Developments in UK data protection law

DP Thinker has posted a few developments in UK data protection law:

DP thinker: A few developments

Just a few developments to note on data protection in the UK:

1) The draft Data Retention (EC Directive) Regulations 2007 will take effect on 1st October 2007. These regulations implement the Data Retentions Directive 2006/24/EC and will apply to public electronic communications providers. Data will be retained for a period of 12 months from the date of communication (Regulation 4(2)). The types of data to be retained are telephone numbers and mobile numbers (Regulation 5(1) and 5(2)). The regulations do not apply to data from internet access, e-mail and internet telephony (VoIP). The Information Commissioner will monitor the application of these regulations (Regulation 8). A comparison of the other European Member States' Laws implementing the Data Retentions Directive 2006/24/EC can be found here.

2) On 24 October 2007, the transitional exemptions under the UK Data Protection Act 1998 will end. This means that structured manual filing systems containing personal records will be covered under the Data Protection Act, but would apply to data that was held before October 1998. The Durant case will be relevant, which took the view that most manual file files are not relevant filing systems.

3) Draft Freedom of Information and Data Protection (Appropriate Limit and Fees) Regulations 2007 - The Government has drafted amended freedom of information (FOI) fees regulations which will allow public authorities to take into account more comprehensively the work involved in dealing with an FOI request. The consultation was completed in June, but further details can be found here.

Europe: update on company and financial services law developments

A useful update on European developments in company and financial services law has been published here by the Joint Brussels Office of the Law Societies of England and Wales, Scotland and Northern Ireland.

Directors' liability discharge proposals - report published

Manifest, in conjunction with Morley Fund Management, has published a report titled "Directors' liability discharge proposals: the implications for shareholders". The report, to quote directly from it: 

.... addresses what for many investors has been a largely obscure issue, namely proposals to discharge directors of liabilities that routinely appear on shareholder meetings’ agendas in many European markets. We look at 13 European markets that have resolutions of this type – Austria, Belgium, Denmark, Finland, France, Germany, Greece, Luxembourg, the Netherlands, Portugal, Spain, Sweden and Switzerland; their legal basis and practical implications for shareholders in the voting context".

Europe: consultation on credit rating agencies

The European Commission has issued a consultation document as part of its work developing proposals with regard to the regulation of credit rating agencies. According to the Commission: 

The policy response currently being developed ... is likely to involve a legislative framework for credit rating agencies comprising both a set of legal obligations to be complied with by CRAs as well as independent external oversight. Addressees of the rules proposed by the Commission will be all existing (and prospective) credit rating agencies with business operations having significant market impact in Europe. The proposed directive / regulation will aim to achieve the following
objectives:

• Appropriate management of conflicts of interest.
  
• Improvements in quality of output.
  
• Increased transparency of CRAs' activities.
  
• Establishment of a supervisory and enforcement regime on the territory of the EU."
  

The consultation period ends on 5 September 2008. Further information is available here.

Privacy on parade in the UK

The Lawyer.com has an interesting article on the use of the Human Rights Act in the United Kingdom to dramatically extend individual privcy rights. It also includes a brief overview of some significant cases:

Privacy on parade - 16 July 2007

Five key cases

Lord Browne v Associated Newspapers, 2007

Eady J decided BP's shareholders had the right to know that Lord Browne had lied in court. But what they did not need to know were details of his personal conversations with ex-boyfriend Jeff Chevalier, which remain private.

McKennitt v Ash, 2005

One of the first real tests of Article 8. Eady J went through a number of passages from an exposé of singer Loreena McKennitt, deciding on each one whether it breached privacy rules. The result? A win for privacy.

Prince of Wales v Associated Newspapers, 2006

Blackburne J weighed up Articles 8 and 10 of the Human Rights Act and found that the former was stronger than the latter in the case of publishing the prince's diary.

Douglas v Hello!, 2007

The Lords' decision on Douglas has given celebrities greater control over their images and the way they are portrayed in the press.

