Between a Soft and a Hard Place

International financial governance is characterised by an increased proliferation of non-binding instruments (‘soft law’). The European Union (EU) stands out as an influential actor in this trend, both through the development of an internal apparatus and through its capacity to export norms to other jurisdictions (referred to as the ‘Brussels Effect’). Our contribution builds on the comprehensive Less is More report, published in February 2025 (to which we were co-authors). We aim to show how the European experience mirrors a global dynamic, thereby stimulating a rethinking of the role of international law in ordering the phenomenon of soft law.

A Structural Shift

With the Banking Package 2024, the European Banking Authority (EBA) received 139 mandates for normative instruments – technical standards, guidelines, Q&As – which, although non-binding, produce notable normative effects. Here we see the outline of a model that reflects a broader trend in transnational governance: the growing role of specialised institutions and flexible standards to the detriment of democratic control and classical law-making.

The distinction between soft law and hard law is becoming increasingly difficult to sustain. In the 2021 Regulatory Policy Outlook, the Organization for Economic Cooperation and Development (OECD) underlined that the proliferation of non-binding standards generates legal uncertainty both domestically and cross-border. The international dimensions of the national legislative process are evident, requiring its reorganisation through international regulatory cooperation. International financial institutions such as the Basel Committee on Banking Supervision have also contributed to what we now call a ‘soft law regime with hard effects’. The Basel III standards, although formally non-binding, are often transposed into national legislation without significant parliamentary debate. This regulatory dynamic cannot be detached from the broader political and institutional context that followed the 2008 global financial crisis. The crisis prompted a coordinated response led by the G20 , which prioritized financial stability and triggered the creation of the  Financial Stability Board (FSB). The FSB, in turn, served as a central forum to consolidate the work of standard-setting bodies and ensure international convergence. This political architecture lent legitimacy to instruments such as Basel III, despite their soft law character, by embedding them within a structured agenda for systemic reform and resilience. The European experience reflects this pattern. As emphasised in the IMF Working Paper WP/21/25, regulatory authorities outside the EU frequently adopt European standards to avoid exclusion from international markets.

European banking law is increasingly converging with the standards and regulatory mechanisms established within the framework of international economic law, through a process of legal adaptation and restructuring shaped by successive normative mutations. Inevitably, this dynamic contributes to the gradual erosion of the traditional distinction between soft law and hard law, as instruments initially conceived as non-binding are progressively incorporated into the internal legal architecture and begin to produce legal effects comparable to those of binding rules.

Overall, this undermines the distinction between soft and hard law. Even the Court of Justice of the EU (CJEU) (e.g. C-911/19, Fédération bancaire française)) acknowledged that soft law instruments might acquire legal force through consistent institutional practices. It follows that international law is currently seeking an answer to the question of how it can respond to ‘norms without legal status’ that nevertheless govern the behavior of relevant actors.

Banking Supervision as a Subsystem of International Economic Law

At first glance, banking regulation appears to be a purely technical field, with its own logic and relative autonomy from public international law. The reality of recent years contradicts this impression. Banking supervision has become an integral part of global economic governance, in which the boundaries between domestic and international law are increasingly fluid. Banking standards are no longer developed solely by national authorities or specialised European institutions but are aligned – or adapted – to a transnational ecosystem of norms, conventions, cooperation mechanisms, and, above all, soft law instruments, such as those developed by the Basel Committee, the FSB, or the OECD.

While soft law rules now occupy a central position in global financial governance, their design and implementation frequently take place within a markedly asymmetric regulatory environment. For example, EU decisions on the equivalence of banking standards applied in third countries – following the objectives of coherence and stability – are not supported by adequate participation mechanisms for those states during the process of drafting or assessment. This results in procedural unfairness and even a form of (indirect) discrimination, which comes into conflict with established or emerging principles and standards of international law, such as equal participation among states, decision-making transparency, and the aspiration for equitable governance (derived from imperatives of  non-discrimination, access to information, institutional accountability, and decision-making  inclusivity).

Today, banking supervision is part of the broader international economic legal order. Its link with the World Trade Organization (WTO) regime is visible especially through the General Agreement on Trade in Services (GATS), whose provisions – including Article XIII on financial services – create obligations that require and shape domestic regulation in the banking field. At the same time, bilateral investment treaties (BITs) impose obligations on states concerning stability, transparency, and protection against unfair treatment, leading to an alignment of national financial regulations with such requirements of the international legal order.

We understand international law not as an external or supplementary source of regulation, but rather as a grammar of validation and disciplining for the emerging normativity of banking supervision. The proliferation of soft law standards – whether from European institutions or global forums – must be subject to clear criteria of legitimacy, proportionality, and systemic coherence.

