Legal fragmentation, extraterritoriality and uncertainty in global financial regulation

Abstract

This article explores the reasons for legal fragmentation and extraterritoriality in the global regulation of finance. It shows that duplicative and overreaching rules are not necessarily the result of regulatory competition in which egoistic states undercut the rules of others in order to improve their position. An equally pivotal problem that global financial regulation has to cope with is uncertainty. Such uncertainty exists with regard to the right measures for achieving financial stability and with regard to the willingness and ability of other states to adopt them. The article analyses approaches to overcoming legal fragmentation while maintaining global financial stability. It suggests that there is no alternative to a collaborative approach, using intensified regulatory dialogue, a broadening of the information base and deference to other states' rules. In order to improve the current mechanism, it proposes the introduction of multinational panels to assess whether regulatory and supervisory set-ups of two or more states lead to comparable outcomes, in which case they must be recognised as being 'equivalent' or 'substituted compliant'.