Seminar 7: Overlapping Agencies (13 November)

In seminar 6 we looked at the either/or/and relationship between antitrust and regulation. In this seminar I want to look at instances where there is an overlap between regulators. The first three sets of readings give you case studies of how the relationship between antitrust and regulation is managed – actually the UK example is more about the relationship between two regulators applying antitrust law as well. The longer piece is not an antitrust piece but it’s an influential paper with general assessment of the issue.

 

Readings (select 1 or 2 of the case studies, read the Freeman & Rossi piece)

Rinner ‘optimizing Dual Agency review of Telecommunications Mergers’ [2009] 118 Yale LJ 1571

Kaplan ‘One Merger, Two Agencies: Dual Review in the Breakdown of the AT&T / T-Mobile Merger and a Proposal for Reform’ (2012) 53 Boston College Law review 1571

Dunne ‘Recasting Competition Concurrency under the Enterprise and Regulatory Reform Act 2013’ 77(2) Modern Law Review 254

Freeman and Rossi ‘Agency Coordination in Shared regulatory Space’ (2012) 125(5) Harvard Law Review 1131

 

 

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21 comments on “Seminar 7: Overlapping Agencies (13 November)

  1. Marita says:

    In this week’s comment I would like to concentrate on Dunne’s article regarding recent regulatory reform in the UK. She describes the jurisdiction over competition enforcement as ‘concurrent’, since it is shared between the CMA (previously the OFT) and sector specific regulators
    (Ofcom, Ofwat…). I guess it could also be described as ‘hybrid’, since sector regulators are entrusted with both a regulatory function and competition enforcement. While at first sight it would appear to be an interesting strategy to pursue, Dunne notes a limited degree of success of this solution so far, pointing to perceived competition under-enforcement on the part of sector regulators who prefer using regulatory measures to solve problems.

    Sections 51-53 of the Enterprise and Regulatory Reform Act 2013 are set to bring about a change in that respect. The new provisions oblige the regulators to consider competition enforcement before going for regulatory solutions, empower the CMA to take cases from the regulators, and grant the Secretary of State a power to make a ‘sectoral regulator order’ (SRO) which removes the capacity to enforce competition law from a particular regulator. Dunne describes the provisions at issue as a mixture of carrots and sticks with an overarching nuclear option.

    Yet, I’m not entirely sure what the carrots for the regulators in this scenario are. Perhaps it is the improved opportunities for co-operation with the CMA (ability to ‘borrow’ competition experts etc.). However, I’m not persuaded that this will be sufficient to encourage them to pursue competition enforcement in place of regulatory measures, absent extra resources and training.

    Also, paradoxically, the nuclear option in form of an SRO might not be much of a threat, since it will actually make things easier for the regulators by making them free to apply regulatory provisions without having to worry about (more onerous) competition enforcement. Actually, using the nuclear option would also mean getting rid of the stick. Availability of SROs is not just questioning UK’s commitment to concurrency, but also a commitment to moving towards a more market-based approach. Presumably, concurrency was aimed at aiding a shift from regulation to competition for markets in transition. Meanwhile ERRAs provisions, which were initially set to re-emphasise the primacy of competition law in regulated sectors, might have the opposite effect by providing an easy way out for regulators in form of an SRO.

    Furthermore, the amendments assume that inactivity on the part of the sector specific regulators can be healed by empowering the CMA to take cases from them. However, an assumption that the CMA will be willing to take those cases might be wrong at a time when all government agencies, including the CMA, are facing drastic budget cuts.

    • giorgiomonti says:

      Absolutely agree – in a sense the biggest ‘stick’ is the provision about reviewing how well the NRAs do in applying competiiton law, which might put some pressure on them to do so, for example if one NRA is seen as under enforcing competiiton rules compared to the others. But even this, as you suggest above, might not be much of an incentive – presumably if an agency brings home results at low cost then this is what it will be judged by, rather then whether it applies competiiton law or applies its regulatory powers.

