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
says.
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.