Document Type


Publication Date

Spring 2011


More principles-based regulation, MPBR


Banking and Finance Law | Securities Law


Modem financial markets are characterized by complexity, seemingly perpetual innovation, chronic asymmetries of information and expertise, and pervasive agency costs. Perhaps nowhere are these characteristics-or their attendant regulatory challenges-more pronounced than within OTC derivatives markets. Mounting effective responses to these challenges must be considered amongst the most difficult and important tasks confronting financial regulators. Prescriptive, rules-based approaches toward financial regulation have thus far proven inadequate to this task. Through the utilization of outcome-oriented principles, enhanced dialogic relationships, intensive supervision, and targeted and proportional (yet vigorous) enforcement, "more principles-based" financial regulation (MPBR) manifests the potential to overcome these challenges and, in the process, generate more nuanced, responsive, durable, and effective regulation. It remains an open question, however, whether MPBR can successfully conquer its own challenges in terms of how to insulate itself from regulatory capture and build mutual trust between regulators and regulated actors. Nevertheless, if these challenges can be bested, carving out a role for MPBR may well prove the optimal prescription for regulating financial innovation and, perhaps, beyond.


This article predates the author's affiliation with Cornell Law School.