This vision is supported by institutions of international law, such as the UN General Assembly Resolution 67/1 (2012), which reaffirms the centrality of the rule of law in the international order, including in technical areas such as financial governance. At the conceptual level, the relevant case law from courts such as the CJEU, the  European Court of Human Rights or the International Court of Justice indicates a tendency toward legal recognition of the normative effects of non-binding instruments when integrated into consistent institutional or administrative practices.

The Constraint of Sovereignty through Soft Law Export

Against this background, scholars like Rosa Lastra and Pierre-Hugues Verdier propose a new international financial constitutionalism. European standards, through mechanisms of normative diffusion, become de facto rules for actors who did not participate in their development. This raises a constitutional concern: when European guidelines apply de facto to actors outside the EU without reciprocal participation in their drafting, the legitimacy of this normative export becomes questionable. Financial sovereignty is not eroded through coercion but through dependence.

A relevant example is the adoption of standards set out in the Digital Operational Resilience Act (DORA) by supervisory frameworks in third countries. Although DORA has not yet been fully implemented, its approach to operational resilience is already informing global regulatory conversations, including in ASEAN regional dialogues on cybersecurity and financial stability (ASEAN Digital Masterplan 2025).

This reality requires correction through a more solid and clearer anchoring in international law – not to replace soft law, but to frame it within a more transparent, equitable, and functional legal order. UNGA Resolution 67/1 (2012) on the rule of law, the UNCTAD 2020 Report on regulatory coherence, as well as the aforementioned theories of financial constitutionalism, proposes concrete instruments, such as public consultation, proportionality tests, feedback and review mechanisms.

Without the Force of Law, yet with Effective Power? The Problem of Overproduction

From a doctrinal perspective, this dynamic shown above destabilises classical categories of law. The distinction between primary and secondary legislation becomes irrelevant when lower-ranking instruments govern with more precision and authority. This anomaly is identified in the Less is More report, which provides a critical reading of normative overproduction within the European Banking Authority. The main concern of the report lies in the dissonance between the democratic legitimacy of financial regulatory processes and their real normative effects.  Non-binding instruments may acquire de facto legal force, especially when incorporated into supervisory practice. A striking example can be found in the banking sector, where the European Central Bank (ECB) frequently integrates guidelines and recommendations issued by the European Banking Authority (EBA) into its supervisory expectations towards credit institutions thereby reinforcing and operationalising the global standards set by bodies such as the Basel Committee within the EU context. Although these instruments are formally non-binding, their repeated application by supervisors creates strong compliance incentives and establishes, over time, a form of behavioural obligation for market participants.

The phenomenon is aggravated by what the report describes as normative layering (millefeuille normatif) — a form of legal sedimentation that deepens the complications of the entire system. We can only conclude that there is a soft law regime with hard effects, but without global accountability.

The path towards a global grammar of soft law should not reject it, but rethink its framework of legitimation.

As an example, FinTech Bridges are models of balance using international law to establish clear rules of cooperation, with practical effects, but without unilateral imposition.

Regulatory Simplification through International Law: FinTech Bridges

In response to normative inflation, FinTech Bridge agreements form a promising alternative model without unilateral imposition. Bilateral or multilateral agreements – such as those concluded by the United Kingdom with Australia, Singapore, and Switzerland – demonstrate that international law can facilitate interoperability without leading to regulatory excess. They are, essentially, instruments of mutual recognition of licenses, data governance protocols, and coordination mechanisms between supervisory authorities.

The Digital Economy Agreement between the UK and Singapore (2022) contains enforceable provisions on data localisation, algorithmic transparency, and digital identity – essential areas for the FinTech sector and still insufficiently regulated in EU law.

In contrast to the proliferation of EBA instruments, these FinTech Bridges reflect an effort to restore trust in the public functions of regulation through legal predictability and operational efficiency.

From Critique to Construction

Our contribution reopens a question posed more than a decade ago – one, which, in the meantime, has branched into multiple subfields of international law and remains suspended in the deeper layers of the contemporary normative order. International economic law may help address the legitimacy crisis in financial governance, not only by enhancing output legitimacy through effective regulation, but also by rethinking input legitimacy via more accountable and participatory institutional design. In this sense, a new constitutional arrangement may imply a recalibration of authority across global, regional, and domestic levels.

The EU case shows that soft law remains not just a doctrinal category, but also a mode of governance. The problem is not that these norms are flexible, but that they operate without sufficient legitimacy. International law provides criteria for transparency, proportionality, and participation – criteria that make the difference between soft law as innovation and soft law as domination. The next stage of global financial governance should grow from a foundation shaped by international law.