Less can be more: recent examples of cooperation between the United States and European Union on securities regulation.

• Author: Becker, Dania S.

1. INTRODUCTION

   At least seventy percent of the global capital market lies on either side of the Atlantic. (1) Cooperative regulation of this transatlantic securities market thus has great potential to benefit businesses, investors, and-ultimately--consumers. (2) In addition to the sheer volume of transatlantic markets, their increasingly interconnected nature has of course also increased the need for cooperative securities regulation. (3) Despite previous isolationist policies and unilateral strategies, (4) officials from the United States and European Union have recognized this need and are fully aware that "[w]hat we need is a modern, open and reliable regulatory framework on both sides of the Atlantic." (5)

   The ubiquitous and grandiose rhetoric of globalization might suggest that cooperation should take on some unprecedentedly grand form or scope. But in reality this has not been the case. Globalization has proven not to be as monolithic as one might suppose, and recent examples of cooperation between the United States and EU on securities regulation have shown that there is no one-size-fits-all solution to the problems of fostering a transatlantic market. Specifically, changes in deregistration rules and accounting standards show that creating a workable transatlantic market does not require total uniformity in the administrative apparatus. Rather, in these situations the United States and EU have tailored their cooperative efforts--in terms of the intensity, level of commitment, kind of work, and stage in the regulation process when the activity takes place--to the particular issue at hand.

   This Note examines the trend of collaboration in relation to two recent developments in securities regulation. The discussion begins with an explanation of the institutional and theoretical playing field, including a look at the actors involved in U.S.-EU securities regulation and some theoretical observations on transnational regulatory cooperation generally. The Note then analyzes two instances of cooperation between the United States and EU on securities regulation. First, with much input from the European Commission ("EC" or "Commission"), the Securities and Exchange Commission ("SEC") recently loosened its rules on the deregistration of foreign issuers, a move resulting mainly from the passage of the Sarbanes-Oxley Act of 2002 (6) ("SOX"). Second, the SEC and European Commission are currently working toward mutual recognition of each other's accounting standards. Finally, the note ends with a summary of the approaches taken and future prospects for cooperation between the United States and European Union on securities regulation.

2. THE INSTITUTIONAL AND THEORETICAL UNDERPINNINGS OF U.S.-EU COOPERATION ON SECURITIES REGULATION

   1. The Relevant Actors

      A discussion of cooperation on transatlantic securities regulation must, of course, begin by identifying the relevant actors on each side. Readers may be familiar with the SEC, which is responsible for enforcing American securities laws. (7) On the European side, the EC serves as the EU's "executive arm." (8) It is divided into Directorates-General, each of which is responsible for a particular policy area. Thus, the Directorate-General for Internal Market and Services ("DG Markt") bears responsibility for securities regulation and generally "making the Single Market work." (9)

      The EC, and specifically the DG Markt, is the SEC's most analogous counterpart. The Commission has broad executive powers, (10) most notably the "right of initiative." (11) In exercising this right, it has the freedom to develop legislative proposals through a "relatively unstructured" process. (12) In fact, "[v]iewed from a U.S. perspective, the Commission and its Directorates-General appear to enjoy a high degree of autonomy in determining how to formulate a draft regulation or directive." (13) Thus, although the Commission's power differs in some aspects from that of U.S. agencies, it has at least as much authority as its American counterparts and enough autonomy to be able to negotiate on behalf of the EU.

      The SEC and EC are institutionally well situated for cooperation. Each has a sub-unit dedicated to transatlantic or international relations. The SEC has formed an Office of International Affairs, and the EC has both a Commissioner dedicated to external relations and a delegation in Washington, D.C., to represent it in its business with the U.S. government. (14)

