Principles-Based Regulation and Public Trust in the Post-Crisis World: The Dutch Case of Financial Services

Abstract

This contribution reveals an uneasy relationship between principles-based regulation and public trust in financial institutions and services in the post-crisis era, with a particular focus on Dutch financial supervision legislation. The main question addressed is whether principles-based regulation is the right way to overcome the crisis of trust in the financial markets. The authors argue that the acceptance of principles-based regulation in the Dutch legal order is to be welcomed. At the same time, resort to principles-based regulation entails many challenges which may undermine its effectiveness and, hence, public trust in the financial markets. These challenges in the Netherlands include but are not limited to the absence of any significant pressure on the financial watchdogs to clarify the meaning of open norms, the lack of clarity concerning the status of public soft law already produced to this end, and tension between public and private soft law in shaping the content of open norms. Without addressing these challenges, principles-based regulation may prove to be too obscure to guide the financial services industry towards a cultural change.