Regulators may tend towards rule-based certainty during uncertain economic times

Although the trend towards principles-based regulation will soldier on, companies may find the regulatory pendulum swinging back somewhat more to rules-based regulation in light of the current financial crisis, panelists told a KPMG ‘Regulatory Update’ seminar.
“It will be interesting to see, in the current economic climate and market conditions, whether the movement towards principles-based [regulation] will continue in that direction, or whether that slows down a bit and people actually look now for more rules and stricter, red-light/green-light regulation,” panelist Stuart Carruthers of Stikeman Elliott LLP noted.
Robert McDowell of Fasken Martineau LLP agreed. He noted no one truly knows the extent of the current damage to the economy, and so regulators may be inclined as a result to find some certainty offered by rules-based approaches, he said.
One short-term consequence of this may be the appearance that regulators are “all over the place” when it comes to whether they favour principles-based or rules-based approaches, McDowell suggested.
Both McDowell and Carruthers saw this as a temporary phenomenon. Carruthers guessed the temptation towards rules-based solutions might last for five years or so; nevertheless, he said he expected to see a continuing movement towards principles-based regulation.
Certainly, Carruthers saw the regulator’s role increasing in the future. “The regulatory universe continues to expand,” he said, noting regulatory initiatives in transparency, checking the backgrounds of corporate executives for suitability and integrity, risk-financing, corporate governance, anti-money laundering, privacy, etc.
“There doesn’t seem to be any end in sight to that.”