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Rules versus principles for ethical market behaviour

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  • Patrick Honohan

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.

Suggested Citation

  • Patrick Honohan, 2023. "Rules versus principles for ethical market behaviour," Business Ethics, the Environment & Responsibility, John Wiley & Sons, Ltd., vol. 32(S1), pages 34-40, April.
  • Handle: RePEc:wly:buseth:v:32:y:2023:i:s1:p:34-40
    DOI: 10.1111/beer.12407
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