III FINANCIAL MARKET REGULATION

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The Role and Prospects of International Law in Financial Regulation and Supervision

Christian Tietje and Matthias Lehmann

I. Introduction

The global financial crisis of 2007—09, which is more than symbolically tied to the breakdown of Lehman Brothers on 15 September 2008, resulted in challenges for governments and markets alike. Governments—both providing the framework for market activities and having the capacity to intervene in a market if necessary—and the market as a self-regulatory mechanism are trying to cope with the problem of how to prevent a future global economic crisis. For governments, both on the national level and with regard to efforts in international cooperation and coordination, ‘better’ regulation and supervision of financial markets are called for. Modified and/or new models of regulation and supervision are a central element in providing for stable domestic and international financial markets in the future. It is thus not surprising that G20 leaders at the London Summit of 2 April 2009 listed ‘[s]trengthening financial supervision and regulation’—right after ‘[r]estoring growth and jobs’ as a priority in reviving financial markets.[1]

Strengthening regulation and supervision is always in potential conflict with the essential freedom of financial markets. There is always a necessity to seek an equilibrium between the two components. The tension between regulation or supervision and market freedom is not a new phenomenon in financial law. What is new, however, is that in strengthening regulation and supervision today, one has also to take into account—at least partially—the need for international regulatory and supervisory cooperation and coordination.

This chapter sketches some conceptual aspects of the ongoing domestic and international debate on strengthening financial regulation and supervision. This is primarily done from a legal perspective; it does not go into the details of economic theory. We understand ‘regulation’ broadly in terms of the legal framework shaping financial services and transactions. ‘Supervision’ is distinct from regulation as it refers only to the enforcement of regulatory standards. Neither with regard to regulation nor to supervision is this chapter concerned with questions of liberalization of financial services.[2] We will thus only discuss measures which are applied on the basis of non-discrimination[3] after market entry has occurred.

This chapter is divided into three main parts. Section II describes and discusses different systems and methods of domestic regulation and supervision as well as related conceptual challenges. Section III discusses new areas and methods of regulation and supervision in reaction to the crisis of 2007-09. Section IV, based on findings in sections II and III, looks into the question of optimal harmonization of financial markets. Section V draws the conclusions.

  • [1] G20, ‘Global Plan for Recovery and Reform: The Communique from the London Summit,London, 2 April 2009, (visited 4 August 2010). The decisions made by the leaders of the world’s largest economies at theLondon Summit are recorded in this communique which all leaders signed.
  • [2] On this topic, see the paper by Panagiotis Delimatsis and Pierre Sauve in this volume atChapter 16.
  • [3] See Chapter 15 by Thomas Cottier and Markus Krajewski in this volume.
 
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