The convergence of social and e-commerce continues apace in Asia.

The convergence of social and e-commerce continues apace in Asia.

mapping social commerceMore established e-commerce businesses, led by the likes of Alibaba and Rakuten, are investing heavily in social to maintain growth momentum and give them direct access to millions of users via social networks and messaging apps. One only needs to look at Rakuten’s $900 million acquisition of chat app Viber just last week, and Alibaba’s $586 million investment in the Sina Weibo microblogging platform last year, to see that e-commerce businesses are betting big on social.

Read the full blog on Connected Asia here.

The changing nature of work and the birth of the weekend

The changing nature of work and the birth of the weekend

SofieBlogJust over a century ago, horrific employment practices were prevalent across Europe. Men, women and young children worked in mines and sweatshops for 16 hours a day in squalid conditions. The working environment was dangerous and accidents not uncommon. Fires, malfunctioning equipment often maimed and killed the main breadwinners leaving families to starve.

A lot has changed since then – particularly with the introduction of the concept of the weekend. Today, Europeans working full-time spend roughly 30% of their life working. Incidentally, that is the same amount of time they spend sleeping.

So what does it mean to be an employee in Europe today?

Free movement of workers is a fundamental principle of the Treaty on the functioning of the European Union and has since been developed by EU secondary legislation and the Case law of the European Court of Justice. EU citizens are entitled to:

  • look for a job in another EU country
  • work there without needing a work permit
  • reside there for that purpose
  • stay there even after employment has finished
  • enjoy equal treatment with nationals in access to employment, working conditions and all other social and tax advantages

The above is generally uncontroversial and is practiced throughout the member states on a daily basis. For instance, I am Swedish, but went to university and law school in London. I pay my taxes and national insurance contributions in the United Kingdom and I am registered as “emigrated” with the relevant Swedish authorities. Broadly speaking this means, I enjoy the same rights as a British citizen, save for voting in national elections. My job market is in theory not confined to Sweden or the United Kingdom. I am effectively competing for jobs with the working population of the entire European Union. I say in theory because my line of work does come with some inherent restrictions on the ability to practice in different jurisdictions which has in turn generated further Directives and case law. However, there is at present nothing that stops me from applying for a job in Sweden and provided that someone is willing to hire me, go through the motions of three years of practice and then an aptitude test before applying to the Swedish bar. Similarly, here in the UK a Swedish lawyer can become a Registered European Lawyer or take the Qualified Lawyers Transfer Test.

Say what you like about the European Union but the principle of free movement of workers is something they actually got right.

We now have European citizens moving freely across member states and numerous efforts have already been made to streamline the employee rights of EU citizens. For instance, the respective Directives dealings with statements of particulars of employment, prohibition against discrimination or harassment in employment, working time, business transfers, and rules in relation to mass terminations or collective dismissals have largely been implemented across member states. The key word here is implemented as opposed to directly pasted into domestic legislation. This means that there is still scope for many quirks and differences.

However, the European Directive of 14th October 1991 (‘1991 Directive’) aims to ensure that the bare minimum for employment terms is reduced into writing.  For instance, in the UK within 2 months of employment an employer must provide the employee with their written statement of particulars of employment to include a set of information set out by statute.

If an employer fails to provide this statement, provides an inaccurate or incomplete statement or does not provide an employee with a statement of changes, an employee may make a complaint to an Employment Tribunal.

Where an employee has no other successful substantive claim, the only remedy will be a declaration from the Employment Tribunal either confirming the particulars as they stand, amending them or substituting others as it thinks appropriate.

Where the employee has a successful substantive claim, in addition to a declaration of particulars of employment, the employee may also be eligible for compensation if the Tribunal finds that at the employer was in breach of its duties. The additional compensation will, unless there are exceptional circumstances, be two or four weeks’ pay.

The requirement of a written statement of particulars outlining the terms of employment can be found in other member states as well.   These are all variations of implementation of the European 1991 Directive which requires employers to provide a written agreement with the essential terms of the contract, such as the names of the parties;  the place of the work;  the job position;  a brief characterisation or description of the job position;  the starting date;  for fixed term contracts, the term of the employment;  the duration or, if not possible the terms and conditions of annual leave;  the duration, or if possible, the terms and conditions of the notice period;  the amount and components of the compensation;  the daily or weekly working time;  and applicable collective bargaining agreements.

French Flag France has its own interpretation of this directive.  In France, a written employment contract is mandatory when an individual is hired as a temporary employee or is hired on a fixed term or part‑time contract.  Non-competition covenants are also required to be writing.  A written employment contract is not strictly required under French law in all of the cases, although it is recommended for evidentiary reasons.
German Flag In Germany, the statutory law requires only that employment contracts with temporary workers and those parts of contracts relating to fixed terms and post termination covenants not to compete be in writing.  Nevertheless, written employment contracts are best practice.  Like other jurisdictions having a written contract of employment is a way of ensuring that you are complying with the written summaries of essential terms of the employment relationship and in Germany this has to be done within one month of commencement.
Italian Flag In Italy, there is no requirement for written employment contracts.  As with other countries however to be valid certain conditions must be in writing, such as probationary period and any fixed term and non-competition clauses.  Interestingly enough on the other hand agency contracts must all be in writing.  The obligation in relation to what has to be reduced into the bare minimum, in Italy it only requires an employer to inform the employee within 30 days of starting a new employment of roughly the particulars that are set out in the directive above.
Netherlands Flag In the Netherlands, an employment contract can be agreed orally and does not have to be in writing.  Nevertheless, the Netherlands has also implemented a directive and an employer is obliged to provide the employee, within a month of the entry date of the employment, roughly the same information as discussed above, save for whether the employment contract is a secondment contract and whether social security legislation in the Netherlands was to be applicable for people working outside of the Netherlands.
Polish Flag In Poland an employment contract should be made in writing and should indicate at least the minimum particulars of employment.  If an employment contract has not been made in writing the employer should, not later than on the date when commenced, confirm to the employee in writing the details of the parties, the type of contract, terms and conditions of employment and remuneration.  In addition, the employer must inform the employee in writing about the basis terms and conditions of employment that apply to the employee not later than 7 days after the employment contract was entered into and about any changes in those conditions.  Although this appears to be slightly different than what’s been laid down by the directive, it is fairly similar.
Romanian Flag In Romania the individual employment agreement must be concluded in writing, based on the parties consent.  The written form represents a prerequisite for the validity of the agreement.  Prior to concluding the employment agreement, the employers are required to inform each employee of the general clauses to be included in the agreement.  The compulsory terms are fairly similar to the ones set out above.
Spanish Flag Spain is one of the exceptions. In Spanish employment law, the principle of oral contracts governs except as provided by fixed term agreements.
Swedish Flag In Sweden, an employment contract does not have to take any specific form.  However, as Sweden have implemented the Directive, employers are still under an obligation to inform employees of the conditions applicable to the contract or employer relationship.  The employer must also provide certain information in writing concerning the principal terms of the employment.  This information must be provided to the employee within one month from their commencement of the employment.  These particulars are roughly the same as set out in 1991 Directive.

Having considered how the 1991 Directive has been implemented across Europe it still amazes me how many employers still have no written framework whatsoever. There were 191,541 claims accepted by the Employment Tribunal Service in the financial year 2012/13. Many of these arose from inadequately documented employment contracts or a failure to follow proper employment procedures and laws.

