Legal Research Programme 2018

The European Central Bank (ECB) is seeking applications from established or promising younger researchers for up to four legal research scholarships to be awarded in 2018. The Legal Research Programme was launched in 2008 to foster analysis of areas of law relevant to the ECB’s statutory tasks, and to establish closer contacts with scholars. Each scholarship is endowed with a grant of EUR 7 500, which is not compatible with any other fellowships or grants received from third parties in relation to the research project for which it is awarded, unless the ECB has expressly provided its consent.

Research projects

Applicants who are awarded a scholarship under the Legal Research Programme (the ‘Scholars’) will be required to write a research paper during 2018 on one of the following research topics:

1. The possibility/limits of delegating budgetary supervision outside the Union

   The establishment of a European Monetary Fund (EMF) forms part of the ongoing discussions on the future of the euro area. Some parties have expressed a desire for the role of this proposed new institution to extend beyond crisis management to include, for example, the supervision of national budgets, which is a task now undertaken by national institutions. To what extent is this possible under the Treaties? Does Union primary law require that this is a task for the Union and the ECB? If it is assumed that the EMF will be established outside the Union legal order, can such a task be given to an intergovernmental organisation based on public international law? What about the suggested tasks to be undertaken by the EMF, such as the administration of the so-called ‘rainy day fund’?

2. ECB sanctions regime

   Recent work on statistical non-compliance cases has highlighted issues concerning the clarity and consistency of the provisions on the handling of such cases and the lack of a uniform approach for different types of non-compliance. This has a bearing on whether the legal acts in force ensure that reporting agents benefit from an appropriate level of procedural fairness. In addition, recent amendments to Regulation (EC) No 2157/1999 (ECB/1999/4) have introduced a requirement for the establishment of an independent investigating unit to ensure that decisions on commencing infringement procedures and imposing sanctions are not made by the same decision-making body. A review of the relevant legal acts is therefore needed in order to address some of these issues. In this context, a critique of the arrangements from an academic perspective together with constructive suggestions for reform would be of practical assistance. These issues may also be relevant in respect of other areas in which the ECB imposes sanctions for non-compliance with statutory obligations.

3. The application of national law by the ECB

   When exercising supervisory competences, the ECB is required to apply national law implementing Union directives as well as options and discretions included in Union regulations. The application of national law by Union institutions raises certain questions. First, while the relevant case-law indicates that the institutions do not have to apply national implementing law that conflicts with Union law, is the Union institution obliged to apply national law that, outside the realm of options and discretions, contains provisions that supplement a regulation (for example, by defining general terms used in the Capital Requirements Regulation)? Second, can the Union institutions, and under what conditions, invoke the direct applicability of directives in the absence of national implementing law? Third, how do legal safeguards work in respect of ECB decisions based on national law? For example, what happens if the Court of Justice of the European Union is competent and the applicable national law conflicts, for instance, with national constitutional law? Further issues may also require exploration and development in the context of the legal novelty presented by Union institutions being able to apply national law.

4. Legal nature and character of the use of MoUs as instruments of soft law by the ECB

   The use of MoUs in international relations and in Union law is increasing. However, their precise legal status is unclear: are they international treaties, administrative agreements, or informal and non-binding statements of intent? Does the term MoU encompass a range of qualitatively different instruments? What legal consequences arise from an MoU? In some cases the conclusion of an MoU is required by legislation. For example, under the confidentiality regime laid down in the Capital Requirements Directive the use of an MoU legalises information exchange that would be illegal in its absence, and under the SSM Regulation there is an obligation to conclude an MoU with the European Parliament. Therefore, MoUs clearly have legal consequences even though they are not generally thought to be binding instruments.

