Substituted Compliance: An Australian Regulator’s Perspective

by: Greg Tanzer

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February 5, 2007

48 HARV. INT'L L.J. ONLINE 21 (2007)

Greg Tanzer is the Executive Director for Consumer Protection and International Relations at the Australian Securities and Investments Commission.

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The “forces of change” affecting the U.S. regulatory environment described in Ethiopis Tafara’s and Robert Peterson's article A Blueprint for Cross-Border Access to US Investors: A New International Framework (“the Blueprint”) are challenging regulators across the world. The Australian Securities and Investments Commission (“ASIC”) has been developing an approach to regulating cross-border trade in financial services, and this has found expression in a number of ASIC policy statements. This commentary, which explores possible approaches to such “forces of change,” is therefore given from the perspective of a regulatory authority that has articulated a position on regulating cross-border trade and is grappling with implementing that policy.

The notion of “substituted compliance” is a significant step in the development of a policy framework for regulating capital markets that, as the authors note, are global. Overseeing stock exchanges with global links, regulating cross-border securities transactions, and deterring cross-border financial fraud are the reality for securities regulators, and it is critical that regulation take account of and move with developments in industry, especially international developments.

The tools generally used to regulate domestic securities markets are not necessarily effective in responding to the challenges of cross-border trade, or indeed cross-border fraud. More significantly, as the authors clearly articulate, the philosophy and policy rationale underpinning these domestic regulatory regimes are similarly constrained. A regulatory philosophy that operates solely on the premise that “if you want to play in my sand pit you have to play by my rules” is of limited value where investors can and do readily access alternative investment options using available technology. The challenge is therefore to develop a policy framework that recognizes that local investors want to access international financial markets without domestic regulation imposing an unreasonable impediment, while ensuring that the objectives of the domestic regulatory regime and integrity of the market are not compromised. Given the competitiveness of the financial-services marketplace globally, and the speed of these developments, it is important and increasingly urgent that this challenge be addressed.

To meet this challenge, there needs to be a coherent policy framework for the interaction of domestic regulation with cross-border trade, augmented by effective mechanisms for taking enforcement or other regulatory action as necessary. In my view, the policy framework set out in the Blueprint provides the basis for meeting these requirements for an effective cross-border regulatory approach. ASIC welcomes the article and the opportunity to engage in debate on this important topic.

In this commentary, I will discuss ASIC’s approach to regulating cross-border trade in financial services and explore the similarities and differences from the approach suggested by Mr. Tafara and Mr. Peterson. In doing so, I will reflect on both the challenges facing regulators in dealing with this area and, in particular, the need for the policy framework to be practicable.

ASIC strongly endorses the notion that any system for facilitating market access must have as its basis an understanding that the home jurisdiction has a regulatory regime comparable to that of the domestic jurisdiction, both in law and in practical application. ASIC also strongly endorses the notion that an ongoing commitment to cooperation and communication in both inspection and enforcement contexts is vital. Where these fundamental conditions can be satisfied, there is a strong argument for the regulatory functions performed in the foreign jurisdiction to be regarded as compliant with the requirements of the domestic regime....

* This excerpt does not include citations. To read the entire article, including supporting notes, please download the PDF above.

Suggested Citation: Greg Tanzer, Substituted Compliance: An Australian Regulator’s Perspective, 48 HARV. INT’L L.J. ONLINE 21 (2007), http://www.harvardilj.org/online/104.


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