An overview of FIFA’s ‘Phase 2’ reforms – agents, loans and clearing house

Published 08 October 2019 By: Tiran Gunawardena, Rustam Sethna

Football Players

Stakeholders in world football have witnessed a host of regulatory changes brought about by FIFA, particularly over the last two years.

FIFA’s 6 year cooperation agreement1 with FIFPro (the World Players’ Union), entered into in November 2017 to improve the governance of professional football was a catalyst for the several changes that have followed.

Most recently, in September 2019, FIFA announced2 two significant changes, namely:

  1. a mandatory cap on agent commissions, as part of the re-regulation of agent activity; and

  2. the regulation of the loan system.

These changes, along with the proposed clearing house formed the second phase of reform (Phase 2 Reforms) and were discussed in detail by Mr Emilio García Silvero, Chief Legal Officer at FIFA at the International Congress on Football Law held in Madrid in the last week of September 2019 (RFEF Congress).

This article will provide an overview and analysis of the Phase 2 Reforms.

Background

By way of background to the Phase 2 Reforms, the recent suite of changes to the FIFA regulations can be briefly summarised as follows:

  • In April 2018, FIFA notified amendments to the Regulations on the Status and Transfer of Players (RSTP) which related to (a) the execution of monetary decisions; (b) defining ‘just cause’ to terminating a contract for overdue payables; (c) what constitutes ‘abusive conduct’ by clubs; and (d) clarifying the method of calculating compensation payable under RSTP Article 17. These changes took effect on 1 June 2018.

The author has previously analysed these changes for LawInSport, which may be accessed here3.

  • In September 2018, FIFA engaged with representatives from the European Club Association, World Leagues Forum, FIFPro, Confederations and National Associations (known as the Football Stakeholders Committee (FSC)) to recommend a set of reforms to the FIFA regulatory regime. These were also analysed by the author for LawInSport4 and included (a) implementing a mandatory domestic electronic transfer and registration systems; (b) the creation of a clearing house to process transfer-related payments; (c) the regulation of agents/ intermediaries; (d) regulation of the loan system; and (e) the introduction of solidarity payments and training compensation at domestic levels.

  • In November 2018, FIFA notified5 its member associations of the mandatory implementation of electronic domestic transfer systems (point (a) above).

  • In July 2019, FIFA announced further changes to the RSTP, among which the most significant was the amended definition of the term ‘third party’ 6, under which players were no longer considered to be third parties to their own transfer, for the purposes of regulating third party ownership and influence.

  • Also in July 2019, FIFA announced amendments to its Ethics7 and Disciplinary8 Codes (the authors have analysed the key changes to the Disciplinary Code in this article9 for LawInSport).

  • In September 2019, as noted above the Phase 2 Reforms were announced.

The Phase 2 Reforms will be analysed below.

Agents

The problems associated with FIFA’s decision in 2015 to de-regulate agents has been widely discussed, so will not be repeated here.

The point to note is that, on the premise that the current regime is unfit for purpose, FIFA are back on course to re-introduce a system of mandatory licensing of agents10. While concrete regulations are yet to be published (if/when approved by the FIFA council in October 2019), the new regime will require agents to be suitably qualified, by undertaking further education and/or continuing professional development (CPD) courses.

FIFA will also be introducing a dispute resolution system to deal with agent related disputes, and will be establishing a separate department to deal with all agent-related matters.

Conflicts of interest will also be subject to regulation, with dual or multiple representation, as a general rule, prohibited. However, as an exception, a single agent may represent both a player and the buying club in the same transaction.

The most noteworthy (and controversial) amendment is the mandatory cap on agents’ commission. Under the previous (current) regime, FIFA has set out ‘recommended’ (but not mandatory) levels of commission, depending on the party being represented.

The new regulations however, propose the following mandatory caps:

  • Agent acting for selling club – 10% of transfer fee;

  • Agent acting for buying club – 3% of player’s salary; and

  • Agent acting for the player – 3% of player’s salary.

  • In the event of the only permissible scenario of dual representation (i.e. Agent acting for a player and buying club), the cap on commission will be set at 6% of the player’s salary – i.e. 3% from each party.

In addition, all commissions will be paid through the centralised FIFA clearing house (see below).

While the Association of Football Agents wasted no time in objecting11 to the mandatory commission cap on the grounds of restraint of trade and threatening to mount a legal challenge (as they have been for almost a year12), the authors can only assume that the FSC have fully anticipated such resistance and the proposed rules have been drafted with that in mind.

This will undoubtedly be a development that the football community will follow with interest.

Loans

The practice of parent clubs ‘warehousing’ several players at ‘loanee’ clubs, with those players having little to no prospect of eventually returning to make an appearance for their parent clubs, is a practice that the FSC has looked to address.

With this in mind, FIFA have devised a system to regulate the international loans of players along the following lines13:

  • Players will be classified into 3 categories, namely: (a) Players over 21; (b) Non-club trained players under 21; and (c) Club-trained players under 21.

