Sunday, June 21, 2020
On p. 17 of Rules for Principles and Principles for Rules: Tools for Crafting Sound Financial Regulation (here), Heath P. Tarbert, the Chairman and Chief Executive of the Commodity Futures Trading Commission, provides a useful table that he notes “is intended to be a helpful reference point for regulators confronted with finding the appropriate balance between principles and rules.” I found myself thinking of how helpful a table like this – and the article in general – would have been when I was teaching courses focused on the regulation of financial markets!
I highly recommend this very readable work to BLPB readers, especially to those teaching in the area of regulation. In fact, I’d likely make this article assigned reading if I were teaching a course on financial regulation this fall. It does an excellent job of providing an overview of the strengths and weaknesses of principles-based versus rules-based approaches to regulation and discussing hybrid possibilities. It also examines four categories of factors that suggest taking one approach over the other (summarized in the p.17 table), and applies these factors to several areas (automated trading, position limits, cross-border regulations, and digital assets).