Newsletter May 2011

Dear Reader,

 

Almost three years after the eruption of the financial crisis, investigations and congressional reports identifying malpractices in the financial industry are still hitting the headlines. Generous bonuses which had been seen as one of the causes (or consequences) of many excesses are now back in the remuneration policies of most financial institutions and are provoking strong criticism.

 

While discussions and debates are taking place about the need (or usefulness) to further investigate into the role played by financial institutions and particularly investment banks in order to take additional sanctions and once more amend regulations, one of the top priorities that remains high on the agenda is the need to indemnify the victims of malpractice and fraud. Sanctions and new regulations to deter future misconducts will not erase their losses.

 

In this context, measures to facilitate the recovery of collective financial losses are necessary. More than ever.
Considering the number of public responses to the recent consultation launched by the European Commission on collective redress, and to which Deminor also participated (see below), the least we could say is that investors, market participants and other stakeholders are perfectly aware of the importance of this issue. It remains to be seen whether there will be a consensus on the measures to be taken. Indeed, there are not many topics that are as controversial as this one.

 

The discussion - if it ever takes place (we believe it will) - will have to be based on rational arguments and not on political slogans. The question is not whether the European Union has to simply replicate the US class action and the whole US legal culture. We need to identify and agree on an efficient mechanism that makes it possible to seek collective redress and that is adapted to our own European legal culture. The fact that there are several different legal cultures within the European Union makes it already very challenging.

 

In the meantime, investors have to deal with existing legislations and regulations which make court actions to seek collective redress in Europe more complicated but certainly not impossible. The growing interest shown by investors (both European and non-European) to consider collective actions in European countries is an encouraging message. There is also a willingness to extend the scope of collective actions to other areas such as antitrust and cartels where losses are often suffered on a massive scale, including by (large) corporations and businesses.

 

This is a clear indication that the debate around collective redress cannot be reduced to a confrontation of views between investors and consumers on the one side and corporations on the other side. The alignment and community of interests may be greater than what many may think.

 

Charles Demoulin

Partner

 

 

 

 

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