Brexit Negotiations, Phase 2: Transition, Trade, and Trouble Ahead

By Jean De Ruyt, Atli Stannard and Katharina Ewert

As we mentioned in our previous reports (here and here), “sufficient progress” in the first phase of the Brexit negotiation could not be achieved before the European Council of October 19-20, 2017 – so the heads of government decided to wait until their next meeting, on December 14-15, to assess whether the second phase, dealing with the future relationship, could be launched.

By the end of November, the UK government made progress on the sensitive issue of the financial settlement, but it took a frantic week of high political drama to finally reach the “sufficient” agreement, just in time (see our post here on her abortive lunch with President Juncker, and the agreement that was reached following objections from Northern Ireland).  British Prime Minister Theresa May was warmly applauded by her 27 EU colleagues when the decision to launch the second phase was made by the European Council on December 14.

The second phase will start formally in February 2018 with a discussion on the “transition period” between the day of withdrawal and the entering into force of the new treaty.  To that end, the European Council adopted guidelines in December (here), and on January 29, the Council of Ministers agreed a new mandate for the Commission negotiator Michel Barnier (here).

The discussion on the future relationship itself will only start later in spring.  The talks will initially concentrate on a political declaration on the framework of this future relationship, which will be attached to the withdrawal treaty.

To read our full report on the state of play in the Brexit negotiations, please see here.

Blockchain and Virtual Currency Regulation in the EU

By Jurgita Miseviciute

The European Commission (“EC”) has stated that the almost limitless list of potential use cases of distributed ledger technology (“DLT”) makes it both very promising and challenging, and has expressed its support for blockchain and DLT (see here).  However, many European institutions are still of the opinion that the technology is at its early stage of development, and it is therefore too early to regulate it.  They rightly see a risk that early regulation could limit its further development and potential.  Moreover, too early regulation could fail to regulate appropriately the relationships and reduce the risks associated with the use of blockchain technology.

The EC also indicates that it needs to “be able to make the distinction between a hype and a true opportunity to improve the lives of our citizens and businesses.  That’s why we [the EU] need to launch more proof of concepts and pilots in different domains and according to different use cases” (see here).  On this basis, the EU is currently exploring various applications of blockchain technology and its possible benefits both for public and private sectors.

As far as virtual currencies like bitcoin are concerned – which are based on blockchain technology – it seems that the EU has more concrete views.  Central banks of the EU Member States do not consider virtual currencies as equivalent to money, and they are not treated as legal tender.  The European Central Bank typifies virtual currency as a digital representation of value, not issued by a central bank, credit institution or e-money institution, which in some circumstances can be used as an alternative to money.  In many Member States, there is also no specific virtual currency regulation, and in many cases only a series of opinions and warnings has been issued by central banks or regulators.  Germany has the most elaborate rules, and considers virtual currencies as units of account – which does not confer them the status of legal tender. (See here for further detail.)

Moreover, the surge in interest in bitcoin and similar virtual currencies, as well as their price fluctuations, have recently attracted the attention of the EC.  In December 2017, the EC’s Vice-President, Valdis Dombrovskis, wrote a letter to the European Supervisory Authorities asking them urgently to update their warnings from a financial stability and investor protection perspective to address bitcoin’s price volatility.  In addition, in his recent speech of January 2018, Vice-President Dombrovskis said that the EC wants “Europe to embrace the opportunities of blockchain, the technology underlying cryptocurrencies.  But to do so, we [the EU] must be vigilant and prevent cryptocurrencies from becoming a token for unlawful behaviour” (see here).  He also mentioned that he intends to bring together key authorities and the private sector in a high level roundtable soon, to assess the longer-term significance of cryptocurrencies beyond the current market trends, since they may have ramifications for many other areas, including for central banks.  Cryptocurrencies and the related regulatory questions are clearly a focus of the EU’s attention, and may be subject to regulatory action in the year to come.

To read our full article on the state of Blockchain regulation in the EU, please see here.

Developments in Data Privacy, Cybersecurity and Communications Policy

On January 25, 2018, the Court of Justice of the European Union (“CJEU”) handed down its decision in the Maximilian Schrems v Facebook Ireland case.  Max Schrems filed a class action lawsuit against Facebook’s Irish Office before an Austrian Court.  The lawsuit alleged breaches of Austrian, Irish and EU privacy rules.  The Court held that an individual consumer privacy action may be brought in the consumer’s home jurisdiction, and not the jurisdiction where the defendant has its establishment.  However, the Court ruled that consumer privacy class actions cannot be brought in the consumer’s home jurisdiction.  The proceedings will now return to the Austrian courts, which had referred the case to the CJEU.

For our full analysis, see the full article on the case by our colleagues, Dan Cooper and Joseph Jones, on Covington’s Inside Privacy Blog – available here.

On December 20, 2017, the UK Government launched a public consultation on the EU proposals for a cybersecurity certification framework, as part of the EU “Cybersecurity Act”.  Key points of the proposal that the UK Government is seeking input on include detailing and publishing best practices regarding the reporting of incidents under the NIS Directive, reinforcing ENISA’s mandate, and harmonizing the current cybersecurity certification landscape.  The public consultation will close on February 13, 2018.

For our full analysis, see the full article on the consultation by our colleagues, Mark Young and Joseph Jones, on Covington’s Inside Privacy Blog – available here.

