Updated April 1, 2025

Introduction to Financial Services: International Regulation

While financial markets have become global, financial compliance with the agreed-upon international financial
regulation and supervision is conducted by domestic standards, among other functions.
agencies. Thus, domestic regulators take into account how
financial institutions and markets they regulate are affected Figure 1. International Financial Regulatory
by international financial markets and foreign regulatory Architecture
frameworks. In the absence of an international financial
supervisor or regulator, countries negotiate voluntary
international financial standards and best practices that
domestic regulators may choose to implement.
The 2008 financial crisis underscored the
interconnectedness of the global financial system as well as
its weaknesses. After the crisis, international financial
stability became a policy priority that transcends national
boundaries—policies that lead to financial instability in one
country can cause it to spill over into other countries. Even
before the crisis, international standards were negotiated to
(1) avoid a “race to the bottom” to attract financial firms to
jurisdictions through lax regulatory standards and (2)
coordinate regulation of financial firms with international
operations. Despite these efforts, substantial differences
exist among national regulations.
Congress grants U.S. financial regulators broad authorities Source: CRS.
to regulate financial markets to achieve particular policy
objectives and has been interested in the extent to which Key Standard-Setting Institutions
international fora influence domestic regulation. This In The key international organizations involved in setting
Focus explains the general structure of the international financial regulatory standards are
organizations that set financial regulatory standards.
• The G-20 is an informal grouping of 19 major national
Background economies (including the United States) and the
In contrast to the rules-based system governing European Union. Finance ministers and central bank
international trade, centered on the World Trade officials work through the G-20 to agree on a global
Organization (WTO), international financial regulation is a international financial regulatory agenda.
standard-setting system and fragmented, with regulatory
and supervisory authority dispersed among a range of • The FSB is a technical body established by the G-20 to
international and national institutions (see Figure 1). coordinate the G-20 agenda and set the priorities for
The Group of 20 (G-20) and the Financial Stability Board the international financial standard-setting process.
(FSB) set the overall agenda for international regulatory FSB members include the regulators from G-20
frameworks, and more specialized international groups set members, several international financial institutions,
standards for their respective financial markets. Domestic and the most important standard-setting bodies (e.g.,
regulators and self-regulatory organizations participate in accounting, banking, insurance). The primary U.S.
the international standard-setting bodies, where participants representatives to the FSB are the Federal Reserve, the
negotiate market or regulatory standards and agree to Securities and Exchange Commission (SEC), and the
implement them domestically. The international agenda and Treasury Department, with other U.S. agencies
standard-setting bodies operate on a consensual basis and participating in FSB working groups and activities.
have no legally binding authority. Because national
regulators (or other authorities) cannot enter into treaties • The Basel Committee on Banking Supervision
with other countries, agreements made at international fora (BCBS) is part of the BIS and formulates standards,
or by regulators at standard-setting bodies require domestic guidelines, and best practices in banking. BCBS
legislation and/or rulemaking to be implemented. members are the national banking regulators. The
International financial institutions, such as the International Federal Deposit Insurance Corporation (FDIC), the
Monetary Fund (IMF) and the Bank for International Federal Reserve, and the Office of the Comptroller of
Settlements (BIS), provide overall surveillance of national the Currency (OCC) are U.S. representatives.

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 Introduction to Financial Services: International Regulation

