Cross-Border Cooperation in Financial Regulation: Crossing the Fintech Bridge

The growth of Fintech, the use of technology in providing financial services, has accelerated rapidly since the 2008 global financial crisis (GFC). While Fintech provides both economic benefits and increasing levels of financial inclusion, it also comes with risks. These risks can affect individual users of new Fintech offerings or schemes that are fraudulent or susceptible to cyber-attacks. Importantly, the rapid rise of Fintech may also affect broader financial and economic systems.[1]

In a recent article, we examine the implications of the rise of Fintech for achieving effective cooperation in the area of financial regulation. While the disruptive and … Read more

Paul Weiss Reviews Economic Sanctions and Anti-Money Laundering Developments for 2017

Economic sanctions and anti-money laundering (“AML”) remain at the forefront of U.S. regulatory priorities. Indeed, in 2017, federal and state agencies imposed over $2.5 billion in penalties for sanctions/AML violations. And, despite its generally deregulatory agenda, the Trump administration has taken a rigorous approach in this area, particularly with respect to sanctions.  At the state level, the New York Department of Financial Services (“DFS”) continues to take aggressive action on both the regulatory and enforcement fronts.  This memorandum surveys major developments and trends in 2017 and provides an outlook for the year ahead.  We also provide some practical advice for … Read more

Debevoise on Brexit: The “No-deal Deal”

It has become common in Britain to argue about whether those who forcefully suggested that a vote to leave the EU would have a very negative effect on the UK economy were wide of the mark.  This argument may be rather pointless and, since the UK has not actually left yet, somewhat premature.  It is also an argument that will be very hard to settle, because measurable economic impacts have a wide variety of underlying causes, and to identify an effect is to beg the question, rather than answer it.  So this week, when Lord O’Neill – prominent pro-EU campaigner … Read more

Europe Faces Problem of Strong Shareholders and Weak Outside Investors

Corporate governance literature has largely focused on listed firms with dispersed ownership, but those with controlling stockholders are increasingly important in the United States and Europe. In the U.S., the likes of Google, Facebook, and other technology firms have gone public with their founders retaining a controlling stake. This has prompted interest in understanding the impact that controlling shareholders have on firm value and the problems they pose for outside investors. Moreover, in Europe, where most listed firms have controlling shareholders, the control exercised by those shareholders has been blamed for the gap in stock market development relative to the … Read more

How Chinese Investments Can Pass CFIUS Scrutiny

It is no secret that Chinese investments in the United States can face an uphill battle at the Committee on Foreign Investment in the United States (“CFIUS”). CFIUS is an interagency committee of the U.S. government that has broad jurisdiction to review transactions that could result in control of a U.S. business by a foreign person. The CFIUS process is a joint, voluntary process that parties initiate based on the perceived risk that the President of the United States might require divestment post closing if there are national security or critical infrastructure concerns associated with a particular transaction within the … Read more

Materiality Disclosures and Their Effect on Investors’ Decisions

Auditors consider misstatements or omissions in financial statements to be material if they could influence the economic decisions of financial statement users. Additionally, materiality affects how auditors plan and perform an audit and evaluate identified misstatements. Regulators in the UK (Financial Reporting Council) and the Netherlands (Nederlandse Beroepsorganisatie van Accountants) require auditors to disclose their threshold for materiality in auditors’ reports of listed companies. The International Auditing and Assurance Standards Board does not require disclosure of the materiality threshold in an audit report but does not preclude auditors from voluntarily disclosing that threshold.[1] In the U.S., however, the Public … Read more

Preserving Capital Markets Efficiency in the High-Frequency Trading Era

Automation and new technology have dramatically changed trading on equity markets over  the past 20 years, and algorithmic and High-Frequency Trading (HFT) have become prominent in U.S. and European financial markets, while regulation has been slow to adapt. Despite increasing liquidity, narrowing spreads, and diminishing short-term volatility, HFT can lower market quality and stability and render marketplaces more vulnerable, especially during crises or periods of uncertainty.

