Future of International Finance Regulation
The Dilemma:
- There is no formal unified system of international finance regulation.
- Despite this these transactions happen every day, cross-border business transactions – the basic legal dispute regarding the transactions with international characteristics is the issue of the applicable law.
- This is generally governed by international treaties which takes precedent over national laws in a time of dispute.
The G20 Summit meetings seem to be persevering in a united norm system for international finance. This system of ‘softlaws’ between national financing institutions entering into international treaties.
The trend from the G20 is as follows:
1) Global standards (most binding ones, applicable to all countries- related to accounting standards and principles).
2) Internationally-agreed norms (subject to separate agreements – financial system regulation).
3) Good practice (desirable, recommended – activities of credit rating agencies).
(4) A consistent approach (most flexible – basic principles of national financial regulation, for example, coverage and boundaries).
The core part of this focuses on strengthening of financial supervision and regulation. In order to secure a much greater consistency and systematic co-operation, a new international body (Financial Stability Board) should be established. It would encompass a wider membership and work closely with the International Monetary Fund (IMF) to provide early warning of macroeconomic and financial risks.
→ Think how this relates to the recession and the significance thereof!
The G20 Summit in London brought about TWO significant changes:
- G20’s role as the centre forum for the creation of new international economic architecture.
- The reform of leading intergovernmental financial institutions in terms of fairer distribution of voting powers.
At the 2010 Toronto Summit THREE changes were brought with rules aimed at:
- Balanced economic growth
- Financial sector reform
- Development of international financial institutions.
The analysis of the mentioned FSB reports on efforts to build new financial regulation could lead to a conclusion that hardening of the soft-law[1] regime is the way towards a future international hard regulation.
[1] Soft-law is a ‘contract’ type arrangement between states concluded by a treaty. Converting it to hard-law essentially is the idea of it becoming binding by international standard e.g. a convention.
Category: Essay & Dissertation Samples, Finance Essay Examples
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