FIFA’s clearing house: the future of solidarity mechanism & training compensation

Published 13 August 2019 By: Toni Roca

Football Players kicking flaming football

On 25 July 2019, FIFA announced1 the opening of the tender process for the establishment and operation of the new clearing house, a central element of the reform package of the transfer system endorsed by the Football Stakeholders Committee in September last year2 (and subsequently approved by the FIFA Council on 26 October 2018). For an overview of the reform package as a whole, please see this LawInSport article3.

The ultimate aim of the clearing house is to centralise ALL payments associated with football transfers (including agents’ commissions), but in a first phase it will be reduced to the calculation and automatic distribution to the training clubs of the amounts due as solidarity contribution and training compensation.4

While the request for proposals is essentially addressed to companies wishing to participate in the tender process5, the document allows us to know what the future clearing house will look like and, most importantly, how the training reward mechanisms provided for in the RSTP will work after its creation. This article provides and overview of its main characteristics.

What is the clearing house?

  1. The clearing house will be set up as a separate entity with oversight control of FIFA. FIFA will have the ultimate power to decide and run its operations, as well as to appoint all of the Board of directors’ members and the members of the share capital.

  1. The legal form and its jurisdiction are to be proposed by the bidders.

  1. It will act as a simple intermediary in payments, receiving the amount from the engaging club and distributing it to the training clubs, and shall not aim at gaining any profit from the assets and transactions controlled. It shall ensure that all national and international financial and money laundering regulations are complied with.

  1. It will require access to banking services to manage the flow of payments and money. Currency conversions shall be executed directly by the clearing house through its bank. Currency conversions and banking fees shall be borne by the clearing house and included in transparent way in its accounting.

  1. It will be subjected to an annual audit by FIFA or its partners, on top of the statutory financial audit.

  1. The deadline for the establishment of the clearing house is set at 1 July 2020, although the date for the start of its operation is yet to be determined.

How will the solidarity mechanism and training compensation work once the clearing house is up and running?

  1. When an international transfer or the first registration of a player as a professional occurs and it is entered in the TMS, a Preliminary Player Passport will be created with the information that FIFA has retrieved from the different member associations’ registration systems, and the payments and amounts due to the different training clubs for solidarity contribution or training compensation will be calculated (by FIFA, not the clearing house).

  1. This preliminary Passport must be reviewed and validated (or disputed) by the relevant National Associations (not by the training clubs) where the player was trained.

  1. Once the preliminary Passport is validated, FIFA will communicate the payment instructions to the clearing house in the form of an allocation statement. This includes contact and banking information of the clubs and associations involved.

  1. The clearing house issues an invoice to the engaging club of the player according to the allocation statement and the latter shall pay it to the clearing house. Once the money has been received, the clearing house shall distribute it to the training clubs. The clearing house must confirm and validate the banking details of the involved clubs and associations, ensure that the money is distributed to the training clubs and perform follow-up and dunning processes in case of outstanding payments.

  1. Finally, FIFA receives information about paid and outstanding payments from the clearing house for further monitoring of the clubs’ compliance with their obligations in respect to the regulations and will be in charge of imposing any sanctions in case of non-compliance.

The author’s initial impressions

  1. The first conclusion can only be to congratulate FIFA – and especially its Chief Legal Officer, Emilio Garcia Silvero – for setting up this automated process (which, all must be said, should have been in place many years ago) in order to allow training clubs to receive ALL the money they are entitled to for their training efforts, thus putting an end to the current system which, paradoxically, encourages purchasing clubs not to pay the training ones the amounts foreseen in the Regulations, as we already had the opportunity to report in the past6.

  1. The new Player’s Electronic Passport7 is configured as the key element on which the correct functioning of the whole system depends. Consequently, the responsibility for the success or failure of the project lies with the Member Associations, which are responsible for uploading information of all the players into their respective domestic registration systems.

