Multilateralizing Deference – A Proposal for Reforming Global Financial Law
40 Pages Posted: 13 Dec 2021 Last revised: 8 Nov 2022
Date Written: December 9, 2021
Deference mechanisms, such as substituted compliance and equivalence, serve important purposes: They open up markets to foreign service providers, avoid double regulation, and reduce market fragmentation. Yet, their current design also has considerable weaknesses. The biggest of these is that they are granted unilaterally. This leads to excessive costs, uncertainty, and incomparability in the assessment. States are holding back their recognition of other regimes, which they often mix with unrelated issues. As a consequence, national markets remain shut, and the global economy underperforms. Additionally, international frictions and dangers for financial stability are created.
This contribution therefore suggests an alternative way by transferring the assessment of deference to an institution on the international level. This would secure the necessary neutrality, objectivity, and comparability of the analysis; and also save costs. Deference could be based on mutually acceptable criteria, including international standards. It would be carried out by a neutral arbiter such as the IMF, the FSB, or IOSCO. To maintain state sovereignty, the result of the procedure should be considered non-binding. Even with this proviso, multilateral deference would have advantages because it would set a common background for the deference decision that is to be taken at the national level.
Keywords: Deference, Global Financial Law, Equivalence, Substituted Compliance, Reform, Multilateralism, IOSCO, FSB, Extraterritoriality
JEL Classification: F02, F59, F65, K22, K23, K33
Suggested Citation: Suggested Citation