INTERNATIONAL HARMONISATION OF SECURITIES LAW: AUSTRALIA'S RESPONSE
| Pages | 165-183 |
| Published date | 01 February 1994 |
| Date | 01 February 1994 |
| DOI | https://doi.org/10.1108/eb024805 |
| Author | PETER WILLIS |
| Subject Matter | Accounting & finance |
INTERNATIONAL HARMONISATION OF SECURITIES LAW:
AUSTRALIA'S RESPONSE
Received: 25th February, 1994
PETER WILLIS
PETER WILLIS
IS
A PARTNER IN THE MELBOURNE OFFICE OF
MALLESONS STERHEN JAQUES
ABSTRACT
The paper
seeks
to
address
the
problems
facing
securities
regulators arising from
the internationalisation of markets by
considering
the
efficacy
of
three
means of
effecting international uniformity or
harmonisation
of
the
substantive rules of
law for
securities
and their
enforcement.
These are multilateral arrangements,
bilateral arrangements
and mutual
recog-
nition and harmonisation of
securities
laws.
In doing so, the paper examines a
number of
current
arrangements for
inter-
national
cooperation
on
securities
regula-
tion and enforcement, in particular
Australia's use of MOUs and its adapta-
tion
of
the
Corporations Law.
THE PROBLEM
The rapid development of computer
technology and telecommunications
and removal of national restrictions
on capital flows have made inter-
national securities markets accessible
to a much wider variety of investors.
These technical advances allow con-
tinuous international securities tra-
ding, resulting in a constant increase
in international trading volume. At
the same time, modern portfolio
investments theory has underpinned
increasing cross-border investment
by large institutional fund managers.
Due to this internationalisation of
the securities market, jurisdictional
conflicts — in a broad sense — arise
with respect to regulation of the
securities market, because of its size
and attractiveness to foreign inves-
tors and because US securities laws
are often applied to non-US trans-
actions and parties. Jurisdictional
conflicts may arise — and have
arisen — over the antifraud provi-
sions of US securities laws, as well as
registration and disclosure require-
ments.1
Generally speaking, however, sur-
prisingly few disputes have arisen in
these areas. The principal problem,
certainly at the practical level, for
regulators in enforcing securities
165
JOURNAL OF FINANCIAL REGULATION AND COMPLIANCE • VOLUME TWO NUMBER TWO
- WILLIS -
regulations in a globalised securities
market is obtaining information, and
ultimately evidence, which is located
outside the borders of the country in
question. In such cases it may be
necessary for regulators in one coun-
try to defer to, and work within, the
jurisdiction of another sovereign
nation.2 At other times, demands for
information may conflict with bank
and secrecy legislation of another
country.3 These conflicts between
demands for information and other
legislation may force companies and
financial institutions to violate the
law of at least one sovereign. Need-
less to say, this imposes substantial
legal and administrative cost on the
actors in the international securities
market.
Another consequence of the
globalisation of the securities
markets is the overlap of markets
and the concomitant overlap of
regulatory schemes. Depending on
the varying ambitions of national
regulators, some countries may take
the position that their judicial and/
or regulatory sovereignty' is being
impaired when the regulator of
another country is trying to enforce
its regulations.
The overlap of markets and regu-
latory schemes also subjects com-
panies and financial institutions
active on the globalised securities
markets to several layers of rules and
regulations, which may sometimes
conflict with each other in very
mundane ways. The end result is an
increase in transaction costs or a
deterrence from investment alto-
gether.
For regulators and market parti-
cipants alike there is a need to
address and resolve these issues
which are important and challenging
both from a theoretical and practical
point of view.
POSSIBLE SOLUTIONS
Where national laws and regulations
are applied extra-territorially, there
is always a risk of jurisdictional con-
flicts and of suffering the adverse
effects resulting from such conflict.
The ultimate solution to this
problem is uniformity, or harmoni-
sation, of the substantive rules of
law.
This can be achieved by creating
some form of supra-national struc-
ture
—
which seems not very likely
—
or by entering into international
agreements defining the rules and
principles in question. Another solu-
tion would be to enter into inter-
national agreements in which the
reach of national regulations is
defined and determined; in other
words, agreements which distribute
the jurisdictional powers of nations.
The latter method has been suc-
cessfully employed in the area of
taxation, where a large number of
bilateral treaties have been entered
into to prevent double taxation.
Many of these treaties are based on
the OECD model tax treaty.
None of these solutions has been
employed on any widespread basis
for securities. However, there are a
number of international agreements
providing for cooperation in this
field. The approach used has been
both bilateral and multilateral. The
bilateral approach may be less suit-
able in certain situations, for ex-
ample, when cooperation is needed,
or desired, between a large number
of states. On the other hand, the bi-
lateral approach is the only possible
166
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