Description

The topic of the project focusses on the issue of the International Economic Law. It investigates the Basel Committee on Banking Supervision. The matter includes the BCBS place in governance and international economic law.  The purpose of this study is to examine the legal nature of standards, legitimacy and effectiveness of regulatory outputs of the BCBS.

The judicial branch of globalisation has been restive. Alvarez (2002) argued that the international judiciary has now 200 strong members across some seventeen international tribunals. Also, they have been increasingly proficient in cross-disciplinary divisions to pass on the consistency of domestic-law with international Rules. The North American Free Trade Agreement (NAFTA) Arbitral panels, started to issue decisions on regulatory, under (Chapter 11). The Panel has now been passing judgment on Customary Law Status of Precautionary Principle.  [1]

Pauwelyn at el (2012) defined ‘informal international lawmaking’ as follows: “cross-border cooperation between public authorities with or without the participation of private actors and international organisations, in a forum other than a traditional international organisation process of informality. Also, informal international law-making has been between actors other than traditional diplomatic actors such as regulators and agencies. It does not result in a formal Treaty or other traditional sources of international law. [2]

In international law, there is neither an International Legislative Body corresponding to a National Parliament or a System of Universal Judicial Jurisdiction. In the municipal level, disputes have been addressed under the interpretation of recognised Rules. However, at the international level, Secondary Rules are reflected in international law as Sources of International Law.  [3]

Some Treaties and Provisions have been considered as soft because they do not involve clear and specific legal commitments nor impose real obligations on the Parties. The vagueness of a Convention and Provision may deprive these instruments of the character of hard law. However, under (Article 26) of the Vienna Convention on the Law of Treaties (VCLT) (1969), as a legal form, Treaties are always binding upon the parties. In addition, (Article 2) (1) (a) of the VCLT (1969) [4] defines a Convention as an international agreement concluded between States, in written form and governed by international law. Whether it embodied in a single instrument or in two or more related instruments. While (Article 2) (b) states that ratification, acceptance, approval and accession. [5]

On the other hand, the traditional mechanisms of international law-making, for example, the list of sources of international law enumerated in (Article 38) of the Statute of the International Court of Justice 1945 have not evolved at the same rate as the expansion of its scope and proliferation of its actors. (Article 38 (1)) states that the Court function is to decide and apply dispute as sent following international law principles:

a)    Must apply international Conventions, whether general or and prove rules expressly recognised by the contesting states.

b)    Need to apply international custom, as evidence of a general practice accepted as law.

c)     And general principles of law recognised by civilised nations. [6]

According to Thurer (2010), soft law refers to international norms and instruments that are deliberately non-binding in character but still have legal relevance, found in the between law and politics. [7] In a similar way, Francioni (1986) holds that international norms and instruments that fall outside (Article 38) of the Statute of the ICJ are soft law. [8]

This is not surprising, given that soft law, as a category of norms it is a doctrinal creation, which has no ground in positive law. (Article 38(1)) of the ICJ Statute makes no reference to soft law as a source of international law.

The enforcement of soft law refers to either non-binding conciliation before an independent third party. Also, it can be referred to a non-binding compliance procedure that aims to find an agreed solution rather than to engage in adversarial litigation or reparation. Soft enforcement characteristically evades issues of responsibility for the breach and relies on a combination of inducements such as termination or suspension of Treaty rights to secure compliance. [9]

The Basel Committee on Banking Supervision (BCBS) is a pivotal standard-setter in the banking sector, mandated to strengthen the regulation, supervision, and practices of banks worldwide. It has a specific focus on large, internationally active banks. Membership in the BCBS is restricted to several central banks and banking supervisors from currently 28 jurisdictions. Its 45 members include central banks and bank supervisors.