Regulations affecting HFT have prioritized, in both the U.S. and Europe, preventing market disruption and manipulation, while failing to closely consider how HFT-related inequalities in information interact with the allocative function of price discovery. … Read more

Sheppard Mullin Discusses the Future of CFIUS After Proposed Reforms

‘Tis the season to wonder, what will 2018 bring? We may speculate on things like a private company making a moon landing or a peace accord with North Korea. We may be certain of things like well-intentioned gym memberships and a host of new-you products.

Somewhere between speculation and certainty we find the U.S. Government’s scrutiny of foreign direct investment in the United States. The recently proposed Committee on Foreign Investment in the United States (CFIUS) reform introduced in Congress sheds some light on the future of CFIUS reviews.

Congress Proposes CFIUS Reform

As discussed in Sheppard Mullin’s March 2017 … Read more

Cleary Discusses Administrative Fines Under the GDPR

Since the adoption of the General Data Protection Regulation (GDPR) in 2016, considerable attention has focused on the vastly increased scope of potential administrative fines, and even more attention is being paid to the issue with the GDPR becoming effective on May 25, 2018.  In this post, we summarize the key fining provisions, and analyze the recent relevant guidance on this issue from the Article 29 Working Party (an advisory group consisting of representatives from national data protection authorities together with the European Commission).

To summarize, the GDPR provides for potentially massive new fines for violations of its provisions, which … Read more

The Economics of Disclosure and Financial Reporting Regulation

Disclosure and reporting regulation is a central and recurring policy issue that has received significant attention in academic research on accounting, finance, and economics. Further fueling demand for this research are increasingly frequent requests that policy makers and regulators conduct cost-benefit or economic analyses of both existing and planned regulations and standards.

In a recent paper, we review the empirical literature on the economic consequences of disclosure and financial reporting regulation, drawing on U.S. and international evidence. We also extensively review the literature on mandatory International Financial Reporting Standards (IFRS). Our efforts are timely, because three developments have spurred disclosure … Read more

Morrison & Foerster Discusses What Global Investors Think About Brexit

Amid the uncertainty Brexit has created, foreign investors are assessing their existing and prospective investments in the UK, with particular focus on Brexit’s potential impact on EU-UK trade and labor mobility. No one has a crystal ball but our MoFo attorneys around the world have, through conversations with our clients and contacts, gained a picture of the views of smart and successful businesses and professionals about what they expect from Brexit. We have spoken to companies, from the very largest to startups, around the globe. This article sets out this crowd-sourced thinking from a wide variety of thoughtful contacts, and … Read more

Does Shareholder Protection Drive Development of Stock Markets?

Does the quality of legal and other institutions make a difference to economic development and growth? In their very well-known studies of the relation between law and finance, Andrei Shleifer and his collaborators (in particular Rafael La Porta and Simeon Djankov) found evidence to support this claim. Their econometric analysis showed that higher levels of shareholder and creditor protection were correlated with increased financial development. This work became highly influential among researchers and policy-makers. Since the mid-1990s, the widespread belief has been that strengthening shareholder and creditor rights will lead to improved financial outcomes.  This view became a mainstay of … Read more

How Five Jurisdictions Enforce Financial Market Manipulation and Insider Trading Laws

Insider trading and market manipulation — two of the most high-profile categories of financial misconduct — have resulted in several major cases, and significant sanctions in recent years. Our recent article examines the type, frequency, and severity of sanctions imposed for insider trading and trade-based financial market manipulation (“market manipulation”) over seven years from 2009 to 2015 in Australia, Ontario (Canada), Hong Kong, Singapore, and the United Kingdom (UK).

