Forms and paradoxes of principles-based regulation

Abstract

Only a year ago it seemed that ‘principles-based’ regulation was the answer that all policy makers and those running financial institutions had been looking for.1 The Financial Services Authority (FSA) had just issued its paper on how it would operationalize its approach to principles-based regulation (PBR) and the challenges that the FSA, firms and their advisers would have to meet to make the approach work.2 The EU Commission was trumpeting the benefits of a principles-based approach,3 although the FSA was arguing that the European Union still had a long way to go in this direction.4 Politicians in the United States were looking askance at the impact of Sarbanes-Oxley and extolling the virtues of PBR. A report by McKinsey & Co., commissioned by the Mayor of New York, Michael Bloomberg and Senator Charles Schumer, recommended that the United States adopt a ‘two-tier’ principles-based approach, developing a set...

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