Faculty of law blogs / UNIVERSITY OF OXFORD

A Brief Introduction to the Book ‘Digitalisation, Sustainability, and the Banking and Capital Markets Union. Thoughts on Current Issues of EU Financial Regulation’


Lukas Böffel
Dr. iur., LL.M. (Berkeley)
Jonas Schürger
Dr. iur., holds a PhD from the University of Bonn


Time to read

6 Minutes

The European financial sector’s resilience was put to a test twice in less than two decades. On top of this, digitalisation and (human caused) climate change shape the political, economic, and scholarly debates. And for good reason: both digitalisation and sustainability do not only question traditional concepts of financial regulation, but they raise doubts as to how the current regime can function in the next decades. Moreover, they heavily impact the ongoing discussion about the Banking and Capital Markets Union. This book (see here) sheds light on some of the pressing issues and hopefully stimulates the discussion.

In the following, a brief summary of some of the chapters is provided.

  1. Digital Finance
  1. Too Tech to Fail? by Nordine Abidi and Ixart Miquel-Flores

Do BigTech companies have a bond funding edge? Are they the new ‘Too-Big-to-Fail’ (TBTF) firms? TBTF represents, among other things, the idea that the biggest firms (usually banks) receive an unfair funding advantage over smaller ones in the bond market. By investigating the tech financial world, this chapter provides two key findings: First, within the universe of bond-issuing US firms, the largest tech companies did experience a funding advantage from 2014 to 2021. Second, the chapter investigates portfolio choices during times of financial distress. There is evidence of a sharp relative increase in portfolio holdings of BigTech securities during times of market turbulence suggesting that BigTech bonds act as safe assets. Overall, BigTech companies are slowly converging towards the ‘Too-Tech-to-Fail’ (TTTF) paradigm.

  1. The Algorithmic Future of EU Market Conduct Supervision: A Preliminary Check by Alessio Azzutti

This chapter explores the challenges for EU market conduct supervision in algorithm-dominated capital markets. Due to ongoing advances in AI and particularly its subfield of Machine Learning, capital markets are witnessing the emergence of increasingly powerful and sophisticated trading systems and strategies. Although technological innovation promises enormous benefits, it may also conceal a fearsome source of new risks. In particular, market manipulation which is increasingly difficult to define and regulate. With this fundamental dilemma in mind, the chapter reveals significant limitations of existing strategies and mechanisms of EU market conduct supervision, as well as resulting issues of effective regulation of algorithmic trading behaviour. In envisaging a paradigm shift towards an increased reliance on AI by financial regulators, it examines how this could contribute to upgrading their supervisory arsenal and advancing their knowledge of algorithmic market (mis-)behaviour.

  1. Supervisory Oversight of the Use of AI and ML by Financial Market Participants by Patrick Raschner

One of the key challenges for firms intending to use AI is to ensure an appropriate level of supervisory transparency. This chapter explores existing reporting requirements for robo-advice, hedge funds and algorithmic trading. Except for algo trading, the applicable legal acts do not contain specific rules. However, prospective robo-advisors and fund managers will be required to disclose the use of AI in their request for authorisation. For already authorised market participants, it seems more questionable whether the use of AI triggers a notification obligation due to material changes. Of key importance is therefore the regime for ongoing supervision, under which both firms and managers will have to disclose the use of AI upon request.

  1. Regulatory Coordination and Diffusion in Digital Financial Services and Sustainable Finance by Pedro Schilling de Carvalho

This chapter analyses some trends regarding coordination and diffusion of regulation in digital financial services and sustainable finance. It examines the emergence of domestic-led networks: the Global Financial Innovation Network and the NGFS. The chapter argues that these new domestic-led networks can increase the flexibility that jurisdictions have to find competing versions of regulation in a more organised manner, acting as an instance of mediation between regulators with heterogeneous preferences; can facilitate the creation of models for regional cooperation; and can enable a quicker development of outputs and creation of linkages with the other nodes in the international financial architecture, all suggesting the scope for a complementary role for these novel domestic-led structures.

  1. Open Banking, Access to Account Rule and (Free) Marketability of Banking Data by Daniel Foà

The regulation set forth by the Directive 2366/2015 features, among other things, the pioneer rule on access to accounts. It lays the foundations of the so called open banking’ environment, as it obliges the incumbents of the sector to share data relating to payment accounts, if the account holder gives consent to it. Such sharing obligation opened up the market to new operators allowing them to offer services. Therefore, banks and other payment institutions had to set up specific Application Programming Interfaces allowing for communication and interoperability with TPP interfaces. The chapter critically examines these issues and concludes, among other things, that payment account data can only be marketed anonymously unless the customers expressly consent to the use of their data.

