Green Light For Greensill Was Legitimate

Governance, Regulations

A Berlin rating agency remains as a scapegoat

Now it is official: In the city of Mohnheim no failure of the administration could be determined before and in the insolvency of Greensill Bank in Bremen. The responsibility is put on the “investment grade” rating, which was issued by a local rating agency in Berlin. In politics, efforts are made to limit the damage. The top German overseer, responsible for the biggest losses since World War II, is running for the Chancellery.

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Scope’s Greensill Bank Rating Tragedy

Agencies, Authorities, Governance, Read, Regulations

The Federal Financial Supervisory Authority (BaFin) filed criminal charges Against The Bank’s Board Members.

The Federal Financial Supervisory Authority (BaFin) in Germany received monthly reports from Greensill Bank AG (Greensill Bank) about the bank’s balance sheet data from January 2019 on. This is evident from the answer given by Parliamentary State Secretary Sarah Ryglewski on March 12, 2021 to written questions from members of the German Bundestag (Drucksache 19/27704). Greensill Bank’s total assets increased rapidly in 2019 from EUR 763 million at the beginning to EUR 3.8 billion.

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On March 3, 2021, BaFin finally issued a ban on the sale and payment of the bank due to the threat of over-indebtedness. The bank had to close for business with customers. BaFin prohibited it from accepting payments that were not intended to repay debts to the bank (moratorium). In addition, the BaFin filed criminal charges against the board members of Greensill Bank.

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When Stocks Are Too Good to Sell – Crossings Can Be Dangerous

Governance

Private investor crossings are independent transactions in which an investor enters a buy and a sell order for one and the same security in a timely manner and thus buys the security himself. Such crossings are bogus and prohibited, warns the Austrian Financial Market Authority (FMA).

Crossings are a form of market manipulation. Many private investors only realize that they have achieved a crossing when they receive mail from the FMA. They usually do not know that crossings are forbidden and see in their actions a negligible administrative offense, since they did not commit them “deliberately” and certainly not with the intention of misleading. Private investors are also mostly unfamiliar with the fact that it is technically possible on the stock exchange, but that the trading rules forbid people to buy a security from themselves.

But crossings are in the eyes of the EU lawmakers bogus deals that can represent a form of market manipulation. According to Art. 15 of the Market Abuse Regulation, they are prohibited throughout the EU and threatened with an administrative penalty of up to € 5 million.

Private investor crossings occur particularly in trading illiquid securities, i.e. those that have a particularly low trading volume. This is because, in the case of illiquid securities, there are no or hardly any other orders with which a matching can take place. The prices at which such transactions are processed therefore do not reflect the conditions that would result from business partners who are unrelated to each other.

One activity that often leads to private investor crossings as “collateral damage” is tax loss compensation towards the end of the year: income from securities is subject to capital gains tax (KESt) of 27.5%. It is possible under tax law to offset losses against profits from securities transactions in a tax-reducing manner, provided that these are realized within the same calendar year. The tax-relevant loss arises when the investor sells a security that he originally bought at a higher price at a currently lower price. However, if the investor wants to keep the security in his portfolio, he will promptly place a buy order in order to buy it back as quickly as possible.

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How To Run A Credit Reporting Agency In China

Agencies, Authorities, Bureaus, Compliances, Governance, Read, Registrations, Regulations

The People’s Bank of China issued a Draft for comments on “Measures for the Administration of Credit Investigation Services“. It is intended to regulate the credit investigation business and related activities, and promote the healthy development of the credit investigation industry. This is formulated in accordance with the “Civil Code of the People’s Republic of China”, “The People’s Bank of China Law of the People’s Republic of China”, “Regulations on the Administration of Credit Investigation Industry” and other laws and regulations.

Who is affected?

These Measures shall apply to individuals, enterprises, institutions and other organizations that carry out credit investigation services and related activities within the territory of the People’s Republic of China, but these Measures are also applicable to the credit investigation business and related activities of residents of the People’s Republic of China (natural and legal persons) outside the People’s Republic of China.

The term “credit information” refers to various types of information used to determine the credit status of individuals and enterprises by providing services for financial and economic activities. Personal and corporate identity, address, transportation, communication, debt, property, payment, consumption, production and operation, fulfillment of legal obligations and other information, as well as analysis and evaluation of the credit status of individuals and companies based on the foregoing information information are all considered to be “credit information”.

