To read this content please select one of the options below:

Global financial regulatory reforms and sovereign’s exemption

Chiara Oldani (University of Viterbo, Viterbo, Italy)

Journal of Financial Regulation and Compliance

ISSN: 1358-1988

Article publication date: 14 May 2018

291

Abstract

Purpose

The purpose of this paper is to underline the (hidden) risks posed after the crisis by the exemption of non-financial operators, especially sovereigns, from the regulatory reforms of over the counter (OTC) derivatives undertaken by G20 countries in the absence of accounting data on trading.

Design/methodology/approach

Recent financial regulatory improvements are reported to underline that the trading of OTC derivatives by sovereigns and local administrations does not take place under the new regulatory umbrella, because of the relative size of the institution, the lack of incentives to adhere to Centralized Counterparty Systems (CCPs) and most of all, the absence of proper accounting rules. Sovereigns and local administrations have the potential to undermine global financial stability.

Findings

The limited availability of accounting data on derivatives’ use by public administrations constitutes a barrier towards a full comprehension of risks involved. Sovereigns should be compelled to adhere to the CCPs and the collateralized system of trading; the short-term costs of adhering to CCPs are worth $20bn.

Research limitations/implications

The new regulatory system failed to explicitly consider the trading of sovereigns and this can reduce the effectiveness of regulation itself and can have negative impact on financial stability; in fact, omitting sovereigns from these regulations represent a significant risk oversight because they are systemically important players, although with a special political power.

Originality/value

Despite progress made in improving the transparency and resilience of OTC derivative markets after the subprime crisis, sovereigns and public administrations are exempted from the new regulation, posing severe risks to financial stability.

Keywords

Acknowledgements

The author would like to thank Alexandra Dostal, Wayne Foster, Corey Garriott, Domenico Lombardi, John Kirton, Manuela Moschella, Joshua Slive, Christopher Sutherland, those attending the seminar at the Munk School of Global Affairs, University of Toronto and the anonymous referees for comments. The author also thanks Samantha St. Amand for her excellent research assistance. All errors are of the author’s. This research received no specific grant from any funding agency in the public, commercial or not-for-profit sectors. The author has no conflict of interest.

Citation

Oldani, C. (2018), "Global financial regulatory reforms and sovereign’s exemption", Journal of Financial Regulation and Compliance, Vol. 26 No. 2, pp. 190-202. https://doi.org/10.1108/JFRC-11-2016-0105

Publisher

:

Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

Related articles