The Philosophy of Regulation - Summary

A consistent theme of this session and the conference as a whole was that a ‘one-size-fits-all' approach to finding a robust and workable regulatory approach was unlikely to succeed. In a world of changing economic and political forces, it was necessary to be able to reflect a diversity of views and objectives effectively in the outcomes. The call for a greater understanding of ‘The Philosophy of Regulation’ has come with the recognition of the tension between the original aims of the G20 on greater harmonisation globally and the domestic aims of a number of countries as we move further beyond the initial emergency policy response to the financial crisis. In light of this apparent divergence among countries, it was seen as all the more important understanding must be of the different circumstances that each regime faces and how this affects their desired regulatory responses.

This session noted that while there was a broad consensus in the immediate aftermath of the crisis about the need to converge and present a harmonised approach, as economies and financial markets stabilised, there was a re-emergence of the trend towards domestic self interest. Given the fragility of the world economy and financial markets exposures should the upturn in activity prove temporary, the ability to continue to make progress on international regulatory issues is vital.

This divergence in objectives comes at a time when several important issues have yet to be resolved and as we move into the tricky phase when many of the proposed regulations have to be fine-tuned and implemented. These include for example the application of the Basel III rules, the perimeter of regulation and regulation of shadow banking, and, the development and application of macro prudential tools and policy. The last of these, macro prudential policy, was identified as an area which needed much more analysis and understanding. It was also however seen as a critical element in establishing a framework which would better prepare the industry to deal with future crises.