When engaging in credit investigation business and related activities, the lawful rights and interests of information subjects shall be protected in accordance with the law, information security shall be protected, and the leakage and abuse of credit information shall be prevented. Engaging in credit investigation business and related activities shall follow the principles of independence, objectivity, and impartiality, and shall not make discriminatory arrangements that violate social public order and good customs, and shall not provide exclusive services with the help of an advantageous position.

The collection of credit information by credit reporting agencies in China shall follow the principle of “minimum and necessary” and shall not collect excessively.

Credit reporting agencies shall not collect credit information in the following ways:

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When collecting credit information, credit reporting agencies shall review the business legitimacy, information sources, information quality, information security, and authorization of information subjects of the information providers to ensure the legality, accuracy and sustainability of the collection of credit information.

Credit reporting agencies in China shall clarify their respective rights and obligations with information providers in terms of data correction, objection handling, and information security. The People’s Bank of China expects credit reporting agencies operating personal credit reporting services to formulate plans for collecting personal credit information, and report to the People’s Bank of China on matters such as the collected data items, the correlation with credit, and the protection of information subjects’ rights and interests.

The collection of personal credit information by a credit reporting agency shall obtain the consent of the information subject, and clearly inform the information subject of the purpose, source and scope of the collection of credit information, as well as the possible adverse consequences of not agreeing to the collection of information. Where a credit reporting agency obtains personal consent through an information provider, the information provider shall clearly inform the information subject of the name of the credit reporting agency. When collecting non-public corporate credit information, credit reporting agencies shall adopt appropriate methods to obtain the consent of the enterprise. The collection of credit information related to the performance of duties by corporate directors, supervisors, and senior executives by credit reporting agencies shall not be regarded as personal credit information.

Credit reporting agencies shall follow the principle of objectivity in sorting, storing, and processing credit information and shall not tamper with the original data. If a credit reporting agency finds information errors in the process of sorting, storing, and processing credit information, if the information provider reports an error, it shall promptly notify the information provider to correct it; if it is an internal processing error, it shall promptly correct it, and improve the internal processing flow.

5 Years Retention Period

The retention period of bad personal information collected by credit reporting agencies in China shall be 5 years from the date of termination of bad behavior or incident. When bad credit information expires, the credit reporting agency should delete it. If it is used as sample data, it should be de-identified and moved to a non-production database for storage to ensure that personal credit information is not directly or indirectly identified. The People’s Bank of China encourages redit reporting agencies to separate personal identification information from other credit information, and implement physical isolation.

Credit reporting agencies shall take appropriate measures to conduct necessary review of the identity, business qualifications, and purpose of use of information users. They shall conduct necessary review of the network and system security and compliance management measures of information users who access the credit reporting system through the Internet, monitor the inquiries, discover violations, and stop services in a timely manner. Credit reporting agencies shall conduct necessary review of information users to ensure that information users obtain the consent of the information subject when inquiring about personal information and use it for the agreed purpose. The use of credit information provided by credit reporting agencies by information users shall be used for lawful and legitimate purposes and shall not be abused.

Information users shall use personal credit information for clear and specific purposes, and use them in accordance with the purposes agreed upon with the information subject. If they exceed the agreed purposes, they shall obtain separate consent. Information subjects can inquire about their own credit information from credit reporting agencies. If the credit reporting agencies have not collected the information subject’s information, they should clearly inform them that if they have collected the information subject’s information, they should provide the information subject with the collected information content.

Credit reporting agencies in China shall provide personal information subjects with free credit report inquiry services twice a year through various methods such as the Internet, business premises, and entrusting other institutions. If a credit reporting agency entrusts other agencies to provide free credit report query services to information subjects, it shall review the qualifications, service capabilities, safety protection facilities, and compliance requirements of the entrusted agency, and be responsible for the entrusted agency’s inquiries and leaks by joint and several liability.

The subject of personal information in China has the right to request a complete credit report from the credit bureau. The content of credit reports provided by credit reporting agencies to individuals shall not be less than the content of credit reports provided to information users. Credit reporting agencies in China shall not charge information subjects for the reason of deleting bad information or not collecting bad information.

