Legal aspects of Financial Services Global Liberalisation
| Author | Dan Markus Kraft |
| Position | Partner at Kraft Advogados Associados, MA in International Commercial Law (UFMG). I.L.M in Internacional Banking and Finance Law (QMUL), Professor at Fundaçao Dom Cabral and Faculda de de Direito Milton Campos |
| Pages | 108-121 |
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Globalisation means more than freer movement of goods, services and capital across borders. It entails the faster movement of ideas. Joseph Stiglitz
The financial services industry has been profoundly reshaped in the past decades. This has not just been a result of huge information technology advancements, but also due to the de-localisation of economic agents in an increasingly borderless world, fomented by multilateral and regional understandings. Financial markets are today largely integrated and linked on a global basis.
Trade in goods, present in human existence from times immemorial, has been best multilaterally translated into more stable rules since Bretton Woods, under the GATT2, and more recently, under WTO3. Regulating and adjusting a global approach to financial services liberalisation, however, demands different tools from the ones known today for trade in goods, which did not yet reach an adequate formula.
As noted by Lovett4, "international banking has a long history of involvement with foreign trade, shipping and investments. Italian merchant bankers were important in such finance during the Middle Ages and Renaissance and this banking activity gradually spread north to the Netherlands and German towns (...) London took the strong lead as an international banking centre during the 19th century, helping to enlarge British trade and industrial development, BritainPage 109placed a substantial volume of foreign investment in many countries, including the Americas".
The globalisation phenomenon has caused an immense development of the finance industry, this one mainly to serve the global economy5. Financial services have also become an end in itself, as securities, banking and insurance products acquired independent spaces, sometimes lacking direct relation to commercial or industrial activities6.
Hence, the international financial environment has become more integrated, complex and unstable. In this sense, national laws have proven to be insufficient7 to treat financial services, introducing an urgency sense towards adequate regulation and supervision. In addition, international finance networks helped build a very efficient crime highway, used for money laundering, easing the financing of drug and arms trafficking, as well as terrorism, demonstrating the need of a multination approach and intense co-operation, on a fully integrated scale.
The community of global nations addresses regulation and supervision of the financial services industry in several fora, creating overlaps and legitimacy erosion problems, not to mention the competition of private unification initiatives. Understanding and regulating such industry clearly demands multi disciplinary8 information exchange and action.
Market players have almost endless means to create and implement products and strategies, easily overcoming less organised initiatives of nation states, multilateral agencies or international organisations. Understanding some of the positive meeting places between the finance industry, international fora and states, is the objective of this article.
In the nineties, the easily spelled moto was "regulators no longer have sovereignty over the movement of capital across their national boundaries (...) Government polices now largely influenced and dictated by the free and massive flow of capitalPage 110worldwide. Those countries with an open market approach to regulation and harmonised rules are more likely to prosper in the global economy as capital (both human and financial) increasingly ignores national boundaries9".
Today, economic and social facts lead to a more different and broader approach. Plain and simple de-regulation has been overcome by near-to-fit instruments (including re-regulation) and methods of addressing the financial services liberalisation phenomenon. The way globalisation has been seen has clearly changed in recent times.
As mentioned by Waltz, "we are therefore inclined to see what we are looking for, to find what our sense of the causes of things leads us to believe significant"10, and it seems that minds are much more opened than they were, ten years ago.
Permeability of markets has caused a multiplication of decision centres. Today it is not clear, as it was some years ago, where financial decisions are taken, affecting millions of persons. Financial services regulation differs enormously from country to country, as national regulation is one of the mam barriers to free trade in services11. As Christos Hadjemannuil well put it, regulators do not operate in a political vacuum12.
Industrialised countries generally have monetary and banking authorities with strong political and accountability independence, having chosen a more technocratic approach to market discipline, if compared to less developed countries13. Such delegation of democratic powers is a reflection of each country's political model and economic choices. Transplanting models from one state to another shall take into account an immense variety of issues, with no guaranteed success.
Financial services liberalisation, either through multilateral agreements, soft law or voluntary adhesion to convergent regulatory formulas, when correctly addressed, cannot be kept away from the legitimacy test of democratic choice based in transparency,
Democracies do not evolve in the same rhythm as the market. They may bePage 111squeezed by market forces, and if no public participation exists in defining paths and rules, globalisation naturally becomes a synonym of old and well known dictatorships, which less developed countries frequently experienced in the past being much used to strong political regimes and ruthless statesmen.
The fact that the market squeeze may have been happening results on the widely accepted thesis on Seattle's battles, at the 1999 WTO summit. Those radical protests inspired different forms of clarification on the globalisation process piloted by industrialised countries, having, in a certain way, helped to re-orientate multilateral trade discussions and decisions.
Uncertainty about the scope of the discussions on trade liberalisation, as well as with regards to the actors involved, dimming democratic control. As noted by Dillon, "it is the very open-endedness and unpredictability of the Services Agreement that has called forth such an extreme reaction from the WTO's critics, and such a spirited defence by the WTO itself14."
As Auberger15 correctly put, there is no public democratic global space, as a shared, political culture is purely absent. It may have been thought that some unification of services and their rules would perfect democracy, however this is not happening, mainly because democracies are founded in nation-state concepts. Without a global nation, nor a feeling of its existence or inclusiveness, global democracy is a chimera.
A valid initiative example in trying to introduce some public inclusiveness in globalisation is the not-so-successful United Nations Code of Conduct for Transnational Corporations. It kid down a set of guidelines defining the rights and responsibilities of transnational corporations in their international operations. The attempt aimed at introducing concepts of international public order within private cross-border activities. More than convincing nations and market participants on a certain conduct regarding opening national borders, the project searched for inducing a behaviour pattern through voluntary adhesion to a moral conduct in global businesses. The initiative has been applied in setting standards in the fields of human and consumer rights.
An important lesson is drawn from these considerations. Treatises and conventions have been frequently torn apart, model laws have been adopted much less than desired, international public and private agreements have been insistently repudiated. All these incidents invariably have similar source: the absence of voluntary and positive will of the really affected parties, i.e. the populations involved. As in basic contract law theory, no agreement may be protected by law if it is not based in a free manifestation of will is given. Imposing formulas on populations has proven to be counterproductive, and as Rudolf von Ihering put it, laws should serve people, not people should serve laws.
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At an industry roundtable hosted in Basel16, in November 2003, participants discussed the subject of risk management and regulatory approaches in the banking, securities and insurance sectors. The discussions evidenced how much market practices are converging across the three sectors and whether differences in the regulatory approaches to risk across those sectors reflect actual differences in the underlying risk and risk management practices.
The prevailing view was that better information was needed, and so the need for international debate. A sense of public participation, more than just a place for market participants to discuss, creates hopes that the global society will create means to influence global decision at policy making fora. Globalisation
Globalisation has several definitions, aspects and forms. Michalet17 suggests an interesting classification of the economic evolution phenomena in different phases: from international to global economy, going through a multinational economy.
In what Mkhalet calls "International Economy", strong reference to nation states prevails over international specialisation and economic liberalism. At this stage, nation states are at the heart of the trading system18. Theories laid down during this period focused in explaining import and export movements of goods between national economies and, for rule making, in the advantages of international specialisation (still using D. Ricardo's19 inspiration).
In a "Multinational Economy", indicated...
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