      The two bodies have often reiterated their desire to cooperate. This rhetoric dates back to 1990, when the United States and then-European Community signed the Transatlantic Declaration on U.S.-EC Relations, which gave formal authority for a U.S.-EC partnership. (15) In order to achieve their common goals, the parties pledged to "inform and consult each other on important matters of common interest, both political and economic, with a view to bringing their positions as close as possible, without prejudice to their respective independence." (16) The Declaration is full of globalization-era buzzwords and phrases, invoking no less than the "well-being of all mankind" and the "preservation of peace and freedom" at the end of the Cold War. (17) But following such strong words, the Declaration lays out a "framework for consultation" without any specific goals for action on the agency level. (18)

      This official policy of cooperation is further complicated by the SEC's history of isolationist and unilateral policies. (19) Originally, the SEC acted on the assumption that "if a foreign issuer was going to tap the U.S. capital markets, it should play by the SEC's rules." (20) At that time, "the [SEC] did not give too much consideration as to how [its] expansive extraterritorial application of the securities laws would play out in foreign countries, or how legitimate foreign issuers would interpret the application." (21)

      By the late 1970s and early 1980s, the SEC recognized that circumstances had made a cooperative approach more appropriate. (22) Since then, the SEC has taken a more internationalist approach, focusing on comity with other states' regulations and accommodating the needs of foreign issuers. Yet this internationalist approach did not carry over to the SEC's requirement that foreign issuers comply with the provisions of SOX and make financial reports using the U.S. Generally Accepted Accounting Practices ("U.S. GAAP"), a U.S.-specific financial reporting standard. (23) Indeed, one former SEC Commissioner has accused the SEC of "frequently presum[ing] that U.S. standards are superior to standards abroad--an attitude that is greatly resented overseas." (24)

      In general, then, the SEC and EC seem to want an institutional policy centered around cooperation, but they have had difficulties realizing this policy in specific terms.

   2. How International Regulatory Cooperation Works

      International regulatory cooperation is not a one-size-fits-all solution. The result of effective regulatory cooperation is not necessarily (nor should it necessarily be) a single, international regulation and enforcement process. (25) In fact, as this Note will show, even within the limits of securities regulation, the type and stage of cooperation depends greatly on the result sought.

      Anyone seeking to criticize the efforts of the SEC and EC could easily point to documentation of the low intensity and commitment in their cooperation. For example, George Bermann has described methods for determining states' actual commitment to cooperation. (26) He asserts that, at least as of his writing in the mid-nineties, "[t]hose Commission services that have chosen to engage in programmatic cooperation with counterpart U.S. authorities have mostly steered away from high-intensity, high-commitment forms of programmatic cooperation." (27)

      But a full explanation of international regulatory cooperation must examine particular incidents of cooperation with three key questions in mind: "why?, about what?, and how?" (28) These questions are crucial to explaining when each of the various stages and forms of regulatory cooperation is appropriate. The Organisation for Economic Co-operation and Development ("OECD") has divided regulatory cooperation into three categories, defined by the stage at which cooperation occurs: "pre-regulatory arrangements," "regulatory arrangements," and "post-regulatory arrangements." (29) Agencies naturally begin the regulatory process in a policy development stage, during which pre-regulatory arrangements may help states participate in each other's rule-making process by, for example, exchanging information relevant to policy design. (30) An agency's next step is to adopt the regulations themselves. Here, a regulatory arrangement may dictate the adoption of common or congruent regulation. (31) Finally, once a regulation has been adopted it must be enforced. (32) Post-regulatory arrangements range from pooling resources into a supranational enforcement authority to arranging for mutual recognition of each party's enforcement authorities. (33)

      Regulatory cooperation varies not only with regard to which phase of regulation it affects, but also in terms of the depth of cooperation. Most generally, cooperation can be divided into hard or soft forms. (34) More specifically, though, the means of cooperation can be categorized by the type of delegation used. First, convergence and consensual harmonization can occur without any delegation at all. (35) Such a system allows each individual state to enforce its own regulations--which just happen to be equivalent to those of partner states. This form of soft cooperation therefore minimizes the leap of faith required of the states involved but, because it is non-binding, provides no means for ensuring states stick to their harmonized goals. Second, participating states can opt for some sort of hard cooperation, like supranational regulation through vertical delegation. That means, in addition to...