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August 2011: Regulation Principles or Principled Regulation

Regulation, Principles or Principled Regulation? It’s not a Straightforward Proposition

There is no consensus on the proposition that the current economic crisis will breed any form of blanket regulation designed to prevent or curtail the ravages of the spectre of predatory financial engineers and sales people as they roam the globe with their carpet bags full of seductively dressed investment instruments.

One of the interesting points to emerge from the interviews and discussions was the question of China’s disappointment and how it would shape its financial services structure going forward.

China has clearly drawn heavily on western methodology for its hybrid consumer-driven framework and seeing that apparently proven system unravel would have very mixed reception in the middle kingdom.

Mixed opinions ranged wide. The administratively driven custodians, even J.P.Morgan’s well-seasoned Laurence Bailey, who seek comfort in the solid framework of rules and regulation, while also keenly prepared for incremental opportunity, consider regulation necessary, and the various systems in the region, well managed and appropriate. But they do acknowledge the challenge of managing likely associated costs in the ongoing cost-cutting environment - a hard call for the hard men and women of the industry

The managers of money, of whom Woody Allen once famously said ‘Money managers manage money until there’s none left…”, struck a note of caution especially in compulsory savings environments where the fund member sought the comfort of regulation and governments needed to acknowledge their responsibility.

Mark Konyn makes the significant point that in many areas, and specifically the environment of retirement savings, that regulators and service providers should work in partnership for the best outcomes for the system. He notes that regulations are by their very nature made in hindsight, fixing the problems that have occured and suggests a closer eye on the investment banking initiatives might be a handy pointer to what may require regulation in the future.

And the governance watchdogs ACGA, concede that the fly in the ointment isn’t some sort of arbitrary blanket regulation as much as the discord created by regulation fragmentation and agreed with the fund manager that regulation arbitrage was a threat and it was a real balance between sound well framed regulation and vigilant policing that made the most effective structures.

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CrossBorder Partners

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