Regulators as rule makers : the formation of the conduct of business rules under the Financial Services Act, 1986

This thesis is a study of rule making by regulators operating under the Financial Services Act 1986. It examines the formation of one set of rules, the conduct of business rules, which regulate firms authorised under the Act to conduct investment business. The thesis focuses on rule making by the core regulators, the Securities and Investments Board and the self-regulatory agencies which authorise and regulate investment firms. The thesis considers firstly from a theoretical stance what rule making consists of, what issues fall to be decided when a rule is being formed, what the implications of different rule making decisions might be, and what factors would influence that decision. In order to discuss rules and rule making with some degree of analytical rigour, the thesis develops a framework for analysing rules which identifies four dimensions to rules, substance, status, character and structure. The thesis then studies the rule making of these agencies empirically in an attempt to develop a more sophisticated and conceptual understanding of this regulatory function. It first explores the reasons why the regulation was instituted, and why the institutional structure combining statutory and "self regulation was created. It then examines the formation of the initial rules and the reasons for the change to the new rule system which was introduced shortly after the initial rules were introduced. It analyses the formation and nature of the principles, core rules and self-regulatory rules made under the new powers. Finally it studies the formation of rules in particular substantive areas, the soft commissions rule and the rules regulating the retailing of some investment products. Throughout this study, the thesis examines the use which has been made of different types of rules within this system. It considers the different functions of the rules and identifies several factors which have influenced their formation. These include the substantive area in which the rules operate, the institutional framework and the dynamics of the relationship between the regulators, the political context, and the norms and perceptions of the regulators, regulated and the wider community. It also examines the manner in which rule makers have considered the implications of using rules of different types. These include the use of rule type to confer discretion or decisional jurisdiction between both the different regulators and the regulators and the regulated, to affect interpretation and compliance, and to achieve predictability and flexibility of the rule system. The thesis concludes that although rule making by regulatory agencies is a relatively unexplored aspect of their functions, its study can be profitable for both those interested in regulatory agencies in general, and in financial services regulation in particular.