The courts, the financial crisis and systemic risk
- *Jeffrey B. Golden is a General Editor, Capital Markets Law Journal; Founder Partner, US Law Group, Senior Partner, Global Derivatives Group, Allen & Overy LLP. He has appeared as an expert witness in several high profile derivatives cases and has served on the American Bar Association's working group on the rule of law and economic development (Chair), the Financial Markets Law Committee's working groups on amicus briefs, emergency powers legislation and Enron v TXU (Chair), the Financial Law Panel's; working groups on agency dealings by fund managers and other intermediaries and building societies legislation, the Federal Trust's; working group on European securities regulation and the European Commission's; study group, the City of London joint working group and ISDA task forces on the legal aspects of monetary union. He is Immediate Past Chair of the American Bar Association Section of International Law, co-chair of its Financial Engineering for Economic Development (FEED) task force, former co-chair of its International Securities and Capital Markets Committee and a Life Fellow of the American Bar Foundation. This article is based on a paper delivered at the Future of Financial Regulation Conference, 30–31 March 2009, University of Glasgow.
- Jeffrey.Golden{at}allenovery.com
Key points
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The current financial crisis has given rise to considerable discussion and debate about the role of financial market regulation in the mitigation of systemic risk, but little attention has been paid to our courts and their preparedness to deal with complex product litigation and financial market disputes.
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In fact, financial market disputes are becoming increasingly complex, the amounts at stake are considerable and the volume of cases is rising.
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Trading based on standard contracts and terms means that a wrong decision from a court can give rise to a systemic consequence. Indeed, the wider market may have a greater interest in the outcome of a case than do the parties which are litigating the matter. Unfortunately, there are impediments, which are discussed, that highlight the difficulty of making certain that relevant background from such a global and dynamic marketplace makes its way into the proceedings.
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Concerns are growing that the present, decentralized way of adjudicating financial market disputes is unnecessarily slow, expensive and unpredictable, and failing to produce a settled and authoritative body of relevant law. As a result there is impetus to think more creatively about dispute settlement in the global financial markets and ways to ensure a ready supply of competent jurists equipped to handle effectively the cases arising.
1. Introduction
What role would we wish to see our courts play in dealing with complex financial instruments, matters arising from the current financial crisis and, in due course, the new regulatory regime that we have been discussing and expect will emerge from this crisis? Do we think that the courts, as currently constituted, are prepared to play that role? Is there more, in any event, that the markets, the profession and academia can do to ready them?
This special issue of the Journal has focused on financial regulation …
