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  • Writer's pictureSabrina Abib

THINKING “ THE REGULATION ”


I. THE ETHICAL STAKES INHERENT TO FINANCIAL NORMS: THINKING “ THE REGULATION ”


Public authority, government and regulation

After each financial crisis, States try through various institutional, political and legislative means to enforce new “rules of the game”. The concept of regulation becomes the touchstone of States. Hence, the economic and financial arenas are apprehended by the public authorities, in last resort, in the public interest. This phenomenon has uncovered the establishment of a substantial ethical approach whose object is a normative approach of the financial sphere.


The intrinsic connection between the concept of “ethics” and of “finance” has been written about extensively, namely following the numerous recent economic and financial shocks throughout the world (Greece, USA, France, Germany…)[1]. Needless to argue the need to “put in perspective a possible conjunction of philosophy (values) and finance (value)” [2]. This questioning at the crossroad of finance and ethics is vague because it apprehends finance as a broad category with no distinction between finance and financial practices. This relationship is not to be thought of through a distinct and definite way, but rather needs to be understood in terms of the porous and sinuous space between the conception of finance and ethics. In that regard, the autonomy of norms of the financial sector is to be questioned: is it an autonomous scope or should it be dealt jointly with ethical or economic well-being norms?

It is worth mentioning that the financial sphere produces its own norms. The financial sector is often criticised for not adopting a more “ethical” approach[3]. Furthermore, ethics and moral are frequently described as the “search for the good or the common good”; yet, they cannot be reduced stricto sensu to that definition[4]. Hence, the stakes at the crossroad of finance and ethics will be targeted. We shall focus on how to transcend confusions and concepts being currently misused[5]. Within that framework, and from an epistemological approach, the distinction and analysis of the transition from deontological ethics to an epistemological ethics as well as the modalities for the emergence of a comprehensive contextual ethics will be made.


The notion of “public authority” amounts to understand the institutional and administrative framework of the State within a given territory. The government of those institutions implies that it has, de facto, an executive power. The government refers to both the organisation and its political and administrative personnel. Public authorities are regulated by competent authorities at different scales, namely national (the Financial Markets Authority) or local (the local branch of the Treasury). Those authorities have a regulatory power. International and European institutions (the European Central Bank or the European Securities Markets Authority) hold a regulatory power that cannot be considered as a public authority as it is transnational and does not depend on any specific executive power.


In this regard, to regulate implies to “act on a complex system and to coordinate actions in order to obtain a correct and constant functioning; that is a process through which a mechanism or a structure maintain a certain balance, retain a determined regime or amend its functioning adapted to the circumstances”. There are two types of regulations. Firstly, the first meaning is about the regulation of markets through the implementation of rules and the framing of financial activities, whose main aim is the fluidity and stability of the market and its functioning via a protection of the savers’ interests. National, European and international regulatory authorities are the principal institutions.


The second is about the prudential regulation[6] which amounts to monitor markets and its intermediaries. Its approach is foremost focused on quantifying the risk and the endorsement of supervisions whose aim is to minimise the risks of insolvency[7]. Furthermore, the micro prudential regulation endeavours to quantify the specific risk of a financial institution to avoid a default. On the other hand, the macro prudential regulation acts on the systemic risk, whose final aim is economic growth.


In order to clarify the semantic, it is worth mentioning that, to that day, no consensus on the meaning of the term regulation has been achieved in French. In most cases, it amounts to the translation of the Anglo-Saxon notion of regulation, that actually means reglementation. The concept of regulation, that is the implementation of rules, is to be differentiated from the concept of “supervision”, that is the ex post control of those rules. The State supervises and governs via the intermediary of autonomous and/or independent “public administrative authorities”. The State can also decide not to intervene on markets. Hence, regulation can be achieved intrinsically by actors within public administrative authorities that decide to implement rules through internal rules of procedures, charters, and other codes.

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[1] Moreover, in this regard, many university chairs in "ethics and finance" have emerged in the last ten years, in many French institutions: Institut Catholique de Paris, Université Paris 1 Panthéon-Sorbonne, Collège d’Etudes Mondiales (FMSH), in particular with the rise and the impulse of numerous works of other institutions, such as for example the Laboratoire d’excellence de régulation financière (LabeX ReFi), the Institut Louis Bachelier, among others. As Marc Lenglet reminds us, the print media also seems to be seizing the debate and attracting civil society on those issues, for example in articles such as « Le secteur financier mondial se met à l’éthique » (Le Monde, 29 avril 2006), « La crise favorise la montée en puissance de la finance éthique » (Le Monde, 13 août 2009), « Les gérants soucieux de l’éthique n’ont pas à rougir de leurs performances » (Le Monde, 12 septembre 2009), « Comment la finance peut être éthique et rentable? » (Challenge, 19 mars 2015) etc.


[2] Marc Lenglet, « Ethique ou morale? Réflexions sur les impasses du débat normatif dans le champ financier », Transversalités 2012/4 (N°124), pp 69-83.


[3] “Such questions are too often put aside, on the grounds that they may be too much about philosophy from the point of view of the financier. On the other hand, the few philosophical texts that decide to work on finance do so from a site itself insecure, with a lack of experience of what it means to contribute to the manufacture of finance. Because of this poverty of the knowledge (philosophical on the side of the financiers, financial on the side of philosophers) results a mixed impression, all the more strengthened in recent years by the context of the financial crisis. Who is interested in ethics, that is to say in the questioning on the means and ends of the action, faces at least two problems when the questioning relates specifically to the financial field: on the one hand, there is too little reference to a precise definition of ethics (what ethics are we talking about, for what purpose, from what cultural undercurrent and from which philosophical stance?); on the other hand, finance is given as a category under which many activities, however fundamentally heterogeneous, are subsumed. These two gaps then generate a strong disjunction between what we are talking about (what should I do, what is a good, just, legitimate action?) And how to apply these questions to the studied field. (in this case, the financial sphere encompassing all kinds of activities).”


[4] We refer here to the definition of Pierre de Lauzun published in the article, « Affirmer la responsabilité de chacun », Revue Banque, N°802 « Ethique et marchés financiers », Décembre 2016, pp.6-7, “An ethic of financial markets aims to make markets work in a sense that is recognized as being in line with keeping with the common good. This means that mechanisms, actors, companies or individuals, and regulations are oriented in this direction, as far as possible, and that everyone must take their responsibility. For example, it is a question of financing activities that are collectively recognized as being rather good, or not to expose oneself to excessive risks”.


[5] It should be noted that many works (notably those of André Comte Sponville) underline that finance would be amoral and that the dialectic of good and evil would be a biased approach insofar as the structuring principle of finance would be "the money" and not "ethics". See also: Thierry Philipponnat, « Pour une approche d’une pratique positive des marchés financiers, de l’éthique des opérateurs à l’utilité des activités », Revue Banque, N°802, « Ethique et marchés financiers », Décembre 2016, pp.26-28.


[6] It refers to a prudential regulation whether at a small or large scale.


[7] As such, we are referring to the different thresholds of equity, set by the Basel Committee in order to predict systemic banking risks.

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