Where credit reporting agencies provide credit information inquiry products and services such as credit reports, they shall objectively display the content of the inquired credit information, and explain the content of the inquired credit information and professional terms. If a credit reporting agency provides a credit report product, the content of the report shall include the information user’s inquiry records, objection marks, and information subject statement. Credit reporting agencies that provide evaluation products and services such as portraits, scoring, rating, etc., shall establish evaluation standards, and must not use elements that are not related to the credit of the information subject as evaluation standards. Where a credit reporting agency provides personal credit evaluation services, all data used for evaluation shall be displayed in the credit report provided to the information subject. Credit reporting agencies shall disclose the scoring methods and models used in personal credit evaluation products, and the degree of disclosure shall be limited to reflecting the credibility of the evaluation.

If credit reporting agencies provide corporate entities or debt credit rating services, they shall comply with relevant management regulations on credit rating businesses. Where credit reporting agencies provide anti-fraud products and services, they shall establish standards for identifying fraudulent credit information.

Credit reporting agencies providing credit information inquiry, credit evaluation, and anti-fraud services shall report the following matters to the People’s Bank of China or its branches above the provincial capital (capital) city center branch (hereinafter collectively referred to as the branch):

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Credit reporting agencies shall not provide the following credit reporting services and products:

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Credit reporting agencies shall formulate safety management systems involving all business activities and equipment and facilities, and adopt effective protective measures to ensure the security of credit information.

Individual credit reporting agencies and corporate credit reporting agencies that store or process the credit information of enterprises of more than 500,000 enterprises shall meet the following requirements:

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Credit reporting agencies shall ensure the safety of the operating facilities and equipment of the credit reporting system, security control facilities and APPs and other mobile internet terminals, do a good job in daily operation and maintenance management of the credit reporting system, and ensure the physical security of the system, network security, and host security, application security, data security and client security, prevent data loss and destruction, and prevent illegal intrusion into the credit investigation system.

The credit reporting agency shall do a good job in personnel safety management in terms of personnel recruitment, personnel leaving, personnel assessment, safety awareness education and training, and external personnel visit management. Credit reporting agencies shall strictly limit the authority and scope of staff who inquire about and obtain credit information, and they shall establish operating records for staff inquiring and obtaining credit information, and clearly record the time, method, content and purpose of staff inquiring and obtaining credit information.

Credit reporting agencies shall establish an emergency response system. When major credit information leaks occur or are likely to occur, they shall immediately take necessary measures to reduce the harm and report to the People’s Bank of China and its local branches.

For credit reporting agencies to carry out credit reporting services and related activities in China, the production database and backup database shall be located in China. Credit reporting agencies that provide personal credit information abroad shall comply with the provisions of national laws and regulations. Credit reporting agencies providing corporate credit information inquiry services overseas should review the identity and purpose of information users, ensure that credit information is used for reasonable purposes such as cross-border trade and financing, and provide it in a single inquiry. Credit reporting agencies shall not transmit the credit information of batch enterprises in a certain region or industry to the same information user overseas. Credit reporting agencies that provide corporate credit information overseas should file with the People’s Bank of China. If a credit investigation agency cooperates with an overseas credit investigation agency, it shall file with the People’s Bank of China after the cooperation agreement is signed.

Credit reporting agencies shall disclose the following matters to the public and accept social supervision:

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FATF and BaFin Ratings

Authorities, Compliances, Governance, Regulations

The European Union (EU) and Financial Action Task Force (FATF) lists countries with deficits in the fight against money laundering, terrorist financing and the financing of proliferation. The lists have far-reaching implications for country ratings and especially for ratings of financial service providers. FATF publishes a consolidated table of assessment ratings.

On the basis of Article 9 of the Fourth Money Laundering Directive (EU) 2015/849, the European Commission has defined third countries with high risk in the Delegated Regulation (EU). It includes the following countries: North Korea, Iran, Afghanistan, Bahamas, Barbados, Botswana, Ghana, Iraq, Jamaica, Yemen, Cambodia, Mauritius, Mongolia, Myanmar / Burma, Nicaragua, Pakistan, Panama, Zimbabwe, Syria, Trinidad and Tobago, Uganda and Vanuatu.

Legal consequences and measures of the German Federal Financial Supervisory Authority (BaFin) with regard to the listed countries with increased risk differ and follow this rating:

  1. North Korea,
  2. Iran,
  3. Afghanistan, Bahamas, Barbados, Botswana, Ghana, Iraq, Jamaica , Yemen, Cambodia, Mauritius, Mongolia, Myanmar / Burma, Nicaragua, Pakistan, Panama, Zimbabwe, Syria, Trinidad and Tobago, Uganda and Vanuatu and
  4. Albania.

