Global Financial Standards and Regulatory Failure: Lessons for Reforms

Global Standards for Public Authorities, G. della Cananea and A. Sandulli (eds.), Editoriale Scientifica, 2012

38 Pages Posted: 7 Jun 2013

Date Written: December 20, 2012

Abstract

When the financial turmoil unfolded, a high number of global financial standards and rules, established by transnational regulatory networks such as the Basel Committee on Banking Supervision (BCBS) and the International Organization for Securities Commissioners (IOSCO), existed. The paper argues that attempts to reform the current regulatory framework and to create new rules must take into account – instead of the lack of global rules, which seems, despite existing, confined to limited areas – the reasons which led to the failure of global rules already in place when the crisis started. The Basel capital accord – the very well known Basel II, now revised as Basel III – is considered by many observers to be a case of “regulatory capture”. Data existing before the crisis about credit rating agencies’ compliance with the IOSCO Code of Conduct show compliance assessment is tricky. Reports measuring compliance with the Basel Committee’s Core Principles for Effective Banking Supervision (BCP) in countries like the UK, shortly before the spread of the financial turmoil, arise the question whether principle-based global rules can be effective.

The analysis of the different cases of regulatory failure can contribute in assessing the on-going process of reform and can help better tailoring future reforms. In particular, implications for the structure and procedure of the standard setters, and for their overall accountability, are discussed.

For example, in the past years growing concerns about the legitimacy of the global financial standard setters have been raised; yet, their increasing transparency and the growing use of notice and comment procedures have been seen as enhancing the regulators’ accountability. Some of the examples discussed, though, suggest that procedural tools, even though having the potential to strengthen the legitimacy of global regulators, can also lead to the capture of global regulators. Thus, their use and application must be attentively tailored and they might need to go hand in hand with other types of reform.

Keywords: financial regulation, transnational regulatory networks, Basel Committee, IOSCO, credit rating agencies, international standards, global administrative law, compliance

JEL Classification: F36, G2

Suggested Citation

De Bellis, Maurizia, Global Financial Standards and Regulatory Failure: Lessons for Reforms (December 20, 2012). Global Standards for Public Authorities, G. della Cananea and A. Sandulli (eds.), Editoriale Scientifica, 2012. Available at SSRN: https://ssrn.com/abstract=2274780

Maurizia De Bellis (Contact Author)

University of Rome Tor Vergata ( email )

Via di Tor Vergata
Rome, Lazio 00133
Italy

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