Research note. Controlling Capital: Public and Private Regulation of Financial Markets

Controlling Capital: Public and Private Regulation of Financial Markets, a new book edited by Nicholas Dorn (Routledge, March 2016), looks at contemporary tendencies in public regulation, private regulation and relations between them.

Part I of the book looks at state/market balance-of-power and ability to command – a previously old-fashioned perspective that has been somewhat rehabilitated by the crisis of financial markets. Part II critically explores the development of cognitive and cultural spaces that are co-constructed by and shared between public and private regulators. Part III focuses on specific aspects of private regulation, which are enjoying renewed dynamism and may re-shape public regulation.

‘Culture’ as meeting point for public and private regulation

In the years immediately following the outbreak of crisis in financial markets, public regulation seemed almost to be attaining a position of command – the robustness and durability of which is explored here in respect of market conduct, European Union capital markets union, and US and EU competition policies. There are chapters here from Justin O’Brien, Dieter Pesendorfer, and Brett Christophers. (Chapter titles are given at the end of this post.)

However, as of 2016, there is something a softening of command in financial market regulation, and a return to public-private co-regulation, positioned within a narrative on culture. The potential and limits of culture as a regulatory resource are unpacked here in respect of occupational and organisational aspects, stakeholder connivance and wider political embeddedness. There are chapters here from Sally Wheeler, Jay Cullen, and Ron Kerr and Sarah Robinson.

Lastly the book looks from both appreciative and critical perspectives at private regulation, through financial market associations, arbitration of disputes and, most controversially, market ‘policing’ by hedge funds. There are chapters here from Olha Cherednychenko, John Biggins and Colin Scott, Nicholas Dorn, and Gerard Meijer and Richard Hansen.

A feature of the book is that, whilst recognising the distinct origins and ‘ownerships’ of public regulation and private regulation, it also examines crossovers between these spheres. In place of the behind-closed-doors collusion that was characteristic of the pre-crisis years, from the mid-2010s onwards there has been an explicit strategy of public–private interlocking and cooperation. What are the prospects for this public–private regulatory compact? Will it be seen over future years as having ‘worked’ – or as a reprise of historical error?

Institutional amnesia and unlit rooms

In his Afterword, the editor proposes an approach to the analysis of regulation through two different lenses, both of which concern the conditions under which regulation – whether public, private or mixed – could sustain itself in a robust manner.

The first of these analytical lenses is historical, concerning the construction of blind spots in regulatory memory. The collective memory of public regulators has been fallible before – as a little history from the US Federal Exchange demonstrates – and so the question arises of the conditions for such professional and institutional amnesia in the coming years.

The second analytical lens is the question of publicity. Public visibility of regulatory actions is necessary (if not sufficient) for regulation to have constitutive effects: that is to say, to steer the whole financial market as distinct from reacting to its parts. Yet, as regulation emerges from fire-fighting mode and seeks a ‘new normal’, the possibility arises that this may involve the (re-) construction of the policy equivalent of dark pools.

Chapter titles and authors of Controlling Capital

Editor’s Introduction

PART I Command regulation: revitalised or mythological?
1. On culture, ethics and the extending perimeter of financial regulation JUSTIN O’BRIEN
2. Capital markets union: tensions, conflicts, flaws DIETER PESENDORFER
3. Petals not thorns: competition policy and finance BRETT CHRISTOPHERS

PART II Culture: organisations, stakeholders and politics
4. Reconstruction of ethical conduct within financial firms SALLY WHEELER
5. Culture as cash: from bonus to malus JAY CULLEN
6. Gentlemen, players and re-moralisation of banking: solution or diversion? RON KERR AND SARAH ROBINSON

PART III Concession: private regulation in the ascendancy
7. Public and private financial regulation in the EU: opposites or complements? OLHA O CHEREDNYCHENKO
8. Resolving the gaps: embedding ISDA in states’ responses to systemic risk JOHN BIGGINS AND COLIN SCOTT
9. Virtuous vultures: hedge funds as private regulators NICHOLAS DORN
10. Arbitration and financial services GERARD J MEIJER AND RICHARD H HANSEN

Editor’s Afterword. Index.



Nicholas Dorn is a sociologist, inclined to law and politics. He is an associate research fellow with the Institute of Advanced legal Studies, University of London. Previously he worked for Erasmus School of Law, Rotterdam.

Nicholas Dorn, personal webpage