How international finance really works
How international finance really works
Cally Jordan
The global financial crisis has cast a strong light on some hitherto obscure corners of the financial world, provoking an outpouring of calls for concerted international action. As "hard law" has proved disappointing, can "soft law", in the form of international financial standards, substitute for traditional national legislation? This article examines some of the difficulties associated with the "international standards as soft law" discourse. First of all, conceptual problems underlying the "soft law" discourse reveal profoundly different patterns of legal thought cutting across national boundaries, resulting in different understandings of international financial standards. Secondly, experience over the past decade, with international financial standards both as diagnostic and prophylactic tools, has been decidedly mixed, and in fact largely unsatisfactory. Thirdly, international financial standards appear strangely remote from the daily grind of international commercial practice, where they are largely unknown. But perhaps in this disconnect lie clues to important normative forces at work in international finance, and in particular the international capital markets. The proposition put forward here is that the formal regulation of financial markets is supported by a body of strong and persistent customary law, a lex mercatoria, a rarely acknowledged but powerful undercurrent in finance, especially in its international iteration. The continued prevalence of oral contracting in the derivatives business and the stubborn persistence of self-regulatory principles are examples. There are several intriguing implications to this proposition.
Law and Financial Markets Review, Vol. 7, No. 5, Sep 2013: 256-266.