Campbell v MGN, 2004

The Lords found that the photographs of Naomi Campbell attending a Narcotics Anonymous meeting had a far greater effect than just words and so had invaded her privacy.

UK: Takeover Panel publishes annual report

The Takeover Panel published its 2009/10 annual report earlier this week: see here (pdf). Amongst the activities reported is the following concerning financial reform at the European level:

... the Panel’s focus over the last year has been the proposal for a Regulation to establish a European Securities and Markets Authority (“ESMA”), which forms part of the EU’s response to the financial crisis of late 2008. As originally drafted, the Regulation included the Takeovers Directive within the scope of ESMA’s powers, enabling it, potentially, to set Europe-wide standards for regulating bids and even to intervene in individual offers. The Panel has argued that the inclusion of takeover regulation within a regime of harmonised European securities regulation would be inappropriate, not least because takeover regulation must reflect company law, which still varies considerably between Member States. The Executive has devoted considerable efforts to making representations to this effect in Brussels and with its counterparts in other Member States. While negotiations continue between the European Parliament, the Council and the Commission, amendments adopted by the Parliament on 7 July exclude the Takeovers Directive from the scope of ESMA’s powers and it is hoped that, when it is finally established, ESMA will not compromise the existing framework of takeover regulation applied by the Panel".

UK: women on the boards of listed companies

In response to a question asked yesterday in the House of Lords concerning women on public bodies and listed companies, Baronness Verma responded on the Government's behalf (Hansard, col 757 to 758):

... we have pledged to take action to promote gender equality on the boards of listed companies. However, we have more to do on the detail and in due course will be making an announcement setting out our future direction ... it is all about engaging with business and business organisations. We will engage with all relevant partners in developing our programme to fulfil the commitment in the coalition agreement. Head-hunters and recruitment companies will be aware of the stronger provision in the revised UK Corporate Governance Code, published on 28 May this year, on the importance of boardroom diversity ... we are working very hard to encourage people to work with us, rather than enforce an extra regulatory burden".

Elsewhere, the Guardian newspaper reports (see here):

The European Commission has warned companies that if they do not move voluntarily to ensure gender balance on executive boards, it will force them to. Fundamental rights commissioner Viviane Reding told the European Parliament: 'Equality in decision-making is not yet a fact ... I do not rule out the possibility of putting forward legislation in this area'.

According to her spokesman, Matthew Newman, the centre-right Luxembourgeois commissioner is giving companies a year to sort out imbalances. If they do not act, Brussels will consider legislation and other measures committing them to the sort of quotas that have recently been introduced in Spain and some German states".

Europe: the European Company (SE) consultation - synthesis of comments

The European Commission has published a synthesis of the comments received in response to its consultation on the operation and impacts of the European Company (Societas Europaea or SE) Statute: see here (pdf). The synthesis contains some interesting information on the problems encountered by respondents in setting up and operating an SE.

Europe: the harmonisation of insolvency law

INSOL Europe recently published a report titled Harmonisation of Insolvency Law at EU Law Level: see here (pdf). The report outlines differences between national insolvency laws which create difficulties for companies having cross-border activities or ownership within the EU and identifies areas where harmonisation would be desirable. The report also considers the extent to which the harmonisation of insolvency law could facilitate further harmonisation of company law.

The report contains surveys of the insolvency regimes in the UK, Poland, France, Germany, Spain, Italy and Sweden. References are also made to the law in Belgium and the Netherlands.

Europe: an unjustified restriction on the free movement of capital - golden shares in Portuguese Telecom

In January 2008, the European Commission referred Portugal to the European Court of Justice because it considered that the special rights conferred on the State by its golden shares in Portugal Telecom (PT) discouraged investment from other Member States in violation of the EC Treaty.

Today the European Court of Justice gave its opinion - Commission v Portugal (Case C-171/08) - and supported the Commission's position. The court observed (paras. [60] to [62]):

... the Portuguese State’s holding of those golden shares, in so far as it confers on that State an influence on the management of PT which is not justified by the size of its shareholding in that company, is liable to discourage operators from other Member States from making direct investments in PT since they could not be involved in the management and control of that company in proportion to the value of their shareholdings (see, inter alia, Case C‑112/05 Commission v Germany [2007] ECR I‑8995, paragraphs 50 to 52).

