RESTRICTED  WORLD TRADE  
ORGANIZATION  S/FIN/M/65 
15 November 2010 
 
 (10-6111) 
Committee on Trade in Financial Services  
  
 
 
REPORT OF THE MEETING HELD ON 29 SEPTEMBER 2010 
 
Note by the Secretariat
1 
 
1. The Committee on Trade in Financial Services held a meeting on 29 September 2010, under 
the chairmanship of Mrs. Helen St ylianou (Australia).  The agenda for this meeting is contained in 
Airgram WTO/AIR/3613.   
2. The Chairperson  noted her intention, under "Other Business", to address some classification 
issues.  The Committee so agreed  and adopted  the agenda. 
A. DEDICATED DISCUSSION ON THE IMPACT  OF TECHNOLOGICAL DEVELOPMENTS ON 
REGULATORY AND COMPLIANCE ASPECTS OF BA NKING AND OTHER FINANCIAL SERVICES 
UNDER THE GATS  
3. The Chairperson  recalled that, following a proposal by Pakistan (JOB(09)/107), the 
Committee agreed to hold a Dedicated Discussion on this  issue at this meeting.  Two documents had 
been circulated prior to this meeting in order to  help delegations' prepar ations: a Background Note by 
the Secretariat (S/FIN/W/74), providing factual in formation on the issues raised in the Pakistan's 
proposal; and an Informal Note by the Chair (JOB /SERV/20) dealing with organizational matters. 
4. She further explained that the purpose of the discussion was to allow Members to exchange 
views and comments on the issues raised in Pakistan's proposal, including the following:  the impact of technological innovation and related market tre nds in national financial services sectors;  the 
regulatory and supervisory challenges raised by technological developments;  the regulatory 
approaches adopted by Members with regard to th e domestic supply of e-fina nce and the cross-border 
supply of financial services through electronic means;  and the need for modification of the classification of financial services in order to ensu re an accurate description of any new financial 
services prompted by technological innovation.  In line with usual practice, she first invited the Secretariat to present the Note. 
5. A representative from the Secretariat
 said that the Background Note took account of 
Pakistan's proposal, but also tried to focus on those i ssues that were directly relevant for the work of 
the Committee and for future negotiations.  He me ntioned the emergence of new services (which 
could eventually have a bearing on classification) , the changes in production processes, such as off 
shoring (which has an impact on cross-border trade in financial services), and the risks raised by new 
technologies and the approaches adopted by regulators to deal with them, not only with regard to the 
domestic supply of financial services, but also their cross-border supply. 
                                                      
1  This document has been prepared  under the Secretariat's own responsibility and without prejudice to 
the positions of Members and to their rights and obligations under the WTO. S/FIN/M/65 
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  6. He further explained that the Note was divided into four sections, starting with an overview of 
technological developments in financial services.  Section II then looks at the challenges raised by 
these developments, particularly those arising in th e context of the cross-border supply of financial 
services through electronic means.  Section III di scusses the regulatory approaches suggested by 
international standard-setting orga nizations to deal with cross-border supply of financial services 
through electronic means.  Section IV concludes.   
7. Noting that the financial services industry was one of the most ICT-intensive industries, right 
after telecommunications itself, the Note started with a non-exhaustive overview of technology-driven 
innovations in financial services.  Such innovatio ns might lead to new products or services, new 
production processes, new distribution channels, or new organization forms.  The Note took a rather 
broad view of technology, not only focusing on ICT but  also on advances in the theory of finance.  
This broad perspective allowed to go beyond e- banking, which implied an innovation in delivery 
channels, to look into other technology-driven fina ncial innovations.  In addition, the Note covered 
not only banking services, which had been treated at  length in the literature, but also insurance and 
securities.   
8. The second section looked into the risks and cha llenges for financial institutions' management 
and for regulation and supervisi on arising in particular from increased supply of services across 
borders.  Although these risks were not new, cros s-border financial services could increase some of 
them, such as strategic, operational, reputational, an d legal risks.  Legal and regulatory risks might be, 
in his view, of particular interest to Members.  Financial institutions c ould potentially expand the 
geographical scope of their services faster through electronic than through traditional means 
(including establishment abroad).  In some cases,  however, unless financial institutions applied due 
diligence, they run the risk of potential non-co mpliance with a jurisdiction's local laws and 
regulations.  Compounding this challenge were ge nerally existing legal uncertainties over which 
country’s law applied to cross-border transactions a nd, in turn, the respective roles and responsibilities 
of home and host countries for online transactions with local residents.   
9. The risks outlined in the second section of the No te, particularly as they related to cross-
border transactions, had been acknowledged and discussed by international standard-setting 
organizations, which provided regulatory guidance.  The third section of the Note therefore contained 
an overview of relevant approaches.  In that re gard, the Note focused on aspects that might be of 
interest to Members when considering cross- border supply of services from a GATS perspective. 
10. In his view, the Note could usefully be comp lemented by additional information provided by 
Members under three headings:  (i) The impact of technological innovation in national markets, in 
terms of efficiency gains, competition,  availab ility of new products and services, and better access to 
finance;  (ii) the regulatory and supervisory ch allenges raised by technological developments;  and 
(iii) the regulatory approaches taken by Governments with regard to the domestic supply of e-finance 
and the cross-border supply of financial services through electronic means.   
