Regulators must balance the competing public interest and political objective of consumer protection and the macroeconomic needs for financial stability and open, efficient markets. There are sometimes tensions and conflicts between these objectives and it is difficult to properly assess in advance the costs and benefits of new regulation.
However, there are also often alternatives to regulation for achieving a desired outcome. We are interested in identifying the context and conditions for better regulation. Our better regulation theme will explore these issues.
The first issues paper from our better regulation theme suggests that there is no shared vision of regulation amongst regulators, providers and consumers, which promotes efficient and stable markets and challenges the asymmetry that it is easy to introduce regulation, but more difficult to roll it back and offers a measure of regulation as being society's inability to achieve public policy goals through other more efficient, economical and flexible means.
We propose a framework to help ensure that regulatory solutions are chosen only after considering the wider context of alternative solutions, and that regulations are continuously monitored to ensure successful implementation.
The reasoning pursued in this issues paper develops previous work carried out by the ICAEW, particularly regarding the various alternatives to regulation in directing market activity towards outcomes that meet public policy goals. These have been presented as part of the Information for better markets initiative, first in the October 2004 publication Sustainability: the role of accountants and subsequently in the November 2005 publication Information for markets and society.
In the same series Measurement in financial reporting, published in October 2006, first featured a model of good regulatory practice which is presented as a framework for financial services regulation in this issues paper. This model has also been central to influential ICAEW submissions to the UK government on better regulation principles.
The ICAEW is also a prolific international respondent to regulatory consultations across its many areas of expertise, including financial services, drawing on the experience of its members in all sectors of the economy and other stakeholders.
More specifically, the Financial Services Faculty held a series of roundtable events in mid-2007 to gather views on practical issues associated with the implementation of principles-based regulation in the UK.