Wednesday, January 30, 2013

IOSCO Secretary General Envisions Global Financial Regulation Enforced by Treaty

Given the cross-border interconnectedness of financial markets, IOSCO Secretary General David Wright called for a global institutional framework for financial regulation, established by International Treaty, and with some enforcement authority and sanctioning possibilities. In his view, the alternative to enforceable global regulation is the law of the jungle or keeping the status quo of loose forms of cooperation. In remarks at the Atlantic Council in Washington, the Secretary General said that the current situation is not sustainable because the tools at hand can best be described as soft: peer review; transparency; and monitoring plus. There are no binding tools whatsoever at the global regulatory level, he noted, and no legally binding enforcement mechanisms.

The global institutional framework should encompass at least the Financial Stability Board and the main global sectoral standard setters. Its role would not be to try to enforce a one-size-fits-all harmonized set of regulations, he assured, but rather to ensure and, if necessary legally require, that basic globally agreed policy principles are properly implemented by all jurisdictions who are signatories to the Treaty arrangements. 
Mutual recognition, substitute compliance and equivalence regimes could be first steps on the path but they will not, in the end, suffice because they are subjective and contestable. A TransAtlantic Treaty between the U.S. and the E.U. would also be a good start, but again, it would insufficient in the long run given the massive growth of financial markets elsewhere in the world.