11. Finally, from a GATS perspective, the Note ra ised some questions for further discussions.  
First,  had technology led to the in troduction of genuinely new financia l services that did not exist at 
the time specific commitments were made?  How co uld such new financial services be identified and 
distinguished from technological innovations (e.g., in the way services are delivered) that do not 
change the nature of the service itself?  Second, would it be necessary to revisit the issue of the 
distinction between modes 1 and 2 in the case of  financial services supplied through electronic 
means? 
12. After this introduction by the Secretariat, the Chairperson  opened the floor for discussion.  S/FIN/M/65 
 Page 3 
 
 
  13. The representative of Pakistan  complimented the Secretariat for a concise, but very 
informative document.  The Note gave substance to the issues raised in his delegation's proposal, and 
provided guidance for further discussions.  As indicat ed in paragraph 16 of the Note, new institutional 
and organizational forms brought abou t technological developments posed  real risks and challenges to 
regulatory frameworks.  The conclusions, as well as th e questions raised in paragraph 47, were also 
very pertinent.  These issues had implications fo r discussions at the Committee and for negotiations 
on financial services.  He referred in that regard to the issue of new services.  In his view, some forms 
of derivative products might be considered as new services;  and some of them might escape regulatory oversight, leading to situations financial instability.   
14. In today's world, due to the multiplicity of fi nancial intermediaries and delivery channels, it 
was sometimes difficult for individual transactions and define to respective roles and responsibilities 
of home- and host-country regulators.  This was a re al challenge, also for negotiators, who had to be 
cautious in taking specific commitments.  A related issue, that should be further discussed at the 
Committee, was the classification of financial services.  In particular, Members should consider whether the current classification needed to be update d.  He also saw merit in further discussing the 
distinction between modes 1 and 2 in the case of fina ncial services supplied through electronic means.  
15. After these comments on the Secretariat Note, he turned to Pakistan's experience, which had 
been succinctly described in a room document avai lable to Members.  He explained that e-banking 
allowed the population in far-flung ru ral areas to have better access to financial services.  The State 
Bank of Pakistan (SBP) was actively engaged with  both financial and non-financial economic agents 
in the expansion financial access in the country.  As part of that strategy, the SBP established the 
Payment Systems Department (PSD) in 2002 w ith a view to overseeing payment and settlement 
systems and developing a strategy, together with  the banking sector, for the improvement of those 
systems.  The department also kept abreast of current international best practices in that area. 
16. Additionally, in order to manage the risks associ ated with the various forms of payments, the 
SBP undertook a number of initiatives, including the reconfiguration of 54,000 Point-of-Sale (POS) 
terminals in order to comply with the Payment Ca rd Industry-Data Security Standard (PCI-DSS).   
Similarly, in order to support Chip- and PIN-b ased transactions, the POS terminals were made EMV-
compliant.
2 
17. On settlement mechanism, he said that the Pakistan Real Time Interbank Settlement 
Mechanism (PRISM), launched on 1 July 2008, ha d been successfully providing online real-time 
settlement services to 37 commercial banks, thr ee development financial institutions and one 
microfinance bank.  PRISM was overseen by the SBP, in accordance with Bank for International 
Settlements ( BIS) core principles and international best  practices.  Comprehensive guidelines on 
Alternative Delivery Channels for fi nancial institutions had also been issued, making Pakistan the first 
South Asian country to have e-ba nking regulations.  In addition, a comprehensive set of Operational 
Guidelines for Credit Card Business in  Pakistan had been recently issued .  In order to facilitate inter-
bank ATM transactions across the country, the two ATM switches routing ATM transactions across 
the country were interconnected under instructions of SBP. 
18. A signature verification mechanism on all debit and credit card transactions had been put in 
place.  Merchants could now verify the signature indi cated in the back of the credit or debit card and 
allowed the completion of the transactions.  Additio nally, card-issuing banks in the country had been 
mandated to provide SMS-alert facility to all credit and debit card holders, thus informing them about 
transactions executed on both the principal a nd supplementary cards on a real time basis. 
                                                      
2 EMV stands for "Europay, MasterCard, and Visa". S/FIN/M/65 
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  19. In order to enhance access to finance, facilitate  remittances from abroad, and bring efficiency 
into the distribution channels, the SBP, the Mini stry of Overseas Pakistanis and the Ministry of 
Finance had launched a joint initiative called Pakist an Remittance Initiative (PRI).  The basic purpose 
of PRI was to encourage overseas Pakistanis to us e banking channels for same-day delivery of home 
remittances to beneficiary accounts, protect the remitter and the beneficiary from any risk, and 
discourage illegal means of transferring money. 
20. E-payments had recorded an impressive growth over the last years, both in value and volume 
of transactions, currently reaching PKR 4.5 trillion, and 50.3 million, respectively.  The total number 
of payment cards amounted to 10.45 million.  The total number of ATMs and POS terminals 
amounted to 4,375 and 51,577, r espectively.  A major initiative regarding e-payments was the 
automation of tax payments and refunds.  Unde r the new system, named Electronic Payment and 
Refund System (E-PARS), necessary e-payment and e-refund facilities had been provided to 
taxpayers maintaining bank accounts in any bank oper ating in Pakistan.  E-PARS would provide the 
facility to taxpayers for making tax payments elect ronically by debiting bank accounts maintained in 
any bank operating in Pakistan.  In order to prom ote the e-payment of taxes, and as a precautionary 
measure, initially the electronic refund payment by  the Federal Board of Revenue (FBR) would be 
offered only to those tax payers who paid the ta xes electronically using E-PARS.  Afterwards, the 
same facility would be gradually extend ed to all tax payers in the country. 
