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Since the emergence of the virtual currency Bitcoin in 2009, a new, Internet-based way of recording entitlements and enforcing rights has increasingly captured the interest of businesses and governments. The technology is commonly called ‘blockchain’ and is often associated with a closely related phenomenon, the ‘smart contract’. The market is now exploring ways of using these concepts for financial assets, such as securities, legal tender and derivative contracts. This article develops a conceptual framework for the governance of blockchain-based networks in financial markets. It constructs a vision of how financial regulation and private law should set the boundaries of this new technology in order to protect market participants and societies at large, while at the same time allowing for the necessary room for innovation.

The practice of securities holding, transfer, and collateral has changed significantly over the past 200 years—moving from paper certificates and issuer registers, to an intermediated environment, and from there to computerization and globalization. These changes have made transacting more efficient and thus rendered markets more liquid. However, the law has lagged behind and is now itself an obstacle to efficiency because international securities transactions are subject to considerable legal uncertainty. The latest global market development, a cryptographic transfer process commonly called the blockchain, is the most recent efficiency-enhancing change. It offers a unique possibility to create a consistent legal framework for securities from scratch, on the basis of a legal concept that, to some extent, resembles bearer securities. This article shows what the new international legal framework could look like in the light of experience gained from earlier developments.

This collection comprises twenty most-read posts published on the Oxford Business Law Blog in 2018. The individual contributions cover issues such as blockchain technology and cryptoassets, financial services, corporate law, and autonomous systems. In this context, and for reasons of coherence and consistency, the pieces included in this paper are arranged in a thematic order.

'Safe harbour' is shorthand for a bundle of privileges in insolvency which are typically afforded to financial institutions. They are remotely comparable to security interests as they provide a financial institution with a considerably better position as compared to other creditors should one of its counterparties fail or become insolvent. Safe harbours have been and continue to be introduced widely in financial markets. The common rationale for such safe harbours is that the protection they offer against the fallout of the counterparty’s insolvency contributes to systemic stability, as the dreaded ‘domino effect’ of insolvencies is not triggered from the outset. However, safe harbours also come in for criticism, being accused of accelerating contagion in the financial market in times of crisis and making the market more risky. This paper submits that the more important argument for the existence of safe harbours is liquidity in the financial market. Safe harbour rules do away with a number of legal concepts, notably those attached to traditional security, and thereby allow for the exponentiation of liquidity. Normative decisions of the legislator sanction safe harbours as modern markets could not exist without these high levels of liquidity. To the extent that safe harbours accelerate contagion in terms of crisis, which in principle is a valid argument, specific regulation is well suited to correct this situation, whereas to repeal or significantly restrict the safe harbours would be counterproductive.

In recent years, a fragmented global picture of legislation supporting mediation in finance has emerged and a number of ADR service providers have started to offer mediation services specifically for the financial market. Although academics and professional express great appreciation for alternative resolution procedures in finance, mediation is said to lag behind its potential. This [chapter] shows that a number of characteristics of financial transactions suggest that mediation in finance could increase efficiency to an extent that would not be possible otherwise. However, there are clear limitations to mediation in finance: the main characteristic of financial transactions consists of the preparedness to take and manage counterparty risks. The financial industry has developed a framework to manage counterparty risk, in accordance with existing laws in nearly all developed financial markets. However, the main idea underlying mediation, that is to form a new agreements adjusting contractual obligations, is largely irreconcilable with risk management as practiced at the moment. Hence, only those disputes that do not touch upon issues associated with transfers of value can be the object of mediation, whereas all transactions that are ‘financial’ in nature must remain subjected to insolvency or bankruptcy procedures.

