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1 August 2011 
 
 
 
 
 
REINVIGORATING OPEN TRADE IN FINANCIAL SERVICES 
 
I. 
INTRODUCTION 
1. 
Global work on economic recovery and regulatory reform1 is well underway. Likewise, 
there is new momentum in bilateral, regional and multilateral trade negotiations. Against this 
backdrop, it is important to reinvigorate efforts to open trade in financial services as an essential 
component of economic recovery and as a driver of increased trade and investment flows. 
Financial services liberalization in conjunction with global efforts toward consistent regulation 
will advance the G20‟s economic recovery and reform agenda.  
2. 
G20 leaders have highlighted the critical role vibrant financial markets play in providing 
the credit and capital essential for economic growth, especially in developing countries. 
Financial services firms operating in a sound regulatory environment help companies manage 
risk, raise debt and equity, carry out acquisitions or sales, and help individuals mobilize their 
savings and plan and invest for the future. Capital markets facilitate economic growth and 
development by substantially broadening the range of vehicles for savings and investment and 
lowering the cost of capital for businesses and entrepreneurs.  
3. 
Notwithstanding these benefits, some regulatory reform efforts and trade policy 
discussions suggest that a need for “de-globalization” or “dis-integration” of financial markets is 
the right conclusion to draw from the financial crisis. This is sometimes driven by the perception 
that open markets in financial services were a contributor to the crisis.      
4. 
According to the WTO, this is not the lesson to be drawn from the crisis. In a Secretariat 
Note that analyzed the financial crisis, the WTO concluded that “none of the root causes of the 
financial crisis can be attributed to services trade liberalization as provided for in the GATS, 
namely granting market access and national treatment” and “the crisis [also] cannot be attributed 
to the involvement of foreign financial institutions . . . .”2   
                                                 
1 Attached as Annex 1 is a summary of key measures to strengthen financial institutions, enhance supervision, 
mitigate risk and address „too big to fail‟ 
2See Council for Trade in Services and Committee on Trade in Financial Services, Financial Services: Background 
Note by the Secretariat
, S/C/W/312, S/FIN/W/73, February 3, 2010, para. 96 (“WTO Financial Services Secretariat 
Note”).  
  

 
5. 
The proper response to the crisis is not financial protectionism and shutting down global 
markets through balkanized regulatory regimes,3 but reinvigorated support for open markets.4  
The expansion of trade in financial services and with it, financial deepening, will contribute to 
economic growth and recovery.5   
6. 
The G20 leaders have agreed with this approach. At the Toronto Summit they declared: 
[F]inancial sectors in some emerging economies need to be developed further so 
that they can provide the depth and breadth of services required to promote and 
sustain high rates of economic growth and development. It is important that 
financial reforms in advanced economies take into account any adverse effects on 
financial flows to emerging and developing economies. Vigilance is also needed 
to ensure open capital markets and avoid financial protectionism.6  
7. 
This paper sets forth some principles that should inform negotiations on trade in financial 
services, whether in bilateral or regional FTAs or in the Doha Round. 
II. 
BENEFITS OF OPEN FINANCIAL SERVICES MARKETS 
8. 
Liberalization of financial services is central to advancing economic growth in developed 
and developing countries, as economists have empirically demonstrated.7  As financial markets 
develop, they create long-term economic growth, stronger, more competitive financial 
institutions, and a more stable financial system. 
9. 
  Indeed, the World Bank has estimated the value of further liberalizing trade in financial 
services for developing countries at $300 billion.8 
10. 
Diversified financial services markets enhance economic growth and financial stability 
by developing new avenues for investing savings and funding entrepreneurial activity beyond the 
banking sector. As Managing Director of the Monetary Authority of Singapore, Heng Swee 
Keat, observed: 
[The] bigger challenge lies less in having more stringent regulations, but more in 
development and innovation of financial services to complement . . . economic 
                                                 
3 Unharmonized regulatory regimes may result in unnecessary restrictions on the cross-border financial services 
business or require global financial institutions to enter into transactions in a fragmented way. This in turn impedes 
centralized, global risk management and reduces the potential for loss absorbency. 
4 For example, Malaysia has responded to the financial crisis by implementing a broad liberalization package aimed 
at improving access to both the conventional and Islamic financial sectors.  See WTO Financial Services Secretariat 
Note at para. 117, n. 83. 
See WTO Financial Services Secretariat Note at para. 69. 
6 G20 Toronto Summit, “Toronto Summit Declaration,” June 2010, para. 13, available at 
http://www.g20.utoronto.ca/2010/to-communique.html. 
See, e.g., WILLIAM R. CLINE, FINANCIAL GLOBALIZATION, ECONOMIC GROWTH, AND THE CRISIS OF 2007-09, pp. 
33, 141-42 (Peterson Institute 2010) (analyzing 80 studies of financial liberalization and concluding that “the great 
preponderance of empirical evidence is on the side of a positive growth effect of openness.”).   
8 World Bank, Global Economic Prospects and the Developing Countries at p. 172, Table 6.3 (2002).  
  


