Implementing Financial Regulation: Theory And Practice - Rilegato

Gray, Joanna; Hamilton, Jenny

Rilegato

ISBN 10: 0470869291 ISBN 13: 9780470869291

Casa editrice: John Wiley & Sons Inc, 2006

Riassunto

Now that the Financial Services and Markets Act 2000 has had a chance to bed itself down and the Financial Services Authority (FSA) is developing its new regulatory toolkit and modus operandi, financial regulation has moved on in interesting directions. This book takes a critical look at the principles and practices behind this regulation, as well as the theory that is involved.

This book goes further than a description of the laws that are currently out there, by analysing the impact and implications of the new financial regulations, making it a ’must-read’ for law, finance and accounting practitioners. Coverage includes: Regulation and compliance; disclosure risk and regulation and stakeholders in financial regulation.

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Informazioni sull?autore

JOANNA GRAY LL.B. (Newcastle), LL.M. (Yale) Reader in Financial Regulation, University of Newcastle upon Tyne and Solicitor (England and Wales) has also taught at the Universities of London, Dundee, and Strathclyde and qualified as a solicitor with a leading City of London practice for whom she subsequently worked as a consultant. In 2000 returned to practice full-time doing advisory work relating to financial regulation at a leading Edinburgh law firm.
She taught the first UK undergraduate Law School course of its kind in 1986-1987 in financial services regulation at UCL (jointly with Dr Cento Veljanovski an economist). She has had extensive experience in training and consultancy work in financial services law and regulation both for law firms and for industry and has published widely in academic and industry journals on financial services law and company law.

JENNY HAMILTON Professor in Law, University of Strathclyde, UK has taught at the University of Strathclyde for the past nine years, primarily in the field of commercial law, consumer law and financial services regulation. Qualified as a barrister and solicitor in Australia she practiced law and taught in Australia before moving to Scotland in the mid 1980s where she has since taught. She is also a visiting lecturer on the LLM program at Monash University, Australia.
She was formerly a Council member of the Scottish Consumer Council (1999–2003) and is currently the Council Moderator of a co-operative lending society based in the north of England that aims to reduce poverty in the world, by providing fair and just financial services.

Dalla quarta di copertina

Implementing Financial Regulation: Theory and Practice examines the most important aspects of the UK financial regulatory environment introduced by the Financial Services and Markets Act 2000. These aspects are firstly, the move towards risk-based regulation and in particular FSA’s risk-based operating framework for supervision; secondly, the trend towards direct regulation of individuals within financial services businesses and in particular senior managers; and thirdly how regulatory rhetoric and action have changed over the last twenty years to mirror the re-drawing of the boundary between collective and personal responsibility that has led to increasing emphasis on financial citizenship and personal financial autonomy that has taken place over the same period. Highlights include:

• What does (and should) risk-based regulation mean? How does FSA interpret and use conceptions of “risk”?
• How FSMA 2000 and the FSA Handbook have built a bespoke governance regime for the finance sector regulatory apparatus governing senior management responsibility, arrangements, systems and controls?
• How is the regulatory regime with its increased emphasis on issues internal to the business of governance, organisation and performance by key individual staff being made to “bite” at the level of FSA enforcement against firms and individuals?
• Can regulation and regulators employ their techniques to empower and enable individual financial citizens to make rational choices faced with a dizzying array of (increasingly directly regulated) products and services?

The book aims to explain and critique each of these features in terms of broader trends in thinking and practice about regulation and the appropriate individual allocation of risk and governance responsibilities in some other areas of business law. It asks whether insights provided by social theorists into both the possibilities and limits of regulation can aid understanding of some of these more novel features of the UK financial regulatory landscape.

