Irina Mamrova - Researcher at the Institute of World Economy and International Relations, 23, Profsojuznaja St.,  117997, Moscow, Russian Federation; E-mail: imamrova@mail.ru

Sébastien Cochard - Member of the Expert Council for Russia’s G20 Presidency, Professor at the Russian Presidential Academy for National Economy and Public Administration, 82, Vernadskogo av., 119571, Moscow, Russian Federation; E-mail: sebastien.cochard@ensae.org

In the wake of the Lehman meltdown, the need for global coordination in order to contain the financial crisis gave way to the institution of the G20, the most efficient forum of global governance up to now. Relying on the Financial Stability Board as its permanent secretariat for financial regulation issues (the FSB itself coordinating the works of the Standards Setting Bodies -among them notably the Basel Committee and IOSCO), the G20 was able to deliver important pieces of regulatory coordination deemed to increase the resilience of global banks and to reduce the vulnerabilities affecting the global financial system.

Five years down the road, however, it appears more and more clearly that even the most achieved sets of reform which came out from the post-2008 voluntary governance processes are presenting unintended consequences, due to the inconsistencies in the domestic transpositions of the globally agreed principles, to the risk of fragmentation of global finance that they can induce and finally due to their counter-productive extra-territorial effects. These unintended effects are indeed creating significant costs and major uncertainties which appear difficult to resolve in the current non-binding framework of the global coordination on financial reform.

While some voices are seizing the occasion for calling for the need of a “regulatory pause”, it appears on the contrary to the authors of this article that the momentum should be kept and that the global coordination process should be reinforced by conferring it international legal powers. The commonly agreed principles for financial regulation should become binding in their transposition, which could be provided by an International Treaty on financial regulation adopted by G20 Members. This new legal framework would be accompanied by the creation of an arbitrage procedure and the application of potential sanctions.

Global financial regulation is now at a crossroads: the current arrangements of the global coordination can be partially fixed, but the damaging unintended consequences brought by these voluntary non-binding agreements would in this case persist. It is therefore up to the G20 Members to make the choice between either renouncing to an efficient reform of global finance (which was the original motive which put them together in 2008), or either renouncing to a piece of their sovereignty by adopting a Treaty which would put in common (through the FSB and the SSBs, but in a binding manner) the task to elaborate part of their financial regulatory processes.