Disgruntled employees could still put their employers through defending an Employment Tribunal claim (however weak, scandalous or vexatious) to the tune of an average of £9,000 in legal fees. I think that drawing up standard employment contracts will be a lot cheaper than that.

News on the UK and EU Economy

News on the UK and EU Economy

You’ve heard them many times. The excuses that politicians use. It’s not our fault, look what they did when in power. It’s not our fault, it’s the banks that caused all our problems. …and so on. But we are out of the recession, we’re told.

Here are some stories I read on the state of the economy.

Bank of England raises growth forecast by 21%

Mark CarneyToday, in Sky News, here:  The Bank of England governor has announced an increase in the forward growth forecast for the British economy to 3.4%, signalling good news for mortgage holders. Governor Mark Carney said there was still “scope” for the economy to maintain the base rate at record low of 0.5%. He added that the bank’s monetary policy committee (MPC) expects the growth estimate for the last three months of 2013 to be boosted up from 0.7% to 0.9%. Mr Carney said that the first-quarter growth for this year will remain “robust” at about 0.8% and wanted to see “sustained” growth before raising the base rate.

This news signals relief to millions of homeowners and those seeking mortgages, as interest rates should remain low for some time. When interest rates do rise, taking into account growth and unemployment, the increase is expected to be small.

Reasons to be cheerful as economic confidence hits record high

Last Friday, on CITY A.M., here:  Confidence in the economy is at its highest level since records began in the 1970s and unemployment is set to dive to 6.6 per cent this year, according to a raft of upbeat data published. It said the Bank of England was expected to hike its growth forecasts this week (which it has – see above).

The booming start to the year was underlined by Ipsos Mori’s latest poll showing 50 per cent of Brits expect a recovery this year, the highest since the study began. The doubters: The proportion expecting a downturn is at a five-year low of 24 per cent.

This news came after accountants Grant Thornton and the Institute of Chartered Accountants in England and Wales predicted 1.5 per cent growth in the first quarter alone. That rate would be more than double the 0.7 per cent growth in the final quarter of 2013 and the fastest pace in more than a decade.

And, according to the article Britain’s position compares very favourably with the rest of Europe.

UK seeing signs of right kind of economic growth – CBI Chief

Yesterday, the Confederation of British Industries (CBI), here:  Business investment will make a positive contribution to growth this year, rising at the fastest rate since 2007, the CBI said as it unveiled its new economic forecast. The CBI is predicting GDP growth of 2.6% this year, up from its November forecast of 2.4%, which reflects a stronger-than-expected economic performance at the tail end of 2013. The CBI’s GDP forecast for 2015 is 2.5%, down slightly from 2.6% in November.

Read the full forecast here.

Euro investors say sentiment up in January

eurozoneYesterday, on CITY A.M., here:  Eurozone investor sentiment is now at its strongest since the first half of 2011, before the European Central Bank’s (ECB) aborted attempt to lift interest rates. Investor sentiment reached 13.3 in January, according to research firm Sentix’s index, with any number over zero indicating a positive outlook. The figure was last higher in April 2011.

Eurozone stars and failures
  • Despite the improvement to overall confidence, official figures revealed that French industrial output declined at the end of the fourth quarter, dropping by 0.3 per cent from December.
  • Greek industrial output posted a rare improvement in December, up 0.5 per cent from the same month in 2012, the first time the measure has improved in six months. The measure last rose in June.
  • Italy’s industrial output for December was also announced yesterday, despite expectations for growth of around 0.5 per cent during 2013, production actually shrank by 0.7 per cent.

Pay will not recover to pre-crash level until 2022

Yesterday, on CITY A.M., here:  Price rises have outstripped wages to such an extent that real incomes will only recover to pre-crash levels in 2022, according to a report from the Resolution Foundation. Wages should start rising by more than prices this year, the think tank forecasts, but even so by 2018 less than half of the gap that built up after 2008 will have been recovered. The figures show the country will have taken a 14 year pause in income growth since the crisis struck. Right now average real wages are at the same level as they were back in 2001.

Living wage is answer to pay squeeze, says Archbishop John Sentamu

On Monday, on BBC News, here:  Rising living costs and stagnating wages are creating a “double squeeze” on the lowest paid, a senior churchman has said.  Archbishop of York John Sentamu said that millions of workers might not benefit from the economic recovery unless they were paid the living wage.  An independent commission, that he chairs, has encouraged employers to pay a living wage if they can.

The voluntary wage is calculated according to the basic cost of living. The rate, which is not binding, stands at £7.65 an hour. It is higher than the legal UK minimum wage of £6.31 an hour. In London, the living wage rate is £8.80 an hour. The commission said that more than five million workers were paid less than the living wage. However, the numbers receiving the wage increased by 9%, or 420,000, over the past year.

The report concluded that prices of “everyday” items had risen faster than high-priced goods, with food costing 44% more than in 2005 and energy prices doubling, while vehicle costs had remained stable and the cost of audiovisual equipment has halved.

Shop vacancy rate lowest for four years, research suggests

empty shopsOn Monday, on BBC News, here:  There has been a marked improvement in the number of empty shops on the UK’s High Streets, research suggests. The Local Data Company, which monitors more than 2,000 town and shopping centres and retail parks, said average vacancy rates were below 14% for the first time in four years.

But its report also reveals a growing North-South divide, with some High Streets falling into further decline. However, there are still more than 50,000 empty shops in town centres. At its peak in 2012, vacancy rates were 14.6%, compared with 13.9% in December.

Some of the vacancies were filled by food and leisure businesses. The report, though, also shows big regional variations. Vacancy rates in the North West, North East and East of England have all increased in the past 12 months. The North West is the worst hit with more than 17% of shops empty – more than double the percentage in London.

Retailers kick off New Year with biggest sales boost since 2010

Yesterday, on CITY A.M., here:  A bumper January saw British retailers record the fastest growth in sales for over three and a half years, with a 5.4 per cent boost when compared to January 2013. Online sales led the increase once again, expanding by a stunning 19.2 per cent over the 12 month period, the strongest result for internet retailers in nearly five years. The figures come from the British Retail Consortium (BRC) and KPMG’s latest retail sales monitor, released today.

In the three months to January, the split between food and non-food transactions was stark, with sales of food up only 0.8 per cent, against 5.1 per cent growth in non-food items. On a like-for-like basis, food sales actually declined. The growth of internet sales has been an ongoing phenomenon in the retail sector, but the expansion recorded in January was particularly strong, compared to average growth of 12.6 per cent during the last 12 months.

FATCA update

FATCA update

clockface The U.S. Treasury Department says that the U.S. has signed intergovernmental agreements with both Canada and Hungary to implement the Foreign Account Tax Compliance Act, or FATCA, in an effort to discourage offshore tax evasion.

The Foreign Account Tax Compliance Act (FATCA) is a controversial piece of U.S. legislation that will impose potentially burdensome reporting requirements on U.S. taxpayers and on “foreign financial institutions”. Under FATCA, the Internal Revenue Service (IRS) could withhold 30% of all gross proceeds of a fund or investment where the end investor fails to prove they do not have a U.S. tax liability. The stated purpose of the legislation is to stop tax haven abuse by U.S. citizens and is a reincarnation of the Levin Bill slipped through by the Senate Tax Committee.

FATCA has provoked controversy abroad with foreign governments and banks, as well as U.S.-born expatriates and dual citizens, who have been finding it difficult to open accounts and do business at many banks.

