Digitalisation, Sustainability, and the Banking and Capital Markets Union: Thoughts on Current Issues of EU Financial Regulation

Foreword
Preface
Contents
Notes on Contributors
Abbreviations
List of Figures
List of Tables
Part I Digital Finance
1 Too Tech to Fail?
	1 Introduction
	2 Understanding Too-Big-To-Fail: A Short Review
	3 Data and Descriptive Statistics
	4 Empirical Evidence
		4.1 The Size of BigTech
		4.2 The Funding Advantage of BigTech
		4.3 Who Holds BigTech Securities?
			4.3.1 Intensive Margin
			4.3.2 Extensive Margin
	5 Key Results
		5.1 The BigTech Funding Advantage
		5.2 Intensive Margin
		5.3 Extensive Margin
		5.4 Robustness Checks
			5.4.1 Intensive Margin: Control for Valuation Effect
			5.4.2 Alternative Measures of Financial Distress
	6 High-Level Discussion and Policy Options
		6.1 BigTech Challenges and Key Risks
			6.1.1 Increasing Consolidation and Centralization
			6.1.2 BigTech Growing Footprint in the Financial Industry
			6.1.3 BigTech in Finance and Dependencies in Cloud Services
		6.2 BigTech in Finance, Regulatory and Policy Options
			6.2.1 Enhanced Disclosure: Efficiency, Fair Competition and Level Playing Field
			6.2.2 Systemic Relevance Assessment and Prudential Measures: Financial Stability
	7 Conclusion
	Appendix
		Appendix A
		Appendix B
		Appendix C
2 The Algorithmic Future of EU Market Conduct Supervision: A Preliminary Check
	1 Introduction
	2 ML-Powered Trading and Market Manipulation
		2.1 ML and Algorithmic Trading
		2.2 AI-Driven Market Manipulation and Supervisory Challenges
	3 The EU Supervisory Framework for Algorithmic Market “Behaviour”
		3.1 The Regulation of Algorithmic Trading “Behaviour” and Its Enforcement
			3.1.1 First Line of Defence: Investment Firms
			3.1.2 Intermediary “Watchdogs”: Trading Venues
		3.2 The Role of EU Market Conduct Supervisors
			3.2.1 Acquisition of Information
			3.2.2 Direct Market Surveillance
		3.3 Is the EU Framework Fit for Purpose?
			3.3.1 Regulatory Compliance Issues
			3.3.2 Sources of Supervisory Failure
	4 SupTech: Harnessing Technology for Better EU Market Conduct Supervision
		4.1 SupTech and Market Conduct Supervision
		4.2 AI-Driven Market Surveillance
			4.2.1 ML and Agent-Based Modelling (ABM)
			4.2.2 ABM as a Regulatory Tool: Spoofing as a Case Study
		4.3 Challenges and Future Directions
			4.3.1 Technology-Related Challenges for Supervisors
			4.3.2 Towards an EU SupTech Strategy
	5 Conclusion
3 Supervisory Oversight of the Use of AI and ML by Financial Market Participants
	1 Introduction
		1.1 Setting the Scene
		1.2 Research Questions and Scope
	2 Why is AI Transparency important? Reporting Rationales in a Nutshell
	3 Different Transparency Requirements towards Supervisors
		3.1 General Regime under MiFID II and AIFMD
			3.1.1 Disclosure in the Authorisation Context
			3.1.2 Ongoing Supervision
		3.2 A Special Focus: The Case of Algorithmic Trading under Art. 17(2) MiFID II
			3.2.1 Initial Notification Requirement
			3.2.2 Specific (Regular) Reporting Requirements
			3.2.3 Additional Ad-Hoc Supervisory Powers
	4 Inherent Limits for the Use of AI and ML?
	5 Concluding Remarks and Outlook
4 Tokenised Crowdfunding: What Regulatory Forecast?
	1 Introduction
	2 The Current Crowdfunding Regulatory Landscape
		2.1 Crowdfunding Regulatory Frameworks in the EU and the US
		2.2 Crowdfunding Restrictions
	3 The Diversity of Crypto-Assets
