When a doctor prescribes a generic drug, and the pharmacy swaps it for a cheaper version without asking you - that’s substitution. But what if the law forces that swap? That’s mandatory substitution. And it’s not just about pills. Around the world, governments use mandatory substitution in finance, mental health care, and environmental rules - each with wildly different rules, consequences, and human costs.
How Mandatory Substitution Works in Mental Health Law
In Ontario, Canada, if someone is deemed unable to make decisions about their treatment due to severe mental illness, a legally appointed substitute decision-maker - often a family member or public guardian - can authorize treatment, even against the person’s wishes. This is backed by the Substitute Decisions Act (1992). Similar systems exist in England and Wales under the Mental Capacity Act (2005), and in Northern Ireland under its 2016 version. But in Victoria, Australia, the law changed in 2019. The Guardianship and Administration Act now pushes harder for supported decision-making. That means helping people make their own choices, even if they’re slow or messy - not making choices for them. The shift came after Australia ratified the UN Convention on the Rights of Persons with Disabilities (CRPD) in 2008. The CRPD says people with disabilities have the same right to make decisions as anyone else. Here’s the conflict: Canada and the UK still allow substitute decision-making. The CRPD Committee says that’s a violation. But Canada made a reservation when it ratified - saying it still allows substitute decisions. So while the law says one thing internationally, domestic practice says another. Frontline workers in Ontario report a 12% drop in forced treatments since 2015, thanks to more training in supported decision-making. But they also say it’s nearly impossible to apply when someone is in acute psychosis and can’t communicate clearly.Financial Rules: The EU vs. The US
In banking, mandatory substitution means replacing the risk of a borrower with the risk of the bank that handles the deal. Under Article 403(1) of the EU’s Capital Requirements Regulation (CRR), financial institutions must treat the tri-party agent - the middleman in repurchase agreements - as the actual counterparty, not the original borrower. This rule kicked in on June 28, 2021, after years of debate. Why? To stop banks from hiding risky loans behind complex deals. The European Banking Authority (EBA) said it would reduce systemic risk. But J.P. Morgan’s internal review in 2020 found it added 15-20% to operational costs. Mid-sized banks spent 6-9 months reprogramming systems, at an average cost of €1.2 million per firm. The U.S. took a different path. The Federal Reserve, FDIC, and OCC rejected mandatory substitution in their 2018 proposal. They said internal risk models - which banks build themselves - are more accurate than a one-size-fits-all rule. The Basel Committee, which sets global standards, lets countries choose. So the EU has mandatory substitution. The U.S. doesn’t. That creates a regulatory gap. Some EU banks moved parts of their repo trading to London after Brexit to avoid the rule. It’s not just about safety - it’s about cost and competitiveness.
Environmental Regulation: The REACH Rulebook
In Europe, the REACH regulation forces chemical companies to replace dangerous substances with safer ones - if they exist. This is called substitution planning. If your product contains a substance on the “Candidate List” of very high concern (like certain phthalates or flame retardants), you must apply for authorization to keep using it. And you have to prove you’ve tried to find a safer alternative. BASF, one of the world’s largest chemical makers, cut substances of very high concern in its products by 23% between 2016 and 2020. But small companies struggle. The average cost to apply for authorization under REACH is €47,000 per substance. Many SMEs just stop selling in the EU altogether. The EU’s 2022 Chemicals Strategy for Sustainability made it worse: now, substitution planning is required for every restriction - not just authorizations. In 2023 alone, 27 new chemicals were added to the candidate list. Sweden’s PRIO list and ChemSec’s SIN List are voluntary tools that warn companies early. But in the EU, it’s no longer optional. It’s law.Why These Rules Clash
These systems look nothing alike - and that’s the point. Each one responds to a different crisis:- Banking rules came after the 2008 crash - too much hidden risk.
- Mental health laws reacted to decades of forced institutionalization.
- REACH was born from public fear over toxic chemicals in toys, cosmetics, and furniture.
