Investor Protection Regime Research Articles

Double jeopardy: FCPA enforcement and MNC risk-mitigation strategies

Does transnational anti-bribery enforcement affect the risk-mitigation strategies of firms? This paper uses an original dataset on the enforcement actions of the Foreign Corrupt Practices Act (FCPA) to examine the law’s impact on corporate behavior and political risks for multinational corporations (MNCs). I argue that corrupt institutions are not necessarily undesirable for foreign investors. Foreign firms seek above-normal returns in high-risk markets through informal exchanges with the host government. FCPA enforcement provides a “fire alarm” that affects firms differently given their sensitivity to corruption concerns. FCPA enforcement has unequal deterrence against corporate misconduct, encouraging some firms to adopt transparency norms while incentivizing other firms to be more insidious in their corrupt business practices. I use a partial observability bivariate probit model to estimate the unobservable propensity of firms to engage in corrupt exchanges. Then I examine the impact of FCPA enforcement on Chinese FDI, and find that Chinese investments are deterred from markets with robust legal institutions. The FCPA’s deterrence effects against corrupt competitors is a positive outcome for U.S. MNCs. However, American companies experience diminished returns in countries with strong investor protection regimes. External legal interventions under the FCPA generate regulatory burdens on U.S. that limit their business opportunities.

The European Union Proposal for the Modernisation of the Energy Charter Treaty – A Model for Climate-Friendly Investment Treaties?

Abstract The Energy Charter Treaty (ECT), which provides for an investment protection regime in the energy sector, has been undergoing a modernisation process. The European Union (EU) submitted a proposal with a focus on aligning the ECT with the Paris Agreement. This article explores whether the EU proposal, which is largely reflected in the agreement in principle on the modernisation of the ECT, constitutes a model for a climate-friendly investment treaty. It analyses the aspired phase-out of protection for fossil fuels, the right to regulate, fair and equitable treatment and the sustainable development chapter together with its State-to-State dispute settlement mechanism. Given the phase-out of fossil fuel protection, the article argues that the proposal is too restrictive for climate-friendly investors. At the same time, its provisions on the right to regulate and sustainable development are not innovative enough for a climate-friendly investment treaty, although its State-to-State dispute settlement mechanism holds potential for inter-State climate litigation.

Insider ownership and stock price crash risk around the globe

Insider ownership is one of the most important aspects of corporate governance. In this study, we examine how insider ownership affects firms' stock market downside risk, as measured by stock price crash risk, globally. We use a large-scale international sample consisting of observations from 40 countries, and find an inverted U-shaped relationship between insider ownership and stock price crash risk. These results remain unchanged by extensive robustness tests using various settings and specifications. We also identify some factors that moderate the relationship between insider ownership and stock price crash risk: the degree of ownership dispersion at the country level, and country-level investor protection regimes / information environment / financial system structure (bank- or market-based).

Enhancing Supply Chain Responsibilities through International Investment Agreements

Foreign direct investment is one of the modes of organisation of global supply chains. At the international level, foreign direct investment is mostly regulated through international investment agreements (IIAs). While most of these agreements are still silent on corporate responsibilities, there are some notable exceptions that mark the way forward toward a more balanced investment protection regime. This contribution argues that even though the main purpose of IIAs remains the promotion and protection of foreign investment, IIAs could equally be used to enhance corporate responsibilities. To that purpose, the contribution outlines possible legal sources and means of enforcement to establish corporate responsibilities through IIAs.

Closing the institutional gap: Protecting Technology in Foreign Direct Investment

What is the relationship of foreign direct investment with a state's investment protection regime? It has commonly been viewed that foreign investors can seek outside institutional guarantees when investing in countries with relatively weak institutions for property protection, but for technological components of foreign direct investment, this option is in fact quite limited. How then do multinational corporations protect their property in host countries, especially in terms of technological assets? I argue that foreign direct investment can affect how domestic institutions for property protection develop in its countries of destination, thereby contributing to better rule of law in such countries. Instead of avoiding host country institutions, MNCs employ strategies to engage with both the host and home governments, and achieve better property protection through domestic institutions. Using a combination of cross-country data on technological investment activity, interviews of business executives, and host country case studies, I show that FDI leads to improvements in intellectual property institutions in host countries, and demonstrate the mechanisms through which MNCs influence the legal environment in host countries.

