Hadar Jabotinsky, Mathias Siems
Hebrew University of Jerusalem; Durham University

How to Regulate the Regulators: Applying Principles of Good Corporate Governance to Financial Regulatory Institutions


There is a growing literature about the question of who should regulate the regulators. This paper is interested in the question of how to regulate the regulators. More specifically, it explores how far it may be feasible to apply rules and principles of good corporate governance to the governance of financial regulators and financial regulatory institutions.

For this purpose, the paper discusses the literature on the differences between private and public sector firms and their application to financial regulatory institutions, followed by an assessment of conceptual similarities between the governance of financial regulatory institutions and corporate governance. Subsequently, it turns to the core of the analysis, namely the question how far standards of good corporate governance should be applied to the governance of financial regulatory institutions.

Keywords: Financial regulatory institutions, corporate governance, principal-agent problem, independence of regulators, organisational design

1. Introduction

Financial regulatory institutions are at the centre of intensive debates in international commercial law. Many of these debates are concerned with the regulatory tools to supervise financial firms and markets, but there is also a growing literature that focuses on the financial regulatory institutions themselves. Here, following Juvenal’s famous phrase “quis custodiet ipsos custodes?”, the literature has mainly been concerned with the question of “who should regulate the regulators”.1 The main idea of this paper is that we should extend the debate and ask how we can regulate them. The question of how to regulate organisations is not unique to financial regulatory institutions. Thus, it is worth exploring whether there are general principles that can apply to organisations in different fields. This paper contributes to this debate. Yet, it is also clear that such general principles could only be phrased at a high degree of abstraction. More specifically, the following will therefore draw on lessons learned from corporate governance as a possible analogy, being a field where governance questions have been discussed and tested in depth.2 Even though private sector companies differ from financial regulatory institutions, this paper will show that some analogies can be made. It is also important to note that the history of companies is closely linked to the public sector since the East India Companies and other colonial joint-stock companies were conveyed public-law rights of sovereignty.3 Moreover, today, it is sometimes argued that company law is indeed a hybrid of private and public law as its interventionist elements aim at changing behavioural patterns of corporate participants in line with society.4 Download PDF