5. Challenges for financial regulators arising from digital financial innovation

   The rise of FinTech and, in particular, the more widespread use of virtual currencies, whether or not as payment media, as well as the use of distributed ledgers and their underlying technologies, are bound to have an impact on the work of financial regulators. The regulatory issues that policymakers have to grapple with are legion, not least on account of the great diversity of the players active in the FinTech space, the mismatch between the current regulatory framework and the business activities of disruptors, and the sheer pace of technological innovation. Issues that merit regulatory attention include data protection and confidentiality, cyber-security, interoperability, settlement finality and market stability. The preservation of market integrity and public trust in the operation of payment systems, securities settlement systems and financial markets at large are also bound to represent regulatory policy priorities. The potential of digital technology to transform financial services in ways that are not yet sufficiently well understood, the unavoidable vulnerabilities of the largely untested technologies that underlie some of its potential financial sector-specific applications, and the global reach of digital innovation, which puts a strain on attempts at efficient regulatory control, are bound to accentuate the regulatory challenges. The expectation is for a paper that charts the regulatory challenges thrown up by some of the manifestations of FinTech, assesses their implications for market players and financial markets as a rationale for financial regulation, and seeks ways to reconcile the less benevolent aspects of FinTech with targeted, risk-focused regulation, so as to promote innovation and preserve FinTech’s potential benefits for financial markets and their participants alike.

6. Limits on central bank financing in resolution according to the Union Treaties

   The provision of central bank liquidity to entities close to or in resolution has recently attracted much publicity. This discussion is taking place in the broader context of the completion of the European banking union, and two issues are central to it: (a) liquidity versus solvency support (where the provision of liquidity is a central bank task, while solvency support is a government task) and the associated issue of acting within the scope of the conferred powers; and (b) the explicit limits laid down in the Treaties on the actions that may be taken by central banks when dealing with entities in resolution.

   The central banking tasks indicate that two sources of central bank liquidity are available to credit institutions: (a) Eurosystem monetary policy liquidity; and (b) emergency liquidity assistance (ELA).

   The provision of these two sources of liquidity serves different objectives under the Treaties. The provision of Eurosystem monetary policy liquidity serves the Eurosystem’s primary objective of maintaining price stability. To pursue this objective at all times, the monetary policy framework set by the Governing Council of the ECB is therefore subject to adaptation. The scope of such adaptation is subject to limits set by primary Union law, including, in particular, the prohibition of monetary financing and the requirement that lending should be based on adequate collateral.

   The provision of ELA is carried out on the basis of national competences in order to pursue national objectives. However, it also must comply with primary Union law. In particular, it is subject to the prohibition on monetary financing, which is also binding on national central banks, and the requirement that it does not interfere with the tasks and objectives of the European System of Central Banks and of the European Central Bank (the Governing Council will object if it does).

   A comprehensive analysis of the limits imposed pursuant to primary Union law on the provision of central bank liquidity in the various stages of resolution would be relevant for financial institutions to assess their access to liquidity as part of the resolution planning process.

7. Decision-making: regulatory power versus accountability

   Primary and secondary law provide the ECB with a mandate, and the power to adopt legal acts, in a number of financial market-related areas such as supervision and payment and clearing systems. In these areas the Union legislator has a legislative competence to achieve the objective of the single market. This creates a tension that touches upon fundamental constitutional principles of the Union: (a) the issue of who has competence to adopt a legal act in a given field, depending on the objective; and (b) the choice of the intensity of the legal act to be adopted by the adopting institutions, as one particular type of legal act might be more suitable than another from an effet utile perspective. Looking in particular at the ECB, which possesses a weaker degree of democratic legitimacy compared to the other Union legislators, the choice of a regulation creates, for many observers, a feeling of uneasiness, especially when the ECB regulation adds to, or may even appear to derogate from, the laws adopted by elected politicians. In addition, recent trends show a tendency towards the publication of ‘soft law’ documents; their binding effect (or lack thereof) can be difficult to ascertain, leading to the question of whether and to what extent they should be held to the same standards of judicial review as legal acts in the proper sense. This topic calls for a detailed exploration of such issues, and the potential areas of focus include the following questions: Are Union institutions – assuming they possess a competence in respect of a given area – free to choose the type of legal act to be used in relation to a given matter on the basis of an effet utile assessment, or are acts of general application subject to more stringent requirements than those addressed to individual addressees? How far can regulations be used as instruments of supervision and where does the risk of entering the regulatory field arise, in the light of the competences conferred on the ECB by the SSM Regulation? How do such regulatory acts relate to the laws adopted by the European Parliament and the Council as co-legislators? Is the use of ‘soft law’ instruments an elegant way of solving the potential legal constraints governing the use of binding legal acts, or does it constitute a circumvention of legal constraints of a kind that calls for close scrutiny under Union law? And lastly, does the assumption of regulatory powers by an unelected institution such as the ECB indicate a need for enhanced avenues of accountability to legitimise the exercise of such powers beyond the obligations provided for in the regulation itself?

