USA IN THE EMERGING SYSTEM OF GLOBAL FINANCIAL REGULATION

Article history: Abstract: In the globalizing world of fi nancial and economic interdependence, a polycentric, multi-level, and hierarchical system of global fi nancial regulation is emerging. The article highlights two vectors of recent development in international fi nancial regulation: the rise of cooperation through the mechanisms of the Group of Twenty (G-20) on the one hand, and the efforts to maintain the US leading role in global fi nance, on the other hand. In the circumstances of the global fi nancial crisis of 2008, the G-20 countries initiated an international reform of fi nancial regulation. According to G-20 decisions, international standardsetting organizations developed transnational regulatory regimes in the fi elds of banking, derivatives and bankruptcy resolution, and the states now implement these regimes in their jurisdictions. The so-called “soft law system”, which is not legally binding, allows the states to sustain national sovereignty in their fi nancial policy. The United States play a leading role in the international fi nancial reform, as well as in the shaping of the global fi nancial regulation system. The American regulators push for extraterritorial application of the US norms and take other unilateral actions on the international arena. The article also touches upon legitimacy problems of the emerging system of global fi nancial regulation. The most important constrains are the excessive infl uence of the fi nancial industry (“regulatory capture”), the weakness of civil society participation, and also the fact that for the rest of the world the American norms lack legitimacy, as they are adopted by regulators assigned by offi cials elected by population of a foreign territory. Received:

In the globalizing world of fi nancial and economic interdependence, a system of global fi nancial regulation is emerging, being now in the process of making.It is a multilevel system, which consists of interacting global, regional, state and sometimes local levels.This emerging system is polycentric and at the same time hierarchical which is refl ected in two seemingly confl ictual vectors of recent development in international fi nancial regulation: the rise of cooperation through the G-20 and fi nancial networks and, at the same time, the maintenance of the US leading role.

Concept and practice of network fi nancial regulation and its limitations
Well before the fi nancial crisis of 2008 a range of transgovernmental standard-setting/ regulatory organizations -the Basel Committee on Banking Supervision (BCBS), the Internatio nal Organization of Securities Commissions (IOSCO), the Financial Stability Board (FSB), and some others -gained importance at the international level and overshadowed the traditio nal Bretton Woods era international fi nancial regulatory institutions -the International Moneta ry Fund (IMF) and the World Bank (WB).There are multiple interpretations of the role the network fi nancial organizations play, as well as of the status of documents that they issue.
In the concept of network fi nancial regulation, the BCBS, IOSCO and FSB are treated as global fi nancial regulation already in existence. 1Recommendations developed by 56 СРАВНИТЕЛЬНАЯ ПОЛИТИКА . 2016Т.7 №3 СРАВНИТЕЛЬНАЯ ПОЛИТИКА И ГЕОПОЛИТИКА them are regarded as a soft law system which is supposed to be able to solve the legitimacy and effi cacy problems of the global fi nancial regulation. 2 There is a point of view that eventually these soft law norms tend to gain a more binding character and become more obligatory in nature. 3he transgovernmental organizations4 play less important role in other conceptions and analysis systems, in accordance to which global fi nancial regulation is determined or should be determined either by exterritorial reach of the American 5 (or American and European) fi nancial regulatory norms, or by substituted compliance with regulatory requirements of the stronger states. 6In this framework the role of the United States of America as a leading actor in the global fi nance prevails.
In the global fi nancial regulation, supranational modes of governance are not used, except for the regional level in the European Union (EU).During and after the fi nancial crisis, the architecture has been evolving where the Group of Twenty designs general directions of the global fi nancial reform, translates them to the standard setting organizations -the BCBS, the IOSCO, the FSB, and they develop recommendations for the states.After that, the states implement the standards in their jurisdictions, i.e. enact national legislation, and then national regulatory agencies adopt rules and regulations, enforce them, and supervise the compliance with them by fi nancial companies.The role of states is central in this architecture.
The concept of network fi nancial regulation and of actions taken by respective organizations is American in its very nature and refl ects neo-liberal ideology.Unlike the IMF that works on the basis of an international treaty, the fi nancial networks develop a soft law system that is not legally binding, but voluntary.This is a new quasilegal environment of the transnational fi nancial regulation that some researchers qualify as a "law-like institution". 7Network regulators use soft power instruments like persuasion, authority weight, and economic interest.
In the absence of binding rules, the global fi nancial reform created transnational regulatory regimes that are based on the American model.The transnational regime of banking regulation (Basel III), the regime of derivatives regulation and that of resolution (or liquidation) of systemically important companies on the verge of bankruptcy have been elaborated, and the process of their implementation in countries be gan.So, these regimes are multi-levelthe key points are agreed at the G-20 level, recommendations are developed at the level of standard-setting bodies, and the implementation takes place at the national level.

