Rules vs Principles in London

One of the most compelling parts of the Bloomberg-Schumer

report was the way in which it praised London’s principles-based approach

to financial-sector regulation over New York’s rules-based approach: "our

regulatory framework is a thicket of complicated rules, rather than a streamlined

set of commonly understood principles, as is the case in the United Kingdom

and elsewhere", it


But London itself, it turns out, is struggling with the same problem, and not

only because of EU regulations which threaten to override and generally defeat

the purpose of the FSA’s principles. Ian

Morley, the CEO of Dawnay Day Brokers, writes in the FT today:

The problem is that the FSA approach seems to lack courage and consequently

may result in a craving for certainty and a move back to rules. The situation

may be compounded by the fact that many people in the trade associations (and

compliance departments) that deal with such issues are themselves of a legal

background and prefer black and white to grey.

The FSA’s proposed approach is not really helpful. For example, in point 2.3

of this paper, it states: "Industry guidance must not claim to limit

or affect the rights of third parties." That is an understandable legal

point but means anyone who does not like it can drive a truck through it by

suing; in effect, of little real value to the industry.

In other words, a principles-based approach is hard, and is likely to be continually

threatened by lawyers both within the financial services industry, who want

certainty, and within national and international legislatures. Given the degree

to which laws and lawyers control the US economy, it could be impossible to

develop a principles-based approach here.

This entry was posted in Econoblog. Bookmark the permalink.