Similarly, the structuring of the special shares at issue may have a deterrent effect on portfolio investments in PT in so far as a possible refusal by the Portuguese State to approve an important decision, proposed by the organs of the company concerned as being in the company’s interests, is in fact capable of depressing the value of the shares of that company and thus reduces the attractiveness of an investment in such shares (see, to that effect, Commission v Netherlands [C-283/04, [2006] ECR I‑9141], paragraph 27).

In those circumstances, it must be found that the Portuguese State’s holding of the golden shares at issue constitutes a restriction on the free movement of capital for the purposes of Article 56(1) EC".

A summary of the decision is available here (pdf). Following Lisbon, Article 56 is now Article 63 in the Treaty on the Functioning of the European Union: see here (pdf).

Europe: bankers' bonuses and remuneration at listed companies

Yesterday's vote by the European Parliament on new rules governing bankers' bonuses - about which see here and here - has attracted a great deal of coverage in the media. Less attention has focussed on another resolution supported by MEPs yesterday regarding remuneration in listed companies, described in the relevant press release as follows:

.... in a non-legislative resolution drafted by Saïd El Khadraoui (S&D, BE), Parliament calls for remuneration policy principles to be extended to cover all companies listed on stock exchanges. It proposes that listed companies be required to explain their remuneration policies if their directors' pay is deemed not to follow certain principles aimed at removing incentives to take excessive risk or to take decisions based on short-term considerations. The resolution also proposes that shareholders be given greater control over the directors of a listed company.

Finally, 'golden parachutes' handed to directors in cases of early termination should be limited to the equivalent of two years of the fixed component of the director's pay and severance pay should be banned in cases of non-performance or early departure, says the resolution, which was adopted by 594 votes to 24 with 35 abstentions".

Europe: revising the Market Abuse Directive - Commission consultation

The European Commission has today published a consultation paper seeking views on revisions to the Market Abuse Directive (MAD) (2003/6/EC): see here (pdf). Amongst the questions asked are:

• Should MAD be extended to cover attempts to manipulate the market?
• How can the powers of competent authorities to investigate market abuse be enhanced?
• To what extent need the sanction regimes be harmonised at the EU level in order to prevent market abuse?
• How can the system of cooperation among national and third country competent authorities be enhanced? What should the role of the European Securities and Markets Authority be in this regard?

Europe: implementation of the Shareholder Rights Directive

The European Commission has announced that it has referred Belgium, Cyprus, Greece, Spain, France, Luxembourg, The Netherlands and Sweden to the Court of Justice for late implementation of the Shareholder Rights Directive (2007/36/EC): see here. In its press release the Commission states:

The Shareholders' Rights Directive introduces minimum standards to ensure that shareholders of companies whose shares are traded on an EU regulated market have timely access to the relevant information ahead of the general meeting and simple means to vote at a distance. The publication of documents on the internet as well as enabling proxy voting and electronic participation are important elements of this. The Directive also abolishes share blocking and introduces minimum standards for the rights to ask questions, put items on the general meeting agenda and table resolutions.

While nineteen Member States have already fully implemented the Directive, eight Member States (Belgium, Cyprus, Greece, Spain, France, Luxembourg, The Netherlands and Sweden) still have to implement some or all of its provisions. Incomplete implementation means that shareholders in those Member states do not enjoy the same rights as elsewhere in Europe and are denied the rights the Directive gives them when investing in publicly listed companies. The deadline for implementation was 3 August 2009".

