Territoriality as a Regulatory Technique: Notes from the Financial Crisis

Abstract

For all of the attention brought to bear on global financial regulation, relatively little scholarly energy has been directed towards thinking through the mechanics of how national regulators govern international pools of capital via their domestic rulemaking authority. This Article responds to this weak link in the literature by providing a short conceptual overview of the operationalization of supervisory power by national regulatory authorities. It argues that “territorial” authority in financial regulation - commonly considered both a source and limitation of control over local firms - in practice constitutes a diverse array of tactics employed by national authorities to exert authority over mobile market participants. As such, it can facilitate the projection of regulatory beyond national borders, especially for countries enjoying large capital and customer markets.

This Article then contextualizes territoriality against the backdrop of financial globalization and shows how the “rise of the rest” changes the international regulatory order as other countries have developed their own liquid financial centers and means of (extra)territorial influence. Specifically, this Article argues that as emerging markets have become more important, the costs of unilateral territorialism and non-cooperation by traditionally dominant countries have increased, which has helped spur new efforts at international coordination, as well as innovative initiatives aimed at leveraging hard and soft power to promote national policy preferences abroad. Nevertheless, this Article concludes that territoriality remains a central element in international coordination and the bargaining process.
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Keywords: Territoriality, extraterritoriality, securities regulation, banking regulation

JEL Classification: K00, K22, K33