Policing the Markets: Structures and Policies
| Pages | 362-366 |
| Date | 01 February 1999 |
| Published date | 01 February 1999 |
| DOI | https://doi.org/10.1108/eb025910 |
| Author | George Gilligan |
| Subject Matter | Accounting & finance |
Journal of Financial Crime — Vol. 6 No. 4 — Financial Regulation
FINANCIAL REGULATION
Policing the Markets: Structures and Policies
George Gilligan
Scandals are a recurring feature of UK financial ser-
vices and they were probably more common in the
1840s than they are in the 1990s. There is no over-
whelming evidence that general financial practice is
less ethical than it was and it appears more likely
that ethical standards have risen.1 They are certainly
higher than in the Victorian era, for example the 'rail-
way mania' of 1845—46 which structurally established
large-scale financial fraud in Britain. During this
period, hundreds of railway schemes were launched
as a source of enormous fees for promoters, lawyers,
engineers and surveyors. Many were never intended
to be built, with some promoters (once they had
accumulated substantial funds from investors)
actively lobbying for their Railway Bills to be
rejected by Parliament.2 However, this relative rise
in the ethical standards of contemporary general
financial practice will be of little comfort to the
thousands of angry investors who have been mis-
sold pensions, or have been victims of modem
scandals perpetrated by Peter Clowes, Roger Levitt
or Robert Maxwell. Their anger is understandable
because modem society expects increasing levels of
security from its industries and institutions, and
regulation is the medium for achieving this. Despite
general trends towards deregulation, in financial
services increasing regulation is inevitable, and politi-
cally desirable, because of the rising complexity and
elaborate nature of exchange relationships. It is the
state which is taking on the role of guaranteeing the
security of those relationships.3 It is this guarantor
role of the state which ensures that when scandals
happen, the anger of victims is not merely directed
at the fraudsters, but also at the regulatory system
and the government which is responsible for that
system.
Public anger and anxiety is not just directed at the
fact that scandals such as Maxwell, Levitt, BCCI,
FOX, Barlow Clowes, Guinness and Blue Arrow
occur, but at the subsequent performance of the
regulatory system in dealing with them. These prob-
lems of regulatory performance fall into two broad
categories:
(i) enforcing the law against offenders (eg Guinness,
Levitt);
and
(ii) reform of the law to prevent further scandals and
compensation for victims (eg ineffective public
inquiries such as the Penzance Royal Commis-
sion [1877],4 and the Wilson Committee
[1980];5 LAUTRO presiding for many years
over well-known deficiencies in regulating the
selling of
pensions,6
and the long wait faced by
BCCI investors for only partial compensation).7
These are all examples of systemic weaknesses in
financial services regulation. A central goal of inter-
ested academics, financial professionals and financial
regulators should be to research actively in these
areas,
in order to contribute to policy development
which has the stated aim of rectifying these structural
weaknesses. The objective should be the reduction of
the scale and impact of future scandals, because their
complete eradication is highly unlikely.
This paper briefly considers the role that the crim-
inal law should play in financial services regulation by
summarising:
— the importance of power relations in the criminal
justice system;
— the weaknesses of the criminal law in combating
business crime;
— the problems of regulating complex organisa-
tions;
— the need for greater integration of the civil and
criminal law in regulating financial
services;8
— the prospects for harnessing private justice sys-
tems in combination with the criminal law; and
— potential reforms for the use of the criminal law
in UK financial services regulation.
The history of UK insider dealing regulation demon-
strates the problems of
a
sole reliance on the criminal
law to combat complex economic crime and also
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