21. Finally, he explained that various regulations , laws and guidelines had been recently enacted, 
including the Electronic Transactions Ordinance of 2002, the Payment Systems and Electronic Fund Transfer Act of 2007, the Prevention of Electroni c Crimes Ordinance of 2007, and the Branchless 
Banking Regulations of 2008. 
22. The representative of China
 also thanked the Secretariat and appreciated the Note.  
Technological developments had allowed service pr oviders to introduce new services, streamline 
production processes and multiple deli very channels.  Consumers and business clients benefited from 
diversified products with more convenient services at lower costs.  However, technology posed 
challenges to regulators, who had to facilitate the use of new technology and ensure financial stability 
and consumer protection.  She explained that China' s regulators adjusted their regulatory approach to 
accommodate the need of financial services provide rs to fully take advantage of technological 
development.  In October 2007, China Banking Re gulatory Commission (CBRC) had abolished prior 
review and approval procedures for the conduct of e-banking by foreign banks established in China.  
CBRC regulated e-banking from a prudential point of view.  Before starting operations, foreign banks 
willing to conduct e-bank ing had to ensure, inter alia , that they had good business conditions with 
sound risk management systems and internal contro l mechanisms; that there had been no significant 
system failure in the key information management system and business process system recently;  they 
that they had a reliable development strategy and ri sk management system for e-banking; and that had 
established the necessary infrastructure and system for e-banking, and completed necessary security 
and business tests.  CBRC regularly controlled if foreign banks met these requirements.  
23. The representative of Hong Kong, China  also complimented the Secretariat for the Note.  It 
provided a good basis for discussion.  As mentione d in the Chair's annotated agenda, in 2002 his 
delegation had submitted a pa per on market trends and regulatory issues relating to electronic banking 
and on-line trading in securities and futures ma rkets (S/FIN/W/25).  The regulatory framework 
outlined in that paper had remained basically unc hanged.  He took the opportunity nonetheless to 
provide some updates. 
24. Hong Kong, China already had a sophisticated e -finance sector.  By the end of 2009, there 
were 63 authorized institutions offering intern et banking services, with around 6.2 billion personal 
internet bank accounts, and 477,000 business or corporat e internet bank accounts.  As indicated in the 
Secretariat Note, major risks arising from technological  developments included strategic, operational,  S/FIN/M/65 
 Page 5 
 
 
  reputational, and legal risks.  While the types of  risk arising from e-banking were generally not 
entirely new to banking organizations, the characteris tics of e-banking created the need for new risk 
management methods.  The global and open nature of internet certainly added to the risk of security 
breaches and service interruptions.   
25. He explained that in Hong Kong, China the banking industry was regulated by a dedicated 
organization:  the Hong Kong Monetary Authorit y (hereinafter, HKMA).  As a bank regulator, 
HKMA aimed amongst other things, to create a saf e and sound ambiance for e-banking development, 
without  impeding economic progress and liberaliza tion.  Foreign banks providing services in Hong 
Kong, China must be authorized under the banking ordinance and subject to the supervision of 
HKMA.  Any institutions intending to carry on e-banking services must also be authorized under the 
Hong Kong ordinance, and a physical presence must be established regardless of whether electronic 
channels are used in Hong Kong, China.  Therefor e, all suppliers, whether dom estic or foreign, were 
subject to the same regulatory and legal framework. 
26. The HKMA also enforced a specific e-banki ng and technology management supervisory 
framework for the banking industry.  The framework  had been described in  the 2002 communication 
to the Committee.  He recalled nonetheless some hi ghlights and provided updates.  The framework 
had four major components:  the development of policies and guidance for the banking industry by 
the HKMA; the promotion of customer education and awareness; continuous monitoring and examination; and an emphasis on internationa l cooperation.  The regulatory framework was 
constantly updated through ci rculars and guide books.   
27. In 2004, the HKMA had issued a guidance note on Supervision of Electronic Banking which 
suggested, inter alia , that authorized institutions (AIs) should employ stronger customer 
authentication for transactions with higher risk.  As a minimum standard, AIs must now offer two-
factor authentication for high-risk transactions to th eir retail internet banking customers.  Two-factor 
authentication referred to the combination of something a customer knew (e.g. user IDs and 
passwords) and something a customer had (e.g. one-t ime passwords generated by a security token or 
AIs' security systems, a hardware electronic key, or  the customer's private key stored in a smart card 
or other devices in the customer's possession).  Over 38 authorized institutions had already 
implemented the two-factor authentication of pers onal internet banking, and some 2.8 billion account 
holders had registered for services.  AIs were require d to continue to enhance their security controls 
over their internet banking services.  For example, after completing an on line high-risk transaction, 
such as transferring funds to an unregistered third party account, AIs were required to notify 
customers immediately through alternative channels (e.g. SMS on mobile phones).  In addition, in 
July 2010, the HKMA issued a circular on Risk Ma nagement Controls over Internet Banking Account 
Aggregation Services.  
