Three Pathways to Global Standards: Private, Regulator, and Ministry Networks

Abstract

Private market professionals, national regulators, and ministry officials have formed numerous informal international bodies commonly called transnational regulatory networks. Their goal: to produce standards and convince governments to adopt them voluntarily as domestic laws. How do they succeed? This paper starts from the distinct institutional capabilities and constraints of these three actor types. It argues that private, regulator, and ministry networks structure their operation to accommodate their participants’ different missions, standard-drafting sensibilities, and relationships with foreign peers. Ultimately, these networks formulate standards that appeal to different countries for different reasons. Private networks tout their market validation and a-national, a-political character, thus appealing to countries eager not to fall behind their competitors. Regulator networks rely on reciprocity among peer authorities, and thus spread more readily among countries with similar institutional capabilities. Ministry networks have their governments’ backing, and thus their adoption patterns reflect the influence of powerful states with a strong international bargaining position.

To support this theory, the paper focuses on three networks in three important areas of securities regulation: accounting, cross-border fraud, and money laundering. Three case studies illustrate how networks tailor their operation and governance to the domestic lawmaking capacities of their participants. Empirical evidence from 191 countries over 20 years shows that each network’s standards have a distinct pattern of spread. More specifically, the study examines in detail the International Accounting Standards Board (IASB), a private network, and the adoption of its International Financial Reporting Standards (IFRS); the International Organization of Securities Commission (IOSCO), a network of regulators, and its Multilateral Memorandum of Understanding (MMOU); and the Financial Action Task Force, a network of ministry executives, and the adoption of its 40 Recommendations against money laundering and terrorist financing.

Keywords: Networks, IFRS, Accounting, IOSCO, cross-border fraud, money laundering, FATF

JEL Classification: K20, K22, K23