Regulatory Enforcement Approaches – Market Manipulation

What we found from our empirical research was that even in jurisdictions with similar insider trading and market manipulation laws, enforcement approaches differed significantly. A … Read more

Why Corporate Tax Residence Is a Myth

Corporate inversions have captured the imagination of the public and the popular press as well as that of the academic community. The idea is that a little paperwork can convert a U.S. corporation (which pays tax on its worldwide income) into a foreign corporation (which pays tax only on its U.S. source income), and the consensus is that the exploitation of this loophole by multinational corporations is abusive and unfair. Responding to these concerns, Congress and the Treasury Department have attempted to make it more difficult for U.S. multinationals to obtain tax advantages by inverting.

Numerous commentators have argued that … Read more

How Corporate Tax Systems Affect Cross-Border M&A Prices

There were more than $1 trillion worth of cross-border mergers and acquisitions in 2016, according to the United Nations Conference on Trade and Development, making them a prominent form of foreign direct investment and an important way for multinational entities (MNEs) to invest and restructure. When MNEs from various countries bid for a foreign target, each country’s system for taxing foreign dividends and capital gains affects deal prices and may determine who wins the bid.

A big question in the theoretical tax literature on capital ownership neutrality (CON) has been how to neutrally tax M&A (e.g., Desai and Hines (2003), … Read more

U.S. Tax Reform Requires an Understanding of Why Corporations Invert

For more than a century, the United States has had a worldwide tax system whereby U.S. taxpayers were subject to federal taxation on all of their income “from whatever source derived.”  In what would be a sharp break from longstanding practice, The Tax Cuts and Jobs Act, H.R. 1, would shift the United States from a worldwide to a largely territorial tax system by exempting the foreign source income of U.S. corporations from federal taxation.  That change, which has been estimated to reduce U.S. tax revenues by more than $200 billion over 10 years,[1] would more closely align the … Read more

Debevoise & Plimpton Discusses Contingency Planning For Brexit

Not many people would have predicted that the third quarter of 2017 – a period that ended six months after Britain gave formal notice of its intention to leave the European Union – would see more private equity investments in the UK than at any time since the financial crisis.   Nevertheless, as widely reported this week, figures published by Unquote” and SL Capital indicate that €13.7 billion (£12.1bn, or $15.9bn) was invested in UK buyout deals between July and September 2017, the highest quarterly total since 2008.

Whether this news represents a sustained resurgence of UK deals after a disappointing … Read more

Investor Choice in Global Markets for Securities

In a recent paper, we explore how globalization has affected the operation of securities markets and the challenges this poses for their regulation. The paper is part of the first phase of the New Special Study of the Securities Markets Project.

Securities markets have experienced unprecedented levels of cross-border activity over the past 30 years. Three secular trends have contributed to this phenomenon of globalization. First, liberalization: the removal of national foreign exchange controls and barriers to trade and investment. Second, the growth of collective investment, encouraged by favorable tax treatment of retirement saving. This has fostered a shift … Read more

Latham & Watkins Discusses Venezuelan Debt Dilemma

On November 2, 2017, President Maduro of the Bolivarian Republic of Venezuela announced the creation of a presidential commission, headed by Vice President El Aissami, for the “refinancing and restructuring” of Venezuela’s external debt, estimated at between US$100-150 billion.1 Foreign creditors have been invited to a meeting on November 13, 2017 in Caracas with Mr. El Aissami to start negotiations.

On November 3, 2017, the government of Venezuela announced its “absolute and responsible commitment to continue upholding the obligations [of Venezuela and Petróleos de Venezuela, S.A. (PdVSA)].”2 At the same time, PdVSA reported that it had executed a … Read more

Lessons from the Evolution of Corporations and Shareholder Rights in China

Although China seems to have taken far longer than Western developed nations such as the UK, the U.S., and Germany to create a modern corporate system, the imperial Qing government promulgated as early as 1904 a corporate law that included rules on limited liability and equal treatment of shares. Why then did it take another century for a mature corporate law and governance system to emerge?

Throughout 150 years of corporate evolution in China, the government has to varying degrees played an active and dominant role. It exercised complete control at the start of the late Qing Dynasty (1860-1911) but … Read more