Expanding Africa’s influence in global financial architecture: Role of AU Law

Global financial standard-setters, such as the Basel Committee on Banking Supervision (BCBS), the International Organisation of Securities Commissions (IOSCO), and the International Association of Insurance Supervisors (IAIS), play a key role in the definition of international financial-sector standards.

The position and influence of African Financial Supervision Authorities (FSAs) in these organisations has received little attention. However, such analysis is very relevant to understand whether the interests and needs of African countries are properly considered in the process of development of global financial standards.

In this short piece, I argue that African FSAs face major obstacles to effectively participate in global financial standard-setting activities, and I propose that African Union (AU) law and institutions can play a significant role in expanding Africa’s influence in such activities.

Barriers to Africa’s influence in the global financial architecture

The rules of global financial standard-setters often create barriers of access to African FSAs. A good example is the membership criteria in the BCBS, which favour countries with banking sectors that are relevant to “international financial stability” and hence give pre-eminence to jurisdictions with large banking sectors, but limit membership by African FSAs.

In this respect, with some exceptions, such as Egypt, Morocco, Nigeria, and South Africa, most African countries have rather modest banking sectors, with very limited impact on international financial stability.

Indeed, among the 45 members of the BCBS, there is only one African FSA, namely the South African Reserve Bank, from South Africa, which has Africa’s largest banking sector. In addition to membership restrictions, the commitments that membership in global financial standard-setters entail may also constitute barriers of access, notably when these require significant economic or legal adaptation costs.

For example, in the year 2015, the IOSCO rejected the Securities and Exchange Commission of Zimbabwe’s application for ordinary membership on the grounds that its domestic laws were not tailored to the commitments that IOSCO requires to its members.

In the IOSCO and the IAIS, supranational African FSAs are in a particularly disadvantageous position because their membership and voting rights within them are not proportional to the number of member states under their supervision.

For example, the Regional Council for Public Savings and Financial Markets (the CREPMF), which is the exclusive supervisor of eight member states of the West African Monetary Union has only one vote in the IOSCO. The IAIS gives a similar treatment to the Inter-African Conference of Insurance Markets (CIMA), which comprises 14 member states. Paradoxically, Australia, through its two voting members in the IAIS, has more voting power than all the CIMA member states combined.

Decision-making power within global financial standard-setters is largely controlled by “Western” FSAs, and this limits the ability of African FSAs to effectively participate in their standard-setting activities. A good example are the rules concerning the IOSCO Board –the main standard-setting body of the IOSCO–, which reserve 18 out of its 33 seats to so-called ‘nominated members’ which must come from “jurisdictions with the largest markets”.

This restrictive approach is detrimental to most African jurisdictions and, indeed, no African FSA has ever been appointed to the IOSCO Board as a nominated member. The exclusion of African FSAs from the core IOSCO standard-setting activities starkly contrasts with their determination and willingness to actively engage with those activities.

Indeed, the IOSCO Africa/Middle-East Regional Committee (AMERC), has repeatedly called for a greater role of African and Middle-East FSAs in the IOSCO Board. Whist recent years have seen an expansion of the responsibilities of African FSAs and the AMERC, including in major regulatory areas such as fintech or sustainable finance, their influence in the IOSCO’s main standard-setting tasks is still very limited.

How can AU Law help expand Africa’s influence in global financial standard-setting?

The Constitutive Act of the AU provides that one of the AU’s goals is to: “establish the necessary conditions which enable the continent to play its rightful role in the global economy and in international negotiations.”

An important question is the extent to which AU law can help to achieve this goal and to overcome the obstacles that Africa faces to effectively access and influence global financial standard-setting.

The Agenda 2063, developed by the African Union Commission (AUC), contains different initiatives aimed at promoting African financial markets’ integration, including the establishment of an African Capital Market. More generally, the AU project includes two African FSAs whose authority would reach the whole continent; these are the African Central Bank (ACB), envisioned in article 44 of the Abuja Treaty, and a Capital Markets Regulatory Authority (CMRA), which is proposed in the Agenda 2063.

While these initiatives have the potential to foster the role of Africa in global financial governance, their potential effects will be seen in the long-term. In the shorter term, strengthening the influence of African FSAs in global financial standard-setting would necessarily require the operation of changes in the rules and internal governance of global financial standard-setters, to facilitate Africa’s access to and influence within them.

However, Western FSAs are unlikely to propose or support any such changes, as these would diminish their control over global financial standard-setters, which, in turn, allows them to tailor international financial standards to their own interests. Instead, the operation of these changes would require coordinated action and activism by African FSAs.

The AUC could perform a central role in the design of a mechanism of coordination among African FSAs, drawing from its experience in the coordination of African central banks through a Joint Committee of the AUC and the Association of African Central Banks. Such a mechanism could ultimately help African FSAs to have a stronger voice in global financial standard-setters and trigger the adoption of changes that enhance their powers, role and representation in these organisations.

Pablo Iglesias-Rodríguez is Senior Lecturer and Convenor of the LLM in International Financial Law at the Sussex Law School, University of Sussex. He can be contacted at: [email protected]. This article summarises some ideas of his book chapter ‘The African Union and Global Financial Standard-Setting’, in F. Amao, K. Magliveras and M. Olivier (eds.), The Emergent African Union Law: Conceptualisation, Delimitation, and Application (Oxford: Oxford University Press, 2021).