  2. Maria H says:

    Rinner’s comment sets out the issues that emerge from the overlap between the Federal Communication Commission’s authority and the Department of Justice’s authority to review mergers. He focuses his criticism on the review procedure of the FCC, especially the lack of a deadline and its “limitless discretion” when making decisions which leads to uncertainty, unclarity and inefficiency. It might be interesting to consider whether more coordination between the DOJ and the FCC could lessen the problems. One of the coordination tools, suggested by Freeman and Rossi, is joint policy-making. This could be beneficial here, especially in solving the issue of uncertainty regarding the FCC’s public interest standard which allows it ‘virtually limitless discretion to approve, disapprove, or condition a merger’. As Freeman and Rossi point out, the DOJ and Federal Trade Commission already have such coordinated merger guidelines. The Congress could also mandate joint rulemaking, which could then lead to a common time limit for both authorities. Increased coordination could therefore arguably be a further remedy adding to the two already suggested by Rinner.

    • giorgiomonti says:

      Good point, the difference woudl be that the legal standard for mergses in the FTC and DOJ is similar, while the legal standard of the FCC is wider than that of the DOJ, so coordinating policy would be tricky.

  3. Christopher Johnson says:

    If I go to a restaurant, I expect it to hold the correct license or licenses to operate as such. For the sake of this example, let us consider that the law imposes three obligations on a prospective restaurant: (1) the food preparation areas and equipment must abide by specified hygiene standards; (2) the building in which the restaurant is housed must be structurally sound; and (3) there must be an adequate sprinkler system to douse any fire that should occur.

    As Freeman and Rossi explain, there are numerous different regulatory structures which may be chosen to ensure that a restaurant meets these standards. The first choice that must be made is a choice between governance by numerous regulators or governance by a single regulator. For example, the legislators may empower a single restaurants agency to check compliance with each of the three requirements. On the other hand, it may empower the food hygiene agency to ensure compliance with requirement 1, the buildings agency to ensure compliance with requirement 2, and the fire agency to ensure compliance with the final requirement.

    The second level of choices eventuates only if the legislators select regulation by multiple agencies. In this situation, a further choice must be made regarding the level and manner of coordination between the various agencies. A simple example being do they choose to issue separate licenses confirming compliance with only their own requirement, or do they choose to act together to issue a single license, whilst confirming compliance with each separate requirement separately?

    The ideal regulatory situation in this example will be attained by weighing the costs and benefits of each approach. Such an exercise will be unique to each regulatory context. In this example it may be considered most beneficial to retain the expertise of separate regulators. However, one can easily envisage examples where less expertise is required and regulation by a single agency would be appropriate.

    • giorgiomonti says:

      Your example would seem to fit their model of ‘fragmented’ regulatory space. I guess your first level choice is one they don’t see because they believe that it is hard to remove agencies, so you are going to usually have to go to level two.
      Now, at level 2 the point would fist be to work out why you think coordination among the three sets of regulators in yoru exmaple is required. is there any dysfunction that needs remedying? in a sense their approach (this is esp I think around page 1191) is that one should match the cooperative device to the preceived dysfunction. Your example needs to develop a bit further ti find a problem that calls for coopertaion as a solution. Granted a joint license woudl be economical, so would joint inspections, and one might agrue that such joint assessment may generate synergies: perhaps structural assessment of the building can point to some risks to hygene that might be otherwise not seen. This would then militate in favour of certain forms of consultation among regulators.

  4. Fabrizio says:

    My comment is about the theoretical framework deployed by Freeman and Rossi. I argue that the three criteria they use can be reduced to a single, complex, efficiency criterion. Their three criteria are efficency, effectiveness and accountability. Efficiency is about the reduction of decision costs and transaction costs ( p. 1181). Effectiveness relates to the quality of the decisions, of the collected information and to the resistance to private manipulation. Finally, accountability regards the implementation of regulation by the bureaucratic system as well as the transparency of the process (p. 1182).
    If we use microeconomic concepts, regulation can be conceived as the good to be produced by the agencies. In this perspective, the efficiency Freeman and Ross are speaking about is clearly productive efficiency: by reducing decisional costs and transaction costs, agency can either produce more regulation or spend less for producing a certain level of regulation. Effectivess in all the sub-dimensions they present, instead, fundamentally relates to the quality of the good (regulation); a general quality test is backed by two quality sub-tests. In particular, a captured regulator is not providing good regulation. The same goes for a poorly informed regulator. One can say they speak of dynamic efficiency.
    Finally, the accountability criterion is complex. On one hand, it plays a constitutive role because it contributes to the creation of the good, regulation. Accountability and transparency foster legitimacy. Without legitimacy, the dispositional capacity of influencing behavior by a regulator is rather weak (basically, it is grounded only in the sanction system). On the other hand, accountability helps easing the principal-agent problem inherit in any division of labour.
    In conclusion, I consider the Article by Freeman and Rossi an interesting application of institutional analysis to the supply of regulation.

