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Can self regulation ever work?

As the UK government and UK regulators become ever more entwined within the foundations of the UK financial sector many are asking the question - Can self regulation ever work?

Self-regulation has been a central support of the UK financial sector for many years and indeed governments and regulators have invested significant time and money in this particular field. While ultimately self-regulation has allowed the sector to weed out unsavoury activities and unsavoury companies it has also allowed the creation of a "closed shop" which few people have access to.

The idea of self-regulation is basically using the skills and knowledge of those involved in the everyday financial markets, i.e. those who understand exactly what is going on, to build a framework which would support the short, medium and long-term development of the market. While the government and the regulators would obviously play their part and advise on certain circumstances and certain situations, the idea was that the sector would effectively "self regulate" itself. So what happened?

In the good times there are very few problems with regards to self-regulation as everybody is doing well and nobody is overly concerned about their competitors. However, in the bad times we have seen shortcuts taken, charges increase, companies pushing the self-regulation rules to the limit and the emergence of fear and greed. Ultimately self-regulation can work although there are times when "over exuberance" will require the government and regulators to step in and steady the ship.

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