• The Committee on Payments and Market For example, several U.S. regulators are members of the
Infrastructure (CPMI) sets standards for payment, Central Banks and Supervisors Network for Greening the
clearing, and settlement systems. The Federal Financial System (NGFS), which is dedicated to sharing
Reserve’s board and Bank of New York are members. “best practices, contribute to the development of
environment and climate risk management in financial
• The Financial Action Task Force (FATF) develops sector, and to mobility mainstream finance to support the
standards and policies to combat money laundering and transition toward a sustainable economy.” Yet
terrorism financing. Several U.S. agencies, including environmental policy is not mentioned in U.S. financial
the Treasury and the SEC, are members. law, and Congress has not passed legislation mandating
regulators to examine climate change. However, regulators
• The International Association of Deposit Insurers do have general mandates to ensure financial stability,
(IADI) develops standards for deposit insurance which regulators have interpreted to include indirect risks
institutions. The U.S. representative is the FDIC. such as climate change, and Treasury has urged regulators
to focus on climate risk.
• The International Association of Insurance
Some Members of Congress have raised concerns that
Supervisors (IAIS) is the international standard-
setting body for the insurance sector. The U.S. international agreements—such as Basel III, negotiated by
the BCBS—are effectively superseding U.S. laws. Critics
representatives include the Federal Insurance Office
argue that when U.S. regulators propose rules to implement
(FIO), the Federal Reserve, and the National
Association of Insurance Commissioners. already negotiated agreements that have not been vetted by
Congress or domestic stakeholders, it violates the spirit of
the Administrative Procedure Act. However, domestic rules
• The International Financial Reporting Standards
Foundation (IFRS) is an independent, privately have deviated from international agreements on some
details. For example, the Dodd-Frank Act requires banks to
funded UK-based organization that develops
develop alternatives to credit ratings for use in capital
international accounting and sustainability standards.
After many years of discussion on international requirements. Basel III, by contrast, makes extensive use of
credit ratings, so U.S. implementation deviated from Basel
convergence, the U.S. Financial Accounting Standards
III standards. Thus, discontent may ultimately stem from
Board (FASB) and the SEC have chosen to maintain
the U.S. Generally Accepted Accounting Principles independent regulators pursuing their own policy priorities
without congressional input, which are then reflected in
(GAAP) and not merge with IFRS. The SEC is an
observer to the IFRS. international agreements, rather than international
agreements trumping domestic law. Another concern is that
the United States is placing itself at a competitive
• The International Organization of Securities
disadvantage when it implements international financial
Commissions (IOSCO) develops and promotes
securities regulatory standards. The U.S. standards before international peers—although in some
representatives are the SEC and the Commodity cases the United States has lagged behind.
Futures Trading Commission (CFTC). The extensive volume of international financial standards
has grown increasingly complex. Some observers contend
Other international financial standard-setting bodies, such that there is a limit to the progress that can be achieved by
as the International Swaps and Derivatives Association relying on a network of voluntary, nonbinding international
(ISDA), have exclusively private sector members. financial standards. This has led some observers to
advocate for strengthening the role of international
Congressional Interest in International institutions and others to advocate for reducing their
Financial Standards influence on national-level regulation.
Generally, Congress sets overarching policy goals for
financial regulation, and regulators have broad agency to The 118th Congress sought to enhance congressional
formulate detailed standards that achieve those goals, such oversight of regulatory activity at the international level.
as increasing capital levels or enhancing consumer For example, provisions in both H.R. 4823 and H.R. 4790
protections. Some domestic rules originate from would have (among other things) required regulators to
international agreements when consistent with U.S. provide the committees of jurisdiction with notice,
statutory authority. U.S. regulators have broadly testimony, and economic analysis before proposing or
embraced—and in many cases spearheaded—the finalizing major rules recommended by international
international financial reform agenda, making it unlikely organizations such as the FSB, the BCBS, and the NGFS.
that reforms will be agreed to that they oppose—although The bills would have required the regulators to report to the
Congress may be opposed. Nevertheless, given its leading committees on their interactions with those organizations
role in these organizations, U.S. regulators may feel annually and provide the committees information before
compelled to compromise on details to maintain meeting or engaging with them on climate-related financial
international consensus, which in turn may result in foreign risk. Other legislation would have required reports to
regulators conceding to some U.S. policy priorities. Thus, Congress on regulatory interactions with BCBS (S. 2655)
Congress may consider whether international standards or prohibited implementation of the proposed Basel III
align with its policy goals or whether it is appropriate to Endgame rule (H.R. 7143).
constrain regulatory authority. Andrew P. Scott, Specialist in Financial Economics
Marc Labonte, Specialist in Macroeconomic Policy

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 Introduction to Financial Services: International Regulation

IF12741
Martin A. Weiss, Specialist in International Trade and
Finance

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