Wednesday, June 9, 2010
Territoriality as a Regulatory Technique: Notes from the Financial Crisis, by Chris Brummer, Georgetown University Law Center, was recently posted on SSRN. Here is the 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. Instead, where the international implications of domestic regulatory processes are considered, they are generally associated with the broader “conflicts of law” literature that focuses on how courts determine which law is to be applied where different governments assert jurisdiction. Few, as a result, have examined territoriality as a regulatory strategy.
This Essay 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 shows that “territorial” authority in financial regulation – long considered the source and limitation of a country’s regulatory power – in practice constitutes a diverse array of tactics employed by national authorities to exert authority over often mobile market participants. As such, territoriality provides the means by which regulatory power is projected beyond national borders, especially for countries enjoying large capital and customer markets.
The Essay 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, the Essay 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, the Essay concludes that territoriality remains a central element in international coordination and the bargaining process.