USA as the biggest factor in global fi nancial regulation environment
Besides the transgovernmental organizations, the institutional environment of the emerging global fi nancial regulation includes a vast range of actors.First, there are traditional Bretton Woods bodies of international monetary and fi nancial regulation, the IMF and the WB.These two have an international treaty as a legal foundation for their work, but they failed to demonstrate strong leadership when the global fi nancial crisis broke up in 2008-2009.The latter fact is supposed to contribute to the growing importance of network regulators.
Second, there is the fi nancial industry, or transnational fi nancial corporations, exerting big infl uence on the regulators at all levels, and the situation of regulatory capture is an important factor of the whole environment.During the fi nancial crisis, the socio-economic consequences of negative externalities became so salient for the public, that steps had to be taken by governments to reduce the fi nancial industry's infl uence on policy-making.But in the medium-term perspective we might expect it to reemerge.
Civil society groups should have constituted as a third important factor of the environment, but they are relatively weak when we consider the case of fi nancial regulation.This, partly, is due to the technical complexity of fi nancial regulation.But the major reason, of course, is the fact that civil society groups fi nd it hard to compete with the fi nancial industry, with its vast economic and political resources.
The forth factor, actually the most important one, is the factor of the United States of America, a major power exporting its national fi nancial regulation norms and standards to the rest of the world.In its national jurisdiction, the US has carried out a strict reform of fi nancial regulation that became a model for other countries.The Dodd-Frank Wall Street Reform and Consumer Protection Act were signed by President Obama on 21th of July, 2010, and the national regulators proceeded to develop the rules and regulations implementing the provisions of this Act.The rules adopted in US to implement Basel III are in certain aspects stricter than the international agreement itself.In implementing national reform in the fi eld of derivatives' regulation the US is ahead of all other jurisdictions.The US regime for liquidation of bankrupt fi nancial fi rms became a pilot for respective international liquidation regime.
The Board of Governors of the Federal Reserve System (the Fed), the Securities and Exchange Commission (SEC), and the Commodities Futures Trading Commission (CFTC) took active and effective part in developing key lines of the global fi nancial reform during the fi nancial crisis.The infl uence of the American Federal Reserve, not only as a monetary regulator but as a regulator of the banking holding companies and systemically important non-banking fi nancial fi rms as well, spreads far beyond the borders of the US.Two American securities and derivatives regulatory agencies -the SEC and the CFTC -also possess some infl uence over international regulation in respective sectors.They continuously elaborate new and alter existing norms of global fi nancial regulation, shaping it in a way that serves American national interests, thus enhancing American leadership in global economy and fi nance.To exercise their infl uence, American regulators use channels provided for by the Group of Twenty, fi nancial regulatory networks as well as traditional Bretton Woods institutions.Their infl uence is based on the axial role of US fi nancial system in global fi nance and on the status of dollar as an international reserve currency and international means of payments.
The United States played a pioneering role in the global fi nancial reform.Early documents of the Obama's administration on fi nancial reform stressed the necessity of international cooperation.8But later, while developing their national rules and regulations according to the Dodd-Frank Act, American regulators started contravening the Group of Twenty's decisions concerning the harmonization of the global fi nancial regulation.Substituted compliance is a concept intended to help harmonize international rules, while implementation of the global reform is carried out at the national level.Substituted compliance allows a foreign company to work in a host country and to comply with its home country rules and regulations, thus lifting unnecessary regulatory burden of double regulation.This principle is endorsed by international fi nancial organizations, but is either rejected in the USas in the case of the Fed's regulation of foreign banking organizations operating in US, or receives limited American acceptance -as in the case of derivatives regulation by the SEC and the CFTC.
Moreover, American fi nancial regulators insistently push forward the extraterritorial reach of their standards.The Dodd-Frank Act provides for extraterritorial implementation of the Volker rule, of the derivatives rules and of its other regulations.European regulators and policymakers claim that this leads to fragmentation of transatlantic and global fi nancial regulation, undermining its legitimacy and effi ciency. 9But the US offi cials reply that as they have adopted a more stringent national standards, their extraterritorial reach will only enhance global fi nancial stability. 10tates and companies can hardly afford to lose access to the American fi nancial markets.This is the major reason for them to comply with American rules.It is important to take into consideration that the extraterritorial application of laws of a state is a mechanism to create traditional, legally binding transnational fi nancial regulation, which could be enforced onto competitors of the United States.
In the framework of its export control policy, the US government carries out a policy of fi nancial control which is intermittently used as an instrument of extraterritorial sanctions.When applying these mechanisms, American regulators, especially the Federal Reserve, widen their global reach.For example, in summer 2014, the Fed fi ned French transnational bank BNP Paribas for violating American sanctions on Iran.Together with the French banking regulator, the Fed issued a joint order to BNP Paribas to adopt a program of compliance with the American sanctions laws, when acting globally.