In an effort to alleviate the concerns of foreign governments about their own bank secrecy laws, the Treasury Department has been negotiating a series of intergovernmental agreements under which it also agrees to share information about their citizens and residents who have accounts at U.S. banks.

The latest agreements were signed this week with the governments of Canada and Hungary. Agreements with Italy and Mauritius to exchange tax information were also recently assigned since December, the Treasury announced. So far, the U.S. has signed 22 intergovernmental agreements and has 12 agreements in substance to date.

Governments have two options for complying with FATCA. They can either permit their foreign financial institutions to enter into agreements with the IRS or they can themselves enter into one of two alternative Model IGAs with the U.S. Under a Model 1 agreement, FFIs report the relevant information to their respective governments, which then relay that information to the IRS. In contrast, a Model 2 agreement allows FFIs to provide relevant information to the IRS themselves, with government-to-government cooperation serving to facilitate reporting when necessary to overcome specific legal impediments.

Each of the countries in the Thursday’s announcement—Canada, Hungary, Italy, and Mauritius—signed reciprocal Model 1 agreements. This means that the U.S. will also provide tax information to these governments regarding individuals and entities from their jurisdictions with accounts in the United States.

FATCA

The US Treasury Department’s FATCA page is here.

Guidance and FAQs from AIMA

Guidance on FATCA is available from the Alternative Investment Management Association (AIMA). It was published on 23 May 2013 and the link is here.

Bizezia publication

My company has a publication on FATCA – if you would like a copy of it, please email me at mpollins@bizezia.com.

Most councils have recovered (some) lost Landsbanki deposits

Most councils have recovered (some) lost Landsbanki deposits

LandsbankiI blogged previously about the Icelandic banking crash. You will recall that many local authorities across Britain were lured into placing huge sums of money (more than £1 billion in total) on deposit and were stunned when the crash happened. Originally, they thought all their money had been lost but some good news at last: Most councils that invested in the failed Icelandic bank Landsbanki have now recouped the majority of the money they are due after selling their claims, the Local Government Association (LGA) has said. 

The article from Public Finance says that authorities’ claims to deposits were sold at an auction as part of the winding-up proceedings for the Icelandic bank Landsbanki, now known as LBI. As a result, town halls will, on average, recover more than 95% of the money they originally deposited, the LGA said. Councils had £414m deposited with LBI at the time of the crash. Prior to the auction, around £225m had been recovered, while the auction will realise more than £140m.

The Public Finance article explains the reasons why councils sold their entitlements at an auction. But what I can’t understand is why anyone would pay good money for something that is uncertain. The reasons for selling the claims are given as removing councils from:

(a)   the process of the administration of the insolvent estate of Landsbanki, which was likely to continue for a number of years.

(b)   the risk of future currency fluctuations involved in claims, which is measured in Icelandic Krona.

As well as Landsbanki, Glitnir, Heritable and Kaupthing Singer & Friedlander banks collapsed.

The full story is here.

News from the EU

News from the EU

There were three noteworthy press releases from Brussels yesterday:

Directive on collective management of copyright and related rights and multi-territorial licensing: FAQs

The Europa website has published FAQs on the Directive on collective management of copyright and related rights and multi-territorial licensing.

musicrightsexampleAnswers are provided in the release to the following questions:

1. What is copyright and what are the related rights?

2. How important are copyright and related rights for the European economy?

3. What is the collective management of copyright and related rights?

4. What is a collective management organisation?

5. How many collective management organisations are there in the EU?

6. What is the size of the market: how much money do collective management organisations manage?

7. What is a repertoire?

8. What is a reciprocal representation agreement?

9. Why did the Commission propose legislation?

10. Why did the Commission propose to impose rules on collective management organisations?

11. What are the specific objectives of the Directive?

12. Who will benefit from the Directive?

13. What are the expected impacts on collective management organisations?

14. How is music licensed for use on the internet today? What will change?

15. Why not one entry point – a single European licence?

16. What is the expected impact on access to cultural content and cultural diversity?

17. Which are the key measures to improve the governance of collective management organisations?

18. How will the financial management of collective management organisations improve?

19. What will improved transparency mean for rightholders, users and for the public?

20. How will innovative online services benefit from the Directive?

21. Why are different dispute settlement mechanisms foreseen for rightholders, members and users?

22. What is a multi-territorial licence of authors’ rights in musical works for online uses?

23. Who needs to get the multi-territorial licences of authors’ rights in musical works, and for what purposes?

24. Which collective management organisations will be able to grant multi-territorial licences of authors’ rights in musical works for online uses?

25. Why would only a limited number of collective management organisations be able to grant multi-territorial licences of authors’ rights in musical works for online uses?

26. How will Member States evaluate whether a collective management organisation has the capability to grant multi-territorial licences of authors’ rights in musical works for online uses?

27. What happens if a collective management organisation is not equipped to provide multi-territorial licences of authors’ rights in musical works for online uses?

28. Why the requirements of the Directive on multi-territorial licences for authors’ rights in musical works for online use partially do not apply to the licensing to broadcasters?

29. Who will benefit from multi-territorial licences of authors’ rights in musical works for online uses?

Once the Council has formally adopted the new legislation, the new rules will enter into force on the twentieth day following that of the publication of the Directive in the Official Journal of the European Union. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with the Directive within 24 months after its entry into force.

There’s more information about this here and the Europa press release is here.

Directive on criminal sanctions for market abuse – FAQs

The Europa website has also published FAQs on the Directive on criminal sanctions for market abuse.

The Frequently Asked Questions are:

marketabuse1. Why are criminal sanctions needed for market abuse?

2. How are criminal offences defined at EU level?

3. Why was the existing Market Abuse Directive (MAD) reviewed?

4. Why is there a separate Directive on Criminal Sanctions for Market Abuse?

5. Which offences will be subject to criminal sanctions?

6. What are the levels and types of criminal sanctions required?

7. When would a market abuse offence be sanctioned by criminal law and when by administrative law sanctions?

8. How does the market abuse legislation tackle the abuse of benchmarks, such as LIBOR?

9. What are benchmarks and how are they dealt with in the directive on criminal sanctions against market abuse?

10. Why is the manipulation of benchmarks a cause for concern?

This Directive is subject to revisions by legal linguists and revisers, including where necessary alignment with the final political agreement on the Directive for Markets in Financial Instruments (MiFID II). Member States will have two years after the entry into force of the Directive to transpose the Directive on Criminal Sanctions for Market Abuse into national law.

The Europa press release is here.

New ECB guide will help assess security of internet payments

Yesterday, the European Central Bank (ECB) endorsed the “Assessment guide for the security of internet payments”, prepared by the European Forum on the Security of Retail Payments. The Guide intends to facilitate harmonised, efficient and comparable assessments conducted by the relevant supervisory or oversight authorities within the European Union and European Economic Area.

It outlines assessment questions for all aspects covered in the “Recommendations for the security of internet payments” that were approved by the Governing Council in January 2013. These include governance, risk management and mitigation, customer information and due diligence, the initiation, monitoring and authorisation of payments, protection of sensitive payment data, and customer awareness and education. The European Forum on the Security of Retail Payments has given special attention to providing further clarification with regard to the evaluation of strong customer authentication and the protection of sensitive payment data.

The Guide will support governance authorities of payment schemes, as well as internet payment service providers, in implementing the recommendations by 1 February 2015.

