The Strengths and Weaknesses of Soft Law As a Source of International Financial Regulation

Abstract

The risks posed to global financial stability by the crisis that followed after the collapse of the BW showed that the international financial system had entered a new stage characterised by high levels of inter-relation and inter-dependence between the national financial systems. Liberalisation and deregulation of international financial markets besides the advantages of improved resource allocation and lower costs of capital delivered also high market volatility that in turn fuels contagion, increasing in this way the potential for systemic crisis that generate economic inefficiencies (Eatwell and Taylor 2000). These issues bring to our attention the need to reconsider the whole regulatory framework wherein financial systems and actors operate today. It is the purpose of this paper to identify some of the problems international financial regulation needs to address, the different types of legal arrangements (hard and soft law) used for the international financial regulation, focus on the strengths and weaknesses of soft law as a regulation mechanism as well as give an opinion on the choice of soft or hard law as a legal arrangement to regulate international financial issues.