Introduction

In the previous chapter I argued that banks providing online services across borders are exposed to unacceptable risks of legal uncertainty and overregulation because the institutional model of ‘mutual recognition’ and ‘home country’ control in its imperfect current form has not quite eradicated the residual regulatory and enforcement role of the administrative and judicial authorities of the ‘host country’. I also argued that the benefits generated by cross-border electronic commerce in financial services justify bold institutional reforms with the overarching objective to achieve legal certainty, less but more efficient regulation and regulatory competition. In this chapter, I examine the benefits and disadvantages of several competing models of financial market integration in Europe and note my strong preference for a model of perfect mutual recognition and ‘managed’ regulatory competition based on sufficient harmonization of prudential and consumer protection standards and enforcement practices across Europe.

The most common liberalization policies and institutional reforms towards the integration of financial markets are de-regulatory and, often, re-regulatory in character. They are de-regulatory, because the reforms entail the elimination of legal and institutional barriers to trade in financial services and movements of capital. Existing ‘de-regulating’ mechanisms amount essentially to an allocation of regulatory responsibility among different countries, whatever the details of the various models. In other words, participating countries in areas of financial integration must decide whether the country of origin of financial activities may alone regulate, the recipient state may alone regulate, they may both regulate subject to limitations or a central supranational authority may alone regulate.