From ‘effects‐based’ regulation to a return to the reasonableness standard?
| Published date | 01 February 2000 |
| Date | 01 February 2000 |
| Pages | 181-191 |
| DOI | https://doi.org/10.1108/eb025042 |
| Author | Joanna Gray |
| Subject Matter | Accounting & finance |
Journal of Financial Regulation and Compliance Volume 8 Number 2
Regulatory & Legal Commentary
From 'effects-based' regulation to a return to
the reasonableness standard?
Joanna Gray
Reader in Financial Regulation, University of Newcastle upon Tyne, Newcastle Law School,
21-24 Windsor Terrace, Jesmond, Newcastle upon Tyne NE1 7RU; tel: +44 (0)191 222 7685;
fax: +44 (0)191 212 0064 or tel:/fax: +44 (0)1669 650 349; e-mail: joanna.gray@newcastle.ac.uk
The day-to-day stuff of regulatory compli-
ance is far more complex, less mechanistic
and literal than it might seem. Principles,
rules,
guidance, relations with regulators
are all crucial as well as the internal man-
agement systems adopted by the firm to
disseminate standards and procure compli-
ance,
and perhaps the most important
factor of all is the compliance culture or
even subcultures within the regulated firm
itself.1
An unravelling of some of the so-
called 'regulatory scandals' that have taken
place under the existing regime for the reg-
ulation of investment business shows that
the problems that have arisen are not as a
result of rules themselves being inherently
'wrong' in substance (in the sense of the
type or level of obligation they impose)
but are as a result of the rules not working
and not therefore, having their desired
effect.2
Regulatory attention has been re-
focused then, first on strengthening poli-
cing and enforcement powers, and, sec-
ondly, on rule design that focuses on
outcomes and effects of regulation rather
than spelling out, for example, specific
detailed conduct of business requirements.
To consider that latter point in more
detail, leaving enforcement to the experts,
how can rule design lead to better (in the
sense of more effective yet still proportion-
ate) financial regulation?
Diver, in a seminal article in the Yale
Law Journal in 1983 identified three dimen-
sions that formal regulatory rules should
possess in order to maximise regulatory
precision (or accurate matching of regula-
tory action with policy goals).3 These char-
acteristics are:
— 'transparency': of meaning, by the use
of clear, commonly understood
language
— 'accessibility': the intended audience for
the rules should be able to apply them
easily to concrete fact situations
— 'congruence': in the sense of whether or
not the message carried in the rule's
words produces the desired behaviour.
FSA'S RULE-MAKING POWERS IN THE
FINANCIAL SERVICES AND MARKETS
BILL
One can then ask to what extent the new
legislative powers to be conferred on the
Financial Services Authority (FSA) by the
Bill increase the likelihood of the FSA's
producing rules that measure up against
these three criteria. Part IX of the Bill
which details FSA's legislative powers to
issue rules and guidance and the arrange-
Journal of Financial Regulation
and Compliance, Vol. 8, No. 2,
2000, pp. 181-191
© Henry Stewart Publications,
1358-1988
Page 181
To continue reading
Request your trial