available to absorb losses.
Tier2 is Less liquid.
Going concern capital: capital that is used to absorb a loss
Gone concern capital: capital that you use ensuring depositors and senior creditors can be repaid
if the bank already failed.
Buffers are additional reserves that the bank has to have. Deals with special situations.
WRONG: amount of capital the banks have to hold is the 8 percent + the buffer WRONG

The buffer is something you have to keep to keep running the business.
Procyclicality:

To keep your 8 percent, not increasing your quality but lending less out.
CET1 = common equity tier 1
CCB = capital conversation buffer

Different opinions on this buffer: some say it is not necerssary, but professor says it is necerssary.
It is requied by law.
Country decides which buffer to use

Applicable only to the banks that are qualified as: systemic importan banks.
Two main challenges
1. retail dposits
2. short term wholesale funding
a. secured short term funding (repos and swaps)(not an options to buy, has to buy)
b. unsecured short term funding (interbank deposits, commercial paper and certificate
of deposits.)
 I. constrains on the composistion of the asset side, of the balance sheet:

To incurage banks to have more deposits than other short term debts.
HQLA = high quality liquid assets.
The test is based on a scenario
SHORT TERM
LONG TERM
Relies of the powers of the central bank.
Governments are capital providers of last resort. Whereas central banks provide liquidity.

One form: monetray policy: market liquidity assistance under the ECB as the monetary provide
Other form: measures that are directed specifically at a bank.

ESCB = European System of Central Banks

ELA = emergency liquidity assistance.

The 1st = generalized, affecting the entire market/system

The 2nd = specific bank that is affected.
MROs = main refinancing operations
TLTROs = Targeted longer-term refinancing operations
- target to specific institutions
APP = Asset purchase program
Forbidden according to TFEU 123 but:
ECB used this trick: always bought on the secondary market. (from circulation)
primary market: when you finance/buy directly.
secondary market: when you buy from those who either bought it directly or from someone who
did (circulation)

ELA = Emergency liquidity assistance

Article 14.4 of the ESCB

The cental bank can help you out

They are not respecting the minimum amount of capital
Solvency is a requirement to use ELA
(now in this moment the bank is not solvent because of requirement a, but there is a credible
prospect of the bank being solvent later on) you have to justify situation b. responsibility is passed
from the law to the authority in situation b.
Liquidity cannot be used to recapitalise the bank.

Not always possible to pay out in full.

In eu: up to 100k euro in 7 days
Moving from above system to the system below (EDIS)

EDIS = European Deposit Insurance Scheme

Management: SRB = Single Resolution Board makes sense when they are dealing with the crisis of
a bank.
 Lesson 6 (PRIVATE BANKING LAW)

Corporate governance: the way corporations are managed and controlled.

The bigger the firm, the more complicated are the procedures to govern. The riskier the firm’s
business the more important is corporate governance.

The law is imposing a specific structure of the board.

The welfare of the firm is important. Corporate governance should take care of stakeholders’
interest. Shareholders’ interest is second to depositors’ interest.

This is the behavior that legislators want to promote.

CRD article 78 – 88
1 pillar laws
SSM
CRD4()

2 pillar laws
SRM
BRRD(used in case of crisis)

The CRD4 directive uses the word “management body” = board of directors.
CRD 4 Art. 91

CRD 4 Art 91.

Comply or explain
Internal Compliance, risk management and audit. Required by law, so banks has little discretion
over what control frameworks and mechanisms to use.
The above slide is done by the slide below

Three-lines of control/defence
Channel of communication between the internal and external world.
More of advisory activity. In conjunction with the risk management function.
Regularly checking that the bank is in compliance with applicable laws, regulations and standards
etc.

The internal audit function should only check that everything is

The separation between who are controlled and who are controlling.
No subordination if a person is controlling.
Legal basis: guidelines of the EBA Art. 74 directive 2013/36/EU
Rules that have general applications to banks.
Changes based on the amount of risk you are exposed to.

Committee has to talk to the risk committee

Example: you are head of compliance and get x amount

Two types of employees.

Qualitative: when you are filling a specific post like senior manager, you are material risk-taker,
because they have the power to commit the firm.
Quantitative criteria: when you are paid 500.000 or more or are among the firms 3% highest paid
staff. You have some saying in the firm.
SSM Art. 4(1)(e)
SSM art. 93 and 94
In DK they want ex ante of supervisory approval of an appointment. (i.e. Danske Bank direktør)
The NCA will do the fit and proper test outside the eurozone(currency)
SSM 4 Art. 4(3)
CRD 4 Art. 91
The burden is on the purchaser to investigate.

Consumer credit directive should be: credit consumer directive.

Unilaterally = only one party can change the contract.

Indeterminate duration – important

Jus variandi = right to change.

There’s a distinction between contracts of indetermination and of duration.

If you are silent, the change is applied.

i.e. you have a deposit in bank, you get 1% interest. Then the bank changes to grant you 1.5 % the
bank does not inform you. But the consumer is in favour, so It applies. If they change something
without notifying the consumer and it is not in the favour of the consumer.

Automatic substitution.
Primary market: the IPO
In both markets mifid is the law
Arranger (often an investment bank)

The arranger supports the issuer.

Directive 2001/34 Art. 5 (a) & (b)

Equity is riskier than debt.

Balance between technical and understandable etc.
Regulation 2017/1129
In one case the investment firm is advising the client. In other cases they are just executing for the
client.
Residual category. All the individuals that is not part of the professional.
KYC = know your customer.
Firm needs to be solid in terms of competence.
Implies that investment firms reach out to you and tells you the trends and such.
Obligation upon the firm, to find the best result for the clients. Taking in account, price, costs,
speed.

The investment firm should take the steps to avoid conflicts of interest.
sad
Lesson 7
Rules about money laundering Developed at the international level.
Directive 91/308/EEC

Customer/client identification
Record-keeping
Methods of reporting suspicious transactions (to competent authorities)

Based on a precondition
We need the cooperation of the citizens for this to work effectively.
Even if you are making more transaction below 15.000 but are linked, the bank has to identify your
identity.
Two laws: one to prevent. And national law of the criminal offence money laundering.
Directive 2001/97/EC

Lawyers and such are only subject to the directive when they act in a specific manner
Directive 2006/70/EC

Important: passage from identification (first pillar) to due diligence, not limited to identifying but is
something more.
FIU = financial intelligence unit
FIU is at the epicenter and therefore has a lot of data to draw on.
Obligation arises when the entity knows, suspects or has reasonable grounds to suspect money
laundering, terrorist financing.