  1. One of the positive aspects is that the engaging clubs will no longer be obliged to calculate and distribute solidarity and training, and training clubs won’t have to deal with them anymore (friendly or before the DRC), so that with the automation of the system in principle the litigiousness should practically disappear, which is undoubtedly for the benefit of all the legal departments of clubs, associations and of FIFA itself.

  1. On the other hand, the work of the FIFA Administration and of the different National Associations will be considerably increased as they will have to validate each and every one of the operations affecting their affiliated clubs (validation of passports, confirmation of bank details, monitoring of each operation, etc.).
    According to FIFA’s own estimate, we would be talking about an average of almost 16,000 clubs affected per year, and that only taking into account the fixed payments and not the variable payments that also trigger solidarity contribution (sell-on fees, bonuses for matches, goals, titles, etc.).
    If we take into account that, in the near future, domestic transfers with an international component will also trigger solidarity, we can easily speak of 30,000 payment orders per year.

  1. At least a year and a half remains for the new automated payment distribution system to come into force. Unfortunately, until then, the training clubs will have to carry on as before: chasing and suing the debtor clubs.

Some questions that still need to be addressed

  1. What will happen in cases of exchange of players? How will FIFA calculate the solidarity contribution due in such transfers?

  1. The document indicates that it is up to the member Associations to dispute, where appropriate, the preliminary passport. What will this process be like and before which body? Will also the affected clubs be able to attend the process?

  1. What happens if the training clubs do not agree with the amounts calculated by FIFA? How will be the process to claim? Who will be the respondent in such cases, the engaging club, FIFA itself, both?

  1. What will happen in those cases, consistently authorised by the Court of Arbitration for Sport (CAS),8 where clubs agree to net payments and decide to change the responsible for the payment of the solidarity mechanism?

  1. What happens if the engaging club does not pay on time? Apart from any disciplinary sanctions that FIFA may impose, will default interest automatically accrue in favour of the training clubs? What if it is the clearing house that, for some reason, does not distribute the money within the 30 days provided for in the Regulations?9 Will it also be obliged to pay default interest?

  1. Will training clubs have to issue an invoice to the clearing house?

  1. When calculating the amounts due, will FIFA take into account the applicable taxes (VAT and others) that may increase the final amount to be paid by the engaging club?

  1. Finally, the triggering of training compensation in case of first registration as a professional still raises some concerns, as everything depends on the engaging club indicating that they register the player as a professional. What happens in cases where, despite being a professional (in the terms of Article 2.2 RSTP), the club registers the player as an amateur, thus depriving the clubs their right to claim training compensation? Who shall be responsible for checking whether the player is really an amateur or a professional, FIFA or the National Associations?

A completely new and objective criterion of delimitation between professional and amateur players should be established in the Rules, one that does not depend on a “case by case”, that provides greater legal certainty to the current one of «is paid more for his footballing activity than the expenses he effectively incurs and, above all, that prevents clubs from registering professional players as amateurs.

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Author

Toni Roca

Toni Roca

Toni is a sports lawyer and partner at Corner Abogado, Palma de Mallorca (Spain).  He advises clubs, agents, sportsmen and federations on matters including transfer and contracting of players, dispute resolution before national and international bodies (FIFA, CAS); sponsorship and image rights and disciplinary proceedings.

 
He is also Chief Executive Officer at Football Transfer Watch, Palma de Mallorca (Spain), who specialise in efficient player transfer monitoring and end-to-end claim management solutions for football clubs around the world.
 
Academic Information 
- Degree in Law by the University of the Balearic Islands.
- Master in Sports Law. 
- Master in Tax Law. 
- Master in Labour Law. 
- Member of the Madrid Bar Association
- Member of the Spanish Sports Law Association.
- Member of the Esports Bar Association.
- Professor of the LLM Master in International Sports Law at ISDE.
- Professor of the Master in Sports Management  and Legal Skill with FC Barcelona. 
- Member of different Disciplinary Committees in Olympic Federations.
  
Languages: Spanish, Catalan, English and German.
 

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