RESTRICTED  WORLD TRADE  
ORGANIZATION  S/FIN/M/66 
20 December 2010 
 
 (10-6813) 
Committee on Trade in Financial Services  
  
 
REPORT OF THE MEETING HELD ON 16 NOVEMBER 2010 
 
Note by the Secretariat
1 
 
1. The Committee on Trade in Financial Services held a meeting on 16 November 2010, under 
the chairmanship of Mrs. Helen St ylianou (Australia).  The agenda for this meeting is contained in 
Airgram WTO/AIR/3656.   
A. DEDICATED DISCUSSION ON THE IMPACT  OF TECHNOLOGICAL DEVELOPMENTS ON 
REGULATORY AND COMPLIANCE ASPECTS OF BA NKING AND OTHER FINANCIAL SERVICES 
UNDER THE GATS  
2. The Chairperson  recalled that the Committee had had a very good discussion on this topic at 
the previous meeting.  Due to the technical nature and complexity of the subject matter, and the interest expressed by Members in continuing this discussion, the Committee had decided to revert to 
this agenda item at this meeting.  At the previ ous meeting, some Members had provided very valuable 
information on technological developments in thei r own markets, and on the regulatory framework 
applicable to the supply of financial services through  electronic means.  That was a very good start, 
and she encouraged all other delegations to co me up with similar inputs, taking as a guidance 
paragraph 46 of the Background Note prepar ed by the Secretariat (S/FIN/W/74).   
3. Some Members had also touched upon the two additional questions for further discussion 
raised in paragraph 47 of that Note, related to the introduction of new financial services, and to the 
distinction between modes 1 and 2 of the GATS in the case of financial services supplied through 
electronic means.  Members had different views on th e first question related to new services.  While 
some agreed that new services had been created, others sustained that technology had only brought a different delivery channel but not modified the natu re of the services themselv es.  Even though some 
Members expressed different views on the principle and on whether any amendments to the current classification of financial services was required, it was the Chairperson's view that Members were open to explore, discuss, and eventually clarif y classification issues prompted by technological 
developments.  Delegations had al so touched upon, but not really delved into, the issue of the 
distinction between modes 1 and 2, although a ma jority seemed to be open to further discuss it. 
4. The representative of Chinese Taipei
 introduced a room document on its experience with – 
and regulatory framework for – e-banking.  E-ba nking had been growing constantly since the 
introduction of banking services through Automatic Te ller Machines (ATMs) in 1984.  With the rapid 
technological advancement in IT services, e-banking services had been playing a dominant role, 
allowing banks to provide customers with various services via diversified devices such as ATMs, plastic money (credit cards, cash cards, debit cards, charge cards, and stored value cards), and internet 
banking.  At present, all domestic commercial banks were authorized to engage in internet banking 
services. 
                                                     
 
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/66 
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  5. Nonetheless, the development of e-banking ser vices had posed new risks and challenges to 
banks’ management and to banking s upervision.  In an attempt to improve the security of e-banking 
transactions and payment systems, the Financia l Supervisory Commission (FSC) had launched the 
Migration Program of Bankcards in 2004.  As a result, the previously prevailing magnetic strip 
bankcards were replaced by IC bankcards. 
6. The program to promote IC bankcards c onstituted a major innovation, prompting the 
upgrading of the payment instruments used by th e local banking industry.  The Interbank Funds 
Transfer System (CIFS) managed by the Central Bank had played a pivotal role in payment and 
settlement.  Numerous reforms had been impl emented in recent years in accordance with 
internationally recognized principles.  The CIFS ha d been comprehensively transformed into a Real-
Time Gross Settlement (RTGS) system, and had been  expanded to provide final settlement services to 
financial markets for transactions involving su ch instruments as bonds, bills and stocks.   
7. He added that this was a succinct summary of  the room document, which contained further 
information on regulations and available statistics.  He then turned to two questions posed by the 
Secretariat Background Note.  Regarding new services,  he considered that technology had simply 
brought new means to perform transactions , and the services were not genuinely new per se .  His 
delegation had no final view with regard to the issu e of the distinction between modes 1 and 2 of the 
GATS, but was willing to discuss this matter with Me mbers, focusing in particular on the protection 
of consumers and the supervision of cross-border transactions conducted through electronic means.  
