Global Convergence of Financial Standards

Notably, the near collapse of the world's financial system three years ago has prompted a fundamental reassessment of the industry. The biggest casualty of the crisis may have been the idea that financial markets are inherently self-regulating and best left to their own devices. After decades of deregulation in most countries, finance is entering a new age of regulation. In this unprecedented financial environment the soft law approach should be taken seriously to promote regulatory harmonization and reduce the risk of instability related to weak regulations and to regulatory arbitrage despite the worldwide spread of soft regulatory convergence. In line with the analysis above, this paper attempts to examine the ongoing process of global financial convergence. To begin with, this paper explores the main features of international financial regulatory process of setting standards as soft law. Then, it discusses the pros and cons of the soft law approach to financial regulatory harmonization. Finally, this paper concludes in addressing the future of global financial convergence and drawing from a few suggestions which may be of some use to those involved in restructuring financial governance at national, regional and global levels.