Europe: the European Private Company Statute - trade ministers supportive

As noted in this earlier post, on 25 June the European Commission published a proposal for a European Private Company Statute. The European Private Company - or SPE, after its latin name Societas Privata Europaea - will be a new European legal form designed for small and medium sized enterprises. The SPE proposal has recently passed an important hurdle: on 18 July, as reported here, the European industry ministers provided their support. This said, the UK's Financial Times newspaper has reported:

Some EU countries are known to be unhappy with particular aspects of the SPE proposals. The very low minimum capital requirement, for example, has not been greeted warmly by Germany or Austria, where critics claim that this could make it too easy for fly-by-night businesses to incorporate. So there is a possibility that more referrals to national laws could get added in as the statute makes its way through the legislative process. And that leaves many observers guarded about the SPE’s usefulness at this stage".

Europe: cross border private placement - Commission finds prima facie case for action at EU level

The European Commission has published an impact assessment in which it considers whether action is needed at European level in order to facilitate cross border private placements.  In its assessment the Commission notes the problems with cross-border private placements and finds that an EU private placement regime - not necessarily a legal framework - could help overcome the problems. The Commission has considered a number of options with regard to such a regime but its analysis has revealed that there is insufficient data and information to reach firm recommendations at this stage. It will therefore be continuing its impact assessment work.

For further information see:
Executive summary | Impact assessment | Private placement regimes in the EU (2007) | 

Europe: Spain - free movement of capital and freedom of establishment

On July 17 the European Court of Justice gave its opinion in Commission v Spain (Case C-207/07). The case concerned the requirement, for those acquiring shareholdings in certain energy sector companies, to seek the prior authorisation of the National Energy Commission (the Spanish regulatory body with responsibility for the operation of energy systems).  The European Commission took the view that this requirement breached Community law and instigated infringement proceedings against the Spanish Government. The ECJ has agreed. Its opinion is not yet available in English but a press release in English has been published in which it is stated:

The system constitutes a restriction on the free movement of capital inasmuch as it is capable of deterring investors established in other Member States other than Spain from acquiring shareholdings in Spanish undertakings operating in the energy sector and is therefore liable to prevent or limit the acquisition of shareholdings in those undertakings. Furthermore, this new system entails a restriction on the freedom of establishment. However, a system which entails such restrictions may be justified by reasons laid down in the EC Treaty or by overriding reasons in the public interest, such as public safety. To that end, the system has to satisfy certain conditions: that it is suitable for securing the attainment of the objective pursued and is proportionate to that objective".

It is also noted:

... Spain has not shown that the system of prior authorisation which has been established is a measure that is suitable for securing the attainment of the objective sought by the Spanish legislature, that is, security of energy supply. In any event, the Court considers that the Spanish system of prior authorisation is not proportionate to the objective of ensuring security of energy supply. First, the system does not limit the NEC’s power to refuse to allow the acquisition of shareholdings or assets referred to above or to make subject them to certain conditions on the sole ground of securing the objective of security of energy supply ... Secondly, the Court finds that Spain has not demonstrated that the objective pursued may not be attained by less restrictive measures, in particular by a system of ex post declarations".

For further information see:
ECJ press release (English) | ECJ opinion (Spanish) | Comment in International Herald Tribune | Europa - free movement of capital information | Europa - freedom to provide services / freedom of establishment information | 

Europe: consultations on derivatives and short selling

The European Commission has published two consultation papers on draft legislation as part of its work on reforming financial regulation. The first concerns derivatives and market infrastructures: see here (pdf). The second concerns short selling and credit default swaps: see here (pdf). FAQs in respect of these consultations are available here and here.

Europe: shareholder liability and the First Company Law Directive

Advocate General Trstenjak gave her opinion in Idryma Typou (Law relating to undertakings) (case C-81/09) last week. The case raised an interesting question regarding European law and the liability of public company shareholders.

Under Greek law, a fine in respect of infringements of legislation and other rules governing the operation of television stations was imposed jointly and severally on a company, its directors and those shareholders holding over 2.5% of the share capital. An annulment of the fine was sought and the court hearing this claim requested a preliminary ruling from the European Court of Justice as to whether the provision providing for the imposition of the fine was precluded by the First Company Law Directive (Council Directive 68/151/EEC) (now Directive 2009/101/EC).

