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Forms and paradoxes of principles-based regulation

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  • Black, Julia

Abstract

Principles-based regulation is high on the regulatory agenda in a number of regulatory domains, most particularly financial regulation. Its supporters argue that it provides a flexible regulatory regime which can facilitate innovation; its detractors argue that it is simply lax regulation. This article explores the political rhetoric surrounding principles-based regulation. It identifies four forms of principles-based regulation: formal, substantive, full and polycentric principles-based regulation. It also identifies and explores seven paradoxes which principles-based regulation may encounter in its various forms. These relate to interpretation, communication, compliance, enforcement, internal management, ethics, and above all trust. PBR, in its full form, can provide an effective, durable, resilient and goal based regulatory regime; but at the same time its paradoxical nature means that it is vulnerable in many respects. Unfortunately for the detractors of principles-based regulation, many of these paradoxes are not necessarily avoided by using detailed rules instead of principles. Rather their resolution lies in trust. Yet, it is argued, trust is the ultimate paradox. Principles-based regulation can help to create trust, but the core elements of that trust have to already exist if principles-based regulation is ever to operate effectively, if indeed at all.

Suggested Citation

  • Black, Julia, 2008. "Forms and paradoxes of principles-based regulation," LSE Research Online Documents on Economics 23103, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:23103
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    File URL: http://eprints.lse.ac.uk/23103/
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    Cited by:

    1. Pečarič Mirko, 2020. "Regulatory Cybernetics: Adaptability and Probability in the Public Administration’s Regulations," NISPAcee Journal of Public Administration and Policy, Sciendo, vol. 13(1), pages 133-156, June.
    2. Sharon Gilad, 2011. "Institutionalizing fairness in financial markets: Mission impossible?," Regulation & Governance, John Wiley & Sons, vol. 5(3), pages 309-332, September.
    3. Justin Logie & Warren Maroun, 2021. "Evaluating Audit Quality Using the Results of Inspection Processes Performed by an Independent Regulator," Australian Accounting Review, CPA Australia, vol. 31(2), pages 128-149, June.
    4. Colin J. Bennett & Charles D. Raab, 2020. "Revisiting the governance of privacy: Contemporary policy instruments in global perspective," Regulation & Governance, John Wiley & Sons, vol. 14(3), pages 447-464, July.
    5. Kenneth Patrick Vincent O'Sullivan & Stephen Kinsella, 2013. "Financial and regulatory failure: The case of Ireland," Journal of Banking Regulation, Palgrave Macmillan, vol. 14(1), pages 1-15, January.
    6. Blánaid Clarke & Niamh Hardiman, 2012. "Crisis in the Irish Banking System," Working Papers 201203, Geary Institute, University College Dublin.
    7. Rebecca Lewis, 2018. "A “Principled” Approach to International Guidance for Central Counterparties," Chicago Fed Letter, Federal Reserve Bank of Chicago.
    8. Maroun, Warren & van Zijl, Wayne, 2016. "Isomorphism and resistance in implementing IFRS 10 and IFRS 12," The British Accounting Review, Elsevier, vol. 48(2), pages 220-239.
    9. Judith van Erp, 2011. "Naming without shaming: The publication of sanctions in the Dutch financial market," Regulation & Governance, John Wiley & Sons, vol. 5(3), pages 287-308, September.
    10. Arien Hof, 2017. "Designing macroprudential regulation and supervision outside the scope of the banking union: Lessons from the Netherlands and Ireland," Journal of Banking Regulation, Palgrave Macmillan, vol. 18(3), pages 201-212, July.
    11. Jeannie Paterson & Gerard Brody, 2015. "“Safety Net” Consumer Protection: Using Prohibitions on Unfair and Unconscionable Conduct to Respond to Predatory Business Models," Journal of Consumer Policy, Springer, vol. 38(3), pages 331-355, September.
    12. Shaun Elder, 2014. "Does the GFC as a change agent of financial regulatory models and approaches in Europe provide lessons for Asia?," Asia Europe Journal, Springer, vol. 12(4), pages 419-430, December.
    13. Cafaggi Fabrizio & Janczuk Agnieszka, 2010. "Private Regulation and Legal Integration: The European Example," Business and Politics, De Gruyter, vol. 12(3), pages 1-42, October.
    14. Sharon Gilad, 2010. "It runs in the family: Meta‐regulation and its siblings," Regulation & Governance, John Wiley & Sons, vol. 4(4), pages 485-506, December.
    15. Berryl Claire Asiago, 2017. "Rules of Engagement: A Review of Regulatory Instruments Designed to Promote and Secure Local Content Requirements in the Oil and Gas Sector," Resources, MDPI, vol. 6(3), pages 1-19, September.
    16. Wendy Currie & Jonathan Jm Seddon, 2022. "Exploring technological instantiation of regulatory practices in entangled financial markets," Post-Print hal-03599145, HAL.
    17. Franklin Nakpodia & Emmanuel Adegbite & Kenneth Amaeshi & Akintola Owolabi, 2018. "Neither Principles Nor Rules: Making Corporate Governance Work in Sub-Saharan Africa," Journal of Business Ethics, Springer, vol. 151(2), pages 391-408, August.
    18. Cristie Ford, 2013. "Innovation-Framing Regulation," The ANNALS of the American Academy of Political and Social Science, , vol. 649(1), pages 76-97, September.
    19. Maroun, Warren & Atkins, Jill, 2014. "Section 45 of the Auditing Profession Act: Blowing the whistle for audit quality?," The British Accounting Review, Elsevier, vol. 46(3), pages 248-263.
    20. Heikki Marjosola, 2021. "The problem of regulatory arbitrage: A transaction cost economics perspective," Regulation & Governance, John Wiley & Sons, vol. 15(2), pages 388-407, April.
    21. Paul Sanderson & David Seidl & John Roberts, 2013. "The Limits of Flexible Regulation: Managers' Perceptions of Corporate Governance Codes and 'Comply-or-Explain'," Working Papers wp439, Centre for Business Research, University of Cambridge.
    22. Maroun, Warren, 2017. "Assuring the integrated report: Insights and recommendations from auditors and preparers," The British Accounting Review, Elsevier, vol. 49(3), pages 329-346.

    More about this item

    Keywords

    regulation; corporate; insolvency and financial law;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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