Close-out netting is a risk mitigation tool used by financial institutions. It is comparable to set-off and its effects in insolvency are loosely comparable to a super-priority. Therefore, it might conflict with the pari passu principle. Many jurisdictions have solved that conflict and adapted their laws so that close-out netting is enforceable even in the event of insolvency. However, as the financial market is global, the parties, their branches and assets might be located in different jurisdictions. Nevertheless, countries failed to agree on a harmonised conflict-of-laws rule, despite the obvious need, when they decided not to include a conflict-of-laws principle in the 2013 Unidroit Principles on the operation of close-out netting provisions. The relevant EU law, though patchy, already addresses this concern. This article identifies the underlying conceptual difficulties and proposes a solution for an improved framework for both the EU and other financial marketplaces.

Legislators and regulators use a number of concepts to cast regulatory goals into regulatory rules. This range of concepts ranges from highly intrusive, such as prohibition of a certain activity, to little intrusive, such as disclosure of certain facts. This paper systematizes the various available regulatory concepts and proves their continued validity in the context of modern technology-enabled financial services. This paper was first written as an introductory text to one of the author's lectures on International Financial Regulation.

Financial law consists mainly of a combination of contract, property and insolvency law and the relevant private international law rules. It is specifically adapted to the use by parties active on the financial markets. This paper presents an overview of the axioms underlying financial law and identifies risk and return as the threshold concept in light of which all financial activity, in particular, risk creation and risk mitigation, must be considered.

The law governing various aspects of securities holding and disposition was, and still widely is, purely national law, whereas the relevant markets were highly internationalised and securities were transferred and pledged cross-border all the time. Against this background, the EU adopted the Settlement Finality Directive in 1998 and the Financial Collateral Directive in 2004. The Hague Conference on Private International Law adopted the Hague Securities Convention in 2002, and UNIDROIT adopted the Geneva Securities Convention in 2009. These EU and international instruments address in part identical problems. Some of the solutions provided by these are compatible, or even identical, with one another, others differ. This paper provides an analysis of the main patterns for holding and disposition of financial instruments, including the provision of financial collateral. It emphasises the importance of the relevant conflict-of-law analysis.

In the general perception, financial institutions’ immense repo and derivatives portfolios are friends and foes alike: friends, because they provide for levels of market liquidity that would be unimaginable without them. Foes, because both types of transactions are somehow regarded as being unstable and volatile in their nature, potentially exacerbating and accelerating crisis situations. This tension is also reflected in the treatment of repos and derivatives in the event of a corporate crisis. Insolvency law and relevant regulation seem to support and protect repo and derivatives transactions, while at the same time imposing limits on them, trying to balance liquidity arguments with those relating to stability. This paper concludes that regulation is better placed than insolvency law to address systemic stability concerns, whereas relevant insolvency rules guarantee high levels of liquidity while they are ineffective in terms of stability. The paper will concentrate on EU and US law, complemented by international benchmarks. It expands on certain aspects first developed my earlier paper on insolvency safe harbours.

A owes 20 GBP to B and B owes 30 to A ... what are they going to do if they want to be efficient? The answer is probably 'set off'. However, anything beyond this initial reaction is jurisdiction-sensitive and relatively confusing because, as always, labels such as set off, netting, clearing, etc. do not help per se and one has to ask what specific legal mechanisms achieve in functional terms. As a baseline, we can retain that 'net positions' such as set off, netting and clearing are capable of collapsing or combining exposures between parties. This paper maps the economic and legal functionalities of the various types of net positions, in both bilateral and multilateral relationships.

This introductory paper explores the general nature of financial regulation as a set of behavioral rules. Public authorities impose these rules on market participants. The aim is to influence market participants’ behavior in order to achieve certain regulatory goals. The financial crisis has changed our perception of how regulation should be designed in order to achieve these goals. The advent of FinTech challenges our perception again.