 
development.  Savings rates in Asia are high, but these have to be efficiently 
intermediated to support productive investments.  In most parts of Asia, the 
banking system dominates the intermediation channel.  Developing a stronger 
second channel through the capital markets, venture funds and private equity to 
support a range of entrepreneurial activities can raise the efficiency and resilience 
of the system.  This will also provide a wider range of asset classes to meet the 
investment needs of a rising middle class.9  
11. 
The development of financial markets is assisted by the presence of foreign suppliers of 
capital markets-related services, whether through commercial presence or the delivery of 
services cross-border. Experience demonstrates that foreign suppliers enhance competition and 
bring to a market additional capital, technology, products and expertise. Each of these factors can 
reduce the cost of financial services, and thereby improve the competitiveness of domestic 
companies that use these services.  
III. 
OPEN TRADE IN FINANCIAL SERVICES IS FULLY COMPATIBLE WITH 
SOUND REGULATION OF FINANCIAL MARKETS  

12. 
The most persistent and unjustified concern about opening trade in financial services is 
that it equates liberalization with deregulation. This is not the case. Trade in financial services 
focuses on questions of market access and nondiscriminatory treatment, not the prudential 
conditions that apply in the market in question. Opening markets to foreign competitors can be 
done without prejudice to regulatory standards. Liberalizing trade in financial services is about 
open markets, clear rules and fair competition, not deregulation. 
13. 
Indeed, sound regulation is essential to healthy, open, and competitive markets.  A key 
aspect of liberalization is designing regulations that protect investors, promote fair, efficient, and 
transparent markets and reduce systemic risk.  Individuals and companies seeking to invest or 
raise funds will not rely on the financial markets unless they have confidence that those markets 
are well regulated.  
14. 
Financial services regulations typically include: 
  Standards that a supplier must meet in order to be authorized or licensed to do business in 
a market, such as standards that address capital adequacy and liquidity, the supplier‟s 
knowledge, resources, skills, and risk management procedures (“authorization 
requirements
”); 
  Rules of conduct for a supplier doing business in a market, including rules relating to 
disclosure of information (including risk warnings) to customers, disclosure of 
information about the supplier, execution of orders, and the protection of customer assets 
(“conduct of business rules”); and 
  Rules relating to fraud, insider dealing, and market manipulation (“market abuse rules”).  
                                                 
9 Keynote Address by Heng Swee Keat, Managing Director, Monetary Authority of Singapore at the Paris 
EUROPLACE International Financial Forum, “Next State: Policy Challenges in Asia,” October 26, 2009, paras. 16-
17, available at 
http://www.mas.gov.sg/news_room/statements/2009/Speech_by_Mr_Heng_Swee_Keat_for_Paris_Europlace_confe
rence_on_26_October_2009.html. 
  