28. A robust supervisory framework was as impor tant as regulations.  Apart from issuing 
circulars and guidance to the banking industry, the HKMA had also launched in 2002 an on-site 
examination programme, focusing on AIs' e-banki ng activities, technology risk management and 
business continuity planning.  To facilitate prior itisation of its supervisory focus, the HKMA had 
established a technology risk profile system, and was also implementing a technology control self-
assessment process for au thorized institutions. 
29. International cooperation amongst fi nancial regulators was important in order to keep abreast 
of the latest developments and best practices.  The HKMA was a participant of the Electronic Banking 
Group of the Basel Committee on Ba nking Supervision.  The regulat ory approach followed by the 
HKMA had served Hong Kong, China well thus far.  
30. He then provided brief responses to the two questi ons raised in paragraph 47 of the Secretariat 
Note.  As regards question 47(a), he said that tec hnology had not led to the introduction of genuinely S/FIN/M/65 
Page 6  
 
  new financial services.  Regulators did not normally th ink of transactions in terms of the GATS' four 
modes of supply.  The use of electronic means to conduct financial transactions had not modified the 
nature of the service itself.  However, it was true  that technological developments gave rise to new 
regulatory challenges that Members needed to pay cl ose attention to.  Regarding question 47(b), he 
said that his delegation was open to revisit the issu e of the distinction betw een modes 1 and 2 in the 
case of financial services supplied through electronic means, but as previous experience suggested, he 
did not really think that discussions on this topic could be fruitful.   
31. In concluding, he said that his delegation was al so open to revisit some of the classification 
issues in financial services if Members so wished, although in his view, the current classification was 
not a real obstacle for making and expanding commitments in this sector.  
32. The representative of Brazil
 considered the Secretariat Note to be concise and very 
informative.  He reminded Members that in 2005 Brazil had issued a communication on electronic commerce and financial services (JOB(05)/103), which touched upon some of the issues raised at this 
meeting.  Regulatory frameworks were still evolving in  light of technological developments.  Lack of 
regulation, as well as the unclear relationship betwee n modes 1 and 2, made it difficult for his country 
to further improve commitments in these modes of s upply.  It was therefore important to revisit the 
distinction between modes 1 and 2.  His delega tion intended to contribute to this discussion. 
33. The representative of Korea
 thanked the Secretariat for what he considered an excellent 
paper.  He noted that a distinction should be  drawn between the term s financial product and 
securitization.  In fact, most derivatives fell in the traditional definition of  financial products, and 
were therefore governed by existing laws and regul ations.  If a financial product existed in both the 
host country and the export country, then the jurisd iction of the former could be easily extended.  
Problems arose in cases where the financial prod uct was not available in the host country and 
therefore had be considered as a "new financial product".  Korea had recently  changed its financial 
regulatory system, allowing approved financial ins titutions to develop new financial products and 
services.   As regards the questions raised in para graph 47 of the Secretariat Note, he concurred with 
Hong Kong, China that, in most cases, the delivery of financial services through electronic means had 
not fundamentally altered the nature of the service itsel f.  However, he considered that the issue of the 
distinction between modes 1 and 2 in the case of  e-banking should be further reviewed in the 
Committee. 
34. The representative of Turkey  said that there had been importa nt developments in the banking 
system since 2000.  The number of banks had dec lined drastically from 85 at the beginning of the 
decade to 49 nowadays, reflecting bankruptcy of 35 institutes.  The volume of total e-trade 
transactions had increased rapidly, from 18 million in 2005 to 55 million at the end of 2009.  Some 58.7 million transactions had been conducted in th e first eight months of 2010.  The value of 
transactions had also increased significantly, fro m TL 1.3billion in 2005, to TL 10.2billion end-2009 
(TL 9.9billion in the first eight months of 2010).   Internet banking statistics were not less significant: 
as at end-June 2010, the total number of Internet ba nk users was 6.1 million, and the total number and 
value of transactions had reached 6.1 mi llion and TL 152billion, respectively. 
35. The collapse of the Imar Bank in 2003 revealed that the bank’s information technology (IT) 
firm, a group company that solely did business with  the bank, had carried out fraudulent activities.  
This prompted a reassessment of Turkey's regul atory framework in this area.   New by-laws 
governing banks' IT systems had been enacted.  Bank s' IT systems were nowadays audited annually, 
both by the Central Bank and indepe ndent (external) audit firms. 
36. Article 60 of Turkey's Banking Act required that  all types of banking activities be performed 
in Turkey to be licensed.  It was strictly prohibite d for banks established in Turkey to collect deposits 
or participation funds from Turkish residents on beha lf of their branches abroad or other banks or  S/FIN/M/65 
 Page 7 
 
 
  financial institutions abroad.  Her delegation w ould soon provide written comments to the questions 
raised in paragraph 47 of the Secretariat Note. 
37. The representative of Switzerland  thanked the Secretariat for a concise informative Note.  He 
said that the content of the communication subm itted by his delegation in 2003 (S/FIN/W/26 and 
Add.1) was still relevant and up-to-date.  He adde d that his delegation saw no particular need to 
revisit the issue of the distinction between m odes 1 and 2, since the situation was clear.  
