Sharing global regulatory space: transatlantic coordination of the G20 OTC derivatives reforms1

Abstract

The governance of the global market for over-the-counter (OTC) derivatives has undergone a metamorphosis. Set in motion by the Group of Twenty (G20) 2009 summit in Pittsburgh, the regulatory overhaul has transformed what used to be a relatively harmonious and transnational legal regime into a global regulatory space which – like all regulatory spaces (Hancher and Moran 1998) – is highly contested. In the light of the hypotheses developed in Chapter 1 of this book, this chapter evaluates the implementation and coordination of the globally agreed derivatives reforms in and between the United States and the European Union (for earlier research on this topic, see Godwin et al. 2017). The chapter focuses specifically on the possible implications of coordination challenges for regulatory structures. The hypothesis is that, together with the risk of regulatory arbitrage, regulatory competition contributes to regulatory centralisation in internal regulatory structures. Prompted by the Global Financial Crisis, the G20 initiatives aimed to increase the transparency and stability of derivative markets, particularly by centralising the execution of trading within regulated trading venues and by imposing mandatory clearing, reporting and risk-management requirements. However, instalment of the new governance system has been cumbersome. Much of the consensus reached under the G20 umbrella was lost when soft principles and policy goals were translated into hard rules. As section 5.2 will show, failures in coordination have resulted in an uneven regulatory playing field characterised by jurisdictional conflicts, inconsistencies, regulatory overlaps and gaps (Carney 2013, p. 15). The Financial Stability Board (FSB), mandated by the G20 to oversee and coordinate the implementation of the reforms, has also admitted that due to the unprecedented scale and complexity of the reforms and unforeseen challenges the implementation “has taken longer than