		3.1 The European Approach
		3.2 The US Approach
	4 Distinguishing the Concepts of Money, Currency, Legal Tender, and Funds
		4.1 The European Approach
		4.2 The US Approach
	5 Crowdfunding Services in Relation to Crypto-Assets
		5.1 Crowdfunding Services as a Type of Credit Intermediation
		5.2 Crowdfunding Services as a Type of Securities Intermediation
			5.2.1 Eligible Securities for Crowdfunding Offerings
			5.2.2 Crowdfunding Platforms as DLT Market Infrastructures
	6 Managing Client DLT Accounts
		6.1 DLT Client Wallets
		6.2 Payment and Securities Account Management Services
		6.3 DLT Client Wallets as Payment Accounts
			6.3.1 Single Currency-Pegged Stablecoins
			6.3.2 Unbacked Virtual Currencies, Algorithmic Stablecoins, and Multiple Asset Referenced Stablecoins
		6.4 Platforms’ Restrictions on Servicing DLT Client Wallets
	7 Conclusion
5 Regulatory Coordination and Diffusion in Digital Financial Services and Sustainable Finance
	1 Introduction
	2 Fragmented Markets and the International Financial Architecture
	3 Domestic-Led Networks: The GFIN and NGFS
	4 Creation
	5 Membership, Expansion, and Linkages
	6 Mandates
	7 A Complementary Node for Coordination and Diffusion?
6 Open Banking, Access to Account Rule and (Free) Marketability of Banking Data
	1 Introduction
	2 PSD II and the “New” Payment Services
	3 Access to Accounts
	4 Application Programming Interfaces
	5 Compatibility with the GDPR
	6 (Continues) Digital Commodities
	7 Conclusions
7 Management of ICT Third Party Risk Under the Digital Operational Resilience Act
	1 General Aspects in a Brief Manner
		1.1 In General
		1.2 Inspired or a Spring of Inspiration?
	2 DORA on Third-Party Risk
		2.1 Similarities
		2.2 Newcomers
	3 Assumptions and Possible Ameliorations
		3.1 Lead Overseer: A New Approach for the ESAs?
		3.2 Does Risk-Based Regulation Fully Comply with the Proportionality Principle?
Part II Sustainable Finance
8 Sustainability: A Current Driver in EU Banking and Insurance Regulation
	1 Introduction
	2 Banking Regulation and Supervision
		2.1 Climate-Related and Environmental Risks
		2.2 Regulatory Levers
			2.2.1 Pillar I—Regulatory Capital
			2.2.2 Pillar II—Supervisory Review
			2.2.3 Pillar III—Market Disclosure
		2.3 Interim Conclusion
	3 Insurance Regulation and Supervision
		3.1 Climate-Related and Environmental Risks
		3.2 Regulatory Levers
			3.2.1 Pillar I—Prudential Capital
			3.2.2 Pillar II—Governance
			3.2.3 Pillar III—Reporting and Disclosure
		3.3 Interim Conclusion
	4 One Topic, but Two Worlds
		4.1 Same Structure and Yet Not Comparable
		4.2 Climate-Related and Environmental Risks
			4.2.1 Commonalities
			4.2.2 Differences
		4.3 The Different Roles of Banks and Insurers
			4.3.1 The Roles in Combating Climate Change
			4.3.2 Exemplification: Interference with the Business Model
	5 Conclusion and Outlook
9 Sustainability and Systemic Risk in EU Banking Regulation
	1 Introduction
	2 Systemic Risk and Sustainability
		2.1 What is Systemic Risk?
			2.1.1 A Multitude of Definitions
			2.1.2 Common Features
		2.2 Implications of ESG Risk for Systemic Risk
			2.2.1 Analysis of ESG Risk
			2.2.2 Does ESG Risk Alter our Understanding of Systemic Risk?
	3 Microprudential Banking Regulation and Sustainability
		3.1 Minimum Capital Requirements
		3.2 Supervision
		3.3 Disclosure
	4 Critical Appraisal
