Frequently asked questions - conducting legal assessments
How have the core areas evolved over the years as regard legal assessment work?
Concessions / public-private partnerships
The assessment activity has been aimed at evaluating both the laws on the books governing the sector and their implementation in practice.
Concessions Laws Assessments were carried out in 2004 and 2008, focusing on the quality of the legislative framework.
- A Legal Indicator Survey took place in 2006, focusing on implementation of those laws. It assessed on a national level the best standards and sought to visibly illustrate and better formulate areas for improvement in each jurisdiction.
- A fourth evaluation is currently underway, which will combine extensiveness (quality of law) and effectiveness (law in practice). Other innovations include an extended assessment of three countries with different levels of
PPP development and experience - Russia, Bulgaria and Kazakhstan.
The assessment work conducted in this area has grown steadily from a relatively simple checklist exercise to a sophisticated product that directly influences the Bank’s investment operations.
- The LTT conducted a corporate governance assessment in 2007, updating earlier results from 2004. The assessment was run by the LTT directly, rather than being outsourced as it was in 2004. As a result, the assessment was built on LTT expertise and experience, and it was easier to ensure quality control and support the results based on first-hand knowledge.
- In 2005, the LTT conducted a Legal Indicator Survey to assess how legislation, together with the local institutional framework, works to create a functional (or dysfunctional) corporate governance legal regime in practice. It focused on related party transactions, known to be one of the major problems in the corporate governance practices in the EBRD region.
- Both sets of findings were helpful for policy dialogue and led to new legal reform projects, in Armenia (nearing completion), Serbia (nearing completion) and Kazakhstan (under development).
- Further, the findings continue to be used for the assessment of corporate governance practices of EBRD investee companies and for the development of specific actions plans for investee companies.
- More recently in 2010, we started working on a new assessment of corporate governance of banks, run internally by LTT. The assessment focuses on the quality of legislation and practice by the largest banks in the country, but also specifically on the quality and effectiveness of supervision by regulators (central banks). It entails review of the banks’ websites as well as responses to specifically-designed questionnaires sent to the banks, regulators, banking associations and law firms in each country. In some countries the analysis is complemented by field visits and interviews.
Infrastructure (telecoms and energy) regulatory reform and competition
- The activities to date have covered the telecoms (2009) and energy sectors (2010). Our approach to these two sectors was to synthesise different models of best practice to account for the fact that we are operating in three (maybe four) somewhat different regions, all with different levels of development, incentives and motivations.
- To take the example of telecoms, we broke the sector into three groups: EBRD EU Countries; SEE, and CIS-Mongolia. In telecom terms, it made sense to take higher level benchmarks (WTO standards) and infuse them with aspects of the very detailed EU telecom regulatory framework, which we believed could equally apply from Estonia to Tajikistan. The assessment methodology was to examine how the regulatory regimes measured up to the standard benchmarks, and to review how they operated.
- This was done through developing a set of indicators and sub-indicators of the benchmarks and applying a numerical score to each instance of the indicator observed in country. For example, we studied the appearance of specific provisions in the law as well as how specific mechanisms actually worked in practice (e.g. dispute resolution procedures).
- Results for the EU countries do not reveal much (if any) deficiency; after all they are treaty-bound to implement the complete framework of EU law. However, for the remainder of the countries the hybrid standards proved a well-targeted and valuable measure of progress and yielded an indication of their prospects for harmonisation with the more demanding EU framework.
- This assessment, which included a review of extensiveness (‘law on the books’) and effectiveness (law in practice), provided a broad and realistic view of how a given regime functioned (or not) on a day to day basis.
- A similar approach and result was adopted with the energy sector assessment, breaking down the EBRD region into three sub-regions, recognising the reality of significantly differing levels of development across EBRD countries. The three sub-divisions were, again EBRD EU countries of operation, Energy Community Treaty Countries (SEE and some advanced CIS countries, bound by mutual treaty to move towards EU standards) and remainder CIS + Mongolia.
In the Insolvency focus areas, a number of products have been developed since 2001:
Sector Assessments were carried out in 2004, 2006 and 2009. These entailed the completion of an extensive checklist which covered key areas of insolvency law regimes, such as commencement of proceedings, rights of creditors, reorganisation, liquidation, etc. The checklist was lightly modified over the three assessments, making a comparative longitudinal study possible (see ‘Aspects of the EBRD’s Insolvency Law Assessment 2009: Should Creditors Worry about their Rights’, Veronica Bradautanu, Law in Transition 2010).
- In 2004, a Legal Indicator Survey was carried out on the effectiveness of insolvency laws. It focused on the commencement of proceedings, inquiring whether the insolvency case is filed by the debtor or by a creditor. This survey provided for the very first time an overview of how insolvency laws were perceived to operate, and was particularly valuable given that by and large such laws were enacted relatively recently in all of EBRD countries of operations.
- Assessment work has also focused on the specific subject of insolvency administrators (also referred to as bankruptcy trustees or insolvency office holders), as this institution tends to be quite deficient in EBRD region. In 2006, an assessment focusing on the countries in South Eastern Europe was carried out. This assessment is to be updated and expanded to the entire region in 2012.