What This Means for People
If you’re a patient with schizophrenia in England, you might be medicated against your will because a court appointed your sister as your decision-maker. In Victoria, you’d get a support worker to help you understand your options - even if you take weeks to decide. If you’re a small chemical maker in Poland, you might have to stop selling your paint thinner in the EU because you can’t afford the €47,000 fee to prove you tried a safer formula. In the U.S., you just keep selling - no questions asked. If you’re a trader in Frankfurt, your bank now has to track every repurchase deal through the agent. In New York, your firm still uses its own risk model - and saves millions in compliance costs. There’s no universal right answer. Mandatory substitution isn’t good or bad - it’s a tool. And like any tool, its impact depends on who’s holding it, and why.The Future Is Unclear
In 2023, the Basel Committee kept substitution optional. The EU held firm. The UK is trying to reform its mental health laws to reduce forced treatment by 30% - but the changes won’t take effect until 2026. Meanwhile, the number of countries that ratified the CRPD has hit 182 - but only 37 have fully aligned their laws with it. The trend? More pressure for change. But also more resistance. Regulatory arbitrage is real: companies move operations to where rules are lighter. Governments argue over what’s safe, what’s fair, and who gets to decide. What’s clear: mandatory substitution isn’t going away. It’s evolving. And the next decade will be defined by who gets to define what “substitution” really means - and who pays the price when it goes wrong.Is mandatory substitution the same as forced treatment in mental health?
Not exactly. Mandatory substitution in mental health law refers to situations where a legal representative - like a guardian or family member - makes treatment decisions on behalf of someone deemed incapable. This is often called substitute decision-making. Forced treatment is a broader term that includes court-ordered medication or hospitalization, even without a formal substitute decision-maker. In places like Ontario and England, substitute decision-makers can authorize forced treatment. In Victoria, Australia, the law now avoids this by pushing for supported decision-making - helping the person make their own choice, even if it’s slow.
Why does the EU force banks to substitute exposures but the U.S. doesn’t?
The EU believes standardized rules reduce hidden risks in complex financial deals like repurchase agreements. After the 2008 crisis, regulators wanted to make sure banks couldn’t hide risky loans behind layers of intermediaries. The U.S. disagrees. U.S. regulators argue that large banks already use sophisticated internal models to measure risk - and a blanket rule like mandatory substitution is too crude. They say it could push banks toward riskier behavior, like shifting exposures to clients instead of agents. The result? Two different systems that make cross-border banking more complicated and expensive.
Does mandatory substitution under REACH actually make chemicals safer?
Yes - but only for companies that can afford it. BASF cut dangerous substances in its products by 23% between 2016 and 2020 because of REACH. But small businesses often can’t afford the €47,000 cost per authorization application or the years of toxicology research needed. Many just stop selling in the EU. So while REACH has driven innovation among big firms, it’s also created a barrier for smaller ones. The result? Safer products for consumers - but less competition in the market.
Can countries ignore the UN’s CRPD on substitute decision-making?
Yes - and they do. The CRPD says substitute decision-making violates human rights. But countries like Canada, the UK, and Australia signed the treaty with reservations - meaning they didn’t fully agree. They still allow legal guardians to make decisions for people with disabilities. The UN’s committee has criticized these countries, but it can’t force them to change. So while the CRPD sets a global standard, domestic law still holds more weight. Until governments rewrite their mental health laws, substitute decision-making will continue - even if it’s legally questionable under international human rights law.
Are there any benefits to mandatory substitution?
Yes. In finance, the IMF found that jurisdictions with mandatory substitution had 18% lower systemic risk - meaning fewer bank failures. In mental health, Ontario saw a 12% drop in forced treatments after introducing supported decision-making training. In environmental law, REACH has pushed companies to develop over 2,000 safer chemical alternatives since 2007. The problem isn’t the idea - it’s how it’s applied. When mandatory substitution is paired with flexibility, support, and clear criteria, it works. When it’s rigid and underfunded, it creates new problems.
Jason Shriner
January 10, 2026 AT 04:43