Comparing Apples and Oranges? Public, Private, Tax, and Criminal Law in Financial Markets Regulation

Abstract

This paper discusses different means of regulation, taking the example of post-crisis financial markets regulation. It is remarkable that the general discussion about reforming financial regulation centres on the substantive standards of the new rules and neglects the problem of choosing the right regulatory instruments. The paper focuses on four basic instruments of law enforcement (administrative sanctions; civil liability; corrective taxation; criminal sanctions) and takes three examples of regulatory choice in financial markets regulation. Using a number of different yardsticks for comparison, it analyses the relative strengths and weaknesses of the four instruments and employs a cost-benefit analysis.

It turns out that civil liability – while limited in its scope – exhibits the best cost-benefit ratio. Criminal law, by contrast, seems very inefficient. Administrative law and corrective taxation come in second best. The return from using these instruments has to be assessed on a case-by-case basis.

Keywords: Financial markets regulation, regulatory choice, sanctions, corrective taxation

JEL Classification: D61, G18, G21, G28, H32, K13, K14, K22, K34, K42