Transnational Securities Regulation: How It Works, Who Shapes It

The term Transnational Securities Regulation (‘TSR’) comprises standards focused on transnational, cross-border securities markets, including derivatives. Particularly after the 2008 Global Financial Crisis, TSR has become the playground where rules for effective and sustainable global securities markets, including risk regulation, are negotiated, and agreed upon. Here, the key global standard-setter is the International Organization of Securities Commissions (‘IOSCO’), which brings together domestic public regulators while simultaneously involving private actors. IOSCO standards have grown both in quality and quantity over the last decades; at the same time, the organization has witnessed the rise of new regulatory powers.

In my new monograph recently published with the Springer Series ‘LCF Studies in Commercial and Financial Law’ I delve into both aspects. I carry out an analysis, first, of the emergence, evolution, and transformation of TSR and, subsequently, of the influences exerted by, and the interactions between global regulatory powers in the field. Combining insights from law and political science, my book employs a two-tier complementary ‘on-the-books’ and ‘in-action’ approach. The more classical ‘on-the-books’ approach draws on scholarship on United States and European Union securities regulation, transnational regulation, and global administrative law. regime complexity, global governance studies, and the IOSCO normative production. The law ‘in-action’ approach leverages my experience as Compliance senior professional in a multinational financial institution alongside research interviews with senior IOSCO staff.

The first part provides a comprehensive analysis of how IOSCO functions; its internal club-shaped, 'minilateral' governance; its particularly unorthodox legal nature; relationships with peer organizations; flexible standard-making procedures; combined implementation strategies; and cooperative enforcement mechanism. To begin with, while its membership would formally characterize its regulatory production as public transnational regulation, IOSCO’s nature is more multifaceted and rests upon the combination of external statutes, an autonomous General Secretariat without a founding treaty of public international law, and an intra-Organization document prescribing internal rules of procedure. Second, IOSCO is unique but not alone. It interacts with political fora, similar hybrid entities, purely private actors, and even international institutions based on international treaties. Most importantly, such interactions are multifaceted: technical and political, peer-to-peer and hierarchical. Third, analyzing the consensus method shows the internal balance of power in the standard-making procedures. Fourth, given the non-binding nature of IOSCO and the (formally) voluntary compliance with its standards, the Organization leverages alternative implementation techniques. In the IOSCO world, implementation represents a mark of how respected by its peers a domestic regulator craves to be, ie a reputational risk. Fifth, while actual enforcement remains at the domestic level, IOSCO has created a cooperation mechanism for cross-border prosecutions. Here enforcement is a mark of how committed a domestic regulator is vis-a-vis its peers.

The second part of the book analyzes the influence wielded by the two jurisdictions that can be currently considered as the ‘rule-making giants’, the United States and the European Union. The US has traditionally dominated IOSCO since its origin. The establishment in 1974 of a Pan-American forum for securities regulators—the Inter-American Conference of Securities Commissions (‘IACSC’)—was a US idea. The IACSC was renamed IOSCO in 1983, when some countries outside of the Americas became official members a year later. Against the backdrop of a few ‘middle powers’, the US SEC has been the primary force—or ‘pole’—within IOSCO for many years. The emergence of the EU in the last 10 years has altered this equilibrium. The focus here is double-hatted. On one hand, the book maps the chairpersonship in key internal bodies that Members have been able to obtain over the years. As a matter of fact, in a consensus-based standard-making system, the role of the Chair is particularly important to address topics and channel discussions. Special attention is given to the US and EU regulators and the roles they have played in IOSCO. On the other hand, the book carries out a deep, multi-chapter analysis of the standards’ content through four clusters. First, cross-topic horizontal standards, ie standards providing either high-level principles bridging multiple areas or techniques managing deference between securities regulators and mitigating conflicts of securities regulation through substituted compliance (or conflicts of regulatory law). Second, topic-related vertical standards addressed to public regulators. Third, topic-related vertical standards addressed to specific (global) private parties. Forth, topic-related vertical standards that are set in concert with other global standard-setters, in particular the Committee on Payments and Market Infrastructures (‘CPMI’). Each cluster contains at least two case studies and, for each case study, the book highlights where and how the influence wielded by the EU and the US emerges.

The book, in the end, provides a theorical scaffolding on two different perspectives around TSR. The first perspective hinges on the standard-setter’s core features—in particular, that being a private law club of public law members—and observes how its regulatory production has achieved a level of sophistication that starts resembling a sectorial Transnational Privatized Regulatory Law. The second perspective views TSR as a playground for regulatory powers that is witnessing a shift from a de facto unipolarity towards a de facto bipolarity. Within the IOSCO perimeter, I circumscribe the term polarity to mean the ‘force of regulatory influence’ of a jurisdiction, ie an IOSCO Member. This occurs when one Member succeeds in steadily influencing IOSCO’s regulatory outcome. Importantly, unlike Anu Braford’s Brussels Effect, which focuses on unilateral import/export of norms, the analysis here focuses on standards negotiated within IOSCO. While the US has been the main player in IOSCO since its foundation, the EU as such has been slowly but progressively emerging as a second regulatory power.

The book closes by raising two questions. First, whether IOSCO will be able to consolidate its standing in the transnational regulatory arena in the near future. Second, whether the current internal bipolarity will consolidate, or whether it will be overcome by a tripolarity system or even a minipolarity. As a matter of fact, after around twenty-five years of growth, IOSCO now faces the challenge of its own consolidation and, at the same time, that of inclusion. The current decade will see whether the Organization will be able to produce standards that are simultaneously both meaningful and the harmonizing result of the contributions from an increasing number of jurisdictions.

Antonio Marcacci is Lecturer at the University of Leipzig and the University of Passau.