Hacia un nuevo modelo de Tratado Bilateral de Inversiones para México

El régimen jurídico de los tratados bilaterales de inversiones (en adelante TBI) se encuentra inmerso en una profunda crisis estructural. En este contexto, muchos países re-negocian o denuncian sus TBI vigentes. Otros han ido más lejos y ya han adoptado nuevos modelos de TBI. México parece quedarse al margen de esta crisis global de la regulación jurí-dica internacional de las inversiones extranjeras. Adicionalmente, algunas decisiones guberna-mentales recientes convierten a México en un país, de facto, promotor de la permanencia del actual diseño jurídico-institucional de los TBI. No obstante, en la actualidad, resulta urgente modificar la política exterior de México en la materia y, con este fin, adoptar un nuevo modelo de TBI para nuestro país.

The End of Intra-EU Investor-State Arbitration

Western Europe can be considered the birthplace of the current international investment protection regime. It was originally developed to protect Western European investors and economic interests in non-EU countries. Since the 1990s, however, international investment law and its dispute settlement mechanism of investor-State arbitration have increasingly extended to intra-European investor-State relations, eventually bringing it into conflict with the principles of European Union law. Two landmark decisions of the ECJ have now sealed the fate of intra-EU investor-State arbitration based both on bilateral investment treaties as well as the multilateral Energy Charter Treaty. The article traces this development and analyses the ECJ’s Komstroy judgment in which the Court found intra-EU ECT arbitration to be incompatible with EU law. It then discusses the implications of this jurisprudence for the international investment protection regime within the EU before arguing that domestic courts of the EU member States might emerge as a fully-fledged substitute for arbitral tribunals.

The EU and the Reform of the Investment Protection Regime

The EU and the Reform of the Investment Protection Regime

The Termination Agreement of Intra-EU Bilateral Investment Treaties: A Spaghetti-Bowl with Fewer Ingredients and More Questions

This article deals with the issue of the implementation of the Achmea judgment of the Court of Justice of the European Union (CJEU) through the Termination Agreement of Bilateral Investment Treaties (‘Termination Agreement’, TA) between some Member States of the European Union (EU). The article focuses on the analysis of the TA provisions that terminate Bilateral Investment Treaties (‘intra-EU BITs’) and investor-State dispute settlement (ISDS) among EU Members. It also describes TA provisions regulating concluded, new, and pending arbitration proceedings having as a reference the date the CJEU issued the Achmea judgment. Also, it examines how the TA regulates pending arbitration proceedings and discusses how TA Members are allowed to resort to transitional measures to resolve their dispute, throughout an amicable resolution proceeding, if they fulfil some conditions. Further, the article analyses some systemic issues of the TA, some related to the EU investment protection regime, others regarding the legal implications for intra-EU BIT provisions for EU Member States which did not sign the TA. Further, the article examines some possible issues related to the legal nature of the TA under international law and EU law.

Time to Reduce Complexity in a Data-Driven Regulatory Agenda – Perspectives on the MiFID II Best Execution Regime

The revised Markets in Financial Instruments Directive and Regulation (the MiFID II regime)See Directive 2014/65/EU (MiFID II) and Regulation (EU) 600/2014 (MiFIR). is one of the most comprehensive reforms of market structural and investor protection regimes the world has yet seen. The MiFID II regime will affect the European – and likely the global – market structure for years to come. Based on relevant perspectives from the revised best execution regime under MiFID II, this article suggest that it is time to reduce complexity. It is argued that unless a sufficient degree of horizontal and vertical integration of the best execution regulation takes place, the policy objectives cannot be reached. Further, it is argued that the significant data exercise that comes with the new rules only serves end-investors if a sufficient level of data consistency can be achieved. From this outset, the article emphasises the increased importance of data in today’s EU financial regulation. The article includes relevant comparisons to the equivalent US rules on best execution.

Challenges to the Assessment of Damages Claims Involving Crypto-Assets in Investment Arbitration

Abstract This article addresses the particular challenges involved in valuing various types of crypto-assets as investments under treaty-based investment arbitration. The interaction of the international investment protection regime with crypto-investments has largely remained un-examined, even though increasing amounts of foreign investments have flown into the development of crypto-assets its related markets. The existing investment treaty regime is set to face significant challenges in grappling with crypto-assets as investments due to several distinct features that differentiate them from traditional asset classes. This issue is explored further in the article from the perspective of the principles governing damages under international law.

