UK Bill about Light Touch Regulation of Exchanges

I have been reading the bill that the UK has introduced to ensure that a foreign acquisition of the London Stock Exchange does not endanger the “light touch regulation” of UK exchanges. When I blogged about this idea three months back, I was mildly in favour of it, but when I see the actual law, my reaction is quite negative.

First of all, the law is far too wide. It says

A requirement is excessive if –

1. it is not required under Community law or any enactment or rule of law in the United Kingdom, and
2. either–
   1. it is not justified as pursuing a reasonable regulatory objective, or
   2. it is disproportionate to the end to be achieved.

Second, the law requires any exchange that proposes to make any regulatory provision to give written notice of the proposal to the FSA. The provision can be introduced only if the FSA does not veto it during a 30 day period. The only saving grace is that the FSA has been empowered to limit the applicability of this clause to “specified descriptions of regulatory provision or in specified circumstances”.

It appears to me that in the name of preserving a light touch regulation, the law is introducing a whole new layer of regulation that is not light touch at all. The motivation for the law was to deal with certain extreme situations and it would have been better to limit the law to such situations. As it stands, the law only illustrates the general principle that knee jerk legislative responses end up as disasters.

Posted at 5:05 pm IST on Fri, 1 Dec 2006         permanent link

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