Financial Markets are the most heavily regulated of business activities. In the
UK we have the Financial Conduct Authority and the Prudential Risk Authority within the
Bank of England. In Europe we have the various national regulators plus the European Banking
Authority based in Frankfurt. Since the 2008 Financial Crisis, these official bodies have been
focused up improving supervision and conduct regulation as well as ensuring at a macro-level,
a prudential approach is taken to ensure that crises and bailouts are not repeated. Historically
the approach of the UK has been “principle based”, emphasising key concepts and ideas rather
than prescriptive “rule based” approaches, as generally favoured by European Regulators. The
argument against overly prescriptive regulations is that they may encourage financial
practitioners to look for “loop-holes” that is ways to circumvent such regulations while
principle-based approaches are more general and easier to apply and cannot be easily avoided
through being clever.
Selecting ONE of the following two Directives:
Question B1. MiFID-II (Markets in Financial Instruments Directive); or
Question B2. CRD-IV (Capital Requirements Directive)
The student is asked to review and analyse one of these Directives through the lens of rulebased versus principle-based approaches. As guidance, please ensure that your essay
addresses, at a minimum, the following questions:
Has the right balance of rules versus principles-based approaches been achieved?
Have some aspects of these Directives gone too far?
Will the financial system be more stable under either of these Directives?
Will the “too-big-to-fail” phenomena be discouraged?
Will consumes and retail investors be better protected?
Will the chances of “bank-runs” and pro-cyclicality be reduced? .
You are expected to read appropriate academic and practitioner journals and sources
to support your arguments
