Principles-based regulation aims to reduce unnecessary regulatory and administrative burdens, ensure that regulation and its enforcement are proportionate, accountable, consistent, transparent and targeted, and provide benefits for consumers from more efficient markets, more effective protection, and better responsiveness to consumers' needs.
“New York must have the best, most effective regulation of financial services in order to remain the financial capital of the world,” Dinallo said. “Today that means principles-based regulation. The financial services marketplace is extremely creative and innovative and our regulation must be just as nimble. Thus, the best way to protect consumers and promote fair and honest competition is with principles-based regulation.”
“The essential goal of regulation is not rote compliance with a long list of rules, but ensuring appropriate outcomes. These principles focus both the regulator and the regulated on such outcomes and tell regulated companies our expectations for how they will conduct their business. It brings the issue of compliance to the highest levels of a company – to the Board of Directors and the management committee. It provides the flexibility to fit the different business models of thousands of different companies, while improving consumer protection,” Dinallo said.
“As a code of conduct, the principles are reasonable rules that can be easily incorporated into the business philosophy and operations of regulated parties with little or no expense. In fact, most regulated entities should already be operating in accordance with such principles,” Dinallo said. “Importantly, the principles will not expose companies to additional private lawsuits because New York’s Insurance Law generally does not provide for private rights of action. Only the regulator can enforce the principles. This is, in fact, a significant competitive advantage for New York.”
“The principles ask companies to be ethical to their core, rather than focusing on technical requirements. Indeed, if a company is generally conforming to the principles, but violates a rule in a way that does not harm the public, we should take that into account,” Dinallo said. “It is clear that detailed rules alone have not prevented misconduct. In fact, principles eliminate loopholes and gaps between rules that could allow activities that harm consumers or mislead regulators.”
“The Commission will discuss the principles at the upcoming January meeting. This is an opportunity for the Commission to focus on a key competitiveness issue – the ability of our regulatory system to keep up with ever-evolving and innovative markets,” said Scott Rothstein, Executive Director of the Commission. “The principles do not pre-empt existing law or regulation. But they make clear the fundamental purposes behind those laws and regulations and can serve as scaffolding around the existing regulatory structure, providing support and guidance as products, practices and markets evolve.”
“Principles-based regulation gives the regulator the right tools to begin changing its relationship with the regulated. An essential part of a principles-based approach is an open door between the regulator and companies so the companies can seek and receive guidance. We expect to turn regulation from periodic ‘gotcha’ exams into a continuing dialogue. Companies that deal honestly with the Department can expect to be trea