8. The Chairperson
 thanked the delegation of Chinese Taip ei, and encouraged other delegations 
to share their experiences in writing as well. 
9. The representative of Brazil  said that, as highlighted by the Secretariat Background Note, 
technological developments brought significant challe nges to regulation and supervision in the area of 
financial services, due in particular to the in creased supply of services across borders.  Brazil had 
been paying particular attention to this issue a nd had emphasized the importance of the observance of 
practices recommended by international financial institutions.  One example was the Multilateral 
Memorandum of Understanding Co ncerning Consultation and Coope ration and the Exchange of 
Information, signed by the members of the International Organization of Securities Commissions (IOSCO) in May 2002, and whose purpose was to enforce and secure compliance with the signatories' legal frameworks.  In his view, this instrument w as very important to deal more effectively with 
fraudulent practices, such as market manipulation a nd insider trading.  Those practices had been 
facilitated by the expansion of cross-border trad e in light of technological developments.  
10. He then turned to the issue of the distinc tion between modes 1 and 2 of the GATS.  The 
Brazilian delegation was of the opinion that more clarity in this area would contribute to more effective regulation both internationally and domes tically, and would provide a sounder basis to make 
specific commitments.  The issue had been discu ssed within Mercosur, where the Sub-Group 4 
(SGT-4), which deals with financial matters, reac hed an understanding some time ago, according to 
which all financial transactions through electronic means would be considered as services supplied 
under mode 1.  This unde rstanding had contributed to further harmonization of regulatory frameworks 
within Mercosur, and had facilita ted the undertaking of specific commitments within that regional 
framework.  He therefore insisted that the Committ ee continue discussing this issue.  With that in 
mind, and taking into account recent developments, he indicated that his delegation might revise a 
previous submission (JOB(05)/103), in order to contribute to the discussion.  
11. The representative of Turkey
 said that, since she had made a presentation regarding 
technological developments in the Turkish financial s ector at the previous meeting, her comments this 
time would focus on the questions raised in paragra ph 47 of the Background Note by the Secretariat 
regarding new services and the distinction betwee n modes 1 and 2 of the GATS.  As regards new  S/FIN/M/66 
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  services, she said that, as pointed out by the Note, the Basel Committee on Banking Supervision 
(BCBS) regarded e-banking as an extension of tr aditional banking – an a pproach her delegation 
agreed with.  In this context, technology itself w as not the source of innovation or of the introduction 
of genuinely new financial services, but one of th e factors facilitating the in troduction and wider use 
of financial products and services.  Financ ial services provided through technological means 
displayed however different characteristics compared  to traditional financial services, thus posing new 
risks and challenges.  A distinction could be dr awn between the financial service/product itself and 
the technology used to deliver it by taking into accoun t the risks involved.  That was in her view also 
the position of the UN experts preparing the Centra l Product Classification (CPC) Version 2, who also 
considered e-banking a means of providing financial services rather than a new product.  She finally 
said that her delegation did not deem it necessary to reconsider the distincti on between modes 1 and 2 
of the GATS in the case of financial services supplied through electronic means. 
12. The representative of the European Union  said that in 2008, 60 percent of households in 
Europe with members aged 16–74 years old had access to the Internet at home, and more than 40 percent of Internet users (i.e. people who had used  the Internet within the previous three months) 
had used Internet banking.  The rise in the use of Internet in Europe from 2006 to 2008 was accounted 
for mainly by Internet banking.  Changes in the means of supplying financial services as a 
consequence of technological innovatio n were valuable progress.  The EU believed that those changes 
improved the quality of financial services and incre ased the benefits for financial institutions and 
consumers.  Any risks associated with those chang es were rather regarded as challenges, which the 
EU had either anticipated or accommodated in a timely way by introducing the appropriate legal 
framework. 
