Regulation without the state


This report from the UK think tank the IEA looks at the example of financial markets and regulation.

There are frequent calls for financial markets to be more actively regulated. In nearly all cases it is assumed that regulation must come from state agencies such as the Financial Conduct Authority or the Prudential Regulation Authority. There is a long history of regulation being provided within markets. Indeed, so-called big bang and deregulation involved the prohibition by government of private regulators of securities markets (the London Stock Exchange) on the ground that regulation was anticompetitive. Independent professions, such as the accountancy profession, also developed in the nineteenth century as a result of market demand. They regulated behaviour, but without intervention by the state until the 1930s in the case of the US. It is possible to think of regulation as being part of the set of services that can be provided by the market rather than something that has to be done to the market ex-post. The discovery of regulatory organisations is part of the entrepreneurial market process. This does not only happen in areas such as finance. There is a long history of private regulatory bodies in a range of areas within the economy – perhaps most notably in sport, but more recently in areas such as taxi provision.

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