The European Union, the USA and International Standard Setting by Regulatory Fora in Finance

Abstract

This research asks why the European Union (EU) ‘uploads’ financial regulation to international regulatory fora in some (few) cases, ‘downloads’ it in (many) other cases or neither. It uses the concept of ‘regulatory capacity’ with reference to the EU and the USA. It argues that the presence (or absence) of robust domestic regulatory templates strengthen (or weaken) the ability of these jurisdictions to shape international standards produced by regulatory fora. Timing is also important in that whichever of the two manages to be out in front and shape international standards in a given sector wins first-mover advantages. The paper considers variations across the main financial services (banking, securities and insurance) as well as over time.

Keywords:

• European Union
• USA
• international financial regulation
• financial services
• global finance
• international and regional institutions

Notes on contributor

Lucia Quaglia is Professor of political science at the University of York. Her most recent research monographs are Governing Financial Services in the European Union (2010) and Central Banking Governance in the EU: A Comparative Analysis (2008), both published by Routledge. Together with Kenneth Dyson she published two volumes: European Economic Governance and Policies (2010), OUP.

Notes

I wish to acknowledge financial support from the European Research Council (204398 FINGOVEU) and the British Academy and Leverhulme Trust (SG 120191). This paper was written whilst I was a visiting fellow at the Max Planck Institute in Cologne, the European University Institute in Florence and the Hanse Wisseschafts-Kolleg. I wish to thank Dermot Hodson, Patrick Leblond, Sylvia Maxfield, Alasdair Young, Till Kaesbach, two anonymous reviewers as well as the participants to the British International Studies Association (BISA) conference and the European Union Studies Association (EUSA) conference for comments on an earlier draft of this paper.

1. This approach contradicts early ‘functionalist’ explanations of international financial harmonisation, such as Kapstein's (1992) account of the making of the Basel I accord, which argued that regulators promote international regulatory harmonisation as a way to solve common problems or to realise joint gains.

2. The reform introduced in the UK in 2005 followed a series of domestic policy failures in the insurance industry, which triggered political pressure to reform the regulatory regime, leading to the so-called Tiner reforms (Financial Services Authority 2005a, 2005b).

3. It was the case Goldstein v. SEC (see Paredes 2011).

4. According to the IAIS statute, the NAIC does not have a right to vote; and (b) the NAIC may, at any one time, designate up to a maximum of 15 of its members who may exercise their rights to vote (art 6.4).

5. http://www.naic.org/index_smi.htm [accessed in June 2011].

6. In October 2009, the UK authorities had unilaterally adopted liquidity rules (see FSA/PN/132/2009, 05). These rules included an updated quantitative regime coupled with a narrow definition of liquid assets; over-arching principles of self-sufficiency and adequacy of liquid resources; enhanced systems and controls requirements; and granular and more frequent reporting requirements.

7. However, the IOSCO's predecessor dated back to the 1970s.

8. After the Asian financial crisis and the collapse of the hedge fund Long-Term Capital Management in the USA, a set of policy documents were issued by Basel Committee on Banking Supervision (1999a, 1999b), International Organization of Securities Commissions (1999) and, subsequently, by the newly created Financial Stability Forum (2000, updated in 2007, when the first signs of the crisis emerged). The USA also conducted its own review through the President's Working Group on Financial Markets (1999).

9. In July 2005, the then Chancellor of Germany Gerhard Schröder (Social Democrat) pressed for tighter controls on hedge funds at G7 Summit in Britain, where it was blocked – as Schröder himself revealed by ‘Wall Street and London’ (The Independent, 16 June 2005).

10. All these documents can be found at http://www.iaisweb.org/Standards-40.