241. H. Jackson, The Selective Incorporation of Foreign Legal Systems to Promote Nepal as an International Financial Services Center, 10/98; subsequently published in Regulation and Deregulation: Policy and Practice in the Utilities and Financial Services Industry, Christopher McCrudden, ed., (Oxford: Clarendon Press, 1999).
Abstract: This paper, which is to be published in a slightly altered form in a forthcoming Oxford University Press symposium volume on Regulatory Reform, addresses a problem confronting many developing countries: How should a country draw on foreign legal systems to develop its own system of financial regulation. Although addressed to a specific problem confronting the Kingdom of Nepal - developing a regulatory structure that will encourage foreign financial firms to establish international operations in Nepal - the paper presents a general framework for analyzing the utilization of foreign legal models for regulatory reform, and then advocates a particular reform strategy for Nepal: the selective incorporation of foreign legal systems into Nepalese law.
Under the proposed system of selective incorporation, Nepal would first determine which foreign regulatory systems are sufficiently well-developed and well-administered to oversee foreign firms establishing international financial service operations in Nepal. Firms located in any of these selected jurisdictions could then apply to establish operations in Nepal without having to meet any additional Nepalese regulatory requirements, provided those applicant firms agreed to conduct their Nepalese operations in accordance with their home country's regulatory requirements and to submit their Nepalese operations to home country supervision. So, for example, a British bank might establish operations in Nepal and be supervised under the law of England, whereas a Swiss bank with Nepalese operations might comply with Swiss law. In this way, selected foreign legal regimes would be incorporated into Nepalese law.
After exploring the surprisingly large number of precedents for selective incorporation, this paper considers the advantages and disadvantages of this approach to regulatory reform for both Nepal and foreign financial firms. The paper then considers a number of possible objections to this approach, including the potential for inadequate supervision of Nepalese operations, the implications of the approach for countries whose laws are incorporated into Nepalese law, and the ramifications of the approach for the political economy of Nepal.