The European Forum on the Security of Retail Payments is a voluntary cooperative initiative between relevant European authorities, in particular supervisors of payment service providers and overseers. It aims to promote knowledge and understanding of issues related to the security of electronic retail payment services and instruments.

Read more about this here.

Let Banks fail: then 2% unemployment may be in sight

Let Banks fail: then 2% unemployment may be in sight

currency This story, which I found on the iacknowledge website, here, suggests that allowing banks to fail rather than bailing them out, could be good for the country and also bring unemployment down. At least that’s what’s happening in Iceland.

I suspect the ideas in this story might find favour with Ed Miliband (see the story on Sky News, here.)

Back to this story: Iceland’s population is only 320,000 on an island a little smaller than Great Britain. Yet, but by the 21st century it had built itself into a banking powerhouse. As we know, in 2008, the house of cards came tumbling down when the financial crisis made its way from the United States, to Europe, and finally to the island that banking built.

Bloomberg’s slant on this story, here, puts it like this: “Iceland let its banks fail in 2008 because they proved too big to save. Now, the island is finding crisis-management decisions made half a decade ago have put it on a trajectory that’s turned 2 percent unemployment into a realistic goal.”

Driven by the same speculation and risky lending that drove the United States economy, Iceland crashed hard. Really hard. Relative to the size of its economy, Iceland’s financial crisis was the largest banking collapse in history. All three of its major, privately-owned banks failed.

But the remarkable thing about Iceland’s banking crash isn’t just how big it was, but how quickly they have rebounded from it. Nearly 6 years after it happened, Iceland’s economy has bounced back. Iceland has managed to drop unemployment to around 4 per cent, but there are serious discussions taking place about whether it’s possible to get as low as 2 per cent.

The author of the article says: “Unlike other countries, which haven’t seemed to learn the lessons that the financial crisis forced upon them, Iceland’s position was “never again.” Frankly, Icelanders knew they couldn’t afford to let banks play dice with their entire country’s economy. Repeated over and over in the streets and in Iceland’s parliamentary house came the words “Let banks fail.” In 2008, while America was hastily putting together a bailout package for its largest banks, Iceland let theirs crash.”

Far from being suicide, the gamble seems to have paid off.

When Iceland’s banks went under, and the economy with it, many homeowners were put under water over night. In other words, their mortgages far exceeded the value of their homes. Instead of foreclosure, the Icelandic government stepped in to prevent people from losing their homes. The banks’ first task was restructuring the loans of companies and households that could no longer pay them. The government passed a law mandating that loans had to be reduced to no more than 110 per cent of the underlying property — helping homeowners who had ended up underwater. This kept people afloat while they restructured their mortgage and found new jobs in the recovering economy. Without the government intervention, many Icelanders would have been reduced to poverty and potential homelessness.

When the financial crisis hit America, instead of a wholesale dismissal of those who most directly caused it, the banks simply allowed their trouble-making workers to play a game of musical chairs. When the music stopped, the same people who had led to the mess were still sitting.

When new banks were set up, built on the ashes of the old ones, rather than keep the same people on board there were widespread dismissals for incompetence.

In Iceland, blame for the crisis fell almost entirely on the country’s financiers. While banks in other parts of the world were tangled up in bad bets on the American mortgage market, banks in Iceland had taken on mountains of debt to bet on speculative assets, and had spun a web of self-serving loans. Almost all the top executives were fired and many are now facing criminal prosecution.

In Iceland, they treat financial crimes like crimes. After it was shown that the biggest bank in Iceland was lending people money to “invest” in the bank (therefore boosting consumer confidence in the bank, also known as fraud), Iceland threw the book at the executives who committed the crime:

  • Hreidar Mar Sigurdsson, the former chief executive, received five and a half years, while Sigurdur Einarsson, former chairman of the board, was sentenced to five years in jail. These are the heaviest sentences for financial fraud in Iceland’s history.
  • The court gave Olafur Olafsson, one of the majority owners, three years and Magnus Gudmundsson the former chief executive of the Luxembourg branch, three and a half years.

leoAs an aside, Hollywood actor Leonardo DiCaprio has warned, read here, that most of the bankers who “decimated” the economy across the world, have still “got away scot-free”. The Hollywood actor made his remarks in a robust defence of his new film The Wolf of Wall Street, in which he plays disgraced American stockbroker Jordan Belfort, who made millions in the 1990s peddling penny stocks to unwitting investors until he was brought down by authorities over fraud and money laundering charges. DiCaprio denied that the film, in which Belfort rises to the top fuelled by cocaine and Quaaludes, glamorised greed and drug-taking.

The road to recovery from the biggest banking collapse in world history is not always smooth. Still, despite the challenge, Iceland appears to be doing everything it can to restore faith in its financial system. The benefits appear to already be paying off. In 2014, Iceland is expected to see its economy expand by 2.7 per cent, a modest gain but better than the OECD-area average which is around 2.3 per cent. If those numbers don’t shock you, they should.

It’s the kind of growth you would expect from a country that has knuckled down and got serious about building a healthy, well-protected economy. Although Icelandic bank creditors, many of them hedge funds, are still trying to recoup their money, Iceland’s approach has won praise from the International Monetary Fund and from numerous economists. Try telling that to the scores of British and Dutch savers who had switched their savings into online Icesave accounts, attracted by market-beating interest rates and they won’t be very impressed. When the crash came, Iceland’s savings deposit guarantee proved worthless, forcing the UK and the Dutch to use taxpayer’s money to compensate ordinary savers. The diplomatic row that ensued will likely take longer to put right than the state of the economy.

DavidgAs reported in the Guardian, here, last September, Iceland’s Prime Minister, Sigmundur Davíd Gunnlaugsson flew to London to address the Iceland Investment Forum, finishing his speech by declaring: “Hope to see you, and your money, in Iceland.  The response, from an audience largely of Icelanders and representatives of the foreign creditors, was a ripple of nervous laughter. Gunnlaugsson will not want that laughter to grow any louder.

SEC Files Motion to Dismiss Deloitte Subpoena

SEC Files Motion to Dismiss Deloitte Subpoena

As many of my blog followers will know, I’ve been following the story from the US where the Securities and Exchange Commission (SEC) has taken action against a number of top audit firms about their unwillingness to provide certain papers about their Chinese audit clients.

SECEarlier this week, I read (here) that the SEC filed a joint motion with Deloitte Touche Tohmatsu CPA Ltd. to dismiss without prejudice a subpoena enforcement action originally filed in 2011 after Deloitte’s Chinese affiliate failed to produce audit work papers for one of its clients in China, Longtop Financial Technologies, whose securities trade in the U.S.

The SEC began administrative proceedings in December 2012 against the Chinese affiliates of Deloitte and the other Big Four firms, along with BDO, for failing to produce audit work papers and other documents related to China-based companies under investigation by the SEC for potential accounting fraud against U.S. investors. The SEC and the Public Company Accounting Oversight Board have been meeting with Chinese officials in recent years to try to resolve the impasse over gaining access to audit work papers at Chinese auditing firms and conducting inspections of them.

On Monday, the SEC said the Chinese government has provided the agency with a substantial volume of documents in the Longtop case, including the audit work papers, and it is filing a joint motion with Deloitte Touche Tohmatsu to dismiss the subpoena enforcement action. The dismissal of the proceeding is subject to the approval of the district court where the subpoena was filed. Deloitte first handed over the documents to the China Securities Regulatory Commission in response to the SEC’s request for assistance in August 2012. Chinese officials eventually turned over the documents to the SEC.