		4.1 Incomplete Understanding of ESG Risk
		4.2 Systemic Implications of Microprudential Regulation
		4.3 Microprudential Regulation in the Face of Uncertainty
	5 Conclusion
10 Green Monetary Policy in the EMU and Its Primary Law Limits
	1 The Wave of Greening
	2 The ECB’s Strategy of Greening European Monetary Policy
		2.1 Preferential Treatment of Green Collateral
		2.2 Preferential Purchases of Green Bonds
		2.3 Greening Targeted Longer-Term Refinancing Operations
	3 The EU Primary Law Limits to a Green Monetary Policy
		3.1 Greening the Eurosystem’s Collateral Framework
			3.1.1 The ECB’s Competence to Elaborate a Collateral Framework
			3.1.2 The “Adequacy” Criterion and Climate-Related Risks
		3.2 Greening the Eurosystem’s Asset Purchase Programmes
			3.2.1 The Legality of Green Bond Purchases Under Art. 127(1) TFEU
			3.2.2 Limitations to the Preferential Purchase of Green Bonds
	4 Concluding Remarks
Part III Banking and Capital Markets Union
11 Duty of Care as a Judicial Review Tool for SSM Composite Procedures
	1 Introduction
		1.1 Composite Procedures
		1.2 Judicial Review of Composite Procedures
		1.3 Case Study and Research Question
	2 Exclusive Decision-Making Power, Imputation and Derivative Illegality
		2.1 Introduction
		2.2 Exclusive Decision-Making Power
		2.3 Imputation and Derivative Illegality
	3 Applying the Theoretical Framework to the Case Study
		3.1 What Kind of Judicial Review?
		3.2 Duty of Care: The Core Concept
	4 Duty of Care and the Assessment of Acquisitions of Qualifying Holdings
		4.1 Duty of Care and Imputation
		4.2 Content of ECB’s Duty of Care in Connection with the AML/CFT Assessment
			4.2.1 Restricted Competence, a Limited Duty of Care
			4.2.2 An Attempt to Construe the ECB’s Duty of Care
	5 Outlook
12 Game of Thrones—The Clash Between Public Interest and Property Rights in Banking Resolution
	1 Introduction
	2 Bail-In Mechanism
		2.1 Fundamental Role of Bail-In
		2.2 Key Elements of Bail-In Under the BRRD
	3 Right to Property Under the European Convention of Human Rights (ECHR) and the Charter of Fundamental Rights of the European Union
		3.1 The Concept of ‘Possession’
		3.2 Compliance of Resolution Measures with Art. 1 Protocol 1 ECHR and the EU ChFR
	4 Twilight Zone: Reconciling Bail-In and Property Rights
		4.1 BRRD Interfering with the Right to Property and  Case-Law Stance
		4.2 Into the Mist
			4.2.1 Exclusion of Eligible Liabilities from the Bail-In
			4.2.2 Insolvency vs. Resolution: May the Scales of Luck Tip in Your Favour
			4.2.3 Bail-In vs. Sale of Business and Bridge Bank Tools
			4.2.4 System-Wide Crises and Depositors: Is Bail-In Always a Proportionate Tool?
	5 Conclusions
13 Preemptive Financing Arrangements Within Cross-Border Banking Groups: Between Flexibility and Legal Certainty
	1 Introduction
	2 Group Financial Support Agreements Under the BRRD
	3 Pre-Positioning of Resources Within Banking Groups
	4 Structural and Contractual Arrangements Related to Intra-Group Support
	5 Conclusion
14 From Branches to Subsidiaries: Post-brexit Enforcement of Subsidiarisation in the European Union
	1 Introduction
	2 Background
		2.1 The Regulatory Regime Applicable to TCBs
		2.2 Brexit
	3 The Establishment of Intermediate Holding Companies
	4 The EBA Report
		4.1 Subsidiarisation Based on Requirements
		4.2 Subsidiarisation Based on Activities
	5 The EC Proposal
	6 Concluding Remarks
Index