financial products and innovations, particularly toxic assets which were at the centre of the global financial crisis. the extensive rights given to investors, through the Treaty’s protection regulations and to the probable access to arbitration, which will undermine the ability of the States to draw up rules and take measures to stabilise the financial sector. an opaque regulatory cooperation system, whose objective is to reduce the costs for private operators and regulatory burdens, and 6. Regulatory cooperation in the financial sector A crucial aspect of JEFTA is the way it organises regulatory cooperation between the EU and Japan in the financial services sector. Regulatory cooperation serves a purpose if it is intended to strengthen financial regulation, level standards upwards between the EU and Japan and uphold democratic transparency. The annex on regulatory cooperation in the chapter on JEFTA’s financial services is in conflict with this virtuous model. Firstly, the EU and Japan are not intending to base their regulatory cooperation on standards higher than ‘internationally agreed standards’ drawn up at multilateral level. There is a smaller common denominator between the EU and Japan, which probably means that the financial regulations considered to be higher than those required internationally will come under scrutiny. It appears that Japan is at greater risk of this than the EU, given the perception conveyed by the financial industry of an excess of regulation in its financial sector. Moreover, the principle aim of the regulatory cooperation is not to improve the quality of financial regulations, but to allow legislation to be criticised from the very first stages of its development. JEFTA provides that each party should ‘make its best endeavours to offer the other party the opportunity to be informed at an early stage and to provide comments on its forthcoming regulatory initiatives’. This right to provide early comments on legislation carries a significant risk of ‘regulatory capture’ by the financial sector. Indeed, the criterion on which draft legislation is to be assessed is its impact ‘on private operators’. If private operators manage to convince their government that legislation from an ‘opposing’ party significantly threatens their profits, the government could demand new studies on the impact and, where appropriate, legislative changes. The talks will take place within the EU- Japan financial regulatory forum, which will consist of representatives from the European Commission, the Japanese Government and possibly other supervisory and financial regulation authorities. If differences of opinion subsist, they should be settled in a ‘technical mediation’ working group, made up of representatives from the two parties and a neutral mediator chosen by the two parties.
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