The Legitimacy of Global Financial Regulation and Post-Crisis Reform

This thesis examines the importance of legitimacy in international financial regulation and post-crisis regulatory reform by analyzing the theories of legitimacy in the disciplines of law, economics, politics, and international relations, and applying the principles of legitimacy to the analysis of the financial regulatory reform after the global financial crisis of 2008. It argues that legitimacy plays an imperative role in achieving the sustainability of the global financial regulatory system as legitimacy promotes the fairness of the rulemaking procedure and the reasonableness of substantive policy actions. Legitimacy of financial rulemaking is particularly important at the international level contrary to the conventional assumptions that legitimacy is a static concept, confined to established legislations. The absence of central governance and enforcement mechanisms at the international level warrants a higher level of legitimacy in the rulemaking procedure and substantive policy actions in international financial rulemaking. In particular, this thesis analyzes the relevance of legitimacy to financial regulation, identifies the principles of legitimacy applicable to financial regulation, assesses the legitimacy of the post-crisis financial regulatory reform with a focus on the reform of the global financial architecture, and demonstrates the nexus between legitimacy and sustainability of financial regulation in the digital era. The findings suggest that legitimacy is imperative in global financial regulation and post-crisis reform as an interactive concept, and emergency responses should be distinguished from post-crisis regulatory reform as their policy priorities and objectives are not identical. For general principles of legitimacy in financial regulation, the responsiveness, efficacy, integrity, and reasonableness of law and regulatory reform should be thoroughly considered. As these principles are based on the interactive and reciprocal relationship between regulators and citizens, an in-depth understanding of the concept of stakeholders in financial regulation is required. An empirical analysis of the legitimacy of international financial architecture reform in the post-financial crisis of 2008 demonstrates that the existing international financial governance systems lack legitimacy in many aspects, including the heavy reliance on soft law networks and the mismatch between participation and influence. It is necessary to improve the procedural fairness of global financial rulemaking by incorporating strengthened administrative rules and giving the stakeholders with legitimate interests access to the international financial rulemaking process. Recently, the rapid digitalization in the financial sector has brought critical implications to the legitimacy of financial regulation in the digital era as the global economy has strived to meet the new challenges posed by digital transformation. The growth of Fintech as a new business model has caused the reconfiguration of the traditional boundaries of financial regulation in several ways. Therefore, a comprehensive understanding of the regulatory ecosystem is essential for the long-term sustainability of the global economy, and the legitimate principles of financial regulation should be taken more seriously as guiding principles. In this regard, the role of international financial governance organizations is key to sharing information and aligning policy responses between regulators to address systemic risks that threaten the resilience and sustainability of global financial systems.