In the opinion of Advocate General Trstenjak, which is not binding on the court, the First Company law Directive did not preclude provisions of the kind adopted by Greece. However, such provisions were, in her opinion, precluded by Articles 43, 48 and 56 of the EC Treaty (see now, respectively, Articles 49, 56 and 63 of the Treaty on the functioning of the European Union: here, pdf). The Advocate General noted (para. [57]):

In the absence of express provision in Directive 68/151 ... the power to prescribe the exceptional extension of liability to shareholders of public limited companies falls within the competence of the national legislature. In the absence of harmonisation, it is for the Member States, in principle, to decide to what extent they wish to take account of the protection of the interest in question in relation to extending liability to the shareholders of a public limited company".

Europe: European Council supports proposal for credit rating agency regulation

European Internal Market Commissioner McCreevy's proposals for the regulation of credit rating agencies were noted earlier today (see here). The likelihood of these proposals becoming law has increased following endorsement by the Council of the European Union. In a press release published today, the Council stated:

The Council welcomes the revision by IOSCO of its Code of Conduct at the international level, and CESR's and ESME's reports on rating agencies. The Council considers that the revisions to the IOSCO Code of Conduct provide a minimum benchmark for the actions that credit rating agencies should take to address concerns about their activities in the market for structured products. In this context, the Council takes note of the additional steps undertaken in this field by the rating agencies to better address the governance concerns and improve transparency concerning the value and limitations of the ratings.

However, the Council shares the Commission view that the current initiatives do not fully address the challenges posed, that further steps, are needed and that regulatory changes might be necessary. The Council supports the objective of introducing a strengthened oversight regime for rating agencies and notes in this regard the preliminary views by the Commission as well as the proposals by CESR and ESME. The Council supports an enhanced European approach and the objective of strengthening international cooperation to ensure a stringent implementation of internationally approved principles. To this end, and without prejudice to consideration of its practical application, the Council supports the principle envisaged by the Commission that the rating agencies should be subject to an EU registration system.

The Council would also welcome intensified competition by entry into the market of new players". 

For comment, see this article in the Financial Times newspaper.

Europe: McCreevy on the regulation of credit rating agencies

Further information concerning the shape of the European Commission's proposals for the regulation of credit rating agencies was provided by Internal Market Commissioner McCreevy in a speech titled "Regulation and Supervision after the Credit Crunch" delivered in Dublin on July 4. McCreevy stated:

There is the issue of the need to review the role and use of credit ratings. CRAs significantly contributed to the market turmoil by greatly underestimating the credit risk of structured credit products. I requested the advice of the Committee of European Securities Regulators (CESR) and the European Securities Markets Expert Group (ESME) on the various aspects of CRAs' activity and their role in the financial markets.

The IOSCO Code of Conduct to which the rating agencies signed up has not produced the desired effects. I am certainly not persuaded that the appropriate response lies in strengthening the voluntary framework established by the IOSCO code. International convergence is desirable if it can be achieved – but per se, this is not enough. And let me make it clear, I do not believe that Europe should be in the passenger seat on this issue. We need to drive things forward and set the pace.

While some of the additional steps that the main rating agencies have announced are welcome, they are insufficient. This is one of many reasons why I have concluded that a regulatory solution at European level is now necessary to deal with some of the core issues.

It is my intention to propose in October a registration and external oversight regime for rating agencies, whereby European regulators will supervise the policies and procedures followed by the CRAs. Reforms to the corporate and internal governance of rating agencies will form a part as well. I will also try to strengthen competition by encouraging entry into the market by new players. The European Securities Markets Expert Group stressed the importance not just of governance of rating agencies, but also the importance of having an appropriate corporate culture as well.

In the proposals I will bring forward on credit rating agencies, I also want to ensure that supervisors who will have responsibility for oversight will have at their disposal sufficient resources and expertise to keep up with financial innovation and to challenge the CRAs in the right areas, on the right issues, at the right time".