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Implementing Financial Regulation

Theory and PracticeBy Joanna Gray Jenny Hamilton

John Wiley & Sons

Copyright © 2006 Joanna Gray
All right reserved.
ISBN: 978-0-470-86929-1

Chapter One

Regulation in context

Financial services regulation has matured considerably in the past 25 years. The current regulator, the Financial Services Authority (hereafter "FSA"), has developed a sophisticated, comprehensive and potentially far-reaching regulatory tool kit through which to implement its objectives. This reflects the fact that the "art" of regulation is now understood to be far more diverse and intricate than when regulation first began to attract academic interest. While it operates within the statutory framework imposed by the Financial Services and Markets Act 2000 (hereafter "FSMA"), there are three aspects of this regulatory toolkit developed by the regulator that we believe are of particular importance and significance. These are the subject of this book, rather than the structure of the regulatory environment for financial services, which needs little explanation and has been extensively described and analysed elsewhere.

The first aspect of central importance is the adoption by the FSA of risk-based regulation, and the concomitant development of its risk-based operating framework for supervision. This is of fundamental significance, and provides the context within which analysis and discussion of the two further aspects are carried out. The first of these two further aspects is the trend towards greater regulatory incursion into the internal business management processes and strategies of regulated firms through regulatory tools which address the role of senior managements of firms, and directly regulate individuals within firms, especially senior managers. The second further aspect is the change in regulatory rhetoric and action over the last 20 years to mirror the re-drawing of the boundary between collective and personal responsibility. This has led to an increasing emphasis on financial citizenship and personal financial autonomy.

The centrality of these aspects is in stark contrast to the situation in the early days of the precursor of the FSA, the Securities and Investment Board (hereafter "SIB"). At that time regulation was viewed simply in terms of command and control. Its effectiveness was judged against compliance with prescriptive and detailed rules, and regulators in the financial services sector were left to determine their own broad regulatory objectives.

The rise of risk

In one sense the adoption of risk as the basis of regulation by the financial services regulator is neither particularly unique nor unusual. Discourses around risk have now become commonplace within executive government in the UK. As Fisher has commented:

One of the central tasks of the UK executive state is now perceived to be the handling of risk ... The task of public decision makers is increasingly characterised in terms of the identification and assessment and management of risk and the legitimacy of public decision-making is also being evaluated on such a basis.

Furthermore, risk has become the dominant concept across a range of regulatory spheres from environmental protection and health and safety to other diverse arenas such as health, penology, and child protection, as well as public sector management and finance. It has become the dominant concept in the regulatory reform process itself where regulation has to be proportionate to the risks. As Fisher notes, in some of these spheres a concern for risk has always been implicit, as, for example, in environmental protection, food safety and occupational health and safety. In other regulatory spheres a focus on the concept of risk is relatively recent. Increasingly, however, regulators are required to engage in formal risk assessment and risk management. It is clear now that the language of risk has permeated most areas of executive government. This is so much so that HM Treasury's Management of Risk: Principles and Concepts states that "it can now be presumed that all existing [government] organisations have basic risk management processes in place" and further that "every organisation which wants to maximize its success in delivering its objectives needs to have a risk management strategy, led from the very top of the organisation, which is then implemented by managers at every level ... and embedded in the normal working routines and activities of the organisation".

As Fisher observes, however, the notion that risk is now embedded in public decision-making is not a simple case of rebranding past practices with new buzzwords. Instead, risk represents a new way of conceptualising what "public administration" and regulation do. She suggests it is not simply a tool for decision-making, but in fact represents a new way of governing, and adds that "the end result has seemingly been a dramatic evolution in what public administration does and what it is perceived that it should do". This evolution, she believes, has a number of fundamental implications for what is understood to be the role and the nature of the administrative state and the role of non-legal modes of regulating public administration, as well as how to identify good and bad public decision-making. It raises not only questions about the meaning of risk but also questions relating to the ways it is deployed by regulators and administrators, and its implications for citizens.

