The credit crunch was more a failing of governance and ethics than of regulation per se. Whatever the exact future shape of financial sector regulation, the structure needs to be designed not solely with a view to rectifying the problems of the past but with a view to pre-empting the so far unknown problems of the future. In this light, ACCA in its new paper entitled The future of financial regulation: an update argues that any new approach to regulation should not be so rigid, and so focused on dealing with known threats of the kind we have seen recently, but sufficiently flexible to be able to respond to the new threats that will undoubtedly emerge in the future.

Albeit the efforts to reconstruct the regulatory environment should address all relevant factors, these efforts should however accept the inherent limits of what any external regulatory process can hope to achieve, and should aim, where appropriate, to encourage an element of self-regulation by increasing the onus on regulated entities to adopt ethical corporate cultures and improve their corporate governance practices.

The financial crisis has highlighted a number of serious weaknesses in governance even among companies which followed official guidance and codes, and these need to be addressed. Boards, shareholders and other stakeholders should have a common understanding of the purpose and scope of corporate governance. Specifically, there should be a specific review of the role of non-executive directors (NEDs) and how they can be made more effective in supervising executives in large complex institutions. Governance problems can sometimes be associated more with a lack of appropriate behaviour and values at senior levels than with deficiencies in rules or governance code provisions. Good corporate governance is thus not simply a question of complying with the letter of written rules – it is also about having the commitment, right from the top of an organisation, to supporting the spirit and aims of good governance.

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