Written Standards and the Social Licence for Financial Markets

Recent years have seen a rediscovery of the fact that a healthy financial and economic system cannot be based on the lowest common behavioural denominator of what is technically permissible under the black letter of the law. Something more is needed – variously described as ‘sound culture', ‘professionalism', ‘a sense of vocation', ‘ethics', ‘morality, and ‘best practice'. However, it is less clear how these can be achieved if it is not by reference to law or other forms of written standards (such as codes of conduct) since market participants need to understand what standards of behaviour are expected and encouraged to adhere to those standards. Yet use of law and other written standards potentially takes us back to behaviour referenced to the black letter of the law. This paper seeks to help answer the question of how law, regulation and written codes can stimulate behaviour that reflects a standard that transcends them. Among other things, taking the example of the UK financial sector, it looks across the range of written standards (from ‘hard' law to private codes) that exist in the sector, and the enforcement mechanisms associated with them, to consider how written standards can come to affect behavioural standards. By using a ‘written standards map' of those financial sector standards, it considers the inter-relationship (a) between tightly prescriptive legal and regulatory rules and those that are more aspirational (such as a legal requirement to achieve ‘fairness') and (b) between written standards backed by ‘hard' legal sanctions and those which depend upon softer or private enforcement mechanisms