A Harder Nut to Crack? Responsive Regulation in the Financial Services Sector

By Dimity Kingsford-Smith, Professor of Law, University of New South Wales

This paper argues that responsive regulation has been successful in regulatory contexts where physical inspection of mines, workplaces, factories, nursing homes and so on is undertaken. Responsive regulation has been successful where human agency in creating regulatory relationships is natural, central and regular. In some ways, responsive regulation might justifiably have been called ‘relational regulation’. The paper argues that responsive regulation has been less successful where institutions, locations of value transactions and actors are more distant from regulatory supervision. By this I mean that it makes a difference that the business to be regulated is less ‘industrial’ in the sense of having locations where its activities are carried on and can be inspected. Where inspection or supervision is difficult or impossible, either because of the protean and intangible character of the business or because the regulator has limited powers to do so, then again, responsive regulation has had more difficulty in gaining traction. Bringing evidence from Australian financial regulation and with some reference to the circumstances in the US at the time of the GFC, I will argue that the financial services sector has been a particularly difficult nut for responsive regulation to crack.