    • giorgiomonti says:

      Ok, but what is the advantage of distilling their six criteria of analysis to a single common denominator of efficiency?

      • Fabrizio says:

        The only advantage is conceptual clarity. I often have the feeling that people speaking of “efficiency” have in mind quite different concepts. Moreover, to the extent that different criteria can be reduced to be part of a single criterion, the trade-off between the sub-criteria is eased by giving a single functional framework.

  5. Jonathan says:

    The Enterprise and Regulatory Reform Act 2013 established the Competition and Markets Authority (CMA). The new reforms attempt to both strengthen the priority of private regulators and to provide sanctions to those regulators who continue to under-enforce their regulatory powers. The reforms encompass measures that move from encouragement and support, to exposure and punishment. The UK has a system of concurrent enforcement which creates parallel jurisdiction for the enforcement of UK and EU competition law by the CMA (previously OFT) and sectoral economic regulators within their respective spheres of control (Dunne 255). Concurrency does not allow for overlapping jurisdiction as only one agency may apply the competition rules in one given instance.

    Dunne argues that there is a curious absence of an overarching policy justification for continued concurrent competition enforcement in regulated markets. Originally, concurrent enforcement was defended on multiple grounds. I believe the first ground of a utility in harnessing the sectoral expertise of regulators in furtherance of the task of competition enforcement is the most legitimate defense of using the concurrent enforcement. However, according to Dunne, these regulators are underusing their power of enforcement, which lead to the reforms in 2013. Dunne does not agree with the direction of the changes introduced by the 2013 reform and even interprets the new reforms as “the triumph of hope over experience (263).”

    I agree with Dunne with the confusion regarding the SRO power, which Dunne refers to as a ‘nuclear option.’ This power enables the Secretary of State to unilaterally remove concurrent enforcement powers from a given regulator. This was a late admission to the reform and was established in order to attempt to rectify situations in which the regulators fail to produce better outcomes. However, this reform was meant to be a system of carrots and sticks, and I agree with Marita that this mechanism essentially gets rid of the “stick.” The state obviously wants to use the concurrent approach and this measure was a way to ensure that some regulation will take place in the absence of sector regulators, however, it undermines the entire purpose of the reforms.

    • giorgiomonti says:

      so then this leads to ask: how else might one incentivise the application of compeittion law by regulators, provided we agree that they may have more expertise in the economic sector?

  6. Elias says:

    The readings shed a light on the increasingly pervasive phenomenon of regulatory fragmentation and overlaps between different regulatory agencies. Based on the example of the shared competences of the FCC and DOJ in the field of telecommunication mergers, Rimmer for instance points out the negative consequences of regulatory overlaps in form of redundancies, inefficiency, increased compliance cost and legal uncertainty. Freeman and Rossi try to categorize and conceptualize the phenomenon of regulatory fragementation and overlap. Instead of the pejorative terms of ‘redundancy’ and ‘duplication’, they propose to describe the phenomenon under the neutral concept of ‘shared regulatory space’. They analyse the advantages and disadvantages of overlapping and fragmented regulatory delegations and point out the importance of interagency coordination.

    I was wondering to what extent the readings focusing primarily on the US could also be applied to a ‘shared European regulatory space’. At the first glance, the possibility of delegations of regulatory tasks seem to be more limited within the EU than in the US, due to the ECJ’s early Meroni judgment in which the Court prohibited the European Commission to delegate regulatory or legislative tasks which entail the transfer of autonomous discretionary power to EU agencies (Case 10/56 Meroni v High Authority). Nevertheless, since the late 1980s the number of EU agencies grew tremendously and today there are more than 40 EU agencies with various regulatory tasks and diverse degrees of power. Therefore, the phenomenon of regulatory overalp is also an increasing challenge within the EU. In this regard, for instance the reform of the EU financial market regulation and the creation of the ‘Banking Union’ was accompanied by the creation of numerous agencies (European Bankig Authority, Single Supervisory Mechanism (ECB), European Securities and Markets Authority, European Systemic Risk Board,..) which exercise shared regulatiory tasks within the financial and banking sector. This does not only rise the question concerning the extent to which the Meroni doctrine is still good law (C-270/12 United Kingdom v Parliament and Council), but also entails important challenges in terms of coordination, accountability, efficiency and assignment of competences.

