EU ombudsman castigates EC upon BlackRock mandate award

Europe
On the 11/25/20 at 11:40AM

by

Adrien Paredes-Vanheule

The European Ombudsman Emily O’Reilly raised conflict of interest issues in EU body rules in her assessment of the contract awarded by the European Commission to US asset manager BlackRock last March.

One BlackRock's company, Financial Markets Advisory (FMA), had been selected out of nine bidders by the European Commission in March 2020 to conduct a study on the integration of environmental, social and governance factors in the EU’s banking prudential framework. In the aftermath of the awarding of the contract, the Ombudsman had received three complaints, two from European MPs and one from a civil society group. If the Ombudsman did not find any evidence of maladministration on the part of the European Commission, her assessment is shedding more dark than light on the awarding of the contract and is raising several issues.

She said the Commission should have been “more vigilant in terms of verifying that BlackRock was not subject to a conflict of interest that could negatively affect the performance of the contract.” The awarding of the contract did not provide “sufficient guarantees to exclude any legitimate doubt as to the risk of conflicts of interest that could negatively impact the performance of the contract.” According to O’Reilly, it was “questionable” for the Commission to conclude there were no legal grounds to exclude BlackRock from the procurement procedure.

Poor rules around conflicts of interests

Among regulatory issues flagged up, the EU Ombudsman assessed that the European Commission’s internal guidance on public procurement “fell seriously short in providing enough clarity to commission staff on how to assess possible conflicts of interest.” Hence, O’Reilly asked the EU institution to improve its guidelines for the assessment of bidders when awarding public policy service-related contracts such as the one granted to BlackRock. She also asked the Commission to “consider strengthening the conflict of interest provisions in the Financial Regulation,” as the notion of ‘conflict of interest’ remains too vague in the text to have been helpful in the case of the BlackRock’s mandate.

“Due to this limitation in the Financial Regulation, the Ombudsman did not find maladministration on the part of the Commission in this instance,” the Ombudsman stated. It also underlined in its decision that many, if not all, bidders “might have had strategic considerations when bidding for the study” and a “concrete interest in the outcome of study.”

O’Reilly added: “One cannot adopt a tick box approach to the awarding of certain contracts. Treating contract bidders equally is important, but not taking other critical factors appropriately into account when assessing bids does not ultimately serve the public interest.”

‘Questionable’ BlackRock low bid

O’Reilly’s decision also sheds light on BlackRock’s “exceptionally low financial offering” for the contract, which was just over half of its initial estimated maximum value (€280,000). The Ombudsman said BlackRock “optimised its chances of getting the contract” with this offer “which could be perceived as an attempt to assert influence over an investment area of relevance to its clients.” In O’Reilly’s view, questions should have been asked about motivation, pricing strategy and whether internal measures taken by the company to prevent conflicts of interest were really adequate.

The Commission asked the company to demonstrate that the price offered was consistent with others it had offered to public sector clients. It is not clear how the answer ‘yes’ to this question could have reassured the Commission as to whether the abnormally low price, plus the very high quality of the bid, was motivated by the strategic interest of the company to assert influence on developments in the markets in question and to gain insights into the EU regulatory system. On the contrary, the answer provided to it should have given cause for concern,” the Ombudsman assessed.

Calls to cancel the contract renewed

The European Commission took note of the Ombudsman’s report, welcoming the fact that it did not identify any maladministration. It confirms what we have said throughout this process: we applied the rules fully and fairly. The Commission will now study all the suggestions made by the Ombudsman in detail,” the institution said. It will reply to the Ombudsman by 31 March 2021 and will shortly publish BlackRock’s interim report.

A BlackRock spokesperson said the Commission had already publicly stated that the technical quality of FMA proposal underpinned the contract win. Following the EU Ombudsman's decision, the Change Finance Coalition has renewed its call to the European Commission to cancel the study contract it awarded to the asset manager's financial markets advisory unit. It argued that BlackRock is a huge lobbying force, not an independent adviser,” due to its investments in fossil fuels.

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