Assessment work in this area started in 2010.
- The difficulty of defining internationally recognised standards in this focus area made the task of developing an appropriate assessment methodology a challenging one, especially since its relates to commercial law judicial capacity building.
- We decided on an assessment methodology that would: (1) shed light on how commercial courts operate in practice (making the work of interest to investors, including the Bank) and (2) generate useful data for possible future project work.
- There was a study of judicial decisions in three areas of commercial law in each target country (Kazakhstan, Kyrgyz Republic, Moldova, Russia, Tajikistan, Ukraine and Mongolia) and qualitatively assessed seven dimensions of judicial capacity, including the written judgments, speed, costs, legislative context, etc.
- The assessment methodology was innovative. It used purposive rather than random sampling. It also used an independent panel to review and vet local evaluations.
- The results are thus based on hard evidence (the decisions and expert evaluation) rather than surveys and hypothetical case studies. It is planned to use the methodology to assist with assessing the impact of our project work (e.g. studying the quality of judicial decisions of judges trained through our project work - see below).
- Work is currently underway on applying the existing methodology in remaining CIS countries and ultimately in the Balkan countries.
Assessment work in this area started in 2010.
- The assessment methodology was structured around the critical elements of the public procurement process, based on the assumption that the primary role of a public procurement law is to facilitate the business process of negotiating a contract in a public sector context. It was developed in very close cooperation with the Procurement department at the EBRD.
- The assessment studied both the ‘law on books’ and the ‘law in practice’ as well as active national institutional frameworks. It combined (1) a review of the quality of public procurement legislation, (2) a survey on local procurement practice in the government and utilities sectors from local contracting entities, procurement professionals, and local legal advisers supporting entrepreneurs competing for public contracts (3) a review of remedies procedures, and (4) an assessment of the sustainability of the procurement process in the countries in the EBRD region. This last component of the assessment has been developed in cooperation with the UN Public Procurement Task Force.
- The assessment was very comprehensive and opened many avenues for future work (both regional and country-specific).
The EBRD legal assessment work was pioneered in secured transactions, with the Regional Survey of Secured Transactions published as early as 1999. It has since evolved into other related areas, such as the Charges Registration Survey (focusing on the specific institution of charges/pledges registers) developed in 2005, and the Mortgage Law Survey in 2008. Akin to the work done in the 1990s on pledges, the latter’s objective was to analyse and articulate the basic legal requirements for mortgage law, including when using mortgage loans to issue mortgage securities, and to present them in a format that would be clear, practical and evidence-based for transition countries (see Mortgage in transition economies, 2007).
The main qualities of this work are that it is:
- Innovative; no other development agency has yet devoted any significant resources to this part of the law and the EBRD is now in a leading position to advise in the region.
- Consultative; the work was done in close consultation with the Financial Institutions Team in the Banking Department and the rest of OGC, ensuring that there is consensus on its contents, as well as providing LTT visibility and relevance within the Bank.
- Comprehensive; the work does not just contain analytical analysis of what a modern security law should provide; it also collects a large quantity of data (e.g. on mortgage laws and practices in the EBRD region, as well as in selected Western markets).
However, despite changes in focus, the basic tenets have remained:
- a structure which enables both the law on the books and the law in action to be captured together, paying particular attention to commercial effectiveness;
- a format that is very user-friendly (easy to read, easy to grasp) with a visual presentation that shows both the strengths and weaknesses of the system in place; and
- a strong emphasis on cross-country comparison (without the ‘name and shame’ aspect to ranking that can be very counter-productive) accompanied with detailed analysis of the results.
The secured transactions sector area also developed different tools geared towards diagnostics and public awareness. For instance:
- the Practical Guides, which were focused on three markets (Slovakia, Hungary and Moldova) to encourage an optimal use of a reformed system in an easy to use format;
- a country-specific study which directly builds on country-comparison and tackles the entire secured credit sector (see The impact of the legal framework on the secured credit market in Poland, National Bank of Poland and EBRD, 2005); and
- the Legal Efficiency Analysis, which was developed with respect to mortgage law but proved flexible enough to be applied to other areas (in particular, an on-going survey on credit bureaus).
- In 2004 and 2007, the LTT conducted a securities market assessment, focusing on the quality of legislation against the International Organization of Securities Commissions (IOSCO) Principles for supervision of securities markets.
- In 2007 the LTT conducted a Legal Indicator Survey on securities markets, aiming to assess how legislation and the local institutional framework operated in practice. The methodology involved working with leading law firms in the region to gauge how effective each country’s legal system was in protecting investors’ interests, in particular on issues relating to prospectus disclosure requirements, private and public enforcement mechanisms, and the role of the market regulator.
The results of the Legal Indicator Study complemented those of the Assessment. The results facilitated LTT policy dialogue in several countries, including in relation to a project in the Kyrgyz Republic. Data and recommendations were also fed into EBRD strategies for each country and into the EBRD Transition Report.
Last updated 21 December 2011