The Legacy of the SADC Tribunal in International Investment Law

The now defunct Tribunal of the Southern African Development Community (SADC) was called upon a few times to decide cases related to the protection of (foreign) property rights during its short lifespan of less than five years. The most controversial of these cases was Mike Campbell (Pvt) Limited and others versus the Republic of Zimbabwe (the Campbell case), which led to the eventual suspension of the Tribunal. At the heart of the case was the legality of a postcolonial land reform program and the classic tension in international investment law between the promotion of public interest and the protection of individual property rights. The Tribunal stirred controversy by condemning the land reform program without due regard to its underlying public policy rationale. Much of the scholarly writing on the Campbell saga has focused on Zimbabwe’s hostile reaction and the impact of the Tribunal’s demise on the protection of human rights in the region. Relatively little attention has been given to its implications for the SADC investment protection regime. This chapter sets out to examine the investment jurisprudence and legacy of the Tribunal focusing on the Campbell decision. This landmark decision is largely similar to the decisions of the two arbitral tribunals established under the auspices of the International Centre for Settlement of Investment Disputes (ICSID) to try essentially the same subject matter. All three tribunals ruled against Zimbabwe’s expropriation of white-owned commercial farms using different legal bases. While the SADC Tribunal drew upon international human rights treaties and instruments, the ICSID tribunals relied on Bilateral Investment Treaties (BITs). The divergent legal bases provide an interesting context for reflection on the convergence of international human rights and investment law on the protection of property rights. The interplay between these two international law regimes has received increasing attention in academic literature over the last few years. This chapter contributes to this emerging literature by analysing the investment case law of a de facto human rights court.

The EU Investment Policy in Asia in the Light of ´Dawn of An Asian Century in International Investment Law`

After its gradual establishment, the investment policy of the European Union experienced turbulent times when the EU and the United States commenced negotiations on the Trans-Pacific Trade and Investment Partnership. While the public and political focus concentrated on the transatlantic relations with the United States (TTIP) and Canada (CETA), the EU has steadily progressed at different paces with third countries in Asia where it commenced trade and investment negotiations with Singapore, Vietnam, Myanmar, China, Thailand, the Philippines and Indonesia among others. This paper seeks to evaluate how the Union has been successful in its “Asia strategy” in the field of investment negotiation and promotion of its reform approach to the investment protection regime. It offers an overview of the EU investment negotiations with the individual partners in the Far East and explores these relationships and their potential implications. It concludes that it is not surprising that the EU already persuaded the first countries in this region about its novel approach because of their strong motivation to conclude agreements with the EU that will ‘modernise’ and ‘harmonise’ the existing investment protection. On the other hand, challenges persist as it remains to be seen in which direction Asian actors will push for in the development of global investment governance.

The MiFIR and PRIIPs Product Intervention Regime: In Need of Intervention?

As from January 2018, MiFIR and the PRIIPs Regulation provide national supervisors with competences to adopt measures restricting or limiting financial activities or practices, or the marketing, distribution or sale of financial instruments, structured deposits and insurance-based investments. Moreover, these regulations give competences to the European Supervisory Authorities (ESMA, EBA and EIOPA) to coordinate and facilitate national product intervention measures in order to safeguard the level playing field. In addition, the European Supervisory Authorities can also directly prohibit or restrict the same products, activities or practices in the entire Union, albeit only temporarily.In this contribution we first offer a discussion of the historical evolution of product intervention, including an overview of national measures taken in a number of Member States before the entry into force of the MiFIR and the PRIIPs Regulation. Then we scrutinize the conditions of the MiFIR and PRIIPs product intervention regime and examine ESMA’s first product intervention measures. Finally, we take a critical look at the scope of application of the product intervention measures based on MiFIR.We conclude that the MiFIR and PRIIPs product intervention measures can be considered the keystone of the EU investor protection regime. Since a well-functioning product governance regime should make product intervention measures superfluous in the majority of circumstances, we welcome the fact that national and European authorities have shown restraint and only introduced product intervention measures in regard of a very limited number of products. Nevertheless for the product intervention regime to optimally function, we have argued in favour of a number of changes in the regulations and in the way they are interpreted.

The Fate of EU Environmental and Investment Law after the Achmea Decision

In the landmark Slowakische Republik v. Achmea BV judgment, the ecj arguably took a resolute stance against the compatibility of International Investment Agreements between EU Member States and the inherent functioning of EU’s legal order. However, the issue as to whether the foreign investment protection regime is at odds with the sound application of EU law is far from being settled. Furthermore, the international investment protection regime as interpreted by investment tribunals may hamper EU Member States’ regulatory space, especially in the implementation of ambitious environmental and climate policies. The recent surge of litigation before international investment tribunals triggered by retrospective changes to supporting schemes for renewable energy sources and the phase-out of nuclear power plants in some European Member States is a telling example. The purpose of this article thus is to analyse the avenues currently available to ensure consistency between EU’s environmental and climate policies as implemented by EU Member States and the investment protection regime as applied by investment tribunals in the wake of the Achmea decision, with a view to devising a benchmark to prevent and avoid, rather than foster, policy conflicts.

Normas de protección del inversor en plataformas de financiación participativa para empresas en el Reglamento 2020/1503

Throughout this paper we will analyze the investor protection regime on crowdfunding platforms for business introduced by Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937.

