Alternatives to "Hard" Law in International Financial Regulation: The Experience of the World Bank

By Cisse, Hassane | Proceedings of the Annual Meeting-American Society of International Law, Annual 2012 | Go to article overview

Alternatives to "Hard" Law in International Financial Regulation: The Experience of the World Bank


Cisse, Hassane, Proceedings of the Annual Meeting-American Society of International Law


INTRODUCTION: LOCATING THE WORLD BANK IN THE INTERNATIONAL STANDARDS SYSTEM

The World Bank has become integral to the operation of the system of soft law that is emerging to regulate international finance. It has been enlisted by its members to play a regulatory role in this field. That role requires the Bank to issue or monitor a number of the most systemically important international standards in world finance. These standards have already pushed world finance far down the "soft law" path. Standards of various kinds are entrenched in the international financial system, and are relied upon by governments, institutions, regulators, and individuals every day.

The Financial Stability Board, of which the World Bank is a member, maintains a "Compendium of Standards." The compendium lists the various economic and financial standards that the Board considers to be important for sound, stable, and well-functioning financial systems. According to the Board, the international community attaches much importance to the adoption and implementation of these standards because of their beneficial effects on the stability of financial systems, both at the national level and globally. There are 15 of these critical standards, allocated across 12 policy areas.

The World Bank is the issuing body for one standard--on "Insolvency and Creditor Rights"--and has a monitoring role in a further ten.

THE WORLD BANK AS AN ISSUER OF STANDARDS: INSOLVENCY AND CREDITOR RIGHTS

Of the 15 standards in the Financial Stability Board's "Compendium of Standards," the World Bank's major contribution is the "Principles for Effective Creditor Rights and Insolvency Systems," or "ICR Principles." The ICR Principles are intended to represent international best practice on design aspects of these systems, emphasizing contextual, integrated solutions and the policy choices involved in developing those solutions. They have been designed as a broad-spectrum assessment tool to assist countries in their efforts to evaluate and improve core aspects of their commercial law systems that are fundamental to a functional investment environment, and to promote commerce and economic growth. Efficient, reliable, and transparent creditor rights and insolvency systems are necessary for the reallocation of productive resources in the corporate sector, for investor confidence, and for corporate planning. These systems also play an essential role in times of crisis by enabling a country and stakeholders to respond promptly to corporate financial distress on systemic scales.

The ICR Principles were originally developed in 2001 in response to a request from the international community in the wake of the financial crises in emerging markets in the late 1990s. At the time there were no internationally recognized benchmarks or standards to evaluate the effectiveness of domestic creditor rights and insolvency systems. The events of the 1990s and before had demonstrated that the stability of domestic insolvency systems could have international implications. An international response was needed, and that response took the form of the system of international standards that exists today.

Treaties are sometimes said to enjoy more "input legitimacy" than soft-law tools, but the history of the ICR Principles shows that the drafters took this issue seriously. The most important way the Bank tried to secure the input legitimacy of the ICR Principles was to consult widely, and to bring as many actors into the drafting process as possible. The initiative began in 1999 with the constitution of an ad hoc committee of partner organizations and the assistance of leading international experts who participated in the World Bank's Task Force and Working Groups.

The ad hoc committee that served as an advisory panel comprised representatives from many international organizations. More than 70 leading experts from countries around the world participated in the Task Force and Working Groups. …

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