But it is recognised that the way risk has been embedded varies across public bodies and agencies. Consequently, it cannot be analysed as if it were a uniform and unifying development across administrative and regulatory spheres. Rather each sphere needs to be examined for its specific implications. But in the call for more site specific examination of the embedding of risk it is important not to lose sight of the fact that this embedding is taking place within the context of an embedding of risk generally across a whole range of administrative and regulatory spheres. To ignore this wider context would be to overlook more subtle and broad-based implications of this development, and it is worth therefore analysing why risk has become so central in administrative and regulatory spheres generally. At the same time, risk is a concept that may be taken for granted by those involved in the everyday practices associated with it, and requires to be unpacked before looking at it further in the context of financial services regulation.

Why risk has become central

Very different explanations are given for why risk has come to be central across government and regulatory spheres. These explanations are, in part, influenced by the different approaches to what risk is, discussed below.

In attempting to account for the emergence of risk as a strategic organising principle in the public sector some commentators have simply pointed towards the particular needs of government. They highlight the need to restore confidence in the aftermath of mismanaged crises (especially responding to particular stimuli such as the collapse of the Barings banking group and BSE), and the need to improve communication with the public, in order to better manage public expectations.

Political scientists, however, convincingly suggest that the adoption of the language and practices of risk reflects a deeper, more complex process, that of "political isomorphism". This is a process of policy transmission such that bodies will adapt to or adopt governance strategies that have a common currency and will alter their practices so as to become more like those around them. In other words, as a strategy or operating principle risk becomes accepted and embedded in one organisation or institution, and so it acquires a currency within other organisations or institutions.

However, given that risk has been conceptualised and utilised in different ways across organisations and institutions, a process of policy transmission cannot be the whole explanation. Other explanations, primarily from within the socio-cultural disciplines, suggest that the centrality of risk stems from issues connected with control, accountability, responsibility and blame in late modern society. Two prominent theoretical perspectives that address these issues are broadly termed "risk society" theory and "governmentality" theory. The former draws on the work of the sociologists Beck and Giddens. The latter draws on the work of the important French social thinker Foucault. At the risk of oversimplifying and caricaturing these important and extremely influential perspectives, the approach of "risk society" theorists such as Giddens and Beck is one that identifies what they believe to be broad socio-economic and political changes that have occurred in late modern societies. Among these changes they identify a loss of faith in institutions and authorities and a greater awareness of the limits and uncertainties associated with science and technology. This loss of faith, greater uncertainty and consequent anxiety about the future has arisen, they suggest, because of an increased awareness of the larger scale of risks faced in the 20th and 21st centuries (the period of "late modernity"). This is encapsulated in what has been termed the "risk society"- a society in which most risk is "manufactured", that is, generated by humans as part of the techno-economic development of industrialisation, modernisation and capitalism, rather than externally imposed by nature.

Giddens, for instance, suggests that concern with risk has become ubiquitous because of an increasing awareness of the potential scale of these "manufactured" risks, which are typically unseen, global and potentially catastrophic. There is increasing awareness, too, of the contingent nature of risk assessment and management techniques. Late modern society is not necessarily intrinsically more dangerous than before. Indeed, we now live longer, have better health etc. But for every scientific "breakthrough" there are new uncertainties and new risks to be faced. There is now an awareness at all levels of the "inherent indeterminacies and uncertainties of risk diagnosis" associated with manufactured risk. This contrasts with the position at an earlier period (which Beck calls "simple modernity"), where there was belief in the ability of experts to identify, measure and hence control risks, or at least a belief that with the advancement of science they would ultimately succeed in doing so.