  • Loans involving players over 21 and non-club trained players under 21 (i.e. categories (a) and (b) above) will be regulated in a phased manner over the next 3 seasons with maximum loans restricted to 8 (i.e. 8 in + 8 out) starting from the 2020-21 season and reducing to 6 (i.e. 6 in + 6 out) as of the 2022/23 season.

  • However, these restrictions will not apply to club-trained players under 21 (i.e. category (c) above).

  • There will also be a limit of 3 loans (i.e. 3 in + 3 out) between the same clubs irrespective of which category above the player belongs to.

While these provisions apply to the international loan of players, FIFA has given national associations a period of 3 years to implement rules on a loan system which are in line with the above principles.

Clearing House

Mr García Silvero confirmed that a FIFA clearing house is in the process of being established. As outlined previously in the authors’ articles, the FIFA clearing house will centralise all payments associated with transfers such as solidarity contribution, training compensation, transfer fees and agents’ commissions.

The idea is that these payments would be paid into the clearing house, and based on information available from FIFA TMS and player passports, the payments of commission, transfer fees, training compensation and solidarity contributions will all be automatically distributed to the various parties.

As previously stated by one of the authors, “whilst [a clearing house] will not eradicate fraudulent behaviour altogether, having as much information as possible on the identities of the characters involved and the payments in a transfer should, in theory, help FIFA minimise the risk of (i) money going missing; (ii) not being paid; or (iii) otherwise fraudulent behaviour.”14

The implementation of a global clearing house on this scale appears to be unprecedented in sports governance and is undoubtedly a huge administrative task for FIFA. However, in the authors’ opinion it is a very welcome change as it will hopefully lead to nullifying numerous issues in the transfer system (most notably the timely and accurate payment of training compensation and solidarity contributions to training clubs).

In July 2019, FIFA announced15 that the operation of the clearing house would be outsourced to a third party organisation via a formal tender process. At the RFEF Congress, Mr García Silvero stated that FIFA had received numerous bids in their tender process, with the successful bidder, and the implementation of the clearing house, due to be announced in the upcoming months.

Other changes

FIFA legal website

Also announced as one of the amendments to the Disciplinary Code16, FIFA stated its intention to launch a new website on 1 November 2019 – www.legal.fifa.com.

A long overdue step towards greater transparency, the FIFA Legal website is expected to contain copies of:

  • All decisions rendered by FIFA internal bodies (i.e. the Players’ Status Committee, Dispute Resolution Chamber, Disciplinary Committee and Ethics Committee), with confidential information being redacted; and

  • Awards rendered by the Court of Arbitration for Sport (CAS) in which FIFA is a party (and where the decision is not confidential)17.

Given the herculean task of publishing several years of FIFA jurisprudence, Mr García Silvero stated that FIFA will start by publishing decisions issued in 2019 and work their way backwards in publishing historic decisions.

Looking ahead - Phase 3 Reforms

In addition to the landmark reforms discussed above, FIFA announced a third phase of their reform package (Phase 3 Reforms). The authors understand that details about these further reforms should be available in the next few months.

Topics to be addressed in these Phase 3 Reforms will include:

  • Fiscal reform;

  • Minors;

  • Squad sizes; and

  • Transfer windows18.

Further, a previously announced change to the transfer system, in which solidarity contributions will be paid on domestic transfers with an international dimension, will also be introduced in due course.

Concluding thoughts

The (relative) speed at which FIFA regulations and the transfer system have been amended and improved over the last 2 years is remarkable, especially when compared to the preceding years. These Phase 2 Reforms are significant in their own right, yet there are still numerous other significant amendments coming down the pipeline in the next few months. A fascinating time for sports lawyers and academics!

That said, as noted by one of the authors in a previous article, there are some significant issues which will need to be addressed with this phase of changes – not least the mandatory cap on agents’ commission which may well be subject to a legal challenge. Even if the commission cap is ultimately upheld, it remains to be seen whether this cap perversely has the opposite effect to the FSC’s intention to make the industry more transparent (or result in commission payments being driven under the table). It will also be interesting to monitor how the clearing house will run, and the effectiveness of the new agents’ department at FIFA in monitoring and regulating agency activity.

Nevertheless, as Mr García Silvero noted at the RFEF Congress, perhaps the most pleasing aspect of the changes over the last few years is that they are not being imposed in a ‘top down’ manner from FIFA (as used to be the case in the past), but are being agreed to in a collective bargaining process between various football stakeholders (through the FSC).

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Author

Tiran Gunawardena

Tiran Gunawardena

Tiran Gunawardena is a Senior Associate (Australian Qualified) in the London sports law team at Mills & Reeve LLP.

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Rustam Sethna

Rustam Sethna

Rustam is an Indian qualified lawyer and sports law paralegal at Mills & Reeve, Manchester. He has recently completed a Master’s degree in International Sports Law from Instituo Superior de Derecho y Economía (ISDE), Madrid (2018 edition) and has previously gained 3 PQE as an Associate with AZB & Partners, one of India’s leading full-service law firms.