Julia Black

Constructing and contesting legitimacy and accountability in polycentric regulatory regimes

The legitimacy and accountability of polycentric regulatory regimes, particularly at the transnational level, has been severely criticised, and the search is on to find ways in which they can be enhanced. This paper argues that before developing even more proposals, we need to pay far greater attention to the dynamics of accountability and legitimacy relationships, and to how regulators respond to them. The article thus seeks to develop first, a closer analysis of the significance of the institutional environment in the construction of legitimacy, the dialectical nature of accountability relationships, and the communicative structures through which accountability occurs and legitimacy is constructed. Secondly, it explores how regulators respond, or are likely to respond, to multiple legitimacy and accountability claims, and of how they themselves seek to build legitimacy in complex and dynamic situations. This analysis, as well as being of intrinsic interest, could be of use to those trying to design accountability relationships or seeking to build them on the ground. For until we understand the implications of the pressures for accountability and legitimacy, the ‘how to’ proposals which are proliferating risk being simply pipe dreams: diverting, but in the end making little difference.

Transnational Business Governance Interactions: Conceptualization and Framework for Analysis

This special issue demonstrates the importance of interactions in transnational business governance. The number of schemes applying non-state authority to govern business conduct across borders has vastly expanded in numerous issue areas. As these initiatives proliferate, they increasingly interact with one another and with state-based regimes. The key challenge is to understand the implications of these interactions for regulatory capacity and performance, and ultimately for social and environmental impact. In this introduction, we propose an analytical framework for the study of transnational business governance interactions. The framework disaggregates the regulatory process to identify potential points of interaction, and suggests analytical questions that probe the key features of interactions at each point.

Making a success of Principles-based regulation

The UK Financial Services Authority (FSA) leads the way in the development of Principles-based regulation of the financial services industry. It is proposing a significant shift towards reliance on broadly stated Principles rather than more detailed rules. The implications of a more Principles-based approach for regulators, those regulated by the FSA and those whose interests the regulatory regime is designed to protect are the subject of ongoing dialogue.

New Institutionalism and Naturalism in Socio-Legal Analysis: Institutionalist Approaches to Regulatory Decision Making

Through drawing on the work particularly of sociological and organizational theorists socio-legal work has added considerably to an understanding of the uses of law and discretion, and shown the contingency of the operation of law on the economic, political and organizational context. Some important questions still remain unanswered, however. In particular, if in decision making law is not determinative, but rather decisions are shaped by other bureaucratic or organizational norms, political and economic pressures and an individuals own world views and interests, what role does law play? Further, what impact does the decision process, in which different norms or considerations all bear, have on law? In starting to answer these questions the article examines the models of decision processes and decision behavior which underly the different new institutionalist analyses, and suggests that whilst they provide some insights, they have their own limits.

The Rise, Fall and Fate of Principles Based Regulation

The financial crisis has prompted a number of fundamental questions, not least of which is the relationship between financial institutions and regulators. In particular, the reputation of principles based regulation (PBR), lauded as a key example of ‘new governance’ techniques of regulation prior to the crisis, has taken a severe battering. Detailed rules did not fare much better, but advocates of ‘new governance’ techniques would not have expected them to: their failure was to be expected. It is the fate of PBR that should therefore cause us to look long and hard at what has become increasingly accepted wisdom amongst regulatory scholars and ‘better regulation’ practitioners over the last decade or so. This paper asks what lessons can be learned from the crisis as to the effectiveness and appropriate role of principles based regulation, and what future it may have. It sets out four ‘ideal types’ of PBR in the Weberian sense: analytical constructs that are rationalised abstractions of particular practices: formal, substantive, dyadic and polycentric PBR. It then charts the rise and fall of PBR in financial regulation over the last few years and offers some tentative predictions for its future.