In addition, attempts to try to confine and control these risks increases uncertainty and danger. The near collapse in 1998 of Long Term Capital Management, an investment fund that traded in derivatives - the very instruments created to off-set modern risk - can be seen as a quintessential example of what Beck and Giddens would call modern manufactured risk. Had it not been for the bailout encouraged by US Federal Reserve Bank, its collapse had the potential to unravel the entire banking system. As a result, they suggest, we have entered a period of "reflexive modernisation" which involves questioning the outcomes of modernity, including the practices and procedures associated with industry and science. "Risk society" theory suggests that the preoccupation with risk in government and regulatory circles is a response to a general recognition that there are limits to the ability to know or to control the uncertainties associated with late modernity, and to a public wanting to hold public decision-makers to account. Risk is now viewed as a political rather than a metaphysical phenomenon. Giddens, who has been a formative intellectual influence on the development of Labour "third way" ideology, suggests that "[a] good deal of political decision-making is now about managing [these manufactured] risks - risks which do not originate in the political sphere, yet have to be politically managed". For the exponents of the "risk society" thesis, risk governance is not so much associated with control but with the absence of control. In Giddens' phrase late modern society is a "runaway world".

An alternative perspective on the centrality of risk is offered by "governmentality theory". The term "governmentality" is used to refer to specific modes of government that have emerged in modern societies in line with liberalist and neo-liberalist discourses. Governmentality theorists are interested in examining the ways in which power is constituted and exercised in liberal and neo-liberal societies. Their interest in risk does not focus on the nature and scale of risks in late modern society, nor does it centre around identifying macro-level transformations in society (transformations governmentality scholars do not necessarily accept in any case). Rather it is centred around the exploration of how the identification of risks associated with certain behaviour or activities provide a means through which to exercise control over populations, groups or individuals in neo-liberal societies. In other words, governmentality theorists are interested in identifying how risk is used as a "tool of governance" to shape behaviours. One of the clearest examples of the use of risk as a tool of governance is in insurance.

The technologies of insurance (statistics, classification and frequency observation) are tools used to make risk calculable and, in making it calculable, it can be used as the basis on which to promote responsible behaviour on the part of the insured, for which the clumsy but apt term "responsibilisation" has been coined. This can be seen, for example, in relation to smoking and other hazardous activities whereby smokers or those who engage in such activities are required to pay higher premiums or denied insurance altogether. This allocation of responsibility in turn enables norms of behaviour to be established, which are then used to encourage voluntary self-regulation, such as, for instance, giving up smoking. Risk governance in this sense is about using the concept of risk as a means of governing individuals or groups in such a way as to (re)define responsibilities for the outcomes associated with particular phenomena or activities, consistent with an ethos of neo-liberalism which emphasises autonomy and self-help over state intervention. Examples of this emphasis are not confined to the area of insurance. They can be found across a broad spectrum of fields where the state utilises risks governance in this sense. As O'Malley illustrates, in some jurisdictions drug addicts have been

recast as "responsible risk takers" who must govern the effects of their risks on themselves and on others. This new governmental image of the drug user no longer represents them as "addicts" enslaved by the drug and cursed with impaired rationality. Rather ... they are considered rational choice subjects, free to make choices and to take responsibilities, albeit having a "relationship of dependence" with a drug. In the context of environmental concerns on the other hand, the Australian government has sought to redefine drought to the category of "manageable risk" rather than a "natural disaster", the responsibility for which has been transferred away from the state and on to farmers on the basis of their failure to respond adequately to risk managing deteriorating land conditions. Within the health field Ruhl has drawn attention to how pregnant women are "statistically graded" for risk on the basis of lifestyle and increasingly assigned responsibility for the health of the foetus. Similarly, in the context of criminal behaviour in the UK Batchelor demonstrates that despite their difficult familial and social circumstances young women who offend tend to reject the label of "victim", preferring to focus instead on issues of personal choice and taking responsibility for their risky behaviour. This internalisation of responsibility is a key objective of this form of governance.

(Continues...)

Excerpted from Implementing Financial Regulationby Joanna Gray Jenny Hamilton Copyright © 2006 by Joanna Gray. Excerpted by permission.
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Dettagli dell'edizione

• Editore: John Wiley & Sons Inc
• Data di pubblicazione: 2006
• Lingua: Inglese
• ISBN 10: 0470869291
• ISBN 13: 9780470869291
• Rilegatura: Copertina rigida
• Numero di pagine: 271
• Contatto del produttore: non disponibile
• Persona responsabile: non disponibile