The Delaware Effect: Keeping the Tiger in Its Cage. The European Experience of Mutual Recognition in Financial Services

7 Colum. J. Eur. L. 337 (2001)

Patrick B. Griffin. Maitre de conference, University Panthton-Assas (Paris II); Consultant, Vogel & Vogel, Paris, France.

“Globalisation does not make a state powerless…. The market economy does not find harmony on its own account.”
– Lionel Jospin, Speech to the European Parliament, Strasbourg, October 1999.

For the purposes of this article, mutual recognition can be defined as a reciprocal agreement among jurisdictions to accept the others regulatory standards that govern the creation and conduct of companies and businesses. The effect of mutual recognition is to allow a company to establish and offer its services in host jurisdictions without the necessity of having to comply with the regulatory controls of those jurisdictions. Rather, the company is subject to the regulatory control of its home member state. Thus, regulatory control is removed from the host member state. Host member states having a tradition of high regulation may fear the application of mutual recognition will undermine the scope of the regulatory systems they have established. When creating a European internal financial services market, European regulators attempted to develop an application of mutual recognition that, on the one hand, facilitated the creation and functioning of a pan-European financial services market and, on the other hand, ensured an appropriate level of regulatory control so as to be acceptable to member states requiring high regulatory standards.