    Despite the fact that the horizontal delegation of regulatory task is more limited at the EU level than in the US, the European Union is mainly characterised by a vertically fragmented delegation of regulatory powers between the European Commission and authorities of the Member States. This is in particular the case in the field of sector-specific regulation and competition law (especially since Regulation 1/2003) and gives also rise to important challenges in terms of coordination and principal-agent problems, such as for instance in the Deutsche Telekom case. Therefore, different forms of coordination instruments have been introduced. The EU legislator relied primarily on strict, foramal and legally enforceable rules concerning mutual coordination, information exchange, assignement and referal of competences which have been directly integrated within the legal statues (eg. Reg 1/2003 Art. 11-16; EU Merger Regulation 139/2004 Art. 1, Art. 4 (4) and 9; Electronic Communications Framework Directive 2002/21/EC Art. 7) and which aim at avoiding inconsistencies, divergent interpretations and regulatory duplications as consequence of the agency overlap. Moreover, communication chanels and consultation bodies such as the European Competition Network or BEREC have been created in order to facilitate the sharing of information, of best practices and of expertise between NRAs / NCAs and the European Commission. In addition, certain legal principles of EU law such as the principal of supremacy of EU law, the rules on competences, the principle of loyal and sincere cooperation (Art. 4 (3) TEU), the principle of uniformity of EU law, as well as the principle of equivalence and effectiveness are used by the EU Commission and the European Courts to regulate conflicts arising from the vertical fragmentation of the European regulatory space. In certain cases it is, however, doubtful that reliance on formal rules as well as judicial review and enforcement of coordination does not create a climate of mistrust between EU Commission and national authorities rather than stimulating interagency coordination (see also Rossi/Freemann on formal and informal consideration mechanisms as well judicial deference towards interagency coordination).

    • giorgiomonti says:

      On your first point: whatever the powers of the European Agencies, the question of coordination arises anyway, so the question is perhaps more one of whether we need to modify the Rossi/Freeman model, but I think it still applies. some of their suggestions (eg Presidential initiative) may be inapplicable, but the gist of the paper fits.
      Your second paragraph notes a wide range of formal and less formal tools to coordinated shared space, the question to consider if you apply Freeman/Rossi is how far the measures optimise. Take for exmaple BEREC: here the EU has a network of national teleocms regulators that have a forum to meet and discuss, and allows for some form of joint policy-making. the question to ask, is whether this can be evaluaed as beneficial in light of their 3 criteria (efficiency, effectiveness and accountability).

  7. Maria C says:

    I have found very interesting Freeman and Rossi’s paper on agency coordination in shared regulatory space. In my view, their defence of coordination over consolidation show a striking contrast with the evolution of regulatory coordination in Spain and the Spanish Act 3/2013, creating the National Markets and Competition Commission. This new body encompasses the old National Competition Commission and the majority of industry supervisory authorities, including the energy and telecommunications sectors.
    Taking into account the dangers of mixing up the different objectives and strategies of competition authorities and industry regulators in a single body, as well as the arguments presented by Freeman and Rossi in favour of coordination, the Spanish case seems to me somewhat ironic. Doubtlessly, this new body will do away with many problems regarding lack of coordination and duplication of efforts, but at what price? Will not this new system transform the old conflicts between the national competition authority and sectorial regulators into conflicts between the new “macro-regulator” and the European Commission in the application of competition law to regulated sectors? If such is the case, the gains of the new regulation in terms of savings of procedural costs and legal certainty would seem to me rather limited.

    • giorgiomonti says:

      Good example. One thing that distinuishes the Spain (and Dutch and British) examples is that here the budget cuts led to a removal of agencies, which Freeman/Rossi see as impossible in the US.
      But you note also that we still have shared space in the EU because the new Spanish body is still sharing space with the Commission… or si the Commission comparable to the US President in teh Freeman/Rossi analysis: that is it is the one who can stimualte cooperation among other agencies?

