The Equivalence Approach to Securities Regulation


Tzung-bor Wei



In the past, academics and regulators debated two competing approaches to international securities regulation, namely “harmonization” and “regulatory competition.” More recently, a third approach to securities regulation has emerged – the “equivalence” approach. Under this model, a host country exempts foreign firms from certain host country rules when the firms’ home country rules are sufficiently similar, or “equivalent.” Many regulators have come to embrace equivalence, which is rapidly becoming a key principle in international finance.

This paper studies the concept of equivalence. It begins by defining “equivalence,” highlighting that different regulators manipulate the term to give it contrasting meanings. Moving from theory to practice, the piece then examines how regulators have applied equivalence in four contexts: (1) U.S. and E.U. accounting standards, (2) E.U. regulation of financial conglomerates, (3) U.S. regulation of auditors, and (4) the U.S.-Canada Multi-Jurisdictional Disclosure System. Using these examples, the next part analyzes the benefits of equivalence (vis-à-vis harmonization and regulatory competition) as well as potential pitfalls. The paper concludes that the equivalence approach offers certain advantages, but regulators will need to make adjustments to achieve future regulatory success.


Accounting Law | Banking and Finance Law | Comparative and Foreign Law | International Law | Securities Law

Date of this Version

July 2006