This article, published in Current Developments in Monetary and Financial Law, Vol. 5 (IMF 2008), considers the possible legal protections that should be extended to financial supervisors. It begins with a discussion of why such protections are necessary, then describes how the Basel Core Principles and the IMF Transparency Code address the issue. It then examines two approaches that have been enacted into law, in New Zealand and Spain, respectively. Aspects of the role played by human rights legislation are also be examined, and suggested statutory objectives for use internationally are provided.
Financial supervisors are most at risk of legal challenge when
they attempt to enforce laws, impose sanctions or other penalties, or to take control of a troubled institution. Supervisors will often have no option but to take such action to protect the depositors of the institution, other creditors, and the overall health of the financial system. In situations where depositors lose some or all of their savings or other creditors lose their claim in the assets of an ongoing institution, it is quite possible that financial supervisors will be subject to civil or, in some countries, criminal action.
The threat of litigation will inevitably have an effect on how
financial supervisors perform. The threat is likely to be greater when there is a systemic banking crisis with a large number of insolvent banks. In such a situation the supervisor will undoubtedly have to revoke a number of banking licenses and liquidate banks. But even in the case of the failure of a single bank, the threat still exists. This has led financial supervisors in a number of countries to consider steps to protect financial supervisors in their work.
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