Will the EU Commission Successfully Integrate Sustainability Risks and Factors in the Investor Protection Regime? A Research Agenda

Building a common EU framework for sustainable finance undoubtedly implies the integration of sound and sustainable processes and skills across the whole structure and governance of financial institutions. Consequently, a new financial paradigm is going to be needed, which will require the strengthening of investor care and protection, so contributing to the restoration of trust in the financial sector. In particular, on 18 December 2018, the European Securities and Markets Authority (ESMA) launched two public consultations on draft technical advice for the integration of sustainability risks and factors into the Directive on Markets in Financial Instruments (MiFID), the Alternative Investment Fund Managers Directive (AIFMD), and the Undertakings for Collective Investment in Transferable Securities Directive (UCITS) regimes, with the aim to clarify the so-called fiduciary duties and to increase transparency in the financial services industry. However, the success of the EU initiatives on investor protection regulation may be seriously endangered by the existence of many challenges, weaknesses, and contradictions raised by economists and stakeholders in relation to the definition of sustainability, ESG data availability and reliability, the development of an EU taxonomy, conflicts of interest, product governance, and suitability assessment. This paper starts by briefly analyzing the recent developments of the regulation of sustainable finance at the global level, then offers a more detailed view on the establishment of a common regime on sustainable finance in the EU, with particular reference to the action plan ‘Financing Sustainable Growth’. Then, it examines the recent proposals for regulation on sustainable finance, specifically considering the barriers to the integration of sustainability risks and factors in the EU investor protection regulation—with particular reference to investment services—with respect to its four main dimensions: (1) disclosure of product information, (2) conduct of business (COB) rules, (3) product governance and intervention, and (4) financial education. The paper concludes that the EU reforming proposals, though admirable, risk oversimplifying a complex issue that cannot be easily solved without considering its practical implications on each category of financial operators in the performance of different financial services.

The Role of the Energy Charter Treaty in Fostering and Promoting Energy Efficiency and Sustainable Development

The paper aims to critically analyze whether the Energy Charter Treaty (hereafter “ECT”) can be considered a viable instrument to foster and safeguard the concept of sustainable development, whilst simultaneously promoting foreign investment. First, an overview of the investment protection regime under ECT will be set out, assessing whether or not the ECT ensures that investments are in line with environmentally sound practices. Secondly, this study examines whether references to energy efficiency and environmental concern could signify that this treaty does not only place importance on investment protection, but also considers energy efficiency an equally important objective. Subsequently, this paper will argue that whilst the ECT can be read as promoting sustainable development, this goal is often not realized when the ECT provisions are applied in reality. Finally, the article will propose some reforms that could be made to the ECT which ensures observing key issue related to energy efficiency and sustainable development.

Product Intervention: Keystone of the EU Investor Protection Regime

As from January 2018, MiFIR and the PRIIPs Regulation explicitly provided national supervisors with competences to adopt measures restricting or limiting financial activities or practices or the marketing, distribution or sale of financial instruments, structured deposits and insurance-based investments. In a number of Member States, including Belgium, the national supervisor had already been granted this power by national regulation. MiFIR and the PRIIPs Regulation, however, uniformize the conditions for taking such measures. Moreover, those regulations give competences to ESMA, EBA and EIOPA to coordinate and facilitate such measures, in order to safeguard the level playing field. On top of those competences, these European Supervisory Authorities can now also temporarily prohibit or restrict the same products, activities or practices directly in the entire Union. In this contribution we first offer a discussion of the historical evolution of product intervention, including an overview of national measures taken by a number of Member States before the entry into force of the MiFIR and the PRIIPs Regulation. Next, the contents and application of the MiFIR and PRIIPs product intervention rules are scrutinised. Finally, we take a critical look at the scope of application of these provisions. We conclude that the MiFIR and PRIIPs product intervention measures are the keystone of the EU investor protection regime. The prevailing restrictive interpretation of the personal scope of application of the MiFIR product intervention measures could, however, partly undermine their efficiency. In this contribution we have argued that such interpretation is based on an incorrect reading of the scope of application of the MiFIR.

Insider Trading: What Really Protects U.S. Investors?

I examine the ability of the U.S. investor protection regime to limit insider trading returns, absent Section 16(b) of the Securities Exchange Act of 1934 (the short-swing rule). I find that in this setting, U.S. insiders execute short-swing trades that i) beat the market by approximately 15 basis points per day and ii) systematically divest ahead of disappointing earnings announcements. These results indicate that the bright-line rule restricting short-horizon round-trip insider trading plays a substantial role in protecting outside investors from privately informed insiders in the United States.