13. Without being exhaustive, she then highlight ed the main initiatives carried out by the 
European Union.  On 1 January 2008, European banks started upgrading their systems and bank accounts in order to make the Single Euro Payments Area (SEPA), which would be achieved by the end of 2010, and would end up making all electroni c payments across the Euro area (by credit card, 
debit card, bank transfer or direct debit), as easy and as secure as if they were domestic cash payments 
within one country.  This initiative of the Europ ean banking industry had been strongly supported by 
the European Union, which had adopted the lega l framework to make it a reality.  The payment 
service directives in 2007 provided the necessary lega l framework by ensuring a coherent and level 
playing field for payment systems within the internal market.  The Directive defined different 
categories of payment service providers, including electronic money institutions.   
14. Even earlier than those initiatives, the e-commerc e directive and the e-money directive had  
provided the basis for the more specialised legisl ation that followed.  The e-commerce directive 
established certain horizontal rules that apply to a ll services supplied electronically, not only financial 
services, with emphasis on transparency and informat ion.  The e-money direc tive, on the other hand, 
focused mostly on the financial services sector and provided for the pruden tial supervision of the 
activities of electronic money institutions. 
15. Aware of the pace of technological developments , and considering e-banking as an extension 
of traditional banking using the Internet as an el ectronic delivery channel for products and services, 
the European Union had consistently made efforts to  develop definitions and employ regulations that 
were technologically neutral.  This allowed the European Union to cater not only for electronic 
products available today in the market, but also fo r those which could be developed in the future.  
Therefore, taking this into consideration, she saw no reason to change the distinction between 
modes 1 and 2 of the GATS.  
16. The representative of China
 sought further information rega rding Chinese Taipei's Financial 
Information Services Company (FIS).  According to  the room document, the FIS provided three types 
of services, namely ATM services, interbank re mittance services, and financial electronic data S/FIN/M/66 
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  interchange services.  All these serviced had been  characterized by Chinese Taipei as financial 
information services.  She wondered whether these services could be classified, instead, as settlement 
and clearing services or as payment and money transfer services. 
17. The representative of Chinese Taipei
 replied that the FIS main business was the operation of 
an interbank on-line network that provided cash wit hdrawals and funds transfers via ATMs as well as 
interbank remittances.  He added th at he could provide further information to China on a bilateral 
basis.  
18. The representative of Barbados  said that the electronic supply of cross-border financial 
services raised interesting questions concerning the le gal rights and obligations of the parties to these 
transactions in situations where something goes wrong.   These situations usually called for changes in 
legislation, e.g. with respect to licensing proce dures.  Discussions on legal jurisdiction might also 
arise, for example, when one of the parties to the transaction, such as a correspondent bank overseas, 
collapses.  There was therefore a need to look at the regulatory framework necessary to support 
e-commerce and e-banking.  
19. In concluding, the Chairperson  said that although the discussion was interesting, no clear 
guidance had been provided on the way forward.  Th ere seemed to be some appetite to revisit the 
question of the distinction between modes and 2 of  the  GATS in the case of cross-border electronic 
transactions.  She understood that the delegation of Brazil would come forward at some point with 
some additional contribution regarding that particular issue.  She suggested that any follow up to this 
Dedicated Discussion, be it on classification issues, the distinction between modes 1 and 2, or any 
other issue raised at this Dedicated Discussion, coul d be considered in further detail in the future 
under the agenda item on Technical Issues.  She then  encouraged delegations wishing to discuss such 
technical issues to make their contributions in writing.    
20. The Committee took note  of the statements made and agreed  with the approach suggested the 
Chairperson. 
B. TRADE IN FINANCIAL SERVICES AND DEVELOPMENT  
21.  The Chairperson  recalled that at the previous me eting the Committee had considered a 
proposal by China to tackle this topic.  On that occasion, a number of delegations had requested more 
time to consider the questions raised by China in its oral statement.  At that time, the Chairperson had 
suggested that China circulate that statement in writing, so that dele gations could further reflect on the 
issues.  The Committee had decided to revert  to this agenda item at this meeting. 
22. While there was wide support for the idea of having some discussion at the Committee on the 
issues raised by China, it was clear that the details of  such a discussion, particularly with regard to its 
content, its organization, and the input foreseen from the Secretariat, still needed to be worked out.  