In view of the substantial number of documents produced, the cooperation that the China Securities Regulatory Commission has recently provided to the SEC, and Deloitte’s statement that it will continue to cooperate with the Chinese securities regulator’s requests for Longtop-related documents, the SEC does not believe there is presently a need for judicial relief with respect to the subpoena and is requesting an order dismissing the proceeding without prejudice.

Well, that’s a relief! Hopefully the “consequences” that China threatened, won’t now happen.

Guest Blog: The rise of the Chinese middle class

Guest Blog: The rise of the Chinese middle class

The other day I was talking to Sofie Persson, a solicitor with Engleharts Solicitors in Hove, East Sussex about an article she was writing on the rise of the Chinese middle class. Her article includes some personal observations rather than just focusing on market research and statistics. She is planning to write an article on Chinese real estate investment in the UK from a different perspective as most of the press so far seems to focus on commercial rather than residential deals. We look forward to seeing that article.

By way of background: Sofie spent a few years living and working in China before she decided to return to the UK to pursue a career in law.

Here is what Sofie wrote about the rise of the Chinese middle class:chinese middle class

“Improved trade relations between the UK and China along with an increasing number of Chinese children being educated in top schools are among the key factors driving Chinese investment in prime central London property. Chinese middle class buyers have tended to focus on the prime residential areas, such as Kensington and Chelsea and along the River Thames, in upper price bands and in new build high-rise flats, rather more than on the resale markets.

For example, a couple of my former colleagues bought flats in new developments in Greenwich and Surrey Keys a couple of years ago. It would also be interesting to hear what local professionals have to say about Chinese buyers.

Whilst the west has had several decades of sweeping economic change and social transformation, China’s middle class has only had the better part of two decades to establish themselves as an economic force to be reckoned with.  Businesses of all shapes and sizes are salivating at the thought of this vast and largely untapped customer base. Many have already adapted their marketing strategies according to widely accepted hypotheses about Chinese spending behaviour. Others are weary of how the rapid increase in Chinese purchasing power will affect their domestic economies.  Regardless of one’s personal attitudes we are beyond denying that China is the future, but the true nature of the Chinese consumer cannot and should not be confined to statistics colourful pie charts alone.  It is intriguing how many of the existing market research reports tend to overlook cultural motivations, on the other hand it is understandable that one would think twice before making wide generalisations about 1.3 billion people. It is still important to have a basic understanding of cultural differences.  I have been going to China since 1999 and spent a number of years living and working in Guangzhou and Beijing.

In light of the above I have made the following observations. It is widely accepted among themselves that the Chinese are a very status conscious people and would pay premium prices for products that they believe enhance their social standing. Like most foreigners I would be looking for bargains and brand name replicas which were readily available in the “fake markets”. My affluent middle class colleagues would make a point of buying similar items at full retail price in the “official stores”. A fellow expatriate once tried to organise company t-shirts for a corporate teambuilding event. Much to his dismay, he rapidly discovered that it was suddenly extremely important that the t-shirts were “real” mingpai (a famous brand) t-shirts bought from the “official store”. His team members wouldn’t have it any other way and would readily spend 150 reminbi (£15) per t-shirt rather than the 5 renminbi (50p) per t-shirt my friend had budgeted for.

By 2015, it is expected that one-third of the money spent around the world on high-end bags, shoes, watches, jewellery, and ready-to-wear clothing will come from Chinese consumers. However, for products and services that their neighbours and friends can’t see, they appear to be very price conscious. I have spent many hours in economy class travelling back and forth between Europe and China. I was always amazed by how many designer shopping bags my fellow Chinese economy class travellers were carrying. I was later told by a colleague that a Chinese woman who would gladly show off a £800 handbag to her friends but would never spend money on a first class ticket.

On the other hand, what westerners would consider budget establishments, such as McDonald’s or KFC, are not the bottom of the price range items in China. Incredible as it may seem, they are significantly more expensive and therefore enjoy a higher status than their Chinese equivalents. It was also not unusual to spot happy couples on first dates at the IKEA canteen in Beijing.  Conversely, most middle class Chinese own a car and Beijing ring roads become giant parking lots during rush hour. Meanwhile many urban western counterparts, like myself, choose not to have a car for environmental and practical reasons.

Statistics and development indicators can therefore be misleading and multinational corporations are beginning to respond by implementing state-of-the art marketing strategies to stay ahead of the curve. For instance, P&G has built small hutong neighbourhood – a set of narrow, traditional Chinese lanes formed by the walls of a siheyuan, or traditional courtyard homes, at their Beijing Innovation Centre. In this artificial neighbourhood, consumers are being observed as they brush their teeth or change diapers.

In the same research facility, P&G also stock simulated supermarket shelves with its own products and those of competitors to better understand how the Chinese consumers shop. For example, as incomes rise more and more Chinese people are turning to skin whitening products to clearly mark their social standing. I personally found that it was difficult to find basic hygiene products, such as soap, shower cream and moisturisers that did not have a faint smell of bleach.  It is important to note that this is not an attempt to look like glamorous western celebrities, the Chinese want to look like fair skinned Chinese people. It is also not a question of race. Bar some ethnic minorities the China’s population are predominately Han Chinese and consider themselves as one race. Instead of indicating race, skin colour is directly connected to class.  Traditionally people with darker skin were the ones that worked outside in the sun which in turn meant that they were poor. I think it is safe to say that in this day and age nobody in the Chinese middle class wants to think of themselves as a peasant.

Personal anecdotes aside, the rise of the Chinese middle class is still fascinating. As late as 2000, only 4% of urban households in China were middle class. By 2012, that figure had risen to 68%.  Research show that by 2022 more than 75% of China’s urban consumers will earn 60,000 to 229,000 renminbi (£6,000 to £23,000) a year. This may not seem very impressive but in purchasing-power-parity terms this is between the average income of Brazil and Italy. McKinsey & Co has been tracking consumption dynamics since 2005 and has seen a bifurcation between a still large (but less affluent) mass market and a new even larger group of upper middle class consumers.

This new “upper cut” is able and willing to pay a premium for quality and to consider discretionary goods and not just necessities. There are also two distinct generation groups, Generation 1 (G1) and Generation 2 (G2). The most prominent being the latter and are typically teenagers and people in their early 20s, born after the mid-1980s. Their G1 parents lived through years of shortage and hardship and therefore focused on building economic security.

The G2 consumers on the other hand, are considered to be the most westernised to date and can afford pretty much what they want. Born during a period where the one child policy was strictly enforced and many still living with their parents. In 2020 it is expected that 35% of all consumption in China will come from these young consumers who are also better educated and much more international in their outlook.  However, they still share some traditional values with previous generations, and as a whole, the Chinese middle class appears to have a bias for saving, an aversion to borrowing and are determined to work hard.

Some commentators have even compared the rise of the Chinese middle class to the American Dream. There are definitely similarities in the can-do spirit, optimism and determination to pursue a better life. However, it is important to remember that China is not a capitalist system, despite appearances and elements of its development having capitalist characteristics. Since, 2002 the Chinese Communist Party has welcomed the idea of expanding the middle class so that it becomes more than half the total population by 2050 in order to encourage consumption and to ensure social stability.

