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Black, Julia --- "The Development of Risk-Based Regulation in Financial Services: Just ‘Modelling Through’?" [2005] ELECD 364; in Black, Julia; Lodge, Martin; Thatcher, Mark (eds), "Regulatory Innovation" (Edward Elgar Publishing, 2005)

Book Title: Regulatory Innovation

Editor(s): Black, Julia; Lodge, Martin; Thatcher, Mark

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781845422844

Section: Chapter 8

Section Title: The Development of Risk-Based Regulation in Financial Services: Just ‘Modelling Through’?

Author(s): Black, Julia

Number of pages: 25

Extract:

8. The development of risk-based
regulation in financial services:
just `modelling through'?1
Julia Black

INTRODUCTION

`Risk-based' regulation is in essence `problem-based' regulation: regulators
seek to anticipate problems and deal with them. As such, there seems nothing
novel or striking in this, so why should agencies be celebrating their newly
developed approaches? Should they not have been doing this already? This
chapter examines the extent to which the introduction of `risk-based'
approaches to regulation in three financial services regulators can be regarded
as an example of `regulatory innovation', the reasons why those agencies were
prompted to devise quite distinctive and novel systems of organizational
processes and internal management, how they arrived at the systems they
devised, and what some of the outcomes have been to date.
The `risk-based' approaches in question are decision-making frameworks
which are used to prioritize regulatory activity, focusing it where it is most
needed. The `risks' they seek to manage are the risks that the regulator will not
achieve its objectives. So far, so familiar: any risk management strategy seeks
to identify risks to an organization's objectives and to manage them. However,
in the risk management frameworks devised by these regulators, the risks are
seen to arise not from inside the regulatory organization, as is normal for
corporate risk management strategies, but from outside: from the activities of
the financial institutions that they regulate and, as mediated by those institu-
tions, from the wider commercial and economic environment that ...