From ‘effects‐based’ regulation to a return to the reasonableness standard?

The day‐to‐day stuff of regulatory compliance is far more complex, less mechanistic and literal than it might seem. Principles, rules, guidance, relations with regulators are all crucial as well as the internal management systems adopted by the firm to disseminate standards and procure compliance, and perhaps the most important factor of all is the compliance culture or even subcultures within the regulated firm itself. An unravelling of some of the so‐called ‘regulatory scandals’ that have taken place under the existing regime for the regulation of investment business shows that the problems that have arisen are not as a result of rules themselves being inherently ‘wrong’ in substance (in the sense of the type or level of obligation they impose) but are as a result of the rules not working and not therefore, having their desired effect.