more-arw search

Is Self-Regulation a Pipe Dream?

Some think having industries self-regulate is naive.

It's impossible for government regulatory bodies to keep an eye on the goings-on at every public company or monitor what's discussed in every bank's board room. That's

It's impossible for government regulatory bodies to keep an eye on the goings-on at every public company or monitor what's discussed in every bank's board room. That's why self-regulation is so important, yet some skeptics think the policy of letting financial institutions police themselves is short-sighted.

William Black observes in a column for Credit Writedowns that there has been a intersection of finance, economics, law, ethics and regulation (as well as the oft-ignored field of "white-collar criminology"), and calls for a greater emphasis on determining when it's appropriate to trust and when that can be harmful.

He points to accounting control frauds as one of the main tactics for potential fraudsters, claiming that stock and bond sales provide the necessary funding.

"The markets fund accounting control frauds, and they do so massively even when the CEO is looting the firm and causing losses principally to the shareholders and creditors," Black explains. "The CEO walks away wealthy from the husk of the failed corporation."

These situations underscore the need for corporate boards to practice due diligence when reviewing financial records and questioning refinancing, as the latter is often used to cover up losses from fabricated profits.

Comments

Barrett Peterson
Title: Senior Manager, Actg Stnds & Analysis
Company: TTX
(Senior Manager, Actg Stnds & Analysis, TTX) |

Some regulation is needed as "self regulation" is rather incompatible to "self interest", which is alway present. The trick is to set the playing field without trying to referee every game. Regulation requires much greater awareness of the world and its changing circumstances andh how those changes will conform to , and differ from , historical patterns. Good regulation requires an excellent knowledge of history in addition to current techniques, as we do "repeat", but not in exactly the same manner.