Drawing the line in the sand: trust, integrity and regulatory misdemeanour

Trust and integrity are two words that underpin the operations of the London financial markets. This paper explores trust in relation to the core values displayed amongst market participants, arguing the traditional regulatory model that posits an inverse relationship between ethical behaviour and regulation fails to adequately describe the activity that we observe. Changes in regulatory structure and the incentivisation of risk-taking challenged established cultural norms; enabling actions that within other contexts would have been seen as criminal, to be regarded as misdemeanours and dealt with accordingly. By focussing on regulation and the changing attitudes of market participants, we adopt a cross-disciplinary approach to explain our observations, describing instead a captured model of regulation, focused on maintaining public confidence. We illustrate our argument by reviewing regulatory intervention by the FSA for 2009 and conclude with consideration of the longer term implications for the ethical governance of the financial sector.