The common belief for the past 20 years outside China seems to have been that the more China opens up to the west, democracy will inevitably follow. China’s socio-political experience is not that of the western world, so even though what they buy is becoming more and more similar to western consumers, the middle class still remains an essential part of the state and ideology from which it has emerged… albeit, with a foreign degree and a designer handbag on their arm!

‘Big Four’ accountants’ face US suspension over China audits

‘Big Four’ accountants’ face US suspension over China audits

The Chinese market is enormous. It’s tantalising. But there are difficult issues that emerge every now and then.

Investment bankers and Chinese executives may have pinned their hopes and dreams on 2014 being the year when Chinese IPOs return to the US. But in a harshly worded 112-page ruling, US Administrative Law Judge Cameron Elliot’s decision to ban the China units of the “Big Four” accounting firms from working on US IPOs could quash those dreams – along with billions of dollars of funds that Chinese corporations hoped to raise from US investors, reported on in Quartz here.

Only a few days ago, accountingTODAY (here) said that despite a wave of accounting scandals at Chinese companies, a 58 percent majority of capital markets executives at investment banks believe the number of US IPOs from China-based businesses will increase in 2014, according to a new survey by the accounting and consulting firm BDO USA LLP.  Interestingly, in identifying the most prominent factors for an increase in China-based offerings on US exchanges, 40% cited the perception of an improved commitment by the Chinese to meet U.S. accounting and governance expectations while 35 percent cited Chinese regulators agreeing to provide the U.S. with more access to documents at Chinese audit firms.

As an aside, I don’t quite understand something about this story. We’ve been told (possibly even brainwashed) into thinking that Chinese companies and the upper elite have billions of funds at their disposals. Many Chinese investors have been buying huge chunks of the most expensive properties in London and there are even reports of the Chinese buying UK farmland and country estates, paying nearly £7,000 an acre into the bargain.

Only yesterday, Planet Property reported that Chinese investors forked out a whopping £3.5 bn on UK property in 2013, a figure that is expected to rise in the future. Prime London agent W.A Ellis says the liberalisation of the Chinese currency has had a significant impact and “investors seem ‘frantic’ to buy”.

So my question is this: why do Chinese companies need to ask the Americans for money?  It doesn’t make sense to me.

Anyway, back to the kerfuffle at the SEC. The US securities regulator has been seeking more access to audit documents of Chinese firms listed in the US.  Because the audit firms won’t comply with that request, the Big Four accounting firms concerned face being suspended from auditing firms publicly-traded in the US. They had been charged over refusing to hand over auditing data on China-based companies which are listed in the US. The judge ruled that the units had “wilfully” broken US laws. In refusing to release records, the audit firms have cited China’s state law which say that Chinese company records can be claimed as state secrets.

State secrets? Mmm… That sounds interesting.

The ruling does not go into effect immediately. The four firms say that the decision is “regrettable” and said they will appeal.  A joint statement from Deloitte Touche, PricewaterhouseCoopers, KPMG and Ernst & Young (three of the firms concerned) said: “In the meantime the firms can and will continue to serve all their clients without interruption,” A fifth firm, Dahua, was also censured by the judge but not suspended.

Why should anyone be worried? While the firms are appealing, it could have huge consequences if it the initial decision stands.  Future audits of various Chinese firms listed in the US, as well as American firms operating in China could be affected.

The BBC article, here, reports: “This decision will be a huge shock in Beijing,” said Paul Gillis, an accounting professor at Peking University in Beijing.  He added, using Las Vegas style language, “The Securities and Exchange Commission has pushed a lot of chips out on the table.”

Mr Gillis added that if the big 4 auditors are unable to sign audit reports, it would leave companies in “a hell of a pickle” as the relatively smaller accounting firms may not have the capacity to serve big clients.  However, that assumes the smaller firms would be willing to comply with the SEC request and also that they wanted to take on the responsibility for doing high-exposure work.

In the interim period, until the appeal is heard, the legal proceedings will take a while, thus allowing the four audit firms to continue to service their clients.

Background

Several Chinese firms have listed on US stock exchanges in recent years. But claims of fraud and questionable auditing standards at some of the companies have dented investor confidence. The flow of private equity-backed Chinese companies looking to list publicly in the US could slow down dramatically in the near term, as problems such as accounting fraud and structural issues heighten investors’ aversion to initial public offerings by Chinese businesses, several industry observers say, reported on here with a “high level of scepticism and scrutiny among investors who have already lost money betting on Chinese IPOs over the past two to three years.”

In May last year, the US and China reached an agreement that allowed some audit documents of US-listed Chinese firms to be shared but, in the light of this month’s event, clearly it didn’t go far enough.

Reforming EU audit services to restore investors’ confidence

Reforming EU audit services to restore investors’ confidence

It’s happened at last. A draft agreement between the European Parliament and EU Council, yesterday, follows a trilogue process which broke down towards the end of last year after MEPs couldn’t agree a position to move the process forward.  Now we can expect legislation to open up the EU audit services market beyond the dominant “Big Four” firms and remedy auditing weaknesses revealed by the financial crisis. See the press release here.

Improvement of audit quality and transparency is included and the aim, we are told, is to prevent conflicts of interest and “reform weaknesses in the audit market” (particularly in the audit tendering practices used).

Why is this happening?

audit checklistThe role of auditors was called into question due to the financial crisis. “Reform of the audit market is long overdue and the proposals that were voted through today are unprecedented. This draft legislation will have positive ramifications, not just for the audit market, but for the financial sector as a whole. We are rebuilding confidence, one step at a time”, said Sajjad Karim (Legal affairs spokesperson, ECR, UK), the person responsible for the audit reform package and who has led the process since its inception.

What’s in the draft?

·    Better quality auditing: The law would require auditors in the EU to publish audit reports according to international auditing standards. For auditors of public-interest entities (PIEs), such as banks, insurance companies and listed companies, the agreed text would require audit firms to provide shareholders and investors with a detailed understanding of what the auditor did and an overall assurance of the accuracy of the company’s accounts.

·    Opening up the EU audit market to competition and improving transparency:  As one in a series of measures to open up the market and improve transparency, the agreed text would prohibit “Big 4-only” contractual clauses requiring that the audit be done by one of these firms. PIEs (see above) would be obliged to issue a call for tenders when selecting a new auditor.

men and cogs·    Rotation: To ensure that relations between the auditor and the audited company do not become too cosy, MEPs agreed on a “mandatory rotation” rule whereby an auditor can inspect a company’s books for a maximum of 10 years, which may be increased to 10 additional years if new tenders are carried out, and by up to 14 additional years in the case of joint audits, i.e. when a firm is being audited by more than one audit firm. The Commission had proposed mandatory rotation after 6 years, but a majority in committee judged that this would be a costly and unwelcome intervention in the audit market.

·    Independence of non-auditing services: To preclude conflicts of interest and threats to independence, EU audit firms would be required to abide by rules mirroring those in effect internationally. Moreover EU audit firms would generally be prohibited from providing non-audit services to their clients, including tax advisory services which directly affect the company’s financial statements.

Next steps

The deal will be put to a vote by Parliament as a whole, when it will be put before 751 MEPs for their consideration at a plenary session in Strasbourg, between 14 and 17 April.

Most interesting for me is that the proposals include a prohibition on Big Four-only contractual clauses. It’s a bit like the guidance given out to managers in the 1980s and early 1990s: “Nobody ever got sacked for buying IBM equipment”. The next few tiers of firms after the Big Four will have to get their act together and their PR machines in action to convince boards and shareholders across Europe and beyond that not only are they up to the job but they can actually do a better job.