Legitimacy challenges to the emerging global fi nancial regulation
In general, legitimacy of decisions of network fi nancial regulators depends on states.The input legitimacy of the global fi nancial regulation, executed through the transgovernmental networks, stems from the national fi nancial regulators.In their home countries they are nominated by the executive and confi rmed by the legislative branches of power.In the fi nancial regulatory networks, heads and staff of national regulatory bodies cooperate, e.g.IOSCO is comprised of national securities and derivatives regulators, the BCBS -of central bankers and some other regulators of the banking activities.
The output legitimacy is determined by the effi cacy of the decisions made, or augmentation of the public good, which in case of international fi nancial regulation means global fi nancial stability.In practice such effi cacy is in question, especially in the last 2-3 years, as global fi nancial reform looses momentum and the unifi cation of normative base seems unreachable, but also due to the problems of redistribution and confl icts of interests.
If our intention is to measure legitimacy by transparency and openness of the system, we need to acknowledge the fact that network regulators move in this direction indeed.Regulators publish their proposals on the Internet, invite public comments, promulgate comment letters, and also inform the stakeholders on what has been changed in the original versions of the documents.Activity, principles and process of decision-making are highlighted on their websites.If the Basel I accord was concluded behind the closed doors, the development of the Basel II and Basel III was open to the public -the proposals were disclosed in advance, comments were invited and seriously considered when making the fi nal version of the documents.
But in fact, what could have become an important contribution to enhancing of the legitimacy, becomes a limiting factor.The overwhelming majority of respondents to these calls for comment are fi nancial companies, or other business groups.According to Pagliari and Young, in 1999-2013 civil society groups, such as consumer protection advocates, organized labour, research institutes and NGOs, wrote no more than 6% of aggregate public comment letters in response to a wide range of fi nancial regulatory consultations in US, EU and at international level. 11he most important limitation to the enhancement of legitimacy of the global fi nancial COMPARATIVE POLITICS, RUSSIA .2016 Vol.7 No. 3 СРАВНИТЕЛЬНАЯ ПОЛИТИКА И ГЕОПОЛИТИКА regulation stems from the fact that for the rest of the world the American norms lack legitimacy, as they are adopted by regulators assigned by offi cials elected by population of a foreign territory.

Conclusion
The United States maintain leadership in the fi eld of international fi nancial reform, as well as in the shaping of the global fi nancial regulation system.During the negotiations on the Transatlantic Trade and Investment Partnership, the European Union proposed to consider legally binding treaty provisions on the unifi cation of fi nancial regulation standards, but the American side did not support the idea.The reason might be that in the existing "soft law system" it is easier for the US to pursue its national interest in the world of global fi nance.
While promoting fi nancial reform, the USA reserves a right for itself to execute a completely independent national fi nancial regulatory policy, based on the territorial approach, without accepting new European norms.Presumably, one of the goals of the American policy, as concerns fi nancial reform, is to sustain hierarchy in the US-EU relations.
During the fi nancial crisis and right after it the European Union demonstrated its intention to become a leading player in the global fi nancial regulation as well.But the analysis of actions taken by US and EU on certain directions of fi nancial reform showed that the EU could not catch up and start to set global agenda.The Americans maintain leadership in generating ideas and realizing them in several fi elds, as well as in transatlantic fi nancial competition.It became a clear competitive advantage of the US that it has the most developed expert and technical capacity to create standards of fi nancial regulations and to try imposing them on the rest of the world.
The main actors working to sustain American global leadership in the fi nancial fi eld are the major American fi nancial regulators themselves.The Federal Reserve, the SEC, the CFTC not only exercise functions of national fi nancial regulation and supervision, but also take an active, and often leading part in developing international norms.Their infl uence stretches to other countries, as the American regulators push for extraterritorial application of the US norms and take other unilateral actions in the fi eld on international global regulation.60 СРАВНИТЕЛЬНАЯ ПОЛИТИКА .