38. The representative of Australia  agreed that e-banking had thrown up new challenges in many 
areas of banking.  Regulation was very important to ensure stability and facilitate trade in financial 
services.  Australia's e-banking sector was governed by a number of legal instruments including the Banking Act, as well as the associated banking and financial services regulation under the Australian 
Prudential Regulatory Authority (APRA) and the Au stralian Securities and Investment Commission.  
Australia's e-commerce legal framewo rk was governed by the Electroni c Transaction Act.  Australia's 
consumer protection laws applied equally to on-line and off-line e nvironments.  The Trade Practices 
Act and the Securities and Investment Commissions  Act applied regardless of whether a transaction 
was conducted through electronic or conventional mail.   Australia's Privacy Act and Crimes Act also 
touched on e-commerce.  The Privacy Act regu lated the collection and handling of personal 
information, while the Crimes Act created a number of investigator powers and criminal offences 
designed to protect the security, reliability and integrity of computer data in electronic communications.  Finally, she said that her delegation was open to discuss issues related to the classification of financial services, as well as the distinction between modes 1 and 2.  
39. The representative of the European Union
 said that technological innovations in this area, and 
in particular in e-banking, improved the quality an d accessibility of financia l services to consumers 
and businesses around the world.  In that sense, te chnological innovation had a very positive impact 
worldwide, reducing costs and improving the alloca tion of resources.  His  delegation shared the 
opinion of the Basel Committee on Banking Supervisi on regarding new services:   e-banking offered 
the possibility of extending traditional banking activ ities using a new delivery method, but there were 
no new genuine financial services had resulted from the introduction of e-banking.  His delegation 
was of the view that the current distinction betw een modes 1 and 2 was still relevant.  Further work 
should be done along the lines proposed in paragraph 46 of the Secretariat Note, in particular with 
regard to items (i) and (iii), i.e., the impact of  technological innovation on economic efficiency, and 
the regulatory approaches adopted by different Members.  
40. The representative of Japan  thanked the Secretariat for what he considered an excellent paper.  
In response to technological developments in fi nancial services, the Japanese Financial Services 
Authority (FSA) had enacted a new Fund Settlement La w in 2009.  Turning to classification issues, he 
said that if they were ever addressed by the Commi ttee, they should be considered from a broader 
perspective, given that the development of e-co mmerce affected all kinds of services and not only 
financial services.  Turning to the distinction be tween modes 1 and 2, he said that since e-commerce 
had not raised any new difficulties to make liberal isation commitments in any of these two modes of 
supply, there was no need to discuss this issue at this juncture.  
41. The representative of the United States  noted that technical progress in financial services and 
in many different sectors was a priority issues that s hould be further explained.  He was interested in 
the views expressed by other Members that there did not seem to be new products, but, rather, 
different ways of delivering something that alr eady existed.  His delegation was open to further 
discuss the distinction between modes 1 and 2, but  he was not sure whether such a discussion be 
productive or fulfil a useful purpose in terms of sch eduling specific commitme nts.  Members already 
had a significant degree of flexibility to tailor commi tments to their regulatory regimes.  He supported 
further discussion on technologies in financial services , and looked forward to contributing to it in the 
future. S/FIN/M/65 
Page 8  
 
  42. The representative of Thailand
 thanked the Secretariat for an informative paper.  Thailand 
allowed e-banking and e-brokerage.  The Central Bank was in charge of regulating e-banking, and had 
issued relevant regulations in 2008.  The Secur ities and Exchange Commission was responsible for 
regulating e-brokerage.  There was not much activity in the area of e-insurance, although there were 
regulations in place dealing with direct marketing of  insurance.  The Thai Life and Non-life Insurance 
Associations issued consumer protection regulatio ns.  His delegation saw merit in revisiting the 
distinction between modes 1 and 2 in financial services. 
43. The Chairperson  said that the Committee had a good discussion.  Drawing on the Secretariat 
Note, it touched upon issues thrown up by technological developments in e-fina nce, including, but not 
limited to, a discussion of new transmission channels  versus new products.  Some members felt that 
new services had turned up, while others claimed that technology had only influenced the mode of 
delivery.  The Committee also had an interesting di scussion on the different types of risks associated 
with technological innovation in e-banking, and on the regulatory approaches to deal with them.  Members had touched on, but not really delved into the distinction between modes 1 and 2, and issues 
related to consumer protection.   
44. Members were willing to discuss classification issu es arising from e-finance.  Different views 
had been expressed on the principle and on whether an y additional classification was indeed required.  
In terms of possible next steps for the Committ ee, taking account of the technical nature and 
complexity of the subject matter, the relatively late  circulation of the Secretariat Note and the great 
interest expressed by Members in continuing th e discussion on technological innovation, it might be 
appropriate to give capitals some more time for re flection and to revert to this item at the next 
meeting. Delegations might then be in a bette r position to express their views on possible further 
work.  She then suggested that  the Committee revert to this item at the next meeting.  
45. The Committee so agreed
.  