As before, Albania, which is only listed in the FATF statement on “Jurisdictions under Increased Monitoring” and not in the Delegated Regulation, Albania has no immediate obligations to act and no additional due diligence or organizational obligations need to be fulfilled. Nonetheless, when assessing the country risk in the context of the prevention of money laundering and terrorist financing, the situation in Albania and / or people from Albania should be given due consideration, explains BaFin; otherwise, BaFin refers to the Deutsche Bundesbank and the national risk analysis.

Toward A Reputation State: A Comprehensive View of China’s Social Credit System Project

Governance, Read

China’s Social Credit System Project (the “SCSP”) is one of the most misunderstood recent developments in China’s law and policy. In the book “Social Credit Rating“, Xin Dai offers a comprehensive conceptual thesis that explains the SCSP as the Chinese government’s multi-faceted strategy to use reputation in law and governance.

The SCSP envisions that reputation mechanisms such as blacklisting, rating, and scoring be used to tackle a range of the country’s intractable governance problems in its social and economic realms. “While knowing no apparent equivalent elsewhere in the world,” Xin Dai points out, “the SCSP portends the rise of the “reputation state” on a wider scale, as government authorities outside of China will also increasingly seek to use reputation mechanisms and technologies in the spheres of law and governance. And as it both raises high hopes and stokes grave fears, the SCSP has so far been shaped and limited by the institutional and market forces that animate it in the first place.”

Xin Dai is associate professor (tenured) at Peking University Law School. His primary areas of research interests include legal theories, law and economics, information privacy, internet law, and digital governance. He received his LL.B from Peking University, J.D from Duke University, and J.S.D from the University of Chicago. Xin practiced corporate and securities laws with Shearman & Sterling’s New York and Hong Kong offices, and taught previously at Ocean University of China Law School where he served as an associate dean.

A Study on the Typological Regulation of the Dishonesty Punishment – also on the Rule Design of the Social Credit Law

Governance, Read

The punishment of dishonesty is an important content of the credit rule of law, writes Wang Wei in the book “Social Credit Rating“. “The punishment of dishonesty is not a precise legal concept,” he says, “so we must use legal technology to analyze and define it.”

In the market punishment, industrial punishment, social punishment, administrative punishment, judicial punishment and other punishment mechanisms, the punishment by the public power is the focus of the credit rule of law, he points out: “Administrative disciplinary measures are not all power-limited measures. In essence, the administrative blacklist measure of power restriction belongs to administrative punishment, but it does not violate the principle of “one punishment for one violation”. In the future, when legislating the social credit law, we should typologically regulate dishonesty punishment and focus on the administrative punishment regulating the constitutive elements, punishment measures and procedures, credit restoration mechanism and other issues.”

Wang Wei, male, PH.D, professor, director of Civil, Commercial & Economic Law Division attached to Politics and Law Department of Central Party School of CPC (Chinese Academy of Governance) (Beijing 100091). He graduated from Law School of Renmin University of China, mainly engaged in the research of social credit law. company law, market regulation law. In recent years, he focuses on the research of social credit law and involved in the projects from National Development and Reform Commission, State Administration for Market Regulation, and so on. He has participated in drafting a number of expert proposals on social credit legislation. Still. he acted as civil and commercial judge in Kunming Intermediate People’s Court of Yunnan Province for a couple of years. This paper was originally published in Zhongzhou academic journal, issue 5, 2019, and reprinted in issue 8 of constitutional law and administrative law in Periodical Literatures by Renmin University of China.

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Separation of Product Comparison, Brokerage and Insurance Services

Compliances, Governance, Read

Any rating company who does not limit itselve to the comparison of financial services, but also insures the customer against risks, must obtain approval for this. There is no free market for financial services in Germany.

The Federal Financial Supervisory Authority in Germany, Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), ordered the CHECK24 comparison portal CHECK24 Vergleichsportal Finanzen GmbH, Munich, to discontinue its insurance business by decision of August 5, 2020. “The CHECK24 Vergleichsportal Finanzen GmbH promised credit customers, which it has referred to various credit institutions via its internet platform, that they would pay up to six loan installments in the event of unemployment, but doing this without the required permission from BaFin.”

