Playing the Hardball: Impacts of European Regulatory Externalization on Asia’s Capital Markets

Project Year: 2021 - 2022

Funding Source: General Research Fund

Project Team Member: Dr LI Yu Wai

This research project explores the impact of two European Union-originated regulatory initiatives of the post-subprime crisis years on East Asia. It focuses on Brussels’ endeavors to rectify the uses of financial index/benchmarks, and to promote transparency in derivatives markets. The two initiatives mark Brussels’ direct and targeted applications of its legal instruments over not just European financial firms operating worldwide, but also third-country (i.e. non-EU) jurisdictions. Such extra-territorial applications of EU rules over non-EU jurisdictions, however, challenge the very notion of legal sovereignty in international law and global regulatory affairs, as the “targeted” states in Asia appear to have very little choice but to act in accordance to Brussels’ pressures. The consequences of the ratcheting up and hardening of EU’s regulatory pressures, including the political ramifications, have remained underappreciated by political economists and policy specialists. To understand better how these hard techniques have worked in practice, this project adopts a “Market Power Europe” framework to: i) examine the different responses of Hong Kong, Singapore and South Korea toward EU pressure, ii) analyze how the impacts of the EU’s sanction mechanisms for Asian financiers and regulators are mediated between public authorities and private interests in the transnational spheres, and iii) understand how the coping strategies adopted by Asian jurisdictions to mitigate the impact on local market development have been devised and what determines their effectiveness.