B. TRADE IN FINANCIAL SERVICES AND DEVELOPMENT  
46. The Chairperson  recalled that Members had had a brief ex change of views on this topic at the 
previous meeting, on the basis of a proposal by Ch ina, circulated as a room document.  Since many 
delegations had requested more time to review such  a proposal, it was agreed to include this item in 
the agenda for this meeting.  In the meantime, and as announced at  the previous meeting, she had 
conducted informal consultations with  many delegations.   In her vi ew, there was wide support for the 
idea of having some discussion on the issues raised.  Ho wever, the details needed to be figured out, in 
particular with regard to the content and the organization of the discussion, as well as the input 
foreseen from the Secretariat.  The present meeting was a good opportunity for clarifying these issues. 
47. The representative of China  said that her intention at this meeting was to further clarify the 
objective and content of the proposed discussion on the relationship between trade in financial 
services and development, something suggested by Members at the previous meeting.  
48. The first question was the following:  Why do Members need to discuss "Trade in Financial 
Services and Development" in this Committee?  Financial services served two functions that were 
essential for development:  capital accumulation and the efficient use of capital.  The world financial 
markets had evolved into complex systems over the l ast years.  Since the 1990s, financial deregulation 
had facilitated financial innovations , such as complex derivatives products.  Financial instruments had 
increasingly become distinct from more tangible an d productive assets in the real economy.  This 
process moved forward, to a great extent, beyond the control of regulators, promoting excessive risk-
taking and asset bubbles.  This was particularly problematic for developing countries, which lacked 
the capacity to counter the increasing volatility of financial markets.  S/FIN/M/65 
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  49. In addition, developing countries, especia lly low-income ones and LDCs, still lacked 
adequate access to financial services, which im posed severe constraints on economic growth and 
welfare. How to help these countries have grea ter access to international capital and achieve 
development objectives was a very pertinent issue,  that could be addressed by the Committee.  A 
development perspective on trade in financial servic es was indeed a particularly relevant topic for 
discussion.  
50. In its proposal, China had suggested that Memb ers share their experience with regard to 
financial services liberalization.  Trade in financ ial services had been extensively analyzed from 
different perspectives.  Economists, who hailed the benefits of expandi ng trade in financial services 
and liberalizing financial markets and foreign bank entry in developing countries, saw liberalization 
as essential for the overall economy and the financial sect or in particular.  They claimed that foreign 
banks would promote economic deve lopment directly, by providing high-quality banking services, 
and indirectly, by forcing domestic banks to impr ove quality and cut costs, encouraging the upgrading 
of accounting, auditing, and rating institutions, and putting pressure on governments to enhance their 
legal, regulatory, and supervisory systems, and harmonize bank regulatory an d supervisory standards 
and procedures with those of developed countries. 
51. Critics, however, were drawing attention to the costs of an untimely liberalization of the 
financial sector and to the risk of increased volatility and loss of regulatory space which could 
outweigh the potential benefits.  They argued that the direct effects of in more foreign bank entry on 
overall economic development was of ten minimal, as foreign banks often constituted a very small 
share of total banking system assets, and there w as no empirical evidence showing that opening the 
banking sector lead to more capital inflows.  Furthe rmore, financial sector liberalization was often 
accompanied by an increase in short-term capital flows that were pro-cyclical in nature, and by an 
increased exposure to fluctuations in international markets.  Furthermore, foreign banks might use 
funds raised in the domestic markets of developi ng countries to undertake external lending, thus 
offsetting the capital accumulation effect and even decreasing access to capital, and might engage in 
"cherry picking", targeting the most desirable market segments and leaving domestic banks with 
higher-risk assets and customers. 
52. These issues could be usefully discussed at the Committee, based in particular on the 
following questions:  (1) Are there better ways of de veloping trade in financial services to mitigate the 
risks?  (2) How to tackle the pro- cyclical movement of capital through trade in financial services?  (3) 
How can trade in financial services contribute towards knowledge and technology transfer to 
developing countries and LDCs?  (4)  How can fore ign banks contribute towards providing adequate 
access to financial services in underdeveloped regions?  Could universal service obligations play a role 
in that regard?  (5) How to ensure regulatory au tonomy and sufficient regulatory space in developing 
countries when they liberalize their financial mark ets?  (6) How can developing country regulators 
achieve a balance between mitigating the risks and no t stifling innovation?  (7)  What can regulators 
do to integrate development objectives into the busin ess plans of foreign financial institutions that 
operate in developing countries and LDCs? 
53. The representative of Pakistan  supported a discussion on the topics raised by China.  
However, the discussion should have focus and address specific questions.  In that regard, he noted 
that financial services liberaliza tion had benefited developing countr ies, including his own, but more 
needed to be done to enhance acc ess to finance.  That objective went beyond GATS commitments.  In 
the specific case of Pakistan, although financial ser vices liberalization had contributed to economic 
growth, policy and regulatory challenges still remained.  He was therefore keen to further explore the 
development perspective of trade in financial services.  
54. The representative of Chile  said that the scope of the proposal was still unclear.  This was 
probably due to the broad dimension of the issues involved, which were fascinating nonetheless.  The S/FIN/M/65 
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  questions just raised by the Chinese delegation, alth ough related to the proposal tabled in June, made 
it somewhat more difficult to identify the scope and boundaries of the discussion envisaged.  It might be preferable to have a clearer and narrower fo cus.  He suggested that the Chair conduct further 
consultations on the proposal. 
55. The representative of India
 saw merit in discussing many of the issues raised by China, in 
particular the pros and cons of financial liberalization and deregula tion.  He therefore supported the  
proposal to add this item to the agenda of the Comm ittee, with the caveat that market access issues 
must not be discussed in this context.    