Since the emergence of the virtual currency Bitcoin in 2009, a new, internet-based way of recording entitlements and enforcing rights has increasingly captured the interest of governments and the Real economy. The technology is commonly called ‘blockchain’, which also comprises the concept of the ‘smart contract’. The global financial industry, including literally all systemically relevant institutions, is now exploring ways of using the technology in mainstream financial products and services, such as securities, payments and derivatives business. Acceptance of blockchain and smart contract technology will, however, not depend solely on its operational efficiency and reliability but also on its effective governance. No comprehensive conceptual framework has yet been developed, neither at a domestic nor at an international level. Fundamental questions include the relationship between State law and internal governance, the regulation of systemic risks and the ineffectiveness of anti-money-laundering laws. Furthermore, the new technology raises questions as regards the enforceability of rights to financial assets in the event of insolvency, and the survival of the contractual framework for risk mitigation on which the modern financial industry is built. The picture is further complicated by the fact that blockchain networks naturally encompass the idea of unrestricted, internet-wide activity, independent from jurisdictional boundaries and State regulation. This article develops a conceptual framework for the governance of blockchain-based networks in financial markets. It attempts a vision of how public and private law should limit the potential of this technology in order to protect market participants and societies at large, while at the same allowing for the necessary room for innovation.

This paper sets our the policy considerations for a future global and EU legal framework for blockchain securities settlement. In its annex, seven core principles are presented. (Edited August 2016).

‘Safe harbour’ is shorthand for a bundle of privileges in insolvency which are typically afforded to financial institutions. They are remotely comparable to security interests as they provide a financial institution with a considerably better position as compared to other creditors should one of its counterparties fail or become insolvent. Safe harbours have been introduced widely and continue to be introduced in financial markets. The common rationale for such safe harbours is that the protection against the fallout of the counterparty’s insolvency contributes to systemic stability, as the feared ‘domino effect’ of insolvencies is not triggered from the outset. However, safe harbours are also criticised for accelerating contagion in the financial market in times of crisis and making the market more risky. This paper submits that the more important argument for the existence of safe harbours is liquidity in the financial market. Safe harbour rules do away with a number of legal concepts, notably those attached to traditional security, and thereby allow for an exponentiation of liquidity. Normative decisions of the legislator sanction safe harbours as modern markets could not exist without these high levels of liquidity. To the extent that safe harbours accelerate contagion in terms of crisis, which in principle is a valid argument, specific regulation is well suited to correct this situation, whereas a repeal or significant restriction of the safe harbours would be counterproductive.

In developed financial markets securities are held through banks, brokers and other intermediaries. The question of which law governs the proprietary aspects in respect of securities in cross-jurisdictional holdings is subject of a fierce debate for about 10 years. There is agreement that the so called PRIMA approach is better than the older 'look-though approach'. However, PRIMA in itself is unclear as the concept is divided into a factual version of PRIMA and a consensual one. This dichotomy is perfectly reflected by the fact that the EU (using a fact based PRIMA in several instruments) is unlikely to implement the Hague Securities Convention which proposes a choice of law approach. This paper will look at the debate from a policy angle, analysing a number of issues which have probably fundamentally informed the earlier debate.

Close-out netting is a risk mitigation tool used by financial institutions. It is comparable to set-off and in insolvency situations any solvent counter-party that is able to use it obtains a very strong position as compared to other creditors. Therefore, it might conflict with the pari passu principle. Many jurisdictions have solved that conflict and adapted their laws so that close-out netting is enforceable even in the event of insolvency. However, as the financial market is global, the parties, their branches and assets might be located in different jurisdictions. Still, countries failed to agree on a harmonised conflict-of laws rule, despite the obvious need, when they decided not to include a conflict-of-laws principle in the 2013 Unidroit Principles on the Operation of Close-out Netting Provisions. The relevant EU law, though patchy, already addresses this concern. This Article identifies the underlying conceptual difficulties and proposes a solution for an improved framework for both the EU and other financial marketplaces.