Many delegations had suggested that topic or topi cs for discussion should be identified as clearly as 
possible.  The present meeting provided a good opport unity for trying to achieve that.  She informed 
Members that prior to the meeting the Chinese delegation had circulated a new room document 
containing a revised proposal.  It was the Chairperson's understanding that in the meantime the 
Chinese delegation had consulted so me delegations on the contents of this revised approach.  
23. The representative of China  said that her delegation had proposed to discuss the relationship 
between trade in financial services and developm ent at the July meeting, and offered further 
clarifications at the September meeting.  Her dele gation was encouraged by the interest and support of 
Members.  Valuable contributions had been made by many Members in the course of discussions on 
this subject, and her delegation tried to incorporat e those comments in the re vised proposal prepared 
for this meeting, and circulated as a room document.   She reiterated that the objective was simple:  to  S/FIN/M/66 
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  draw Members' attention to this  very important subject and to  have a better understanding of it 
through exchange of information and experience among Members.  The following changes had been 
made to the initial proposal.  Firstly, as suggested by some Members at the previous meeting, the 
discussions were not be related to the current r ound of market access negotiations.  Secondly, the 
approach to the issue was simplified.  Instead of f our topics, as suggested in the original proposal, the 
new version simply proposed to focus on the rela tionship between trade in financial services and 
development, drawing lessons from the existing lite rature on the subject and from the experience of 
individual Members.  The previous communicati ons from Malaysia (S/F IN/W/28) and Thailand 
(TN/S/W/4) provided good examples of how Members could structure their contributions for such a discussion.  In terms of organization and timeframe , she proposed that the Secretariat prepared and 
distributed the background note in February 2011, and that the dedicated discussion among Members 
be held at a subsequent meeting, either in February or April.  
24. The representative of India
 said that his delegation had supported the proposal at the previous 
meeting, with the caveat that ma rket access issues must not be discussed.  This concern had been 
taken care of by China in the revised proposal.  Also  the revised paper was more focussed in terms of 
topics proposed for discussion.  In his view, an  informed discussion and experience - sharing 
regarding the relationship between trade in financ ial services and development would help Members 
enhance their understanding of this important topi c.  He welcomed and supported the proposal.  
25. The representative of South Africa  said that his delegation's concerns, similar to India's, had 
been taken into account in the revised proposal.  He reiterated his support for the initiative to discuss 
the linkages between trade in financial services a nd development.  He also supported the timetable 
proposed by China.  In addition to the Secretar iat Note, and as suggested by the proposal, outside 
experts could be invited to share their knowledge of this topic. 
26. The representative of Brazil  acknowledged the efforts made by China to accommodate the 
concerns and comments of delegations to its initial proposal.  He said that the subject was of great 
importance and renewed his support for this di scussion along the lines suggested in the revised 
proposal.  He agreed with the suggestion made by S outh Africa to invite experts to contribute to the 
discussion on this topic.  The second cluster of servi ces meetings would be an appropriate timing for 
holding the dedicated discussion.  
27. The representative of Hong Kong, China  said that his delegation supported a discussion with 
a view to furthering Members' understanding of th e important role played by financial services 
liberalization in economic development.  The revi sions introduced by China to the proposal were 
useful, although the specific issues proposed for discu ssion – the role of trade in financial services in 
economic growth and development, and the experience of Members with the liberalization of trade in 
financial services – were still very broad topics.  However, the circulation of past submissions by Malaysia and Thailand regarding their experience wi th financial services liberalization provided very 
good examples of how Members might organise their own contributions to the dedicated discussion.  
He supported the proposed item for discussion.  He w as flexible with regard to timing (February or 
April), but considered that the Background Note by the Secretariat should in any case be available in 
advance of the meeting, so as to allow Members enough time to prepare their own inputs.  
28. The representative of Turkey
 supported the proposal.  In her view, the discussion on the 
relationship between trade in financial services an d development proposed by China would be a 
positive contribution to the work of the Committee.  She praised China's appro ach to tackle the issue 
from a more academic perspective, through presentations  by the Secretariat and relevant experts, and 
from a more practical point of view, based on count ry-experiences provided by Members themselves.  
