Lost in translation: how poorly translated financial legislation makes compliance difficult

Ever tried to figure out when to start complying with the European Securities and Markets Authority’s (ESMA) Guidelines 2012/832 on ETFs and other UCITS issues? According to the English-language text, the rules do not come into effect until the earlier of a) the first revision of the fund prospectus or b) 18 February 2014. The Swedish text, however, advises readers not to comply until both a) and b) have occurred. In another provision, English speakers must take action to reduce counterparty risk exposure, whereas Swedish speakers must reduce the counterparty’s risk exposure.

These are some examples of the confusion caused by the translation of EU documents for anyone trying to get their head round the ever-increasing wave of financial regulations (sometimes referred to as the ‘regulatory tsunami’). The translations are often incorrect, vague and use the wrong technical terms.

The European Union now consists of 28 member states. In addition, through their membership of the EEA, Norway and Iceland are also part of the European legislative project. The EU comprises 24 official languages: Bulgarian, Croatian, Czech, Danish, Dutch, English, Estonian, Finnish, French, German, Greek, Hungarian, Italian, Irish, Latvian, Lithuanian, Maltese, Polish, Portuguese, Romanian, Slovak, Slovene, Spanish, and Swedish. Important documents, such as legislation, are translated into every official language. In our daily practice we have found numerous examples of translation blunders. The EU Short Selling Regulation (236/2012) establishes rules regarding “fund management  activities relating to separate funds”. “Funds” in this respect refers to investment funds. In the Danish translation, however, “funds” has been translated into “midler”, which is the other meaning of “funds” – “money”.

In the Swedish translation of the ESMA guidelines mentioned above, “instruments of incorporation” are translated as “instrumenten för införlivande,” whereas the correct Swedish term is “bolagsordning”. In the Commission Delegated Regulation (EU) No 1002/2013 of 12 July 2013
amending the EMIR regulation, Japanese and US central banks and certain “public bodies” are exempted from the EMIR. In the Swedish translation, however, only central banks and certain “[European] Union public bodies” in the United States and Japan are exempted.

In the Commission Delegated Regulation (EU) No 231/2013 that supplements the AIFM Directive, a financial instrument held in custody is considered lost if “a stated right of ownership of the AIF is demonstrated not to be valid because it either ceased to exist or never existed”. In the Swedish version, the same condition is translated as “AIF-fonden har uppgett äganderätt som bevisligen inte är giltig”, which instead literally means “The AIF has stated a right of ownership that is demonstrably not valid”. This translation clearly changes the conditions of the rule.

One might object that, although confusing, most translation errors are harmless; diligent readers will understand the correct meaning and can easily check other language versions to confirm their comprehension. We believe that such an approach to inadequate translations will, in the long run, result in an impaired legal system.

The reader of a legal document from the European Union should be able to gain an understanding of the text, irrespective of the language version. Furthermore, in the case of regulations, the Swedish language version has the status of a binding Swedish act, and discrepancies must be taken seriously. Language errors in directives are not as significant, since directives are transposed by Member States into their internal law and language errors can thus be corrected in the process.

The European Supervisory Authorities (ESAs) were created to promote a harmonised approach to EU legal acts regulating the financial markets. One way that the ESAs try to fulfil that purpose is by issuing guidelines on how to implement and comply with European financial legislation.

The guidelines issued by the ESAs normally enter into force two months after their publication on the authority’s website. According to the ESAs, competent authorities (i.e. the national supervisory authorities) and financial market participants must make every effort to comply with the guidelines. The competent authorities do this by incorporating the guidelines into their supervisory practices. Hence, although the guidelines are not necessarily legally binding in the same way as a regulation from the European Commission, an institution must have very good reason not to comply. For a financial firm, keeping up to date with the ever-increasing amount of guidelines it is burdensome and requires a fair amount of resources. Having to read the guidelines in two language versions is unreasonable.

Significant responsibility lies with the national supervisory authorities, to which the proposed translations are always referred for consideration. The competent authorities often have a better understanding of the technical terms that make up significant parts of the guidelines than translators do, regardless of their linguistic talent.

In the long run, there is an important decision to be made: either to drastically increase time and resources for translations within the EU, ESAs and the national authorities, or to abandon the idea of translating these legal documents. If the translations cannot be trusted, are we perhaps better off without them?