 
15. 
An effective regulatory regime will maximize access for suppliers and consumers without 
undermining key regulatory objectives. As the International Organization of Securities 
Commissions (“IOSCO”) has noted, a regulator often conducts a:  
[cost-benefit] analysis to facilitate an understanding of the financial and other 
costs of the proposed regulation to the intermediary as compared to the benefits 
the regulation is expected to produce for investors and other market participants.10  
16. 
Each country‟s commitments to broaden market access would continue to be subject to 
exceptions for prudential measures and for measures taken to safeguard the balance of 
payments.  These exceptions provide additional latitude necessary for regulatory reform efforts.  
Concerns about regulatory capacity can be addressed by making commitments subject to a 
reasonable phase-in period, consistent with increasing regulatory capabilities. 
17. 
In fact, the WTO Secretariat has confirmed that in responding to the financial crisis, 
market access commitments on financial services did not hinder Members‟ flexibility to make 
the regulatory choices they deemed necessary to stabilize their economies.11 Most countries 
maintained, rather than contracted, market access and implemented new policies for the limited 
purpose of closing regulatory loopholes and temporarily supporting financial institutions.12   
IV. 
CAPITAL MARKETS LIBERALIZATION  
18. 
A single capital markets transaction today often includes more than one kind of financial 
activity and may involve all four “modes” of supply. For example, an underwriting of debt 
securities may require in-person meetings (including due diligence) with management of the 
issuer, as well as electronic and telephonic exchanges of information. In addition, the issuer may 
enter into a derivatives contract with the underwriter to hedge an interest rate risk. As a result, in 
order to most sensibly integrate their consumers with global financial markets and to secure the 
benefits of capital-markets liberalization, countries will need to make commitments with respect 
to all capital markets-related activities and in all four modes of supply.  
V. 
CROSS BORDER ACCESS (MODE 1)  
19. 
Countries should permit suppliers and consumers of capital markets-related services to 
transact business on a cross-border basis, and such suppliers and their services should be entitled 
to national treatment.  
20. 
Countries should facilitate cross-border access by exempting foreign suppliers under 
certain circumstances from authorization requirements (described at paragraph 14 above).  As 
described in the IOSCO Report, many Members currently do offer such exemptions, taking into 
account one or more of the following factors:  
                                                 
10 Technical Committee of the International Organization of Securities Commissions, “Regulation of Remote Cross-
Border Financial Intermediaries,” February 2004, p. 4, available at http://www.iosco.org/library/pubdocs/pdf/ 
IOSCOPD162.pdf (“IOSCO Report”). 
11 See WTO Financial Services Secretariat Note at para. 117. 
12 See WTO Financial Services Secretariat Note at para. 117. 
  


 
• whether the investor is sophisticated (as defined in local law), thereby 
recognizing that the securities laws need not protect sophisticated investors in 
certain circumstances;  
• whether the foreign supplier is well regulated in its home jurisdiction (i.e., 
unilateral or mutual recognition of other regulators);  
• whether the foreign supplier solicits customers, or actively markets its services, 
in the local jurisdiction; and  
• whether the securities transaction is “intermediated by” (i.e., conducted through) 
a locally authorized supplier.13  
21. 
As recognized in the IOSCO Report, the regulation of cross-border suppliers is based on 
“considerations relating to the goals of investor protection, efficient capital markets, and the 
appropriate balance between these two.”14  Even when such suppliers are exempted from 
authorization requirements, the provision of the services typically would remain subject to the 
conduct of business and market conduct rules described above that are aimed at investor 
protection and safety and soundness concerns.  
VI. 
CONSUMERS WHO TRAVEL ABROAD (MODE 2)  
22. 
Countries should allow their consumers to obtain any capital markets-related service 
when they travel outside their home territories. Many countries already permit their consumers to 
do so, based on a balancing of the goals of investor protection and efficient capital markets as 
referred to in the IOSCO Report.  
VII. 
COMMERCIAL PRESENCE (MODE 3)  
23. 
Countries should permit foreign suppliers of capital markets-related services to establish 
a new commercial presence or acquire an existing commercial presence in their territories. Such 
suppliers should be able to choose their corporate form (e.g., a 100%-owned subsidiary, a branch 
or a joint venture) and be treated no less favorably than domestic suppliers (i.e., national 
treatment).  Countries are of course free to regulate financial products offered by foreign 
suppliers on the same terms as apply to those offered by domestic suppliers. 
VIII.  THE MOVEMENT OF PERSONS (MODE 4)  
24. 
Countries should permit temporary entry into their territories for persons who supply 
capital markets-related services to work with clients or to staff a commercial presence. 
IX. 
REFLECT EXISTING FAVORABLE MARKET ACCESS CONDITIONS IN 
COMMITMENTS  

25. 
Many countries currently provide market access that is consistent with some or all of the 
recommendations described above. In most cases, however, this level of access is not reflected in 
their international commitments. Countries – both developed and developing – should at a 
                                                 