Regulatory issues, particularly relevant in the af termath of the financial crisis, should also be 
discussed in this context.  Furthermore, the role of capital markets in promoting economic growth and 
developments could also be considered.   S/FIN/M/66 
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  29. The Chairperson
 said that, in light of the discussion thus  far, it seemed that delegations would 
like to have enough time to prepare for the discussi on.  Therefore, it would be a good idea to request 
the Secretariat to prepare the Background Note by Fe bruary, and to have the dedicated discussion in 
the second cluster of services meetings in 2011.  Th at would also give more time to organize the 
dedicated discussion, particularly if experts were to be invited to participate, as suggested by the 
representative of South Africa.  She asked delega tions to indicate whether they accepted such an 
approach. 
30. The representative of Ecuador  said that the revised proposal took care of the various 
comments made by delegations at the previous m eeting.  He supported the topics proposed for 
discussion, and said he could go along with the timing proposed.  Delegations should have enough 
time to prepare and make the most of the dedi cated discussion.  Lastly, he agreed with the 
representative of South Africa that experts could be i nvited to share their knowledge in this field with 
Members.  
31. The representative of Mexico  supported the proposal and adde d that the participation of 
experts would be a positive contribution to the discussion.  
32. The representative of Japan  supported the proposal, as well as the suggestion by the 
Chairperson to have the Background Note by the Secr etariat circulated in February and the dedicated 
discussion in the second cluster of services meetings in 2011.  
33. The representative of the United States  said that the revised proposal took account of the 
concerns raised by Members at the previous meeting.  These issues were important, and Members would benefit greatly from examining the effect s of financial services liberalization on economic 
development and from exchanging information on thei r respective experiences.  He considered that 
the timing suggested by the Chairperson was appropriate.   
34. The representative of the European Union
 said that the revised communication from China 
was a good basis for organizing a discussion on these im portant topics.  She reiterated however that 
her delegation saw this as a stand alone exercise, a nd not as a stepping stone for a broader agenda that 
might touch upon market access issues.  With that caveat, she supported the timing suggested by the 
Chairperson.  
35. The representative of Thailand  supported the proposal made by China, as well as the 
suggestion to invite experts to the discussion.  
36. The representative of Switzerland  suggested that the title of item 1 ("the role of trade in 
financial services in economic growth and developm ent") be changed into "the role of trade 
liberalization in financial services in economic growth and development".  That would ensure 
consistency with the subsequent paragraphs and would make the t opic more precise, providing more 
focus to the literature review.  He understood th e second item ("experience sharing in liberalizing 
trade in financial services") as closely related to the GATS framework and to negotiations within the 
GATS framework.  He supported the idea of requesti ng the Secretariat to prepare a Background Note, 
as well as the organization of a dedicated discussion.  He was open to the idea of inviting experts to 
the meeting, but considered that at the end of the day, what mattered most were the contributions by 
Members regarding their own experiences.  
37. The representative of Norway  supported the proposal made by China, as well as the timing 
suggested by the Chairperson.  He added that recen t research tended to show that trade in services led 
to productivity growth both in service and non-service sectors of the economy.  This was certainly the 
case when services appeared  as inputs into the production of other products, as was the case with 
financial services.  He expressed the hope that a discussion on trade in financial services and  S/FIN/M/66 
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  economic growth could identify this mechanism and assess its importance.  Furthermore, with 
increased trade in financial services, sound regulato ry policies for prudential reasons would become 
crucial to preserve the integrity and stability of the fi nancial system.  As the recent financial crisis had 
shown, there was a high degree of interdependence be tween financial markets of different countries.  
A collective approach to prudential regulation was th erefore necessary to avoid financial instability in 
the future.  Finally, he encouraged other delegati ons to bring financial experts to this dedicated 
discussion.  
38. The representative of Pakistan  supported the Chinese proposal, as well as the timing 
suggested by the Chairperson.  He suggested to remove the word "trade" from paragraph 5.1 of the 
proposal, so that it would read "the role of fina ncial services in economic gr owth and development", 
thus broadening the scope of discussion.   
39. Referring to the last suggestion made by the representative of Pakistan, the Chairperson   
considered that it was better to leave paragraph 5. 1 as it was in the Chinese proposal, in order to keep 
the discussion strictly tied to the mandate of the Co mmittee, something many Members were keen on.  
40. The representatives of Cuba  and Indonesia  supported the Chinese proposal, as well as the 
timing suggested by the Chairperson. 