56. The representative of Malaysia  suggested that China circulate the questions mentioned in 
writing, in order for Members to get a better pers pective to further comment on the proposal.  He 
reminded delegations that in 20 03 Malaysia had submitted a communi cation describing its experience 
with financial services liberalization.  That paper could provide further inspiration, concerning the 
possible scope of the discussion.  His delegati on was supportive of this initiative by China. 
57. The Chairperson  suggested that past contributions by Malaysia and Thailand, which described 
their experience as developing countries with the libera lization of trade in financial services, could be 
circulated again for ease of reference.  
58. A representative of the Secretariat  confirmed that both communications could be circulated 
by e-mail.  Other delegations wishing to circulate previous submissions were requested to inform the 
Secretariat. 
59. The representative of Ecuador  welcomed the proposal by China.  It was very interesting 
because, from his delegation's perspective, libera lization was not an end in itself, but, a means 
towards development.  He was not in a position, however, to make specific comments on the various 
points outlined by the representative of China at th is meeting.  He reiterated his favourable opinion 
and expressed interest in taking part in any future discussions on this topic.  
60. The representative of Hong Kong, China  said that his delegation was supportive of the 
initiative and looked forward to participating activ ely in any future discussion.  Hong Kong, China 
was perhaps the most liberal financial services supp lier in the world and, at the same time, applied 
sound regulations and conducted e fficient oversight.  Therefore, it was an example of how a 
liberalized financial services sector could co-exist  with a sound regulatory regime.  His delegation 
would be available and willing to share that experience with Members.  Echoing the remarks by the Chilean representative, while Hong Kong, China was supportive of this initiative, more work might be 
needed to identify the precise topics to be explor ed by the Committee.  He suggested that the 
Chairperson conduct further consultations in that respect.  
61. The representative of Indonesia
 supported the discussion proposed by China on trade in 
financial services and development.  However, given the broad range of the issues raised, it would be 
useful to focus on specific issu es, such as: "The challenges and difficulties faced by developing 
countries in making liberalization commitments – Clarif ication and exploration of possible solutions".  
In his view, that was a very relevant topic in light of the liberalization process mandated under Article 
XIX of the GATS.  
62. The representative of Brazil  supported the discussion on this issue.  The questions raised by  
China could help define a clearer and more focused agenda.  He added that  the Committee could take 
advantage of current discussions on similar issues held within the G20 group of countries.   S/FIN/M/65 
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  63. The representative of South Africa  supported the proposal made by China, although he was 
not yet prepared to make specific comments on the issues raised.  He concurred with the 
representative of India that market access issu es must not be addressed in this forum. 
64. The representative of the European Union  also found the topic propo sed by China interesting.  
An open and competitive environment was indeed an important tool for development, because it 
fostered efficiency in the financial sector and had positive spill-over effects on other sectors of the 
economy.  In that respect, his delegation was ope n to discuss the impact of financial services on 
development.  However, he  echoed the comments made by several delegations in that the list of issues 
raised by China required much more focus.  Until this had been achieved, he reserved his position on 
how to take the discussion forward.  Nevertheless, th e first issue raised by China might be appropriate 
for discussion at the Committee – i.e., the impa ct of financial sector, opening on economic 
development and, in particular, on access to finance by individuals and businesses. 
65. The representative of Japan  was open to this initiative, but considered that the proposal was 
too broad.   In that regard, he made some co mments on the document circulated by China in June 
regarding the role of the financial sector in prom oting economic growth and development.  In his 
view, it was not clear whether the references to the role of the financial sector concerned traditional 
banking business or investment banking.  Once the scope of the issues was clarified, Members could usefully share their experiences. In addition, it might  be useful if the Secretariat, as well as relevant 
international organizations and the private sector could also present their experiences with technical 
assistance to support the liberalization of financial s ectors in developing countries.  As regards the 
gains and pains arising from liberalization, it wo uld be important to address these both from a short-
term and long-term perspective.  
66. The representative of the United States
 said that his delegation supported a discussion of 
development in relation to trade in financial services.   This issue could be explored further, since it 
was inherent in the Doha Development Agenda mand ate.  He agreed, however, with those delegations 
that had called for greater precision in the listing of topics that the Committee might take up.  He 
concurred with India and South Africa that mark et access issues should not be discussed in this 
context. 
67. The representative of Argentina  said that the topic for discussion proposed by China was 
essential.  The question of trade in financial ser vices and development shoul d be given particular 
attention in the Committee.  Although his delegation supported the proposal in general, as many other 
delegations had said, the terms of re ference should be clearly defined.  Once that had been achieved, it 
might be interesting if, at some point, the Secretariat prepared a brief Background Note on those 
issues.  
68. The representative of Turkey  supported the inclusion of this topic in the agenda of the 
Committee.  However, she was not yet ready to  make specific comments on the issues raised by 
China.  
69. The representative of Norway  said that his delegation was open to discuss these issues.  He 
shared the views of India, South Africa, and the Un ited States that Members should not raise market 
access issues in the context of this discussion. 
