Risks Of A Global Regulator

One basic issue is how to ensure that a global regulator is politically accountable.  National regulators are accountable to a responsible minister, parliament or government department. This is an important measure in ensuring that the regulator serves the public interest, and its decisions are subject to adequate checks and balances.  The way to create accountability is to ensure an agency is subject to judicial oversight, that its budget is set through the political system and the senior management is appointed, and that it is accountable to an elected government.  Some of the above are not possible at this stage for an international regulator, but others are. For example, there is no reason in principle why its decisions cannot be subject to independent judicial review.  Another possible measure is to adopt a federal model, possibly with a membership based governing body. The international regulator can govern by an assembly of national regulators or finance ministers. This could have provided the international regulator will an accountability mechanism, at least at a policy level.   Obviously, each national regulator would have to be subject to the federal regulator in relation to its local affairs. Other national regulators it could influence the overall policy of the federal regulator.  Competitive forces help to keep a regulator dynamic flexible and accountable.  A variety of regimes allows countries to compete for financial firms and investors, thus encouraging creative competition for the regime that produces the best business and investor outcomes at the lowest cost. Full harmonization and a single regulator would necessarily reduce the potential for regulatory competition to improve the rules.   The competition theory has been strongly criticized, however.  A related risk for a global regulator is that the regime it administers will tend towards a ‘mediocre’ lowest-common-denominator model.  Therefore, that is, to achieve global agreement on standards and processes, the essential compromises might have lead to a poor regime.