Rethinking the Future of Self-Regulation in the Financial Industry

In today\u27s post-crisis world, arguing in favor of self-regulation in the financial services industry is sure to raise many eyebrows and invite significant disagreement. Much of the skepticism in this respect may be fully justified: the lack of truly effective incentives or political obstacles may ultimately foreclose the possibility of creating a new regime of embedded self-regulation aimed at detection and prevention of systemic financial risks. Nevertheless, as this Article sought to demonstrate, the realities of today\u27s financial marketplace make it critically important that we give the idea of industry self-regulation a full consideration. The main goal of this Article was to start this deliberative process by making a general case for reinventing financial sector self-regulation. There are compelling reasons to believe that private financial market participants are potentially in a far better position to address the two principal regulatory challenges currently facing governments around the globe: the increasing complexity and global nature of financial transactions and instruments. Leveraging private industry\u27s potential capacity to manage systemic risk would require giving financial institutions greater self-regulatory authority, while at the same time imposing direct, and very real, responsibility on the industry actors to curb their own profitseeking activities to the extent they may endanger broader societal interest in preserving long-term financial stability. Responsibilizing the industry in this manner must be an inalienable element of any regulatory reform granting or expanding financial industry\u27s freedom to regulate its own activities. This Article does not offer a fully developed set of concrete reform proposals-a complicated and multi-faceted task that requires a great deal of further research and analysis. Instead, it represents a pure thought experiment seeking to broaden the scope of the ongoing debate on regulatory reform in the financial sector and to initiate a meaningful discussion of all potential solutions to the fundamental problem of containing systemic risk in global financial markets