The Triumph of Soft Law in the Financial Sector: Can Non-binding Law Have Binding Domestic Legal Effects?

Abstract

Examining the seemingly simple question of whether guidelines in the financial sector are mandatory reveals a highly complex landscape for supervision of the financial sector across the European Union, where international and national financial law enter collision and the participants come to the table with differing mandates/expectations. The article addresses the results, with focus on banking regulation, wherein the European Banking Authority and, in Estonia, the Financial Supervision and Resolution Authority are among the main guideline-issuers. The balance achieved is critical because the fines that the supervisory and resolution authorities can impose on banks for non-compliance with mandatory rules can reach 10% of these entities’ total annual net turnover from the preceding business year. An effort to consider all of the relevant factors for understanding which side of the mandatory/advisory line the guidelines stand on, the article constitutes an attempt to initiate vital discussion of the environment created in the financial sector for soft law (i.e., guidelines), which may under certain circumstances take on a larger role than that soft law’s legal nature allows.