We talked about the "prudential exception" here, here, and here. I have a short law journal article coming out on this soon, where I basically argue that the exception is badly worded, nevertheless probably works as an exception, but could and should be redrafted in future trade agreements (such as the TTIP).
In the meantime, though, the GATS prudential exception has been invoked in the Argentina - Financial Services (DS453) dispute, and thus we may have a panel/Appellate Body intepretation eventually (thanks to Tim Keeler of Mayer Brown for the tip).
As far as I know, the submissions of Argentina and Panama (the complainant) are not online, but the U.S. and EU third party submissions are. Here's what they had to say:
22. The last sentence of the prudential exception is designed to prevent abuse and requires only that any such measure is taken for prudential reasons. By its terms, and unlike other provisions in GATS and GATT, the exception establishes no other standard or qualification on a Member’s ability to take measures for prudential reasons, such as requiring a “rational” relationship between the measure and the prudential reason, or a showing that the measure is “reasonable” or “necessary” to achieve a purpose.
130. While not taking position on the facts of this case, the European Union considers that an assessment of a measure under the prudential exception in Paragraph 2(a) of the Annex on Financial Services involves a two-step analysis.
131. First, the party that invokes the provision has to demonstrate, in accordance with the general principle of actori incumbit probatio, that the measure adopted is taken for prudential reasons. Paragraph 2(a) provides an indicative list of such prudential reasons (protection of investors, depositors, policy holders or persons to whom a fiduciary duty is owed by a financial service supplier) and includes the objective of ensuring the integrity and stability of the financial system. Yet, given that this list is not exhaustive (as is evidenced by the word "including" in the first sentence of Paragraph 2(a)), there can also be other prudential reasons in addition to the ones explicitly mentioned in Paragraph 2(a).
132. Unlike many of the paragraphs in Article XX of the GATT 1994 and XIV of the GATS, which specify that the measure must be "necessary" for achieving the legitimate objective, Paragraph 2(a) does not require that the measure should be the least trade restrictive means to achieve the stated objective. The use of the word "for" in the phrase "measures for prudential reasons" signifies a means-ends relation between the measure and the prudential objective. Hence, the Member taking the measure at issue must demonstrate a rational relationship of ends and means between the objective and the measure at issue.
133. Second, the second sentence of Paragraph 2(a) specifies that where the measures at issue "do not conform with" the GATS, "they shall not be used as a means of avoiding the Member's commitments or obligations under the [GATS]". Hence, even if a measure violating the GATS pursues a prudential objective, it must be determined whether, through the use of this measure, the Member is trying to avoid its commitments and obligations under the GATS.
136. The rationale of the second sentence of Paragraph 2(a) is also comparable to that of the chapeau of the general exception clauses in Article XX of the GATT 1994 and Article XIV of the GATS. With regard to the function of the chapeau, the Appellate Body has stated that "the chapeau serves to ensure that Members' rights to avail themselves of exceptions are exercised reasonably, so as not to frustrate the rights accorded to other Members by the substantive rules of the GATS". The Appellate Body has also noted that the chapeau is in fact:
…but one expression of the principle of good faith. This principle, at once a general principle of law and a general principle of international law, controls the exercise of rights by states. One application of this general principle, the application widely known as the doctrine of abus de droit, prohibits the abusive exercise of a state's rights.
137. The chapeau thus prevents the abuse or misuse of a Member's right to invoke the exceptions in Article XX of the GATT 1994 or Article XIV of the GATS. The WTO Member invoking an exception bears the burden of demonstrating that the use of the exceptions does not constitute such abuse.
138. The European Union again recalls that the Appellate Body found that the conditions in the chapeau address the manner in which a measure is applied. The manner in which a measure is applied can, according to the Appellate Body, "most often be discerned from the design, architecture, and revealing structure of a measure".
139. Hence, under the general exceptions under the GATT 1994 or the GATS, even if a Member is able to demonstrate that a measure that was found to be discriminatory pursues a legitimate objective, it must still be assessed whether, in the application of the measure (as may be discerned from its design, architecture and revealing structure), the Member is not abusing its rights under the exception to avoid its obligations.
140. Similarly, under the second sentence of Paragraph 2(a) of the GATS Annex on Financial Services, it must be assessed whether the measure at issue, as it is applied in practice (e.g. through the exceptions that are provided to it), is genuinely pursuing the prudential objective or is rather used to avoid Argentina's obligations and commitments. In this regard, the European Union notes that the discretion that Argentina appears to maintain in designating a country as "cooperating" or not is of particular relevance to the Panel's analysis.