At the EU level, negotiations about the proposed E-Privacy Regulation, an update to the existing E-Privacy Directive, are ongoing.  Although it is still a draft, many of the features of the Regulation are fairly clear.  The Regulation aims to “level the playing field” between traditional telecommunications providers (e.g., copper-, fibre-, mobile- and satellite-based), and their innovative competitors (instant messaging or VoIP services), to guarantee that the same privacy rules apply to all.  As it currently stands, the draft Regulation is likely to limit considerably how voice communications data may be used by providers, including for product research, design or development purposes.

For our full analysis, see the full article on the Regulation by our colleague, Ezra Steinhardt, on Covington’s Inside Privacy Blog – available here.

Developments in Life Sciences Policy

By Lucas Falco and Bruno Standaert

We outline below an overview of recent policy and legislative developments of importance to the life sciences industry in Europe.  These are broadly split into policy developments, and updates on EU funding, including the Horizon 2020 research funding program.

On January 31st, 2018, the European Commission is expected to publish its legislative proposal on Health Technology Assessment (HTA).  Its objective Commission is to improve cooperation among EU Member States in assessing the value and effectiveness of health technology (including innovative drugs and medical devices).  The proposal would also seek to bring closer the various national processes to evaluate the added value of health technology, so as to avoid duplicating efforts within the EU.

On January 4, 2018, the European Commission published a draft implementing regulation laying down rules for the application of Article 26(3) of Regulation 1169/2011 on the provision of food information to consumers (“FIC”), as regards the rules for indicating the country of origin or place of provenance of the primary ingredient of a food, where this is different to that given for the food.  The draft implementing regulation sets out different options for indicating the country of origin or the place of provenance of a primary ingredient.  In addition, the draft implementing regulation also lays down presentation requirements for these indications, and provides specific labeling requirements.  A consultation on this draft implementing regulation runs until February 1st, 2018.  In principle, the draft implementing regulation shall apply from April 1st, 2019.  The draft implementing regulation can be downloaded here, and comments may be submitted here.

For our full analysis, see the full article on the FIC draft implementing regulation by our colleagues, Brian Kelly and Lucie Klabackova, on Covington’s Inside Life Sciences Blog – available here.

On December 8, 2017, the Council of the EU adopted its “Conclusions on Health in the Digital Society – making progress in data-driven innovation in the field of health.”  In its Conclusions, the Council encourages EU Member States to continue their work aimed at fostering and promoting digital innovation in healthcare; the use and sharing of health data and the interoperability of data-sharing systems; and boosting the use of health data to enable more patient-centered health systems.  It also calls on the Commission to work with EU Member States to support large-scale implementation projects in the field of personalized medicine.  The Council finally appeals to the European Commission to continue to support research and innovation in the field of digital health, and to provide support to pharmaceutical companies that develop innovative digital health solutions.  The Council Conclusions are available here.

As to EU research funding, on January 11, 2018, the European Commission published a Communication on the interim evaluation of Horizon 2020, the EU’s principal research and innovation program (see here).  The lessons drawn from the interim evaluation are used to improve the implementation of Horizon 2020 for its last three years, and prepare the successor of Horizon 2020 under the EU’s new multiannual financial framework.  One immediate outcome of the evaluation is the creation of a pilot project to fund high-risk, high-return research and innovation projects – the so-called European Innovation Council pilot.  The project aims to provide seed money for the rapid scale-up of break-through technologies, and has an expected budget of € 2.7 billion between 2018 and 2020.

This followed on the Council of the EU’s December 1, 2017 “Conclusions on the Interim Evaluation of Horizon 2020 towards the ninth Framework Program.”  In these conclusions, the Council recognized that the research and innovation funding landscape should be simplified and rationalized.  It therefore called on the Commission and EU Member States to find ways to make public-private partnerships more focused and aligned with the priorities of the future Framework Program (“FP9”).  The Council proposed that the Commission and EU Member States consider the introduction of a possible cap on partnership instruments in the FP9.  This could have a significant impact on industry, as it means that public-private funding instruments, such as IMI, could be limited.  The Conclusions are available here.

On December 13, 2017, the European Commission published its 2018 Work Program in the field of health.  The budget allocated to health for 2018 is € 62 million; 64% of this will be allocated to grants, 24% to procurement and 12% to other initiatives, including prizes.  The Commission’s priorities for 2018 are the European Reference Networks for rare and complex diseases, the promotion of health and the prevention of major and chronic diseases, the implementation of the new EU medical device legislation, and the reinforcement of the EU’s preparedness and its response to serious cross-border health threats.  The Work Program is available here; see also its annexes here.

Developments in Energy & Environment: The Dana Gas Case

On November 17, 2017, the English High Court ruled in Dana Gas PJSC v Dana Gas Sukuk Ltd & Ors that non-compliance with Shari’ah principles – the principles behind the structure of an Islamic financing – and the unenforceability of a contract as matter of local law do not affect the enforceability of contractual payment obligations governed under English law.  The decision is particularly important for the energy sector, as many market actors in the Middle East rely on Islamic finance products containing payment obligations under English law.

The use of English law obligations is due to the perceived greater certainty in their enforceability, in light of nervousness from creditors about local laws.  It is this general principle of enforceability that the High Court upheld.  In doing so, it seemingly abated widespread uncertainty about the enforceability of a multitude of Islamic financings in place across the Middle East.

A different decision from the High Court could not only have had implications for creditor confidence in the Islamic finance market going forward, but could also have opened the floodgates for issuers to use the argument that their existing Islamic financings are not Shari’ah-compliant to pressure creditors into financial restructurings on more advantageous terms.

For further details, please see the full article on the UK High Court’s decision by our colleagues, David Miles and Christoph Schulz – available here.