Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

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.

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