Many believe that at the heart of the global economic crisis lies an overuse and over-reliance by banks on excessively complex off-balance sheet investment vehicles, and a regulatory regime that is incapable of adequately overseeing international financial markets.

"The financial market has become a global market, but selfregulation and soft law were not enough to discipline the industry and prevent the crisis," says Dr Fernando Zunzunegui, Chairman of the European Union’s (EU) Commission of Financial Services Users (FIN-USE).

A clear outcome of the recent G20 meeting of world leaders in London has been a greater emphasis on strengthening the roles of financial regulators but also the suggestion of the need for new international regulatory bodies.

"Coordination between financial regulators is a step in the right direction. But in the current crisis we need a new culture to regulate the market, with a users’ perspective and the presence of global financial regulators," says Zunzunegui.

What is important, lawyers suggest, is that whatever path is taken, at a European level oversight should be coordinated or integrated within the current EU regulations or institutions. "This is necessary in order to avoid additional complexities and the risk of a lack of coordination, but also because EU regulation has already been very successful in harmonising the regulation of many fields, for example in capital markets," says Javier Garcia de Enterria, partner at Clifford Chance.

But while some countries with important financial centres may be against global supervision, others insist that they present the logical way forward. "Some countries are afraid to lose their position and privileges. But we need to protect the stability of the market and the entire economy against reckless intermediaries," says Zunzunegui.

Despite the praise given to Spain’s own regulatory systems, and particularly the Bank of Spain’s role in limiting domestic banks’ use of the most creative financial instruments, the government has nonetheless rekindled the idea of establishing a new domestic financial regulator. The debate has therefore turned to what sort of body should take the place, if required, of the Bank of Spain or Comisión Nacional de Mercado de Valores (CNMV), to regulate the banking, insurance and securities sectors.

"The changes that were being studied do away with the need for the existing separate market authorities. But clearly there is a need for a full analysis of the merits of the models that already exist in countries with different regulatory supervision," says Jesus Mardomingo, a partner at Cuatrecasas and formerly an inspector with the Bank of Spain.

The options available, he says, lie with either enhancing the powers of the existing distinct sectoral regulators, the creation of a single supervisory body for the entire financial system, or the adoption of a twin peaks’ approach – with a separate authority for solvency requirements and another for market transparency and client protection.

The process of globalisation will not stop, and inevitably there will remain a need for cooperation between supervisory bodies, but also a requirement for national supervision especially in respect of overseeing solvency requirements, he believes.

The way forward, others suggest, is for governments to adopt a two-track approach with strong national regulators applying a transparent, consistent and globally uniform set of rules and principles.

"A global financial regulator might not be sufficiently close to the financial institutions it is meant to monitor on a day-today basis. But local regulators should have the capacity to effectively supervise international groups and financial conglomerates and, therefore, it would be necessary to set up appropriate institutional arrangements to provide for mutual cooperation and exchange of information between local regulators," says Emilio Díaz, finance partner at Uría Menéndez.