Applicant profile

Researchers with an established reputation, relevant experience and a track record of relevant legal publications are, in particular, encouraged to apply; proposals submitted by promising young researchers will also be considered on their merits. None of the Scholars involved in a research paper may be in an employment relationship with the ECB.

Scholarship details

The ECB will award up to four legal research scholarships for one or more of the seven research topics listed above. The ECB may decide not to award a scholarship for any or all of the above research topics if, in its opinion, no application of sufficient quality has been submitted. The applications will be assessed by a committee composed of Legal Counsels within the ECB’s Legal Services. Each selected Scholar will be required to prepare a high-quality, original research paper of a minimum of 12 000 words in length, excluding footnotes, which must meet, at the ECB’s discretion, the overall standard expected of papers published in internationally renowned and peer-reviewed academic journals. The Scholars may be invited to the ECB to present their research, even after the completion of the Research Programme and the payment of the grant. They will be responsible for their own transportation arrangements and costs, but will be reimbursed for such costs under the ECB Terms of Reference for reimbursement of travel expenses. The Scholarships will be paid upon completion by the selected Scholars of all phases of the Legal Research Programme, as laid out in the following five steps, and acceptance for publication of the research paper in an internationally renowned and peer-reviewed academic journal.

Phase 1 - Submission of the application

Applications must include the applicant’s curriculum vitae and a proposal for one of the research topics described above. Applications may be also submitted by research groups, comprising a maximum of three scholars. The proposal must consist of:

1. a statement of issues to be addressed
2. the proposed methodology
3. an analysis of the originality and significance of the proposed research paper in view of the existing academic literature
4. a discussion of the feasibility for completion of the research project by November 2018

Proposals should be no longer than 1 500 words (not including charts, graphs, or bibliography). Applications should be sent by e-mail to [email protected] no later than 15 February 2018. The ECB will notify the Scholars of the acceptance of their proposal for a research paper by 30 March 2018.

Phase 2 - Presentation of the research proposal

The selected Scholars will be invited to a seminar to be held at the ECB in spring 2018, to present their proposal against the background of their previous research in the relevant field. Such seminar is intended to establish a fruitful relationship between the ECB Legal Services and the Scholars, and to provide them with constructive feedback on the research subject from practitioners in the field.

Phase 3 - Submission of the first draft

The Scholar must submit a first draft of his or her research paper to the ECB by 15 July 2018, and must immediately inform the ECB if there is a risk of not meeting that deadline. The ECB will review and referee the research paper by October 2018.

Phase 4 - Submission of the second draft

The Scholar will take the remarks and suggestions of the ECB’s review into consideration and complete the research paper by 30 November 2018.

Phase 5 - Completion of the final draft and publication

Scholars are expected to seek publication of the research paper in a well-recognised, internationally renowned and peer-reviewed academic journal, when necessary or appropriate following revision of the paper. Acceptance for publication by the external journal shall in any case occur by 30 September 2019. The research paper may be also considered for publication in the ECB’s Legal Working Paper Series and/or on its website.

Following completion of all of the phases above and acceptance of the research paper for publication in an internationally renowned and peer-reviewed academic journal, Scholars will receive a final honorarium of EUR 7 500.