Gillian Tett: Regulators should say who calls the shots
February 27, 2014
In her latest column for FT, Gillian Tett highlights the work of legal scholar and anthropologist of finance Annelise Riles. The topic is regulatory harmonization, the attempt to make financial regulation the same across all nations. Since complete harmony is next to impossible, Annelise has been arguing that financial regulators should consider applying a old and established body of law called ‘conflict-of-law’, to finance.
Annelise is making a technical argument which may feel a bit obscure at first to social scientists without legal training. For those who do not have access to FT, you can find a brief explanation of the paper in Risk & Regulation Magazine, which I’m currently editing for CARR at LSE.
According to Annelise:
Unlike the harmonization paradigm which pursues legal uniformity, the “conflicts approach” accepts that regulatory nationalism is a fact of life, and sets for itself the more modest goal of achieving coordination among different national regimes.
Under the conflicts approach the point is not to define one set of rules that apply for all, as is the case in public international law –the law of international organizations such as the UN or the WTO. Rather, it is simply to define under which circumstance should a particular dispute or problem be subject to one state’s law or another.
Thinking in terms of ‘conflict of laws’ changes the debate over global financial regulation because it raises an altogether different set of questions that are largely being ignored. For example: How far does each regulatory jurisdiction extend, and what should be done when there is overlap? When should so-called host regulators of a global, systemically important financial institution defer to so-called home regulators. Thinking about conflicts between laws encourages us to more carefully examine how we allocate authority across the existing regulatory regimes. The approach gives us another way of examining, and therefore of challenging, the scope of national, international, and non-state regulation. After all, when regulators or market participants make a claim about the application of one or another body of laws to a given party or transaction, they are effectively making an implicit claim about what the scope of their national law should be.
Gillian comments that, “In the near future, such radical ideas are unlikely to fly.” But she also notes that”some regulators do now appear to be privately conceding Ms Riles’ point – namely that co-ordination is an unworkable fantasy – and quietly hunting for alternatives.“