Regulatory herding versus democratic diversity: history and prospects

Regulatory convergence — within the E.U., across the Atlantic and internationally — is conventionally represented as not only benign but also as essential in crisis prevention. This paper articulates a different frame of reference: one in which regulators “crowd,” “herd” and sometimes merge, so mimicking and exacerbating financial market tendencies toward similarity and contagion, and drawing regulators and markets into the same vortex. The paper looks at some of the historical and contemporary circumstances in the U.K., wider E.U. and the U.S. that have given reign to these tendencies and also at some aspects of regulatory architecture and governance that reduce such tendencies. It mentions pre-crisis tendencies to regulatory subservience to financial markets, with such subservience having a deep history in the U.K. and a shorter one in the U.S.; so-called command regulation, which has the potential to either deepen subservience or transcend it; and the institutional preconditions for permanent regulatory vigilance, such as democratic appointment of heads of agencies. The paper concludes by pondering the prospects for the democratic direction of financial market regulation, in terms of its distributional logics and extraterritoriality.