Regulatory Influence in the Financial Markets Revisited

BYU Law Review Volume 50 Issue 6 Article 7 Summer 7-31-2025 Regulatory Influence in the Financial Markets Revisited Jessica E. Lees Follow this and additional works at: https://digitalcommons.law.byu.edu/lawreview Part of the Law Commons Recommended Citation Jessica E. Lees, Regulatory Influence in the Financial Markets Revisited, 50 BYU L. Rev. 1599 (2025). Available at: https://digitalcommons.law.byu.edu/lawreview/vol50/iss6/7 This Article is brought to you for free and open access by the Brigham Young University Law Review at BYU Law Digital Commons. It has been accepted for inclusion in BYU Law Review by an authorized editor of BYU Law Digital Commons. For more information, please contact . 2.LEES.FIN.NH.DOCX (DO NOT DELETE) 6/8/25 4:12 PM Regulatory Influence in the Financial Markets Revisited Jessica E. Lees* Historically, the financial markets of the United States and their corresponding regulatory scheme wielded unique influence throughout the globe. But this influence is waning, due largely to the centralization of financial services rulemaking within the European Union and the growth of global emerging markets. It is thus an important time to consider the circumstances under which a jurisdiction may assume and exercise the global regulatory influence traditionally wielded by the U.S. regime. This Article develops a new framework to specifically address regulatory influence within global financial regulation and financial markets more broadly, looking beyond market size to establish a more complex understanding of the factors that influence global regulatory decisions within this area. This Article begins from the premise that existing theories of regulatory influence and regulatory competition, such as Anu Bradford’s “Brussels Effect,” are applicable to financial markets. This Article then sets forth novel factors regarding the jurisdiction adopting a given regulatory position that must also be considered. This Article presents three illustrative case studies where the EU’s regulatory agenda has intersected with global financial regulation: (i) limitations on payment for the use of soft-dollar research; (ii) supervision of financial benchmarks following recent market manipulation scandals; and (iii) environmental, social, and governance (ESG) disclosures for financial products. These * J.D., Boston University School of Law; B.A., Brigham Young University. For helpful suggestions and discussion, I am grateful to Michalyn Steele, Brook Gotberg, Matthew Jennejohn, George S. Georgiev, William W. Clayton, Elysa Dishman, and Jane Mitchell, as well as participants of the Section on Securities Regulation at the Association of American Law Schools 2024 Annual Meeting, 2022 Rocky Mountain Junior Scholars Forum, and 2022–2023 BYU Law Work-in-Progress Series. Any errors are my own. 1599 2.LEES.FIN.NH.DOCX (DO NOT DELETE) 6/8/25 4:12 PM BRIGHAM YOUNG UNIVERSITY LAW REVIEW 50:6 (2025) case studies introduce new principles for evaluating regulatory influence that have been lacking in the existing legal literature and that are of particular importance given the continuing growth of emerging markets worldwide. CONTENTS INTRODUCTION .............................................................................................. 1600 I.GLOBALIZATION AND KEY SYSTEMS FOR FINANCIAL REGULATION ............... 1605 A. Globalization and the Financial Markets ..........................................1605 B. The United States and Its System for Financial Regulation ...........1608 C. The European Union and Its System for Financial Regulation ......1609 D. Growth of Emerging Markets .............................................................1613 II.THE BRUSSELS EFFECT AND FINANCIAL REGULATION ................................. 1614 A. Focus on Market Size and Importance ..............................................1615 B. The Brussels Effect: An Overview ......................................................1615 C. The Brussels Effect and the Financial Markets .................................1617 III.REGULATORY INFLUENCE IN THE FINANCIAL MARKETS ............................. 1620 IV.THREE CASE STUDIES FROM THE FINANCIAL MARKETS .............................. 1622 A. Explanatory Note on the Case Studies ..............................................1622 B. Payment for Soft-Dollar Research Under MiFID II .........................1623 C. Supervising Financial Benchmarks ....................................................1634 D. Regulation of Sustainability and ESG Disclosure ............................1642 V.KEY LESSONS FROM THE CASE STUDIES ....................................................... 1652 A. Rejecting Market Size as Exclusive Proxy .........................................1653 B. Starting with the Brussels Effect .........................................................1654 C. Reevaluating Regulatory Capacity.....................................................1654 D. Role of Investors Within the Financial Markets ...............................1657 E. Unifying Role of International Regulatory Networks .....................1661 F. Future Application to Emerging Markets .........................................1663 CONCLUSION ................................................................................................. 1665 INTRODUCTION The United States and its financial regulators, such as the U.S. Securities and Exchange Commission (SEC), have historically exercised unique regulatory power over both domestic U.S. and broader global markets. The number of multinational companies that have sought and continue to seek to raise capital through the 1600 2.LEES.FIN.NH.DOCX (DO NOT DELETE) 1601 6/8/25 4:12 PM Regulatory Influence in the Financial Markets U.S. markets,1 as well as the number of jurisdictions that have adopted financial regulation modeled after existing U.S. laws, evidence this role.2 Due to a number of factors,3 however, the regulatory influence of the U.S. regime has begun to wane, leaving a void within which to consider how and when a jurisdiction’s financial regulation may assume and exercise unilateral regulatory influence. While a variety of elements have contributed to the changing role of U.S. financial markets and their corresponding financial regulatory scheme, two of the most significant are the increasing centralization of rulemaking authority within the European Union (EU) and the growth of emerging markets.4 The EU began key efforts to harmonize rules and centralize rulemaking in the financial services sector in the late 1990s and early 2000s. And these efforts have led to a significantly more unified EU financial market with increased regulatory power. Additionally, the growth of emerging markets throughout the world has resulted in stronger regulators, and corresponding financial services regulation, in these jurisdictions.5 This growth has, therefore, begun a process described as a “‘decoupling’ of transactions from (...truncated)