  1. Management of ICT Third Party Risk Under the Digital Operational Resilience Act by Stavros Kourmpetis

The recently adopted Digital Operational Resilience Act (DORA), is a flagship piece of the EU’s legislative agenda in order to tackle information and communication risks (ICT risks) on the financial system. Apart from other regulated issues, DORA regulates the outsourcing of ICT risk by financial institutions, called ‘third party risk’. The chapter analyses the regulation of these risks, the interaction between ESAs and NCAs in this respect and examines the proportionality of the new provisions.

  1. Sustainable Finance
  1. Sustainability: A Current Driver in EU Banking and Insurance Regulation
    by Lukas Böffel and Jonas Schürger

Sustainability has reached the centre of discussions in EU financial regulation. Banks and insurance companies face various sustainability-related regulations, such as disclosure, capital, business model and governance-related requirements. The supervisory capture of the problem of sustainability in banking and insurance law differs fundamentally. Although climate-related and environmental risks are defined similarly and both regulations are based on a comparable model, the regulations are distinct. These divergences are based on different risks to which banks and insurance companies are exposed and the different roles that banks and insurance companies have in the fight against climate change.

  1. Green Monetary Policy in the EMU and Its Primary Law Limits by Matthias Mayer and Jonas Schürger

In a first step, the chapter describes the main instruments envisaged by the ECB to green the Union’s monetary policy. In a second step, the conformity of these measures with EU primary law is assessed. An emphasis is then placed on the question of whether the ECB has the competence to green the Eurosystem’s asset purchase programme under Art. 127 TFEU. Such competence can in principle be derived from the secondary objective of supporting the general economic policy in the Union. Finally, the chapter identifies the principle of institutional balance as well as fundamental rights as two benchmarks. They must be carefully taken into account while transforming European monetary policy.

  1. Banking and Capital Markets Union
  1. Duty of Care as a Judicial Review Tool for SSM Composite Procedures by Barbora Budinská and Jouke Tegelaar

In the SSM, decisions regarding an acquisition of a qualifying holding in a bank are adopted in a ‘composite procedure’. The NCA assesses the proposed acquisition based on the CRD IV criteria and forwards a proposal for a decision to the ECB, which adopts the final decision. One of the criteria requires an assessment of whether there are reasonable grounds to suspect (potential) breaches of rules on AML/CFT. While the NCAs have the competence to assess such (potential) breaches, the SSM Regulation did not confer such tasks on the ECB. This chapter examines how to reconcile the ECB’s lacking competence with its sole responsibility and legal accountability for the final decision. It suggests that the principle of duty of care can be calibrated to allow the ECB to review the AML/CFT assessments.

  1. Pre-emptive Financing Arrangements Within Cross-Border Banking Groups: Between Flexibility and Legal Certainty by Ilya Kokorin

The Global Financial Crisis demonstrated that intra-group financing was an important source of capital and liquidity within banking groups. Yet, maintaining financial stability and protecting national interests many countries limited the ability of banks to re-allocate funds between different group entities. In this chapter, various rules and arrangements relevant to intra-group financing are discussed. They include: (i) group financial support agreements introduced by the BRRD, (ii) prepositioning of resources within banking groups, and (iii) structural and contractual arrangements related to intra-group support. To achieve deeper integration of the banking sector, a harmonised, predictable, cost-efficient and legally binding mechanism addressing intra-group financing needs to be created.

  1. From Branches to Subsidiaries: Post-brexit Enforcement of Subsidiarisation in the European Union by Pier Mario Lupinu

This chapter examines the Commission’s latest banking package, addressing some of the remaining deficiencies in the current EU legislation. The package includes measures aimed at improving the regulatory framework and supervision of Third-Country Branches (TCBs). Those changes are driven by the Global Financial Crisis, similar regulations in other jurisdictions and, especially, the Brexit. Since the freedom of establishment and the freedom to provide services in the EU in banking and financial services create ‘back-door’ operational dynamics that are difficult to scrutinise, the proposal provides a framework allowing supervisors to turn the largest and most risky TCBs into more deeply regulated subsidiaries. The proposal details the criteria for the identification of those TBCs, a segment of the proposal which has created external and intra-EU concerns.

  1. Addendum

Due to the limited space, this introduction does not mention all chapters. Three very interesting chapters not included in this blog post will, however, be presented and discussed at an Academic Debate hosted by the European Banking Institute (EBI) on 21 March. The three presentations are 1. Tokenised Crowdfunding: What Regulatory Forecast?; 2. Sustainability and Systemic Risk in EU Banking Regulation; and 3. Game of Thrones—The Clash Between Public Interest and Property Rights in Banking Resolution. The online event can be joined via this link (password: AcademicDebate10; see the programme here).

Lukas Böffel, Dr. iur., LL.M. (Berkeley), holds a PhD from the Free University of Berlin and graduated from the University of California, Berkeley School of Law in 2022 with a Master of Laws.

Jonas Schürger, Dr. iur., holds a PhD from the University of Bonn.



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