41. The representative of Argentina  supported the Chinese proposal, as well as the timing 
suggested by the Chairperson.  He  agreed with the idea of inviting experts from other institutions or 
organizations that might have done work on this topic to take part in the dedicated discussion. 
42. The representative of Chinese Taipei  supported the proposal, and encouraged other 
delegations to bring their own experts to the dedicated discussion.  
43. The representative of China  thanked delegations for their support to the proposal.  Referring 
to the proposal made by Switzerland to rename the topic in paragraph 5.1 of the room document, she 
considered that it was better to leave it as it was, since the topic already struck a balance among the 
views of different Members. 
44. The Chairperson  said that it was clear that Members agreed to take this discussion forward in 
line with the revised proposal by China, and that such a dedicated discussion be held in the second 
cluster of services meetings in 2011.  Additiona lly, Members were open to the idea of inviting 
relevant speakers to the dedicated discussion.  Rega rding the Background Note to be prepared by the 
Secretariat, she said that a distinction should be drawn between the first and the second topic of the 
proposal by China.  The Note was not supposed to define the scope of the dedicated discussion, but 
rather, to address the topic in paragraph 5.1 of the proposal, i.e. the role of trade in financial services 
in economic growth and development; whereas the dedicated discussion would address the experience 
of Members with the liberalization of trade in fina ncial services.  She then asked the Secretariat to 
indicate when the paper might be ready. 
45. A representative of the Secretariat  said that in light of the current workload the paper could be 
circulated towards the second half of February 2011.   That would not allow for a proper discussion in 
the February cluster of service meetings.  He understood the scope of the Background Note as 
described in paragraph 6 of the room document by China.  The Note would therefore focus on the 
relationship between 'trade in financial services' and economic growth and de velopment, and not on 
the relationship between 'financial services' in genera l (which was broader conceptually than 'trade') 
and economic growth and de velopment, and would review the ex isting studies by other international 
organizations, scholars and experts on this subject.  As stated by the Chairperson, the Background 
Note by the Secretariat would not define the scope of the discussion that would follow.  The following S/FIN/M/66 
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  cluster of services meetings would be held in pr inciple in April 2011.  That should provide enough 
time to engage the appropriate speakers for the session.   
46. The Chairperson
 thanked the Secretariat for its flexibility and hard work.  Summing up, she 
reiterated that the Secretariat would prepare a pape r as suggested in paragraph 6 of the proposal by 
China, and that the dedicated discussion on this issu e would be held in the second cluster of services 
meetings in 2011.  The Committee so agreed .  
C. ACCEPTANCE OF THE FIFTH PROTOCOL TO THE GENERAL AGREEMENT ON TRADE IN SERVICES  
47. The Chairperson  recalled that three Members had yet to accept the Fifth Protocol, 
namely:  Brazil, Jamaica and Philippines.  She calle d upon those delegations to provide any update on 
the status of their domestic processes, and perhaps gi ve some indication as to when they expected to 
conclude their acceptance procedures.  
48. The representatives of Brazil  and Jamaica  informed the Committee that  the situation remained 
unchanged, and that the acceptance procedures had not been completed yet.  
49. The Committee took note  of those statements, and decided  to revert to this agenda item at the 
next meeting.  
D. TECHNICAL ISSUES  
50. The Chairperson  recalled that at the previous meeting, under Other Business, she had drawn 
Members' attention to classification issues.  Her intention was simply to alert Members' to a matter that, in her view, deserved further discussion.  She also recalled that the Committee on Specific 
Commitments had agreed earlier that week to look at, and discuss further, the sections on 
classification contained in the sectoral papers prep ared by the Secretariat.  That Committee also 
clarified that it would not examine classification issues in the area of financial services because that 
fell within the mandate of the Committe e on Trade in Financial Services.   
51. She understood that many Members were open to discussing classification issues in the 
Committee.  In her view, that would be a way of fully exploiting the possibilities and potential of the Committee.  She raised this issue under this agenda  item – Technical Issues – because, as advised by 
the Secretariat, this was the agenda item under which discussions on classification issues had been 
held in the past.  Since this should be a Membe r-driven process, she took the opportunity to flag her 
intention to hold consultations in the near futu re, with a view to assessing Members' interests, 
concerns, and priorities with regard to classification issues.    