  8. I would like to briefly focus on the dual agency review, as discussed by Rinner and Kaplan.
    While I agree with the authors and some of my colleagues that issues such as concurrent regulation, no fixed deadline for review and others can be problematic, especially from an efficiency perspective, I would argue that the specific nature of the US telecoms market might warrant a special regulatory regime. (or one that keeps the market more competitve, but it is doubtful whether this, for the US would be any better in a system with less overlapping regulation)
    This is because even in certain big cities, let alone in rural areas, many customers don’t have any really competitive options, especially if they want a modern connection. This is even more surprising, because other than in Europe, in the US telephone lines/fiber is frequently just strung on poles along the street, which is much cheaper than digging up the ground as would be required in many European areas. (some studies comparing US broadband speeds – http://bgr.com/2014/07/03/u-s-broadband-speeds-vs-global-speeds/ https://gigaom.com/2012/11/23/the-state-of-broadband-in-the-u-s-infographic/)
    So, in light of the state of US broadband and the vastness of the country, it might be beneficial to have at least a separate regualtory agency for telecommunications, as a stronger FCC/DOJ equivalent to DG Comp in the EU does not seem politically feasible.
    To this end, I would also be interested in knowing in how far the competences of the FCC overlap with agencies such as the “Bundesnetzagentur” or DG Connect.
    At least with regard to competition competences, as was shown last week the have no competence over DG Comp, though they might require that a telecoms operator doesn’t own too many frequencies/lines exclusively.

  9. Marcos says:

    The discussion on the Freeman/Rossi’s paper seemed to me to be very enriching, especially in the way how they shift the critique of ‘redundancy’ to the idea of a ‘shared regulatory space’, a more complex concept that opens the discussion for the all the possibilities of coordination instead of the plain consolidation strategies. And I found very interesting the way how they evaluate the different strategies for coordination not only in terms of efficiency, but also in terms of accountability (and effectiveness), since one of the main critiques related to the activity of agencies is precisely the way how they operate, not always in a clear manner.
    However, I wonder how the coordination of overlapping agencies could solve the problems presented by Rinner in the relationship between the FCC and the DOJ. Sure, one part of the problem, the duplication of efforts in the analysis of mergers effects on competition, could be solved by coordination strategies (Freeman/Rossi cites the case of joint policymaking between DOJ and FTC as an example thereof). However, one of the main issues mentioned by Rinner is the absence of deadlines for the decision by the FCC. The Agency is not constrained by the law to make a decision within a predefined deadline (being the only applicable deadline one of 180 days, self-imposed by the FCC). One could imagine a situation where the DOJ seeks an agreement with the FCC to limit the timeframe for their decision, but since the FCC tends not to respect the self-imposed deadlines, it is hard to believe that such an agreement would be easily reachable. Moreover, the FCC is an independent agency, which means that the President of the US would have little power to ‘promote’ such an agreement.
    No wonder that Rinner considers the judicial imposition of the HSR Act’s deadline on the FCC as a solution. Nevertheless, when he takes consideration of the costs of delayed decisions by the FCC, he seems to focus too narrowly on the efficiency issues. Applying the same deadline of the DOJ decision to the FCC decision ignores the fact that the FCC has a larger scope of analysis that includes public interest concerns; thus, effectiveness of the FCC could be compromised.

  10. stavros says:

    To my understanding, parallel jurisdiction for the enforcement of competition law by competition authorities and regulators (“competition concurrency”) could be best justified as a policy choice by a “contextual application argument”: concurrent enforcement power is vindicated as long as the specific market context requires sectoral expertise. In other words, as Tirole has shown the peculiarities of different markets call for the application of different analytical models so as to understand how each market actually works. Thus, the interpretation and application of competition rules should take into consideration the specific context in which the rule applies, for the same rule may work well in some conditions, but do more harm than good in others. So, the same rule should be interpreted and/or applied differently due to the specific context. In this sense, provided that desirable competition policies are different from market to market, the attribution of parallel enforcement powers among different regulatory or competition authorities is necessary for achieving the optimal antitrust enforcement.

    This argument may take us one step forward from Dunne’s reserved approach, which implicitly questions the very value of concurrency. However, as Dunne correctly puts it each reform of concurrent powers remains open to criticism and bears the burden of proving its merits.

