Optimum governance of investment conduct in the capital markets union : a legal and economic analysis
The Action Plan on Building a Capital Markets Union (‘CMU’) in the European Union (‘EU’) was launched by the European Commission in 2015. It aims to pursue a further development and integration of European capital markets by 2019. However, in the wake of the global financial crisis of 2007–09 and the Eurozone crisis, it is proven that appropriate governance is indispensible to underpin such integrated markets. Therefore, in order to establish a solid CMU, this thesis attempts to answer one crucial question: ‘whether investment conduct should be supervised centralisedly at the European level in the CMU’. This thesis, at first, explores the regulatory system of investment conduct in the EU to date, with particular emphasis given to the competence allocation between the EU and Member States (and between Member States). Two findings are important: first, even though the rules of investment conduct are harmonised to a large extent in the EU, supervisory issues still matter to investment intermediaries and their clients in cross-border transactions; and, second, the current supervisory system of investment conduct in the EU might bring significant costs in cross-border transactions, but this does not necessarily mean that the installation of a single supervisor in charge of investment conduct supervision is inevitable in the CMU. This thesis then examines the proposed single supervisor in detail, with an aim to find out the optimum institutional governance of investment conduct in the CMU. Based on the transaction cost approach, this thesis compares the proposed single supervisor and the current system from the perspectives of private law systems and administrative regulation respectively. From the perspective of private law governance, it is undeniable that many issues of private law in governing investment conduct are still unclear and complex in the EU, but the proposed single supervisor provides little help to these issues. By comparison, a non-mandatory pan-EU alternative dispute resolution (‘ADR’) for cross-border disputes of investment conduct might be a better option in reducing transaction costs in the CMU. From the perspective of administrative governance, the proposed single supervisor may also be difficult to pass the EU Treaty principles of subsidiarity and proportionality. This is because the total transaction costs of European capital markets will not decrease (but even increase) after the introduction of the proposed single supervisor. It is further argued that, other than the establishment of the proposed single supervisor, policymakers have to pay more attention on how to ensure the current network-based system functions effectively in the CMU. In the light of this, not only a negative answer of the research question is concluded, but also policy recommendations for designing the optimum governance of investment conduct in the CMU are given in this thesis.