52. The Committee took note
 of that statement, and decided  to revert to this agenda item at the 
next meeting.  
E. RECENT DEVELOPMENTS IN FINANCIAL SERVICE TRADE  
53. The Chairperson  recalled that at the June meeting,  under this agenda item, the Committee 
held a first – and very informative – dedicated discu ssion on the financial crisis  and trade in financial 
services.   
54. The representative of Barbados  (Ambassador Marion Williams) took the occasion to present a 
room document entitled "Unintended consequences of remedial measures taken to correct the global 
financial crisis:  A regulatory and compliance perspec tive."  This paper had been prepared for another 
purpose, but since it covered inter alia  some issues relevant to the GATS, she thought it good to share 
it with other delegations.  The major thrust of the presentation was the following:  Members needed to  S/FIN/M/66 
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  be careful lest remedial measures create unintended consequences over the medium term, increase 
moral hazard or encourage cross-border protection. In  addition, existing principles might need to be 
reviewed in order to ma ke them more relevant. 
55. She then gave a few examples.  As part of th e remedial measures put in place in the aftermath 
of the crisis, one was the banning of naked short selling – a measure introduced in May 2010 by the 
German Financial Regulator (BAFin), which enacted  a ban on naked short selling of credit default 
swaps on Eurozone government bonds.  However, under the GATS, a Member should not normally 
ban a highly risky financial servi ce if it had made specific commitments relating to that sector.  
Similarly, the new financial regulatory reform b ill passed in the United States Senate in May 2010 
included a provision that would force some of the bigg est banks to spin off thei r trading in swaps into 
special subsidiaries or be denied access to the federal emergency lending wi ndow.  Another initiative 
included making credit default swaps available onl y to people who own the underlying debt.  
However, Members with specific commitments in the sector ran the risk of contravening those 
commitment if they imposed limits on the types of financial services which an entity may provide, except under permitted circumstances. 
56. With respect to the BIS, the increased capita lization criteria agreed in principle by the 
Financial Stability Board in July 2010, and appli cable as of 2011, applied across the board to all 
institutions irrespective of size.  New capital criteri a for large banks had been deferred, but would be 
introduced at a later date.  The proposed limitati ons might very well be in contravention of 
commitments, which discouraged discrimination according to size.   
57. Some remedial measures might be contrary to the spirit of the regulatory framework.  The 
takeover of financial institutions  by governments was never generally anticipated under the GATS by 
Members which had made commitments in those secto rs.  Yet this had occurred in several Members 
which were signatories to the GATS, which defi ned "public entities" to exclude those offering 
commercial services.  It was also important to gua rd against conflict of interest situations, where 
governments take equity positions in financial ins titutions which they bail out and which they also 
regulate. 
58. It was also generally acknowledge d that hedge funds were highly risky activities.  In some 
jurisdictions regulators had been giving cons ideration to banning the use of hedge funds.  However, 
some countries might have already committed unde r the GATS to allow such activities without 
restriction.  In addition, when these high risk instruments had not yet been offered by financial institutions, it might be prudent to prevent financial institutions from offering new instruments not 
approved by regulators.  This could mean that th e trading of instruments in more highly regulated 
markets was safer, although possibly less attractive than  in other markets. 
59. The question of who had responsibility for subsid iaries of banks in other jurisdictions had 
been a matter of great debate during the crisis an d of great concern in jurisdictions where some of 
these foreign entities failed.  This may be a matter to be addressed in the Bank for International 
Settlements (BIS).  Some developing countries were already requiring that foreign banks establish in 
their jurisdictions by way of subsidiaries and not  branches.  However, those requirements on the 
specific type of legal entity permitted should not be imposed in Members that had taken specific 
commitments without such a reservation.  