70. The representative of China  said she was encouraged by the comments and suggestions made 
and clarified that it was not China's intention to introduce market access issues in this discussion.  Her 
delegation was willing to work with a view to making the terms of reference of the proposed 
discussion acceptable to all Members.  She sensed from the discussion that Members had a preference 
for more precise and clear terms of reference.  Her delegation was ready to work with Members and 
the Chair in that direction.  S/FIN/M/65 
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  71. In closing the discussion, the Chairperson
 said that the explanations provided by the 
representative of China at this meeting gave some i ndication of the type of subjects that China would 
like to discuss.  In doing so, the representative ha d raised interesting questions for the Committee's 
consideration.  A number of delegations requested so me further time to consider those questions.  In 
her view, it would be useful for the Committee's work to have them in writing, so that capitals could 
further consider what was exactly proposed.  In addi tion, it was not yet clear how the questions raised 
by China at this meeting fitted within the four topics proposed in China's communication dated 23 June.  A number of delegations had commented on various aspects of this communication, and also 
sought more time to consider the questions raised at this meeting.  In her view, in terms of taking this 
work forward, the first appropriate step would be for China's delegation to circulate these questions, 
and for delegations to reflect on a ll suggestions made thus far, both in the 23 June paper and at this 
meeting.  On that basis, she proposed
 that the Committee revert to this agenda item at the next 
meeting.  The Committee so agreed .   
C. ACCEPTANCE OF THE FIFTH PROTOCOL TO THE GATS  
72. The Chairperson  recalled that three Members had yet to accept the Fifth Protocol, namely 
Brazil, Jamaica, and Philippines.  She called upon those delegations to provide any update on the 
status of their domestic processes and, perhaps, gi ve some indication as to when they expect to 
conclude these.  
73. The representative of Brazil  said that the situation had remained unchanged.  The internal 
procedures had not been completed, and a timefr ame could not be indicated at this stage.  
74. The representative of the Philippines  said that a new Congress had taken office on 
30 June 2010.  Since the Congress had only been rece ntly organised, the necessary ratification papers 
for the Fifth Protocol needed to be re-submitted.  He was therefore unable to give any indication on 
when the acceptance procedures would be completed. 
75. The Committee took note  of those statements, and decided  to revert to this agenda item at the 
next meeting. 
D. TECHNICAL ISSUES  
76. The Chairperson  recalled that, under this agenda  item, the Committee had taken two 
decisions: to organize a seminar on trade in non-li fe insurance services, held on 28 June, and a 
dedicated discussion on the "Impact of Technologi cal Developments on Regulatory and Compliance 
Aspects of Banking and Other Financial Services under the GATS", which had been held at the 
beginning of this meeting.     
77. There were no further interventions under this agenda item 
78. At the suggestion of the Chairperson, the Committee decided  to revert to this agenda item at 
the next meeting. 
E. RECENT DEVELOPMENTS IN FINANCIAL SERVICES TRADE  
79. The Chairperson  recalled that, following a proposal made under this agenda item by 
Argentina, Ecuador, India and South Africa, the Co mmittee had held a first dedicated discussion on 
the financial crisis and trade in financial services at the previous meeting.  In her view, it had been a 
very interesting and informative discuss ion.  It was clear that this topic was of interest to all Members, 
and that the Committee was the relevant forum.  The discussion had provided further insights into the 
types of policy actions that Members had taken to miti gate the effects of the crisis.  This was apparent  S/FIN/M/65 
 Page 13 
 
 
  both in the presentations by the International Mo netary Fund (IMF), the Bank for International 
Settlements (BIS), the Organization for Economic Cooperation and Development (OECD), as well as 
in Members' statements regarding national experiences.  One of the recurrent themes was the importance of regulation.  It was clear that a huge  regulatory reform agenda was being implemented 
everywhere, and that Members needed to ensure not  only that regulation was adequate, but that it was 
applied in a consistent manner across the world so as to avoid distortions. 
80. Concerning the proposal made at the end of th e meeting by some delegations, to consider 
further work under this agenda item, she would welcome any ideas.  
81. The representative of India
 made a statement, also on behalf of Argentina, Ecuador and South 
Africa, regarding their joint communication on the financial crisis and re lated matters.  These 
delegations found the dedicated discussion held at th e previous meeting very useful and thanked the 
Secretariat for successfully organizing it.  They were  also thankful to the Members who participated 
and shared their experiences.  Regarding the next steps, the four delegations were still having 
consultations at technical level and would re vert to this item at the next meeting.  
82. The Committee took note  of the statements made and decided  to revert to this item at the next 
meeting. 
F. OTHER BUSINESS  
83. The Chairperson  noted that it was apparent from the discussion held at this meeting on 
classification issues and e-finance, and noted th at at a meeting of the Committee on Specific 
Commitments (CSC) that there was an interest in  discussing these issues in the WTO and that this 
Committee was the appropriate forum.  It had been recently clarified at the CSC that any discussion 
on classification issues in relation to financial servi ces should take place in the Committee on Trade in 
Financial Services.  
84. Her intention was simply to draw attention to th is matter and to request delegations to reflect 
on whether classification issues in financial services, beyond the questions raised in the previous e-finance discussion, should be further discussed at  this Committee.  In such a discussion, the 
Committee could draw on the Background Note prepared  by the Secretariat on financial services.  She 
would welcome suggestions and ideas from Me mbers at this or future meetings.  
85. The Committee took note
 of that statement. 
 
 
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