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ICFR Publication - Making Good Financial Regulation

Towards a Policy Response to Regulatory Capture    

Date: 26 September 2012

How can we mitigate the risk that the financial regulatory process may unduly favour narrow industry interests at the expense of the public? The global financial crisis brought the close interaction between policymakers and financial industry players in the regulation of financial markets under the spotlight, and highlighted the risk that this proximity may distort the content of regulatory policies away from the public interest. However, while references to the concept of “regulatory capture” have permeated much of the discourse on financial regulation, a debate regarding policy measures which could be introduced to strengthen the integrity of the policymaking process in finance has struggled to emerge. This publication makes a contribution towards addressing this gap. It combines the perspectives of academics, former regulators, financial industry practitioners, representatives of consumer groups and non-financial end users, and policymakers from outside finance, to discuss the aspects of the policymaking process in finance which may divert the content of regulatory policies away from the public interest, as well as available policy solutions to mitigate this risk.

Driven by hubris, greed and stupidity bankers led the charge off the cliff. But where were the regulators? Why did they not see it coming? Why did they not prevent it? Why did they trust bankers to know what was best for banking? In short, how could regulators have been so dumb as to believe that bankers were so smart? This book supplies answers to these questions. It explores the ways in which regulators can sometimes be captivated, co-opted and conned by those they regulate.  Best of all, it suggests a number of actionable policies to mitigate the problem.” Robert Jenkins (external member of the Financial Policy Committee of the Bank of England and Adjunct Professor, Finance at London Business School) ... Read more   

Table of Contents   

1.0     How Can We Mitigate Capture in Financial Regulation? - Stefano Pagliari

Section 1: An Academic Perspective 
2.0     Understanding Regulatory Capture: An Academic Perspective from the United States - Lawrence Baxter     
3.0     Lessons for the Financial Sector from ‘Preventing Regulatory Capture: Special Interest Influence, and How to Limit It’ - Daniel Carpenter, David Moss and Melanie Wachtell Stinnett 
4.0     Who Mobilizes? An Analysis of Stakeholder Responses to Financial Regulatory Consultations - Stefano Pagliari and Kevin Young 
5.0     Regulatory Implementation and Capture - Andrew Walter
Section 2 – A Regulator’s Perspective  
6.0     Regulatory Capture, Political Dominance or Collective Intellectual Failure?  A View from a Former UK Regulator - Clive Briault  
7.0     Regulatory Capture and Global Standard Setters - Jane Diplock 
8.0    Political Capture and the Regulatory Cycle: How Should It be Addressed - David Green
9.0     Regulatory Capture: A Former Regulator’s Perspective - Andrew Sheng
10.0  Managing the Risks of Regulatory Capture - David Strachan    
Section 3 – A Stakeholder’s Perspective
11.0  Addressing the Problem of Cyclical Capture - Gerry Cross  
12.0  Ensuring the Consumer Voice is Heard - Christine Farnish   
13.0  Regulatory Capture and Financial Regulation:
The Experience of Non-Financial End Users - Richard Raeburn  
14.0  Lessons from the Experience of the UK Financial Sector - Adam Ridley 
Section 4 – Lessons from Outside Finance 
15.0  Regulatory Capture: A Perspective from a Communications Regulator - David Currie
16.0  Lessons from the Regulation of the Energy Sector - John Mogg 
17.0  Regulatory Capture in Finance: Lessons from the Automobile Industry - Tony Porter

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