Extra-Territorial Regulatory Action in the Financial Markets: Does the EU Third-Country Central Counterparty Regime Go Too Far?
Year: 2024
Type: article
Abstract: Extra-territorial regulatory action is inherently controversial as it is in tension with state sovereignty and the principle of comity between nations. However, extra-territorial regulation of financial market participants has become increasingly commonplace since 2008 and, especially, Brexit. A particularly important example occurs in relation to financial market infrastructure, due to the prevalence of globally systemic institutions, notably central counterparties or ‘CCPs’. This article examines how to evaluate extra-territorial regulatory techniques, with particular reference to the European Union’s recent proposals regarding third-country CCPs in updates to the European Market Infrastructure Regulation (‘EMIR’) known as EMIR 3.0. It proposes a normative framework based upon Global Administrative Law (GAL) for this, and analyses the EMIR 3.0 proposals in this light, emphasizing the need for clarity about the goals of extra-territorial action and the demonstration that it represents the least onerous means needed to achieve these goals. This analysis locates the ongoing debates about the EMIR 3.0 regime for third-country CCPs in a wider, scholarly context and throws light on the proportionality and efficacy of the proposals. The article also suggests a technique for the review of extra-territorial financial regulation more broadly, arguing that GAL provides a valuable way of evaluating substance and of holding decision-makers to account. Extra-territorial regulatory action, meaning the deliberate projection of regulatory power beyond an authority’s ‘home’ jurisdiction, is inherently controversial. Such action is, at least potentially, in tension with state sovereignty and the principle of comity between nations.1 As Buxbaum has put it, ‘Extraterritoriality has a bad reputation’, due to its association with state ‘overreach’,2 while Colangelo describes the exercise of extra-territorial jurisdiction as ‘messy’ because of the ‘layers of national and international legal issues’ involved.3 There remains a general presumption against extra-territorial action by regulators, absent a clear legislative signal,4 while, more pragmatically, such action risks creating disproportionate and unsupportable burdens for affected parties.5 As this article explores, however, the extra-territorial regulation of financial market participants already authorized and supervised in their ‘home’ jurisdictions has become increasingly commonplace. This development generally emerged in line with economic, technological and environmental globalization;6 as Battini rightly puts it, ‘Globalisation makes extraterritoriality less exceptional’.7 However, extra-territorial regulation in the global financial markets has increased sharply in the period since the 2008 global financial crisis, including in new rules targeting the vast, global ‘over the counter’ (OTC) derivatives markets, while the extra-territoriality of financial regulation has become an even more topical issue following the UK’s withdrawal from the EU in 2020. Post-Brexit, the UK has become a ‘third country’ for the purposes of EU financial regulation, and vice versa. These developments have tested the extra-territorial features of financial regulation in unprecedented ways, while pushing the topic high up the political agenda. For example, debate has intensified about the effectiveness of unilateral ‘equivalence’ mechanisms, whereby regulators have the power to determine whether a third-country regime should be declared ‘equivalent’ for a specific regulatory purpose.8 Busch is amongst those scholars who have recently noted the ‘decline’ of equivalence as a co-ordinating technique between the EU and third countries,9 at a time when ‘live political conditions’ significantly complicate such arrangements as those between the UK and EU.10 Extra-territorial regulatory powers in a of EU and UK financial regulation, in important of the global tested and in unprecedented The of this article is a of the is a of global financial market a of the and extra-territorial regulatory and has a of the global regulatory framework for as by global regulators have increasingly in of extra-territorial as has become more and more These at the of the on a at the more of as in the with EU ongoing to of EU market to the to be of systemic has the of financial on the with the of extra-territorial on global and markets, on the the time of the exercise of EU extra-territorial powers as for in and to this regime in the new by regulators and in the As the third-country regime EMIR provides an and important of extra-territorial financial regulation in this the of this article The is to how to evaluate the exercise of of extra-territorial regulatory in the global financial markets, at a time when these in as in The article proposes a normative framework based upon Global Administrative Law (GAL) as a valuable with to this of regulatory The is in that this framework is particularly to in the global because of the and The of the article is to the ongoing debates about the EMIR regime for the of third-country central counterparties CCPs based the in this wider, scholarly This regime is in and upon of this analysis for the regulatory and features in the EMIR as as for proposals and even for the These light on ongoing and also how a analysis provides a valuable way of evaluating the substance of an extra-territorial regulatory regime and of holding decision-makers to account. this article to the ongoing debates about the regulatory in the EMIR regime for third in a way that to the of extra-territorial financial regulation more The global and of the financial markets means that based in a ‘home’ jurisdiction have a on the financial of by the of financial has based with the in the as and have regulation at a national financial is national financial inherently to the of the These in the of the global financial crisis, of the the UK’s global As this the of new global extra-territorial financial regulation has a of this of regulatory action has become particularly in is in the of such as the the recent global financial crisis, regulatory or such as those by the on have to between jurisdictions and on a important example, in of the of is the on and Market and of for Market have national and including in EMIR 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Source: Capital Markets Law Journal
DOI: 10.1093/cmlj/kmae019
Authors: Jo Braithwaite, David Murphy
Institution: London School of Economics and Political Science
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $4,760
OpenAlex ID: W4404790060