Rules versus principles for ethical market behaviour

Patrick Honohan

Business Ethics, the Environment & Responsibility, 2023, vol. 32, issue S1, 34-40

Abstract: In designing regulation, as has long been recognized in the academic literature, there is a tension between reliance on fixed mechanical “bright line” rules and the flexibility offered by granting a degree of discretion to the regulator subject to guiding principles. The failure of principles‐based financial regulation a decade ago reinforced a trend towards mechanical rules. This essay, drawing on practical experience gleaned in the years following the Global Financial Crisis, argues that both are needed; indeed, in many cases, the regulatory policymaker needs some discretion if it is to be sufficiently intrusive. Although regulatory discretion brings its own risks, the growing complexity of products and markets suggests a tilt towards granting greater discretion to the regulator in preference to over‐complicating mechanical rules.

Date: 2023
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https://doi.org/10.1111/beer.12407

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Persistent link: https://EconPapers.repec.org/RePEc:wly:buseth:v:32:y:2023:i:s1:p:34-40

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