Influencing the legislators - a new approach

In 2006 the Financial Services Authority (FSA) indicated it wanted to make a major strategic shift - towards a more principles-based approach to its regulation of financial institutions. Herbert Smith was the first law firm to pick up on the potentially wide-ranging implications for financial institutions.

Working alongside leading academics at the LSE, our financial regulatory team weighed up the consequences if the FSA should move away from detailed rulemaking, and how this would affect financial institutions and their compliance functions. Our work attracted the interest of the FSA, which disclosed that it was about to make a major announcement on the issue. We then ran a series of Chatham House roundtable discussions involving regulators, practitioners, academics and the regulated community.

Thinking ahead
Our joint discussion paper Making Principles-based regulation a success (2007)1 LFMR 119 preceded the FSA's own policy announcement and was considered valuable to the ongoing debate - so much so that a Herbert Smith partner, Martyn Hopper, was invited to speak at the conference where the FSA's own policy document was unveiled.  We built on this momentum by attracting media coverage and hosting a seminar to examine the lessons from other regulated sectors exposed to principles-based regulation.

Our initiative gave financial institution clients an important insight into how they might influence the FSA's future regulatory and enforcement policy. It also highlighted the challenges that a more principles-based approach would present to their in-house legal and compliance functions. For our part, we learned that we would need to adapt the service offered to clients to help them better in managing regulatory risks. As a result, the work has won us instructions from clients to advise on strategic regulatory compliance initiatives.

Few pieces of thought leadership involve such close synthesis between academics and practitioners - and have provided such added value for our clients.