UK farms and country estates are favoured investments for rich foreigners

The South China Morning Post reported yesterday that Chinese investors are joining the rush for British country estates. So, what’s happening?

Last Friday, the Guardian reported that, in addition to snapping up multimillion-pound townhouses in Knightsbridge and Chelsea, rich foreigners are now buying farms and country estates across the UK. The story is here.

Estate agents are reporting a big increase in investment buyers – some from as far away as China – trying to buy swaths of British farmland. The influx has sent the price of farmland to a record high of £6,882 an acre – an 11% jump on this time last year and a 210% increase over the past decade.

The Guardian reports that Andrew Shirley, head of rural research at estate agents Knight Frank, said: “People from around the world who buy a townhouse in Chelsea look around for what else they could buy… increasingly they’re looking at country estates and farmland. There has been a significant increase in inquiries from overseas investors.”

He said rich buyers were “not going to be sitting on the tractors themselves” but were buying farms for investment or as a “lifestyle estate”.

The Chinese are also becoming increasingly attracted to the British countryside, though more for its investment potential than to be country squires.

Rich buyers spent £54m on Scottish estates last year, according to the estate agency Savills. One world-renowned grouse-shooting estate changed hands for £20m and two others sold for between £8m and £10m.

Farmland’s cost per acre compared with gold prices over the last 50 years

The Guardian article refers to research by Knight Frank which shows the average price of UK farmland has risen to £6,882 an acre, compared with £6,214 a year ago. That works out as an 11% increase, compared with an 8% increase in UK average house prices and a 30% decrease in the price of gold over the same period. The 210% rise in the price of farmland over the past 10 years is significantly more than that for the FTSE 100 – the index of leading shares has risen by 51%.

Also mentioned is Ian Bailey, the head of rural research for Savills, who said prices were rising because demand far outstripped supply. Last year just 150,000 acres of farmland were put up for sale compared with 300,000 a decade ago.  “It’s a tangible asset – people can live on it and walk on it,” he said. “It’s a popular product and we’re not making more of it.”

Don’t miss the news. It happens every day. And it’s on EziaNews on the Bizezia website at: http://www.bizezia.com/newsindex/

Are we at risk from EU-US trade deal?

This week, Oliver Wright and Nigel Morris writing in The Independent reported that Britain’s freedom to tackle climate change, protect consumers or guarantee a publicly-run NHS could be jeopardised by a trade deal being negotiated between Europe and the US, MPs and pressure groups have warned.  Under a draft plan supported by the European Commission, multinational firms would be given wide-ranging powers to sue EU governments that adopt public policies deemed to “discriminate” against free trade.

Why should we be worried about this?  It’s mostly because campaigners warn that similar trade deals elsewhere in the world have resulted in countries being sued for adopting policies in the public good – such as anti-smoking measures – because they were deemed to penalise foreign investors. These include Australia which is currently being sued by Philip Morris for introducing plain cigarette packaging, Canada, which is being sued by US drugs firm Eli Lilly for revoking patents on drugs on the grounds that their benefits may have been overstated and Germany is being sued for ending its nuclear power programme.

The article says that Zac Goldsmith, the Tory MP, told The Independent: “It is hard to see how this won’t seriously jeopardise the sovereignty of the UK Government and its legal system. Disputes between companies and legislators should always be dealt with by British courts.”

We’re told that more than 200 organisations across the EU, including the TUC, Greenpeace and War on Want, have written a joint letter to European and American trade negotiators demanding the removal of the investor-state dispute settlement (ISDS) process from the final treaty.

If you haven’t come across ISDS before, here’s what Wikipedia says about it: Investor-state dispute settlement (ISDS) is a provision in international trade treaties and international investment agreements that grants an investor the right to initiate dispute settlement proceedings against a foreign government in their own right under international law. For example, if an investor invests in country “A”, which is a member of a trade treaty, but then country A breaches that treaty, then that investor may sue country A’s government for the breach.

In response to the campaigners, the European Commission and the British Government insist the deal under the draft plan would include safeguards to prevent misuse by corporations, thus guaranteeing the right of EU governments to “pursue legitimate public policy objectives such as social, environmental, security, public health and safety” without the risk of being sued.

The article goes on to say that ISDS has been a long-established principle of multilateral trade deals between countries and is a process designed to ensure investors are not discriminated against by governments or biased judicial systems. It allows companies who believe they have been unfairly treated to take states to a neutral arbitration panel that can award compensation for loss of earnings.

But in recent years, campaigners claim, it has been used by large multinational companies to sue governments acting in the public interest. The Slovak Republic was forced to pay $22m (£13.4m) damages after the government reversed the liberalisation of its health-insurance market.

Green Party MP Caroline Lucas, who tabled the parliamentary motion, said the move would “overturn decades of laws and regulations formed through democratic processes on both sides of the Atlantic”.

A Department for Business spokesperson said the UK already has more than 90 ISDS agreements with other countries and added: “Investment protection provisions do not limit the ability of states to make or repeal any law or regulation.”

There doesn’t seem to be much written about these issues in the popular press. A few articles, some left-leaning, some Green, are now emerging, including WikiLeaks here and NewMatilda.com here. There’s an interesting piece described as a “Brief chronicle of an obscure, scarcely informative “civil society” meeting on the Transatlantic Trade and Investment Partnership in Brussels on January 14th, 2014” here.

Are we in Britain at risk? It’s not clear yet. It’s a case of “watch this space” as I think there’s more to unfold.

 

SEPA delay down to “Lazy Banks… dragging their heels”

Originally posted on 10 Jan 2014

This week, the European Commission adopted a proposal to give an extra transition period of six months during which payments which differ from the SEPA format can still be accepted so as to minimise any possible risk of disruption to payments for consumers and businesses. But the proposal doesn’t change the formal deadline for migration of 1 February 2014.

Internal Market and Services Commissioner Michel Barnier said:

“An efficient Single Market needs an efficient SEPA. The entire payments chain – consumers, banks, and businesses – will benefit from SEPA and its cheaper and faster payments. Cross-border payments are no longer exceptional events which is why an efficient cross-border regime is needed.

As of today, migration rates for credit transfers and direct debits are not high enough to ensure a smooth transition to SEPA despite the important work already carried out by all involved.

Therefore, I am proposing an additional transition period of 6 months for those payment services users who are yet to migrate. In practice this means the deadline for migration remains 1 February 2014 but payments that differ from a SEPA format could continue to be accepted until 1 August 2014.”

The Europa press release on this is here.

The Irish Times ran a story on this, with no punches pulled here.  They say: “The introduction of a new intra-bank payments system which is supposed to speed up financial transactions across the European Union has been delayed as a result of “lazy banks… dragging their heels,” a leading business group has claimed.”

The Single Euro Payments Area (SEPA) was due to come into being across the eurozone countries on 1 February 2014 – standardising the cost and complexity of cross border transactions. The purpose of the change is to make the banks in the 28 EU member states, as well as Norway, Liechtenstein, Iceland, Switzerland and Monaco, speak the same financial language to allow for faster cross-border credit transfers and debit payments.

It was due to be rolled out across the eurozone first with the other countries following suit by the end of 2016. While it will still formally come into being in euro countries next month, payments made in alternative formats will also be accepted by banks across the EU until the beginning of August.