Paradoxes and Failures: ‘New Governance’ Techniques and the Financial Crisis

This article examines the performance of four ‘new governance’ techniques of regulation in the period leading up to the financial crisis: principles based regulation, risk based regulation, meta‐regulation and enrolment. These techniques have been advocated on the basis that they are responsive, flexible, and in enrolling others in the regulatory project thereby expand its capacity, and even its legitimacy. However, experience in the crisis revealed that in their implementation they can be out of touch or indulgent, focus heavily on auditable systems and processes, and that in enrolling others they can increase vulnerabilities and the potential for negative endogenous effects. The argument is not that there should be a return to adversarial ‘command and control’ regulation, rather that experience of these strategies in the crisis suggests a need to understand in greater depth the refractive effects of the organisational, technical/functional and cognitive dimensions of regulatory governance, if we are to understand and adapt its performance in different contexts.

What is Regulatory Innovation

Much hype has been generated about the importance of innovation for public and private sector organisations. Regulatory Innovation offers the first detailed study of regulatory innovation in a multiplicity of countries and domains. This book draws on in-depth studies of innovation in regulatory instruments and practices across high- and low-technology sectors, across different countries and from the early to the late 20th century. Highlighting different ‘worlds’ of regulatory innovation – those of the individual, the organization, the state, the global polity, and innovation itself, this book offers a fresh perspective and valuable insights for the practice and study of regulatory innovation.

Mapping the Contours of Contemporary Financial Services Regulation

The article draws on decentred analyses of regulation, which emphasise the fragmentation and hybridisation of regulatory systems, to analyse contemporary financial services regulation, principally in the UK. The analysis focuses on actors, their regulatory capacities, the regulatory functions which they do or could perform, their interrelationships, and the ways in which they are or could be enrolled within the regulatory system. The article contrasts such an analysis with the more familiar “toolkit” analysis, and argues that the enrolment analysis provides a mapping device which facilitates a more nuanced analysis of the nature of regulatory hybridity and fragmentation, and facilitates debates on the development of the regulatory system. It also provides a critical frame in which to assess the likely effectiveness, the adherence to normative values, and the accountability of the regulatory system as a whole.

Learning from Regulatory Disasters

Regulatory disasters are catastrophic events or series of events which have significantly harmful impacts on the life, health or financial wellbeing of individuals or the environment. They are caused, at least in part, by failures in, or unforeseen consequences of, the design and /or operation of the regulatory system put in place to prevent those harmful effects from occurring. Regulatory disasters are horrendous for those affected by them. Because of that we have an obligation to learn as much from them as we can, notwithstanding all the well-known challenges related to policy and organisational learning. The article focuses on five distinct and unrelated regulatory disasters which, although they occurred in apparently unrelated domains or countries, contain insights for all regulators as the regulatory regimes share a common set of elements which through their differential configuration and interaction create the unique dynamics of that regime. In the regulatory disasters analysed here, these manifest themselves as six contributory causes, operating alone or together: the incentives on individuals or groups; the organisational dynamics of regulators, regulated operators and the complexity of the regulatory system in which they are situated; weaknesses, ambiguities and contradictions in the regulatory strategies adopted; misunderstandings of the problem and the potential solutions; problems with communication about the conduct expected, or conflicting messages; and trust and accountability structures.

Reconceiving Financial Markets—From the Economic to the Social

The article develops a social conception of financial markets, and draws out some of the implications of that conception for financial regulators. Drawing on bodies of institutionalist theories, social network theories, and the sociology of science and technology, including technical systems, I suggest that we can develop a far more enriched conception of markets than that of the still relatively sparse neoclassical economic model of markets, even as modifi ed by behavioural economics. The move to this social conception of markets provides an alternative cognitive framework for how regulators understand the behaviour of actors within markets, the function of markets, their structure and organisation, the role of calculative devices in price formation and governance processes, the power relations and interconnections between actors within markets, the role of trust and confi dence in markets, the relevance of internal organisational dynamics to understanding behaviour of organisations within markets, and the role that regulators and supervisors themselves have in constituting markets and shaping decisions that market actors make.