Schwarcz on Principles-Based Regulation

The 'Principles' Paradox, by STEVEN L. SCHWARCZ, Duke University - School of Law, was recently posted on SSRN.  Here is the abstract:

Although principles-based regulation is thought to more closely achieve normative goals than rules, the extent to which that occurs can depend on the enforcement regime. A person who is subject to unpredictable liability is likely to hew to the most conservative interpretation of the principle, especially where that person would be a potential deep pocket in litigation. This creates a paradox: Unless protected by a regime enabling one in good faith to exercise judgment without fear of liability, such a person will effectively act as if subject to a rule and, even worse, an unintended rule.