60. The notion of too-big-to-fail had always been a concern, but the current financial crisis 
confirmed the regulators' worst fears.  The questi on had arisen lately as to whether the rules should 
vary according to the size and  level of sophistica tion of the financial entity.  Regulators had been 
moving in this direction lately.  Other proposals fo r enhanced regulation included the suggestion to set 
up a mega regulator, which would oversee individual re gulators at the national level.  The powers of 
enforcement of such a mega regulator and the power  to impose sanctions would need to be carefully S/FIN/M/66 
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  considered, so as not to endow an institution with  excessive power.  According to GATS Article XVI 
(Market Access) governments cannot prohibit or limit the size or the total number of financial service 
suppliers in covered sectors.  However, under the new US Financial Reform Bill 2010, an oversight 
entity would be set up to do exactly that, that is, to  make sure that the size of banks was reduced if 
they appeared to be becoming too large. 
61. The crisis also highlighted the need for regul ators to share responsibility for the cross-border 
supervision of financial entities.  For the most part, the crisis had made it clear that even if problems 
were international, bailouts tended to be national.  There was a need therefore to develop clearer 
approaches to determine the relative responsibility of host- and home-country supe rvisors.  This was a  
supervisory issue more relevant  to the BIS and the Basel Committee on Banking Supervision.  
Understandings forged on relative responsibilities coul d have implications for regulatory policy.  
There was also a need for international protocol s so that countries avoided opting out of their 
responsibility for bailing out subsidiaries outside thei r borders.  The recent case of a large financial 
entity in the Caribbean which operated in multiple juri sdictions was an example of the need for clarity 
in these areas. 
62. She also said that although the GATS provid ed for an exception catering for prudential 
concerns, this was subject to the condition that Me mbers must not seek to avoid their commitments.  
In fact, Members might sometimes specifically wish  to do things like avoiding short-selling or 
banning hedge funds, and these actions might need  to be accommodated without questioning the 
Members' right to regulate.   
63. It could be argued that exceptions existed to cope with these situations.  However, if the 
exceptions began to grow, and the system ran mo re and more on exceptions, then perhaps Members 
needed to revisit the norm.  Indeed, this might not require an exceptional effort; only a tweaking of 
some provisions to bring them closer to reality. 
64. She was not suggesting that the remedial measures taken by various governments and 
regulators should not have been taken.  Indeed, fo r the most part, they had been effective and had 
brought financial stability.  However, with the pe rspective provided by time, which allowed for a 
more detailed examination of the issues and their impact, the opportunity offered itself to review some 
of the underlying principles, in the interest of build ing a more resilient financial system in the long 
term.  Thus far, it had been probably in orde r for the WTO to wait until the markets settled and 
regulators had made the appropriate  modifications to their regulatory systems before reviewing their 
financial services guidelines.  However, perhaps su fficient time had already passed, allowing those 
rules and principles to be revisited in light of  the lessons learnt from the financial crisis. 
65. The representative of Korea
 said that more time was needed to review the paper thoroughly.  
However, he made two preliminary comments.  Firs tly, many of the allegations made were based on 
provisions contained in the Understanding on Commitm ents in Financial Services, and he was unsure 
that the interpretation was correct.  Secondly, in his view, GATS obligations on market access did not 
contemplate non-discriminatory domestic regulation. 
66. The representative of South Africa  said that more time was needed to review the paper, but 
looked forward to further discussions on the issues ra ised, particularly those related to the GATS.  
67. The representative of Argentina  said that his delegation would provide comments on the 
paper at the next meeting.  Speaking also on behalf of Ecuador, India, and South Africa, he said that 
the dedicated discussion held in the June meeti ng provided useful information to Members on the 
implications of the financial crisis.  These four  delegations were still ha ving consultations at a 
technical level on a possible way forward, and w ould revert to this issue as appropriate.   S/FIN/M/66 
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  68. The representative of Ecuador  said that more time was needed to review the paper.  His 
delegation was particularly interested in the pot ential inconsistencies between recent regulatory 
measures and the commitments under the GATS – an i ssue that needed to be  discussed in greater 
length at the next meeting. 
69. The representative of Barbados  reiterated that the paper was not  intended originally for this 
Committee, hence the references to BIS and IMF issu es.  She announced that those references would 
be taken out, so that the paper dealt only with WTO issues, and that the revised paper would be 
circulated as a Job document.   
70. The Committee took note  of the statements made and decided  to revert to this agenda item at 
the next meeting.  
 
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