Michael Taylor

Publication Date


Document Type

Special Contribution


The regulation of financial services in developed economies has not kept pace with the enormous changes that the industry has experienced over the last two decades. Despite the rapid integration of financial services across a number of different boundaries--geographical, functional, and sectoral-regulation remains rooted in a set of assumptions dating back to the 1930s. I term these assumptions and their associated institutional and legislative embodiment a "regulatory paradigm." In this Article, I argue that the traditional regulatory paradigm has become outmoded as the result of recent industrial developments and that this necessitates the creation of a new regulatory paradigm. This would include, as a minimum, new public policy objectives for regulation, a reassessment of the scope of regulation, new techniques of regulation, and new institutional and legislative structures of regulation. Although the precise form of this new paradigm is still to emerge, there are already a number of indicators of its likely shape, and these predominantly involve reliance on the market rather than public agencies as a key regulatory device.

In this Article, I begin by considering the traditional regulatory paradigm and the way in which it has been superseded by market developments. Second, I consider some of the possible alternative regulatory approaches currently being mooted. I also reflect on how the organizational structure of regulation needs to be modernized to reflect the changed environment of financial services. My intention is to try to connect these various points to the outline of the new regulatory paradigm. Nonetheless, the focus of this Article is deliberately narrow: I consider these issues only as they apply to banks and only to the extent that they concern prudential regulation. Many of the points I make apply equally to the securities houses and even some insurance companies, and there is also another equally as long article to be written about regulation of the sale of retail investments.