The BCBS work in practice very much as a network of experts in banking supervision taking also into account that any agreement among them requires consensus. However, there has been some sign in some authority of wanting to have a stronger political say in these negotiations. [10]

The Basel Committee checks the prompt adoption of regulations by its members, assesses the regulations' consistency with the Basel framework and examines the consistency of banks' calculation of the prudential ratios across jurisdictions through its Regulatory Consistency Assessment Programme (RCAP). Also, the RCAP assists Member jurisdictions to find and assess the materiality of any deviations from the Basel framework. [11]

The Basel Accord III replaced Basel II following the 2008 financial crisis. In 1999, the BCBS released a proposal to amend the original framework of the Accord for setting capital charges on credit risk. Dewatripont and Tirole (1993) affirmed that there are needs to regulate banks because of the problem of corporate governance that emerged from the separation of ownership from the management of banks. They noted that bank managers do not care about monetary incentives, but they enjoy private benefits from running a bank in the absence of interference.

The Basel Capital Accord 1988 established international capital requirements for banks. In April 1993, following the failure of the Basel-IOSCO initiative, the Basel Committee released a package of proposed amendments to Basel I. Primarily, these proposed minimum capital requirements for banks’ market risk. The proposal conformed to Europe’s Capital Adequacy Directive (CAD).

In 1992, the Basel Committee has developed requirements of the Agreement to be the applicable law in G-10 countries. The banks in Japan have permitted an extended transition period. In the mid-2000s, the Basel Accord I was supplanted by the Basel Accord II. [12]

In 1996, the Basel Committee’s adopted a new proposal as an amendment to Basel I, it went into effect in 1998. In April 1995, the Basel Committee released a revised proposal. This made several changes, including the extension of market risk capital requirements to cover organisation-wide commodities exposures. [13]

International Standards play a key role in promoting the stability and efficiency of the global financial market. In a competitive environment, jurisdictions may opt to underbid each other in lowering prudential requirements to be more attractive to foreign financial companies. The fragmented global regulatory framework might hinder the trust in the global financial system, it includes the ability of nations to rely on each other’s systems. This rationale underpins the multilateral approach to financial regulations and establishment of international standards-setting bodies such as the Basel Committee on Banking Supervision and the FSB. Significant deviations from international standards by its member’s jurisdictions would undermine the global standard-setting process.

The BCBS and FSB developed and agreed upon certain standards, but they do not have legal enforcement power. The BCBS has in place an implementation program called Regulatory Consistency Assessment Program (RCAP) based on peer reviews and disclosure. The consistency implementation on time by member states has been key to support the international recognition of the standards.

Furthermore, the international standard’s permits adaptation and tailoring that can be used to prove a proportional regulatory regime. There are a few international standards such as the BCP have been expressed as Principles or High-Level elements that allow jurisdictions to define implementation details according to their specific characteristics. For example, the Basel III contains provisions that allow jurisdictions to accommodate different practices of external credit rating agencies and different options that treat to exposures public sector entities, banks and commercial real estate. [14]

The Financial Stability Board (FSB) priorities work for 2020 reflect the evolving nature of the global financial system and associated risks to financial stability. The FSB will reinforce its forward-looking monitoring of developments to find, assess and address new and emerging vulnerabilities. The FSB coordinates the work of national financial authorities and international standard-setting bodies. It develops and promotes the implementation of effective regulatory, supervisory and other financial sector policies in the interest of financial stability. The FSB has been present in Twenty-four countries jurisdictions to bring together national authorities responsible for the financial stability of international financial institutions, international group’s regulators, supervisors and committees of central bank experts.

Also, the FSB conducts outreach with seventy other jurisdictions through its six Regional Consultative Groups. The FSB has been chaired by Randal K. Quarles, Governor and Vice Chairman for Supervision of the USA Federal Reserve. Its Vice-Chair has been Klaus Knot, President of De Nederlandsche Bank (DNB). The DNB IS the Central Bank of the Netherlands.  The FSB Secretariat has been in Basel, Switzerland. It’s hosted by the Bank for International Settlements. [15]

In 2018, the Basel Committee on Banking Supervision published Frameworks for early supervisory intervention on how supervisors around the world have adopted frameworks, processes, and tools to support early supervisory intervention. Since 2007 to 2009 global financial crisis, supervisory authorities have increasingly focused their attention on how early supervisory intervention can promote financial stability by reducing the probability and impact of a bank failure. Also, there is a common recognition that for supervision to work effectively, identify and intervene at an early stage are important to prevent problems from escalating.