Finance: inspiration for private international lawyers?
The broad, innovative and international nature of financial law can make it a treasure trove for private international lawyers – and vice versa.
Counterintuitive as it might seem at first sight, Private International Law (“PIL”) and financial law share several similarities. First, both areas of law are functional in nature. This means that both PIL and financial law cover all areas of private law that traditionally are taught in separate courses in the law schools. As functional areas of law, they both have a practical, rather than a dogmatic focus: where financial law concerns finance and, even more broadly, the dealings of banks and other financial institutions, private international law concerns the issues that may arise in the cross-border dealings of private parties.
Thus, financial law is concerned with questions as diverse as “how must a bank effectuate a valid assignment of the claims it has on its clients so that this assignment can be asserted against third parties?”; “what rights can the account holder of a securities account assert against his custodian bank if the latter falls insolvent?”; “where and how can an investor sue the issuer of securities for a defective prospectus”?; and “when and how can parties to a derivative set off their reciprocal claims and debts?”. These questions may be qualified as concerning the dogmatic areas of, respectively, property law, insolvency law, tort law and contract law. All these questions concern issues that typically arise in cross-border issues, and involve classic PIL conundrums. To these questions and conundrums, the conundrum of the relationship between administrative law and private law might be added.
One of the issues that has demanded the attention of many legal minds in recent years, is how obligations for financial institutions that usually qualify as ‘regulatory’ or of administrative law nature, affect the private law relationships of these institutions. For instance, financial institutions must comply with voluminous and complex rules when providing investment advice to their clients. Also, financial institutions need to guarantee the safekeeping of the assets they hold for clients. If they do not comply with these rules, they may be fined by the relevant supervisory authority or face other administrative sanctions. When clients suffer damages as a consequence of these violations, the regulatory rules just referred to might also come into play as clients sue the financial institutions who committed these violations. As another example, investors might suffer damages and sue the issuing company when it turns out the issuer has failed to inform and warn the investors of the risks of the instruments issued (as is required by regulatory rules). In a cross-border context, these disputes require the private international lawyer to consider whether the classic conflict-of-laws rules, and more specifically, the traditional connecting factors which may have been created for a more traditional, private law context, are still adequate. However, the possible influence of public law rules on private law disputes is an issue that PIL is quite familiar with.
A second similarity between private international law and financial law, which can also be inferred from the examples discussed above, is that both areas of law give centre stage to cross-border situations. To be sure, financial law can also be purely national, but the assets financial law is primarily concerned with are intangibles such as claims, securities and derivatives. This has two important ramifications. Firstly, these assets can be easily and within split seconds be traded and transferred across the globe and across many borders. Secondly, in an area such as the European Union, where the markets for these assets have been fully consolidated but private law has not, private international law issues may arise in an enormous amount of transactions.
From the two similarities just set out, it can be concluded that financial law is a treasure trove for the private internationalist who is excited about classic PIL issues such as the applicable law for property law aspects of the assignment of claims and the determination of jurisdiction in matters concerning (pure) economic loss. But also for the PIL scholar and practitioner interested in ultra-modern developments, financial law has much to offer. One need only consider blockchain and distributed ledger technology to realise this, because these technical phenomena also typically take place in an international and cross-border setting, so that private international law issues immediately and necessarily arise.
The analyses made in the articles of the latest issue of the NIPR (Netherlands Journal for Private International Law) show that many issues of private international law – both classic and new – remain unresolved, or at least must be critically (re)assessed in the context of financial transactions. I sincerely hope that the reader of this issue will find, as I did, how inspiring financial law can be for private international law – and vice versa.
“Want to know more? See the upcoming special issue on financial law of the NIPR (Dutch Journal for Private International Law) – to be published in March/April 2018.”