Week Ahead (10 July)

Wednesday 12, July - EU foreign subsidies to take effect

On Wednesday, the Foreign Subsidies Regulation of the EU will come into effect and will be targeted at all foreign subsidies granted within the last five years prior to July 12, i.e., all foreign financial contributions from 12 July 2018. The Foreign Subsidies Regulation (FSR) was first announced in May 2021 and passed by the European Parliament and Council in June 2022.

The legislation aims to address the regulatory disparities between aid granted by EU states and subsidies granted by non-EU governments. The FSR applies to all economic activities in the EU, such as mergers & acquisitions, public procurement tenders and all other market situations. If a firm breaches these new rules, the EU can force companies to divest, impose fines or prevent takeovers of businesses within the bloc. Competition Commissioner Margrethe Vestager has indicated that the Commission is “prepared” to enforce the rules from 12 July but that more staff would be required.

Along with the EU’s announcement of its Economic Security Strategy on 20 June, this is another defensive step by the EU to protect domestic companies and maintain the competitiveness of the single market from foreign economic powers such as China.

Thursday, 13 July – ECB to release minutes of June meeting

The ECB will release the minutes from its June monetary policy meeting, where it raised interest rates by 25-basis points.

In public, elements of the ECB Governing Council (GC) appear to be erring on the side of overtightening. ECB Executive Board Member Isabel Schnabel continues to push her view that the ECB should tighten more aggressively in the face of continued uncertainty, drawing on research which shows that forecast errors are more likely to underestimate inflationary pressures. This is well summarised in a speech entitled “The risks of stubborn inflation” which she gave in Luxembourg on 19 June. She stated inter alia:

A monetary policy stance that errs on the side of determination “insures” against costly policy mistakes caused by inflation being more persistent than expected…the fact that we underestimated inflation persistence last year raises the probability that we are also underestimating inflation today…a narrow reliance on projections can lead to large policy mistakes, and that, as a result, giving more weight to observable data, in particular at times of high uncertainty, can improve the quality of policy decisions.

Dovish members of the GC are making the opposite case. Last Wednesday, Bank of Italy Governor Ignazio Visco told a meeting of the Italian Banking Association: “I don’t understand and do not share the view that it is preferable to risk being too restrictive rather than not restrictive enough. I think we have to be as cautious as possible … to preserve financial stability.” Visco called on the ECB GC to leave rates at what he called “already restrictive levels“, allowing for ‘’better informed analysis of the actions conducted” since tightening began. The minutes of the June meeting are likely to reflect this growing split.

Thursday, 13 July – Public hearing on ESAs Joint Committee Technical standards under DORA

On 13 July, the joint committee of the European Supervisory Authorities (EBA, EIOPA and ESMA – the ESAs) will hold a public hearing on the first batch of policy products under the Digital Operational Resilience Act (DORA).

DORA, which entered into force on 16 January 2023 and will apply from 17 January 2025, aims to enhance the digital operational resilience of entities across the EU financial sector and to further harmonise key digital operational resilience requirements for all EU financial entities.

Amazon Web Services, Google Cloud, IBM Cloud and Microsoft Azure dominate the data storage market. If one of these failed, sections of the economy could lose access to back-office operations or savers could even lose access to online bank accounts. DORA aims to address this by implementing a regulatory framework which covers key areas such as ICT risk management, ICT-related incident management and reporting, digital operational resilience testing and the management of ICT third-party risk. This week’s public hearing will focus on the first batch of regulatory technical standards (RTS) which are to be submitted to the European Commission by 17 January 2024:

• RTS on ICT risk management framework and RTS on simplified ICT risk management framework;

• RTS on criteria for the classification of ICT-related incidents;

• Implementing technical standards (ITS) to establish the templates for the register of information;

• RTS to specify the policy on ICT services performed by ICT third-party providers.

A public consultation on this first batch of policy products runs until 11 September 2023.

Thursday, 13 July – Closed door session of DG COMP and Meta On Thursday, Meta will have a closed-door session with the European Commission’s competition directorate (DG Comp) to discuss the latter’s preliminary view that Meta breached EU antitrust rules. DG Comp’s preliminary view found that Meta:

• ties its online classified ads service Facebook Marketplace with its dominant personal social network Facebook. This means that users of Facebook automatically have access to Facebook Marketplace, whether they want it or not. The Commission is concerned that competitors of Facebook Marketplace may be foreclosed as the tie gives Facebook Marketplace a substantial distribution advantage that competitors cannot match.

• unilaterally imposes unfair trading conditions on competing online classified ads services which advertise on Facebook or Instagram. The Commission is concerned that the terms and conditions, which authorise Meta to use ads-related data derived from competitors for the benefit of Facebook Marketplace, are unjustified, disproportionate and not necessary for the provision of online display advertising services on Meta's platforms. Such conditions impose a burden on competitors and only benefit Facebook Marketplace.

In response, Meta requested an oral hearing, as it is legally entitled to do. This will take place on Thursday and Meta will look to address these preliminary findings. If the Commission concludes, after the company has exercised its rights of defence, that there is sufficient evidence of an infringement, it can adopt a decision prohibiting the conduct and imposing a fine of up to 10% of the company's annual worldwide turnover.