The CHECK24 Vergleichsportal Finanzen GmbH is just one of the many subsidiaries of just one of the approximately 70 companies that in turn belong wholly or mostly to Check24 GmbH. The main shareholders of Check24 GmbH are Eckhard Juls and Heinrich Blase (both born in 1967). CHECK24 Vergleichsportal Finanzen GmbH is in turn mother company to Kredite 24 Service GmbH.

The company was entered in the commercial register in 2013 as ProCheck24 GmbH with the object of the company to provide insurance and financial services of all kinds (the latter only if they do not require approval) and evidence of the possibility of concluding contracts for insurance and financial services of all kinds, including the development and establishment of new sales channels therefore as well as the provision of IT services for the electronic processing of contracts in trade and financial advice. “Activities requiring approval are not part of the company”, it said at the time in the commercial register.

The CHECK24 comparison portal Finanz GmbH is about comparing and brokering financial services of all kinds and operating a media, advertising and marketing agency. The provision of financial services within the meaning of Section 1 (1a) KWG should not be the object of the company, nor should investment brokering within the meaning of Section 1 (1a) lit. a KWG.

Kredite24 Privat is an online loan for free use that is granted for long periods. The personal loan is available exclusively via the CHECK24 loan comparison. For the loan with free use, Kredite24 relies on the cooperation with the DSL Bank. The Bonn-based credit institute is certified by TÜV Süd and belongs to Deutsche Postbank AG. The Kredite24 Service GmbH is a wholly owned subsidiary of the CHECK24 comparison portal Finanz GmbH, which operates the loan comparison of the internet portal.

The Social Credit System and China’s Rule of Law

Governance, Read

In 2014, the People’s Republic of China’s (PRC’s) central government formally declared the construction of a Social Credit System (SCS) a national task. Meanwhile, government-designated localities and companies are experimenting with scoring systems for businesses, citizens and the administration.

“The government’s initiative introduces mechanisms for a massive aggregation and exchange of data about ‘credit subjects’, pushes for the application of such credit information in the decision-making processes in both the public and the private sector, and elevates the punishment of naming and shaming to new prominence”, writes Marianne von Blomberg in the book “Social Credit Rating“. “Its conceptual heritage is social management, a governance strategy born in the political apparatus of the PRC that does not operate with the traditional notion of law. The SCS’ potentially heavy impact, as well as its conceptual heritage in social management, begs the question of what difference it makes to the rule of law in the PRC.”

A legal framework for the SCS does not (yet) exist. “It has been held that the SCS is a powerful tool to strengthen the rule of law. However,” says Marianne von Blomberg, “this thesis aims to bring to light challenges that arise from the SCS for the rule of law. It does so by considering the SCS’ conceptual cradle, and further mapping what has surfaced of the SCS to date in policy and legislative documents, the commercial credit market, and local pilot projects.”

Drawing on this comprehensive picture of the SCS, elements which appear at odds with rule of law are pointed out in her contribution to the book “Social Credit Rating“. They include a lack of legal definitions for SCS key terms such as ‘trustworthiness’, opaque procedures and possible penalties that bypass the law. Marianne von Blomberg considers ways to integrate them into the Rechtsstaat, all of which necessitate a re-definition of what law is.

“Finally,” concludes Marianne von Blomberg, “the angle of social management offers a meta-social credit system as a solution to conciliate the SCS and rule of law. The question remains whether the SCS can truly solve all problems that it brings about merely by means of its own conceptual heritage, social management theory – or whether an independent organ outside of itself is indispensable.”

Marianne von Blomberg is doing a PhD in Chinese Law at Zhejiang University in Hangzhou, from which she also holds an LL.M Degree, and is a Research Associate at the University of Cologne’s Institute for East Asian Studies. During her undergraduate studies at Zeppelin University, she discovered her passion for ancient Chinese rhetorics and wrote about the concept of originality in China in the face of architectural mimicry and counterfeit products. After having interned at the Mercator Institute for China Studies, the Future Research Department of Volkswagen AG, and the German Embassy in Ottawa, she moved to Hangzhou in 2016, where she continues to take a sociological perspective in her observations of the PRC legal system and social credit in particular. Part of her research was funded by the Fritz Thyssen Foundation under grant 10.19.2.003RE.