    Rinner offers a good example of an interpretative method for dealing with regulatory overlaps. Specifically, Rinner notices that FCC’s merger review authority overlaps with that of the DOJ, while the review standards as well as the procedural requirements differ causing a statutory tension. In this respect, he uses well-known methodological tools (e.g. the canon of construction p. 1579 does not different from the old doctrine “lex specialis derogat legis generali”) and presents several arguments deriving from different types of legal interpretation (e.g. teleological interpretation p. 1580, historical interpretation p. 1581, systematic interpretation p. 1582) in order to provide a judicial solution to the relevant problem.

    In light of the above it could be inferred that optimal institutional design may call for competition concurrency. Nonetheless, statutory tensions and coordination problems will arise. In this case a well-developed method of legal interpretation should necessarily come into play.

  11. mariaschmidtkessen says:

    My contribution to this session is that I tried to apply Rossi and Freedman’s theory to the concurrency situation described by Dunne in the UK. Albeit Dunne concludes the paper by questioning whether concurrency is necessarily desirable, one could imagine Rossi and Freedman being positive towards concurrency in applying competition law by the CMA and the UK authorities for regulated markets.

    When applying Rossi and Freedman to the UK, we would have a prime example of overlapping jurisdiction: Both sector regulators and the competition authorities have the power to enforce competition law. In the past, this had led to underenforcement of competition rules in regulated sectors. The OFT had refrained from intervening in regulated markets (deference to the market expertise of the sector regulators), and the sector regulators had preferred to use regulatory powers to fix problems over competition law, because it was more convenient to them to use their regulatory mechanisms. Oops, too much British politeness. To overcome this collective action problem, the ERRA firstly imposes on sector regulators to consider competition law before resorting to their own sector-specific regulation. Furthermore, sector specific regulators and CMA are obliged to share information in connection with concurrent cases, in particular in competition cases. Furthermore, the CMA gets a primary power to take up competition cases in regulated sectors, and can decide to take competition cases away from sector regulators, after consultation of the sector regulator. Finally yet importantly, the Secretary General can simply take away concurrent competition powers from sector regulators.

    From Rossi and Freedman’s perspective, shared regulatory space, in the UK case concurrent competition powers, could bring about the advantages of constructive competition between the authorities, better expertise in decision making, insurance against failure of one of the authorities, opportunities for compromise, and reduced monitoring costs for political overseers and the public. All these advantages did not materialize pre-ERRA though, simply because both sector regulators and CMA failed to enforce competition law in regulated sectors. Would the ERRA remedy this situation according to Rossi and Freedman? The ERRA does not really envisage a true ‘cooperation’ between sector regulators and the CMA in competition matters. It does not impose a true interagency consultation, because it only provides for the CMA consulting the sector regulator if it wants to take away a competition case from the sector regulator. Could the ERRA information sharing requirement be a form of interagency consultation in the sense presented by Rossi and Freedman? To my understanding, the fact that the CMA has to compile a yearly concurrency report on these information sharing arrangements, would result in a monitoring effect of the sector regulators – in this sense this is a desirable form of cooperation. This is where the story ends however. There would be no stronger form of cooperation as interagency agreements or interagency policy making. In any case, if the Secretary General took away concurrent competition powers from a sector regulator, this would end any formal cooperation.

    While it therefore appears that the ERRA effects on concurrency would enhance cooperation between sector regulators and CMA, I would think that it would not be going far enough to yield the benefits Rossi and Freeman see in regulatory agency cooperation.

  12. Agnieszka says:

    The text of Freeman and Rossi is highly relevant in the context of ever more specialised modes of governance, agency supervision and enforcement of rules throughout various markets and policy areas. It is hard not to agree with their argument that understanding these processes in terms of shared regulatory space rather than agency redundancy is more helpful in developing policy options capable of managing risks associated with overlapping competences and potential for conflict and other negative externalities.

    Given that the paper is rather recent, and that regulatory reform in the recent decade has been dominated by that of financial services, it is not surprising that the authors often refer to the US Dodd-Frank Act, highlighting the severe fragmentation of supervision and the related systemic risk (sic) problems thereof. While advocating more “joint policy-making” in this area, they also highlight the particular role of the President – as the opportunity of the office – for ensuring co-ordination. The question that arises however is – to what extent is their framework applicable to the EU context?

