Securing Democratic Accountability of Financial Regulatory Agencies - A Theoretical Framework

R. V. De Mulder, MITIGATING RISK IN THE CONTEXT OF SAFETY AND SECURITY - HOW RELEVANT IS A RATIONAL APPROACH?, pp. 115-132, Rotterdam: OMV, 2008

21 Pages Posted: 20 Jan 2009

See all articles by Fabian Amtenbrink

Fabian Amtenbrink

Erasmus University Rotterdam - Erasmus School of Law

Rosa M. Lastra

Centre for Commercial Law Studies, Queen Mary University of London

Abstract

Calls for a more sophisticated financial regulatory framework, capable of effectively monitoring and providing stability of the (global) financial system, as well as shielding from financial crisis, have become increasingly urgent. Indeed it has been recognized that a purely national approach to financial regulation is incapable of meeting the transnational challenges resulting from denationalization. Politicians and law-makers are thus faced with the daunting task of redesigning financial regulatory agencies to meet the challenges caused by a global market place. The European Union (EU) may serve as a good example for such developments, as the lifting of the restrictions on cross-border capital movements and investments in the context of the internal market has resulted in a general trend towards regulatory consolidation in the Member States and transnational initiatives on the European level.

In this context one of the fundamental questions is that of the basic institutional design of such agencies and namely the legal arrangements governing their position vis-a-vis other institutions exercising public authority, be it in a national or transnational context. Arguably the two most prominent cornerstones defining this position are independence and democratic accountability. Put simply, it is argued that financial regulatory agencies need to operate independent from political influence in order to be able to fulfill their tasks effectively. Against this view it may be submitted that agencies fulfilling public tasks need to be democratically accountable.

This contribution aims to add to this debate by providing a theoretical framework that draws upon the model of 'accountable independence' of central banks. To this end, hereafter the first section briefly examines the administrative law tradition of functional decentralization and the model of independent agencies, thereby offering one (albeit not the only possible) explanation for the general tendency to vest certain tasks upon independent institutions. In this context parallels can be drawn with the discussion of central bank independence. Thereafter, a conceptual approach to democratic legitimacy and accountability is offered, something often missing in contributions dealing with independence and accountability of financial regulatory agencies. What becomes clear from this approach is that the rationale for accountability mechanisms for independent agencies finds its roots in (representative) democracy itself, as these agencies are situated outside the system of checks and balances provided for in democratic constitutional orders. The third and final section sets out to 'operationalize' democratic accountability for financial regulatory agencies. In this context the question arises of whether and to what extent criteria similar to those identified for central banks can be applied. What emerges from this discussion is that regulatory accountability that is based on objective criteria may be more difficult to realize than in the case of central banks. This contribution offers important insights with regard to the accountability arrangements that are needed in the institutional design of financial regulation in Europe and beyond, an issue which due to the limited space available cannot be dealt with presently.

Suggested Citation

Amtenbrink, Fabian and Lastra, Rosa M., Securing Democratic Accountability of Financial Regulatory Agencies - A Theoretical Framework. R. V. De Mulder, MITIGATING RISK IN THE CONTEXT OF SAFETY AND SECURITY - HOW RELEVANT IS A RATIONAL APPROACH?, pp. 115-132, Rotterdam: OMV, 2008, Available at SSRN: https://ssrn.com/abstract=1330309

Fabian Amtenbrink (Contact Author)

Erasmus University Rotterdam - Erasmus School of Law ( email )

3000 DR Rotterdam
Netherlands
+31104081573 (Phone)

Rosa M. Lastra

Centre for Commercial Law Studies, Queen Mary University of London ( email )

67-69 Lincoln's Inn Fields
London, WC2 3JB
United Kingdom
+44 20 7882 8070 (Phone)
+44 20 8980 8101 (Fax)

HOME PAGE: http://www.law.qmul.ac.uk/staff/lastra.html

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