Principles-based regulation
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The design of organisations and products
principles-based regulation
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Principles based regulation uses high-level, general statements often containing both explanations of the intent behind the principle and qualitative rather than quantitative terms (“fair”, “reasonable”). Principles are designed to be applicable across a wide range of circumstances and as used by regulators today often focus on outcomes, rather than inputs; the FCA’s Consumer Duty being a recent example.
In contrast rules based regulation uses specific statements to define requirements that firms must meet. These necessarily focus on specific areas and tend to use quantitative terms (“within 8 weeks”).[1]
The UKs’ light-touch, principles-based regulation was lauded by all concerned until it appeared to have failed in 2008. But we wonder whether it was a failure of principles-based regulation, or to enforce regulations at all.
See also
References
- ↑ Rules Versus Principles Based Regulation, The CFA Society, 2023. The same article goes on, bizarrely, to claim that “the trend since the 2008 financial crisis has been towards principles based regulation focused on outcomes. This has been driven by a range of factors, including a belief principles based regulation reduces the potential for ‘creative compliance’ and forces firms to consider the implementation of regulation and how it applies to their business rather than adopting a ‘tick-box approach’.” Clearly the CFA has in mind different regulations to the JC.