The wide use of netting agreements is regarded as highly beneficial, both by financial market participants and by regulatory authorities. One might even say that some of the fundamental mechanisms used to govern modern markets (risk management, establishment of capital requirements) are intimately linked with the functionality of netting. From the regulators’ perspective, netting agreements are top of the list of risk mitigation mechanisms, along with collateralisation, segregation of client assets and standardisation and regulation of derivatives over-the-counter transactions. However, netting can only do its job as long as there is perfect ex ante certainty that netting agreements are enforceable in each of the relevant jurisdictions, in particular in the event of insolvency of one of the parties. This assessment has always been challenging, since netting laws in the various jurisdictions are local in scope and differ widely, whereas the market itself is highly international and homogeneous. However, with anti-crisis measures now being designed and implemented, the more ‘traditional’ difficulties surrounding the cross-jurisdictional enforceability of netting get a new spin: by virtue of the new bank resolution tools, regulators can interfere with the contractual and insolvency law setting, thereby altering the legal analysis as to enforceability. To the extent that safeguards for netting apply, it is highly uncertain whether these are capable of guaranteeing the required level of ex-ante legal certainty in respect of netting agreements, in particular where cross-jurisdictional elements are involved.

The liability regime of executive and non-executive directors in companies constitutes a necessary corollary to control issues within a company. It is based on the determination of specific duties, it establishes the limits of management behaviour and it provides stakeholders and third parties dealing with the company with legislative protection against management misconduct. In that respect, directors' liability is an important and effective compliance and risk-allocation mechanism. The European Commission has not, to date, considered directors' liability issues in a comprehensive way. It is the purpose of this study to provide the relevant information in a comprehensive manner, in order to support to European Commission to consider its future policy in this area. To this end, the analysis spans from national laws and case law to corporate practice in respect of companies’ directors duties in all 27 EU Member States and Croatia.1 The overarching goal is to provide for a better understanding of certain important drivers of directors' behaviour. This study shows the extent to which the content and extent of duties and the corresponding liabilities, as well as the understanding of the persons to whom they are owed, fluctuate over the life of a company, i.e. during the "normal" phase of operation, and in the so called "twilight zone", i.e. shortly before insolvency. The study is mainly a stocktaking one. However, its comparative analysis also identifies similarities and differences between national regimes and identifies relevant cross-border implications.

This paper sets out eight principles designed to ensure the cross-jurisdictional enforceability of close out-netting. Close-out netting is heavily used by the financial industry and used in many regulatory mechanisms like in particular bank’s capital requirements (Basel II). However, as soon as banks located in different jurisdictions agree to apply close-out netting between them, they risk that the relevant provisions are unenforceable in the event of insolvency of either of them. About 40 countries do allow close-out netting, however on differing terms. The Principles shall provide guidelines to legislators on how to amend national insolvency laws so as to be compatible with each other. Principle 1 defines close out netting. Principles 2 and 3 set a standard regarding the circle of netting-eligible parties and netting-eligible financial transactions. Principles 4-6 deal with formal requirements, promoting in particular the idea that unenforceability as a consequence of non-compliance with formal requirements is not the right means to achieve regulatory goals. Principle 7 is the core rule and defines the relationship between close-out netting and insolvency avoidance rules. Principle 8 clarifies the role of Principle 7 in respect of bank resolution procedures as recently promoted by the Financial Stability Board. Each Principle is accompanied by a detailed commentary explaining its background and reasoning. The paper is the final one in a sequence of four that the Author has produced for the International Institute for the Unification of Private Law (Unidroit 2012 Study 78C – Doc. 13). It has greatly benefited from the input of other Members of the Unidroit Study Group.

In today's financial markets, investors no longer hold securities physically. Instead, securities such as shares or bonds are mostly held through intermediaries and transferred by way of book-entries on securities accounts. However, there are remarkable conceptual differences between the various jurisdictions with regard to the legal treatment of intermediated securities. It is widely agreed that this patchwork creates considerable legal risks, especially in cross-border situations. Two initiatives are in place to reduce these risks. In 2009, the UNIDROIT Convention on Substantive Rules for Intermediated Securities (the 'Geneva Securities Convention') was adopted, aimed at harmonisation on the international level. The EU Commission is also running a legislative project, to achieve harmonisation at the regional level. This book compares both initiatives and analyses their impact on the securities laws of selected European jurisdictions.