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AbstractRegulatory arbitrage, or the ability of financial firms to circumvent or neutralize rules, is a classic problem of financial regulation. This article draws on transaction cost economics (TCE) to reformulate this old problem, thus defining regulatory arbitrage as a contracting hazard arising from interactions between the regulator and regulated firms, given bounded rationality and opportunism. Following standard TCE, the article first characterizes the implicit regulatory contract in finance, focusing in particular on the mobile and elastic nature of regulated actors and financial assets as well as the contested utility of financial innovation. It is then argued that this incomplete and hazard‐prone regulatory bargain must be matched with a governance structure that both adapts to unforeseen circumstances and avoidance strategies and copes with radical uncertainty about the welfare consequences of financial innovation. To that end, the article discusses how a governance structure here termed "relational regulation" might facilitate such ex post governance under uncertainty.

The regulatory overhaul of the global OTC derivatives markets, originating from the G20, is transforming what used to be a relatively harmonised private and transnational legal regime into a public regulatory space fragmented by diverse territorial jurisdictions. In this regulatory space jurisdictional borders are elusive. Especially the United States and the European Union are applying what seems to be a novel type of regulatory strategy designed to protect their market share and curb regulatory arbitrage. The strategy, dubbed here the Regulate Thy Neighbour strategy, builds on unilateralist application of extraterritoriality, forms of direct and indirect protectionism, and conditional deference. Deference strategies such as the US substituted compliance and the EU equivalence regime should be regarded as carrots, applied together with the sticks of extraterritoriality and protectionism to drive regulatory convergence towards the strongest. However, the EU and US have failed to fill the leadership void in the global financial governance system, which remains soft at its core, and instead locked themselves in a regulatory turf war which has prevented them from recognising each other's regulatory frameworks or finalising their own. Meanwhile, looming risks of costly regulatory retaliation are increasing market fragmentation and deglobalisation. The emerging "titanic model" of systemic risk management, where risk is concentrated in presumably watertight national compartments rather than mutualised globally, is not the way towards a more stable global financial system. In the short term, a successful completion of the transatlantic partnership is needed in order to reach the derivative reform's ultimate goals and to counter financial fragmentation. But acknowledging the many practical and political problems involved in the exportation of rules through the Regulate Thy Neighbour strategy, which can also be manifested in a bilateral form, this paper joins the increasing number of scholars calling for more global and multilateral forms of financial governance.

This article builds on a recent case (Case T-496/11, UK v. ECB (Location policy)), in which the General Court determined that the ECB does not have competence to regulate so-called Central Counterparties (CCPs), and annulled an ECB policy which sought to restrict access to the euro area of certain non-euro area CCPs. It is argued that the Court's central finding, though possibly correct, is problematic from the perspective of financial stability, especially considering the growing systemic importance of CCPs. Second, the Court's finding is symptomatic of certain drawbacks inherent in the patchy architecture of the evolving EU financial stability regime, which is excessively focused on banks. Finally, the case acts as a warning of likely future situations where the exercise of EU level competences and forms of direct administration related to the objective of financial stability can result in an outright conflict with basic free movement rights.

This paper takes a critical look at the conclusions and reasoning of the Opinion of the Advocate General in the case C-270/12 UK v Council and Parliament that, at the time of writing this paper, is pending before the Grand Chamber of the Court of Justice of the European Union. In his Opinion delivered on 12 September 2013, Advocate General Jääskinen found, in agreement with the UK, that the Article 114 TFEU was not an appropriate legal basis for the powers granted to the European Securities Markets Authority under Article 28 of the Regulation 236/2012 on Short Selling and certain aspects of Credit Default Swaps. This paper has three aims: first, to underline the "systemic" importance of the case for the nascent system of EU financial supervision; second, to point out certain neglected dimensions in the Opinion, especially the insufficient attention paid to ex ante (political and procedural) safeguards and the problematic relationship between financial stability and financial integration; and third, to emphasise the need of the Court to find a second-best solution in order to ring-fence the damage that could be caused to the supervisory system in the event the Court were to agree with the Advocate General's findings. ; The research leading to these results has received funding from the European Research Council under the European Union's Seventh Framework Programme (FP/2007–2013) / ERC Grant Agreement n. [269722]

This article assesses the European Union's post-crisis approach to regulating financial markets. Elasticity of financial markets forces rule-makers to make choices under uncertainty as to not only how financial markets will evolve, but also how regulated actors will respond to the measures adopted. Regulating highly complex and dynamic systems such as financial markets requires flexibility and adaptability which traditional regulatory techniques and instruments often lack. The European System of Financial Supervision, set up after the 2008 financial crisis, has taken a leap towards further harmonisation of rules and vertical consolidation of powers. To avoid the risks of stagnation and rigidity, a change in the overall mode of governance is needed. This article presents two short cases, one dealing with the modified disclosure regime of the revised Transparency Directive and the other with implementation of the Alternative Investment Funds Directive , in order to examine how uniformity can be pursued without the corresponding loss of flexibility. The case studies demonstrate how the techniques used by the European Securities Markets Authority ( ESMA) and the Commission, which involve both formal and informal implementing measures, utilise the procedural flexibility of the post-Lisbon EU rule-making. However, more flexible EU legislation is also needed because any system of delegation is redundant without enabling legislative acts that surrender meaningful normative authority to sufficiently independent regulators. The article also discusses the ambiguous limits of the system's flexibility in constitutional terms and addresses certain trade-offs and risks of the emerging mode of governance.

This special volume collects contributions from leading scholars who scrutinize the challenges digital finance presents for the EU internal market and financial market regulation from multiple public policy perspectives. Author contributions aim to provide policy-relevant research and ideas shedding light on the complexities of the digital finance promise. They also offer solid proposals for reform of EU financial services law.