13 See IOSCO Report at pp. 5-9. 
14 IOSCO Report at p. 1. 
  


 
minimum ensure that their commitments reflect the level of market access afforded under their 
domestic laws. This will afford the legal certainty and predictability that stimulate economic 
activity.  
X. 
TRANSPARENT REGULATION  
26. 
Regulation must be transparent: both suppliers and consumers of capital markets-related 
services must know what the rules are and have confidence that the rules will be applied 
consistently and fairly. Although there are different ways to achieve this goal, in general, 
regulators should: (i) propose regulations in draft form and provide interested parties the 
opportunity to comment on such draft regulations, where practicable; (ii) make publicly available 
the requirements that suppliers must meet in order to supply a service; and (iii) enforce laws and 
regulations according to fair and transparent criteria.  
XI. 
PROCESSING OF FINANCIAL DATA 
27. 
Countries should permit financial institutions freely to transfer information outside of the 
local jurisdiction for processing. They should also permit financial institutions to perform certain 
functions, such as trade and transaction processing, in their home jurisdiction rather than require 
that those activities be conducted by a local affiliate. 
XII. 
INVESTMENT PROTECTIONS 
28. 
Where bilateral or regional trade agreements include investment chapters, it is important 
that they include meaningful protections for investors in financial services institutions, including 
non-discrimination, fair and equitable treatment, free transfers of profits and capital, prompt, 
adequate, and effective compensation for any expropriation, and the ability to use international 
arbitration to resolve disputes. Robust investment protections can encourage billions of dollars of 
investment. 
 
 
The organizations that have produced and endorsed this paper represent the shared interests of 
financial services firms operating in markets across the global economy. They share a 
commitment to stable, competitive and sustainable financial markets that support economic 
growth and benefit society.    

 
  


 
Annex 1: The changing regulatory landscape in financial services: key measures to strengthen financial institutions, enhance supervision, mitigate risk and address ‘too 
big to fail’ 

New regulatory 
New leverage and 
Prohibition of 
Greater alignment of 
New approaches to 
Reform of 
Greater oversight of 
New measures to 
capital requirements  liquidity rules to 
‘proprietary 
pay and long term 
supervision of 
derivatives markets 
credit rating agencies  ensure financial 
intended to buffer 
make firms better 
trading’ by 
risk management to 
systemic risk  as 
directed towards  
and certain fund 
services firms can 
firms against losses  
able to weather 
investment banks  
ensure remuneration 
well as prudential 
increasing 
managers  
fail without 
instability   
does not encourage 
conduct 
transparency and 
systemic risk, or 
excessive risk-taking.  
use of exchanges.  
taxpayer support 
New Basel III 
New ratios for 
In the US, under the 
Financial Stability 
Much greater 
Reform in both EU 
Greater supervision of 
US and  EU 
standards will impose 
leverage and liquidity  „Volcker Rule‟ 
Board guidelines, 
awareness of need to 
and US to ensure, 
rating agencies and 
regulators all 
higher regulatory 
in Basel III intended 
trading done solely 
translated into new 
understand systemic 
where practicable 
greater transparency of  requiring 
capital ratios on 
to help guard against 
for the short term 
European guidelines 
risk at a global level, 
and appropriate, 
rating agency 
development of 
financial institutions.  
excessive gearing 
financial gain of an 
through CRDIII and 
driven by FSB and 
greater 
methodology and 
„living wills‟ for 
and ensure that 
investment bank will 
that proscribe large 
IMF.  
standardisation of 
evidence base.  
financial firms, 
Additional measures 
institutions can raise 
be prohibited.   
upfront cash bonuses 
derivative contracts, 
ensuring regulators 
under consideration 
capital quickly.  
to market practitioners 
Creation the 
greater use of central 
New rules on the 
understand their 
for  „Systemically 
responsible for 
European Systemic 
clearing and greater 
regulatory oversight of  counterparty risk and 
Important Financial 
material risk.   
Risk Board in the EU 
transparency to 
private equity and 
can resolve them 
Institutions‟ and in 
and the Financial 
regulators and 
hedge funds and their 
quickly and without 
the US, enhanced 
US regulators are 
Stability Oversight 
markets on what is 
managers in the EU 
systemic instability.  
prudential standards 
considering similar 
Council in US, to 
being traded. 
and US 
for certain institutions 
moves.  
monitor and report to 
Widespread 
specifically provided 
governments on 
consideration of 
for in Dodd Frank.  
General industry shift 
potential systemic 
forms of „contingent‟ 
to much greater 
risk.  
debt, convertible into 
New tougher 
remuneration in 
equity if a financial 
definitions of Tier 1 
equity, deferred 
Shift in prudential 
firm finds itself in 
capital, essentially 
remuneration and 
culture away from 
trouble.  
limiting core 
clawback against 
micro focus on 
regulatory capital to 
performance failure.   
individual firms to 
In the US, the 
common equity.  
parallel 
creation of an orderly 
understanding of 
liquidation regime to 
counterparty and 
handle the resolution 
network risk. 
of failed firms. 
 
New regular stress 
tests to determine the 
strength of 
institutions.