It’s all happening in Asia

Originally posted on 10 Jan 2014

I read today an interesting item from Clifford Chance about the new Singapore International Commercial Court (SICC).  A year ago, Chief Justice Sundaresh Menon of the Supreme Court ‎of Singapore announced plans to establish SICC and on 29 November, ‎barely 11 months after that announcement, the SICC Committee, comprising ‎senior Judges, government officials and Singaporean and international ‎jurists, submitted its report to the Singapore Government, which has ‎welcomed the Committee’s recommendations. In Clifford Chance’s words: “the proposed SICC is a masterstroke. The idea is at once bold, visionary and entrepreneurial”.

So, what is it?

It’s an innovative new dispute resolution system which will be of interest to many clients, especially (but not exclusively) those with business and commercial interests in South East Asia. The idea is to establish Singapore as a leading venue for international commercial dispute resolution.

There’s an excellent summary here, and The Lawyer has something on it too, here.

And yesterday, the UK Government announced a landmark agreement which means investors can now invest in Chinese stock markets in Renminbi through the London Stock Exchange. Hong Kong-based CSOP Asset Management, a subsidiary of China Southern fund management Co Ltd will launch the first Renminbi qualified foreign institutional investor (RQFII) exchange traded fund (ETF) listed London. This fund, which will be available to retail and institutional investors across Europe, will take advantage of CSOP’s Hong Kong’s RQFII licence to allow investors to invest directly in the top 50 companies in mainland China.

The Hong Kong and UK RQFII schemes allow financial institutions to use offshore RMB to invest in the Chinese mainland securities markets (stocks, bonds (including inter-bank), and money market instruments). China’s capital controls ordinarily restrict such cross-border activity. More on this here.

This week, it was reported that China has ‘overtaken’ the US as the world’s largest goods trader. According to the latest data, China’s total trade grew at an annual rate of 7.6% to $4.16tn (£2.5tn) last year. But the race may not be over yet – the US is yet to release it full-year figures. All we know so far is that US  trade for the first 11 months of 2013 totalled $3.5tn. The US is scheduled to release its full-year figures next month.

This Asian activity comes on top of news earlier this week that the Chinese banking sector could be about to explode onto the financial scene: up to five private banks will be created in China this year as it looks to open up the financial sector and raise competition in the industry. The banks will be allowed to operate on a trial basis under the supervision of Chinese banking authorities.

EU rating is downgraded

EU rating is downgraded

Originally posted on 23 Dec 2013

Credit rating agency Standard & Poor’s incited the ire of European Union officials last Friday when it snatched away the region’s top AAA rating, citing tensions between member states and a deterioration in their overall financial health, reported Katie Allen in the Guardian.

Downgrading the EU to AA+, the agency said the 28 countries’ combined creditworthiness had declined – but officials and leaders shot back with an assertion that the region had barely any outstanding debt relative to GDP.

Olli Rehn, the European commissioner for economic and monetary affairs, said: “The commission disagrees with S&P that member states’ obligations to the budget in a stress scenario are questionable. All member states have always, and also throughout the financial crisis, provided their expected contributions to the budget in full and in time.”

S&P, which recently cut its ratings on the Netherlands and France, said the wider region faced growing risks and “cohesion among EU members has lessened”.

“EU budgetary negotiations have become more contentious, signalling what we consider to be rising risks to the support of the EU from some member states,” the agency said.

There was more upbeat news for the Eurozone, however, with European commission data showing consumer confidence had picked up to a 29-month high this month.

EU audit market reform

Originally posted on 19 Dec 2013

On 18 December 2013, the Member States approved the compromise text regarding the Proposals for a new Regulation and for amendments of Directive of the European Parliament and of the Council on EU audit market reform.

Under the compromise text, the Member States agreed to introduce more stringent rules for auditors and audit firms. In particular, the rules are aimed at strengthening the independence of auditors of public interest entities (PIEs) as well as at assuring greater diversity into the current highly-concentrated audit market. Also, the reform aims for a more coordinated approach to the supervision of auditors in the EU that will be leaded by the Committee of European Audit Oversight Bodies (CEAOB)”, said Lithuanian Finance Minister Rimantas Šadžius.

Also agreed are:

·       the mandatory rotation of statutory auditors and audit firms of PIEs. The agreement includes the 10 years basic period after which member State may allow the auditor or audit firm to continue audit of the same PIEs up to the maximum duration of 20 years where a public tendering is conducted and up to 24 years in case of a joint audit.

·       non-audit services for audited PIEs will be prohibited, but Member States will have the right to allow some tax and valuation services to be provided if they are immaterial and have no direct effect on the audited financial statements.

There’s a 70% cap for the fees from non-audit services provided by the audit firm for audited undertaking, and the agreement on the framework for audit oversight cooperation, which shall be leaded by the CEAOB, but which will use also the experience of the European Securities and Markets Authority (ESMA) in the sphere of international cooperation between Member States and third countries in this area of audit oversight.

If you’re an audit firm, how do you think these changes will affect you?

Email at mpollins@bizezia.com.

Modernising Cross-Border Business Insolvency

Originally posted on 18 Dec 2013

A key European Parliament committee has supported a European Commission proposal to modernise Europe’s rules on cross-border business insolvency, helping to give otherwise viable businesses a ‘second chance’. The Legal Affairs Committee (JURI) voted by 20 votes in favour, 1 against and 3 abstentions to back the Commission’s proposal which will throw businesses hit by the economic crisis a lifeline.The proposed modernisation of the EU’s Insolvency rules – the Regulation in force at present dates from 2000 – is a key first step to bringing EU insolvency law into the 21st century (IP/12/1354, MEMO/12/969). The new rules which were proposed by the Commission in December 2012 will shift the focus away from liquidation towards a new approach helping businesses overcome financial difficulties, while at the same time protecting creditors’ rights to get their money back.Read the full article at Bizezia News here.

Cutting Red Tape

Cutting Red Tape

Originally posted on 18 Dec 2013

On 17 December 2013, a key European Parliament committee supported proposals by the European Commission to do away with bureaucratic rubber-stamping exercises for citizens and businesses in Europe (IP/13/355).

cutredtapeCurrently, citizens who move to another EU country have to spend time and money demonstrating that their public documents from another Member State (such as birth or marriage certificates) are authentic. This involves the so-called ‘Apostille’ certificate used by public authorities as proof that public documents are genuine. Businesses operating across EU borders in the EU’s Single Market are also affected as they are often required to produce a number of certified public documents in order to prove their legal status when operating cross-border.

On 17 December the Legal Affairs Committee (JURI) voted by 23 in favour to 1 against to endorse the Commission’s proposal to scrap the Apostille stamp and a further series of arcane administrative requirements Member States still require for certifying public documents for people living and working in other Member States.

Read the full article at Bizezia News here.

Preliminary agreement reached on EU audit reform

Originally posted on 18 Dec 2013

A framework of EU audit reform has been preliminarily agreed during the final trilogue by the Lithuanian EU Council presidency and the European Parliament, reports Accountancy Age on 17 December 2013.

During the last trilogue negotiations preliminary agreement was reached over the whole legislative package of EU audit reforms, which include forcing EU listed companies to change their auditors.

The framework is now subject to the final agreement by member states later this week.

The reforms, originally proposed by EC internal markets commissioner Michel Barnier in 2010, are intended to reduce the concentration of the audit services being provided by the Big Four accountancy firms of PwC, KPMG, Deloitte and EY.

Read the full article at Bizezia News here.