Principles based securities regulation

Cristie Ford has posted on SSRN an interesting paper on “Principles-Based Securities Regulation in the Wake of the Global Financial Crisis.” The paper argues that the Global Financial Crisis has not discredited principles based regulation.

According to Ford, what the crisis has done is to demonstrate that principles based regulation requires as much (and sometimes more) regulatory resources and trained staff as any other form of regulation. Principles based regulation “requires greater regulatory capacity in terms of numbers, resources, and expertise than has been allocated to it in some of the infamous examples of regulatory failure in the past two years – the failure of Northern Rock in the UK, and of the the SEC’s CSE Program”.

Principles based regulators also must have the ability to obtain transparent and reliable data directly, for otherwise, they effectively cede the field to the regulatees.

Ford also argues that regulators’ hiring decisions must be based not only on applicants’ relevant industry and legal expertise, but also with a view to whether applicants seem to have sufficient confidence and independence of mind.

Ford’s paper is an insightful analysis of the issues involved and is definitely worth reading.

Posted at 4:17 pm IST on Tue, 8 Dec 2009         permanent link

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