    In all fairness the supervision and regulation of financial services in the US – when compared to EU – looks almost straightforward. In the aftermath of the financial crisis numerous new EU actors have been established: ESRB, EBA, EIOPA, ESMA, SSM – to name a “few”, and only the EU level. This is notwithstanding the competences of the Commission in applying competition rules or proposing legislation in the sector, nor other instruments operating outside of the EU framework. As an example, under the new framework in the area of competition law, both EBA and ECB can assess proposed mergers/acquisitions in the financial sector (with different prerogatives and legal bases for assessment).

    Is the framework provided by Freeman and Rossi helpful in assessing the emerging systems for financial services in Europe, which balance sectoral regulation at EU and Eurozone levels with EU-wide competition rules? To a certain extent yes – inasmuch as they provide benchmarks for assessing possible failures and suggest tools for coordination. Still their framework – in the EU context – fails when it comes to a number of elements including the lack of clear central authority capable of real – and authoritative – “co-ordination” and significant divergencies in the relative “strength” of the institutions operating within the regulatory space (e.g. European Central Bank viz European Banking Authority). The potential for coordination problems is clear if only from the wording of recital 32 of the SSM Regulation:

    (32) The ECB should carry out its tasks subject to and in compliance with relevant Union law including the whole of primary and secondary Union law, Commission decisions in the area of State aid, competition rules and merger control and the single rulebook applying to all Member States. EBA is entrusted with developing draft technical standards and guidelines and recommendations ensuring supervisory convergence and consistency of supervisory outcomes within the Union. The ECB should not replace the exercise of those tasks by EBA, and should therefore exercise powers to adopt regulations in accordance with Article 132 of the Treaty on the Functioning of the European Union (TFEU) and in compliance with Union acts adopted by the Commission on the basis of drafts developed by EBA and subject to Article 16 of Regulation (EU) No 1093/2010.

    Whether this “regulatory space” has emerged as an “accident” as per Freeman/Rossi can be debated, but it is sure to raise significant “drift” and coordination problems with conflicts are likely to require judicial intervention, not least in the form cases questioning the competences of the newly established “supervisory authorities” – and therefore to some extent questioning the regulatory space itself (as mentioned by Elias – Meroni doctrine in the light of the recent ESMA judgement on “short-selling”; how should a decision of the ECB be assessed when its acting under the “supervisory” hat?). Would it be more helpful to have a more clearly defined policy objective of this regulatory space or is always refering to “internal market” sufficient in this context (or less dangerous)?

  13. Kayahan says:

    Dunne:

    Concerning the “stick” feature of ERRA in the form of SROs, I think that we should not underestimate the potential effects of such a measure in intra-agency politics. First, the revocation of an authority (in this case the authority to conduct competition enforcement) from a sectoral regulator [SR] has serious impact on the prestige of the office and consequently on the careers of the officials working in the SR (especially the more senior officers). This fact by itself would motivate decision makers in the SR to push for more competition actions by their teams. Second, the revocation of powers, especially if permanent, would potentially mean a subsequent decrease in SR budget, and no one working in the SR would want that. Third, the SR might be using its competition enforcement powers as a “stick” when negotiating with private parties during other regulatory actions, helping to ‘score more points’ in the area of regulatory activity even if the it does not close competition cases per se.

    Freeman/Rossi – Rinner:

    I cannot say that I like Rinner’s suggestion that judicial scrutiny should be used to limit FCC’s window of competition review. Rinner admits that there has been “repeated attempts in the Congress to limit FCC’s procedural discretion” which all failed, but he argues that this cannot be construed as acquiescence to FCC’s unlimited power of discretion. Freeman and Rossi’s article shows how agencies’ regulatory space is determined by intricate webs of interests and political tugs-of-war between actors in the legislature, which are intrinsic features of (representative) democracies. Accordingly, failure of the Congress to limit FCC’s discretion should some democratic value even if it is not considered ‘acquiescence’, and judicial intervention that draws lines where the congress couldn’t draw should not be taken lightly (I understand from Rinner that there is no case for claiming that FCC is acting illegally – whether the time limit clause of the HSR Act trumps the Telecommunications Act of 1934 is a grey area).

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