Regulation and Deregulation From Legal Theory to the Practical Case of the Financial Sector Nowadays

• Author: Bogdan Olteanu
• Position: Deputy-governor of the National Bank of Romania
• Pages: 351-358

Performance and Risks in the European Economy

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Regulation and Deregulation

from Legal Theory to the Practical Case of the Financial Sector Nowadays

Bogdan Olteanu

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Abstract: The two great c hallenges for any authority are to what extent and how to intervene in the

functioning of the society. These cha llenges originate both in the world of ideologies, defining the type of

state or authority based on its propensity for regulation, and in the technical expertise of technocratic

management that can identify the “ good practice” and “good governance” features. Both p olicy sources are

necessary and legitimate. The ideological sources help support a representative mandate obtained by an

elected power, being validated by citizens’ vote, while the technical ones contr ibute to optimising the

efficiency of the public option by managing it in an appropriate manner. To set a simple exa mple, if the

ideological option is in favour of maintaining a company under state ownership, then the technical option

may be to ensure a competency-based management controlled solely a ccording to performance criteria. If

the ideological option promotes the pr ivatisation of a state-owned company, then the technical option may

seek to ensure a pr ivatisation pr ocedure that should maximise the public benefit (through price, other

contractual terms, enhanced market competition, clauses or measures to protect consumers, etc.)

Keywords: management; good practice; good governance; public benefit

Before starting a discussion on the topic, it is important first to define the terminology. It shall not be

easy. There is no generally accepted definition of the term “regulation” in legal and economic

literature. For the benefit of this presentation, we will attempt to identify one from an ideologically

neutral perspective, as the employment of public coercion instruments, whereby prescribed behaviour

is rendered mandatory under penalty of sanctions, with a view to implementing social and economic

policy objectives. (den Hertog, 2010)

Based on the envisaged mechanism, there are two types of regulation, namely structural regulation and

conduct regulation. Regulation may concern the market structure and its parameters: restrictions on

market entry or exit, rules mandating firms not to supply professional services in the absence of a

recognised qualification, mutual support systems for market players or ensuring a level playing field in

terms of non-competitive services applicable to all market players. Regulation may equally aim at

market participants’ behaviour: price controls, the requirement to provide equal treatment for all,

obligations related to consumer protection, cartel banning.

The legitimacy of regulation as an act of authority is p er se a controversial issue. However,

overlooking it implies a major discretionary behaviour risk, the risk of regulation going beyond the

necessary limits and beyond public interest. The analysis of the legitimacy of regulation requires an

approach based on the values that may be subject to protection – the axiological approach, as well as

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Deputy-governor of the National Bank of Romania, Address: 25 Lipscani Str., Bucharest 030031, Romania, tel.: +40 21 313

0410, Corresponding author: bogdan.olteanu@bnro.ro.