the ability of financial regulators to stay one step ahead.12 Another advantage of meta
regulation is that it not only provides greater means of overcoming challenges associated with
regulation, but also those problems of rigidity resulting from too many prescriptive rules.13
“Two well-known theoretical perspectives addressing the different explanations for why risk
has become central, are termed “risk society” theory and “governmentality” theory.14 The
“risk society” approach is one that identifies broad socio-economic and political changes
which occurred in late modern societies. Along with these changes, loss of faith in institutions
and authorities and a greater awareness of the limits and uncertainties linked to science and
technology are identified.15 The term “governmentality” refers to specific types of
government that have arisen in modern societies in line with liberalist and neo-liberalist
approaches.16 It focuses on the exploration of how the identification of risks associated with
certain behaviour or activities provide a way of exercising control over populations, groups or
individuals in neo-liberal societies - in other words, identifying how risk is used as a “tool of
governance” to shape behaviours”.17
Liberalisation and Conglomeration
In the liberalisation process of the 60s, 70s and early 80s, the most substantive reforms in
financial services involved inter alia, the removal of controls on interest rates. A number of
factors played their part in the early period of liberalisation namely: the blurring of the
financial pillars - institutions carrying out banking activities pursuing activities which
depended on investment dealers; financial innovation ; technological developments; macro-
economic developments which facilitated a more flexible financial system and a need for a
more competitive environment.18
Ultimate liberalisation occurred since countries and their financial institutions realised that
they were at a competitive disadvantage - as globalisation gained momentum. Regulators
were not able to maximise their potential to regulate during the emergence of globalisation
because they did not have the facility to adequately challenge the anti-competitive behaviour
of the financial services industry. This was partly due to the asymmetric distribution of
information between the industry being regulated and the primary regulator. This was notable
in North America, the UK and Japan. In Germany and France where the financial sector was
dominated by state ownership, the issue of asymmetry was not as important since banks were
the dominant institutions in these countries - due to their universal bank structure.19
The decline of traditional banking, which has led many banks to venture into more profitable
activities and the undermining of the role of banks, which resulted from commercial and
industrial companies raising funds directly from markets, has also contributed to the blurring
12
13
14
15
16
17
18
19
ibid
F Haines,‘Regulatory Failures and Regulatory Solutions: A Characteristic Analysis of the Aftermath of
Disaster’, Law and Social Inquiry ( 2009) 39 (forthcoming)
See Gray and Hamilton at page 6
ibid
ibid at page 9
ibid
For more on this, see The OECD Report on Regulatory Reform 1997 Volume 1: Sectoral Studies 72 -
76
See The OECD Report on Regulatory Reform 1997 Volume 1: Sectoral Studies 73-74