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Friday, 6 November at 12.45. EU Energy Security with Mr Jean Vinois, Head of Unit for Energy Policy and Security of Supply, at DG TREN in the European Commission. Wednesday, 11 November at 12.45. Europe - Global Leadership in the Development of Carbon Markets with Patrick Birley, Chief Executive of ECX Carbon Exchange. Friday, 13 November at 12.45. Does Britain Have a Foreign Policy? with William Wallace (Lord Wallace of Saltaire). Tuesday, 17 November at 12.45. The European Supergrid with Dr. Eddie O Connor, CEO of Mainstream Renewable Power.




Retrieving the Meaning of Accountability in Financial Market Regulation

Professor Justin O¶Brien Faculty of Law & Faculty of Business Queensland University of Technology Centre for Applied Philosophy and Public Ethics The Australian National University

What can we learn about accountability by examining how it is used in the discourses associated with the global financial market crisis? .

We hypothesize that the failure of effective accountability to date rests essentially on the failure to focus on the normative infrastructure.` ` ` ` Why has effective reform of capital markets proved so illusive? Mapping the parameters of what constitutes the parameters of accountability is an exceptionally complex task The creative ambiguity of accountability highlights a potential disconnect between the rhetoric and substance of reform. .

and regulatory structures predicated on risk reduction which created incentives for arbitrage and paid insufficient attention to systemic credit risk. including (but not limited to) the dominant originate-and-distribute model of securitization.    Three interlinked global phenomena: flawed governance mechanisms. flawed models of financing. including remuneration incentives skewed in favour of shortterm profit-taking. .

Level Social Norms Institutional Environment Governance Arrangements Frequency 100-1000 years 10-100 years Purpose Non-calculative Societal Contract Overarching legal. political and bureaucratic framework Aligning transactions within accepted rules of the game Incentive alignments 1-10 years Resource Allocation Continuous .

1944 1942 1944 .

` ` The µperennial gale¶ of change µincessantly revolutionises the economic structure from within.the stock market is a poor substitute for the Holy Grail (p.84) ³No social system can work in which everyone is supposed to be guided by nothing except his short-term utilitarian ends.. destroying the old one. This process of Creative Destruction is the essential fact about capitalism (p. 137) .. incessantly creating a new one.

74) Aim was to µannihilate all organic forms of existence and to replace them with a different type of organization. an atomistic and individualistic one« best served by the principle of freedom to contract«To represent this principle as one of non-interference«merely the expression of an ingrained prejudice in favour of a definite kind of interference.171) .` ` µA self-regulating market demands nothing less than the institutional separation of society into an economic and political sphere¶ (p. namely such as would destroy noncontractual relations (p.

` ³Parties in the market should be free to sell and buy at any price at which they can find a partner to the transaction´ (p 27). In no system that could be rationally defended would the state just do nothing. ` ..provide indeed a wide and unquestioning field for state activity.. An effective competitive system needs an intelligently designed and continuously adjusted legal framework as much as any other´ (p. to supplement it where it cannot be made effective. 29). ³To create conditions in which competition will be as effective as possible..

1) µI found a flaw. 23 October 2008 .Lord Acton (p. That is precisely the reason I was shocked because I¶d been going for 40 years or more with very considerable evidence that it was working exceptionally well¶ ± Alan Greenspan.` µWe shall not grow wiser before we learn that much that we have done was very foolish¶ (p. 177) µFew discoveries are more irritating than those which expose the pedigree of ideas¶ .

. Keywords: A Vocabulary of Culture and Society. New York: Oxford University Press. 1985.` A keyword is a ³significant. binding´ term that is ³not only indicative of the meanings and interpretation of a particular discourse but simultaneously forms elements of the problem that the very discourse they addressed had generated´ (Raymond Williams. p15).

` Raymond Williams: ³Keywords´ Democracy Equality Class Bureaucracy ` ` ` ` ` Accountability .

In contrast. it is the absence or failure of effective accountability that provides the focus of the discourse. . accountability is also central to many discussions about how to deal with specific failures or as a counter to the overall conditions that caused the crisis.` ` ` Accountability is treated as ³cause´ and/or ³cure´ As a causal factor.

legally obligated. etc).` ` ` Accountability is discussed as both ³mechanism´ (designed to foster accountability) and ³condition´ (state of ³being accountable´) Being accountable means being subject to those mechanisms that are designed to impose some form of control or guidance (answerable. liable. accountability is also treated as a manifestation of the normative condition of ³being accountable´ (something an agent is or ought to be). . Alternatively.

e.e. normative infrastructure) Absence or collapse of norms.. standards Reestablishing.Focus on: Perspective: Cause Cure Accountability-as-Mechanism (i. control) Failure of instrument Reform. replace. rebuilding moral community based on effective norms/standards Figure 1: Accountability¶s Discursive Roles . repair the instrument Accountability-as-Setting (i.. mores.

control. integrity) . performance.` Power of accountability as a ³keyword´ is rooted in widely held ³beliefs´ about what accountability mechanisms can or should accomplish (e.g.

Therefore.` ` ` Strategic approaches to reform are related to the perceived ³promises´ of accountability. using a similar framework. In particular we test (1) for the salience of the US-based perspective on global patterns of policy responses to the crisis and (2) for a possible disconnect between the rhetoric and substance of reform traceable to the creative ambiguity at the heart of accountability¶s status as a key word. . the second stage of the research examines the role played by accountability in the design of corporate and regulatory strategies in response to the crisis.

` Does reform enhance accountability? Rhetorically focused on improving integrity of markets Actual proposals focused on repairing or creating mechanisms of control ` ` .

regulators lacked accountability for their inaction ± President Obama. Where there were gaps in the rules.` The actions of many firms escaped scrutiny. 17 June 2009 . In some cases. the dealings of these institutions were so complex and opaque that few inside or outside these companies understood what was happening. Where there were overlaps. regulators lacked the authority to take action.

allow standards agent to determine ³how´ Regulative Creation and externalized oversight of actions of agent within ³accountable space´ High Autonomy of accountable agent Performative Set ³what´ agent is accountable for and ³how´ to proceed Low Figure 2: Accountable Strategies .Specificity of accountable activity Low High Constitutive Managerial Creation of ³accountable space´ Set ³what´ agent is accountable of internalized norms and for (objective or standard).

Theories of Regulation ` Responsive Regulation Smart Regulation Post-structural enrolment ` ` .

regulatory and political levels grossly exacerbated the externality costs .     Immanuel Kant¶s categorical imperative. namely µact only according to that maxim whereby you can at the same time will that it should become a universal law¶ Utilitarian or consequential approaches apportion blame on impact Essential to differentiate between the product and the inappropriate uses to which it was put to work It is a deficient defence to claim ignorance of how these products were structured or how unstable the expansion of alchemistic engineering had made individual banks or the system as a whole The failure to calculate the risks and design or recalibrate restraining mechanisms at the corporate.

Within each sphere those norms dictate which kinds of consideration are to be treated as relevant to decisionmaking and which are to be excluded¶ (1999) ` ` .` µelevation of the values of the market to a central social place¶ risks creating the circumstances in which µthe concept of the virtues might suffer at first attrition and then perhaps something near total effacement¶ (After Virtue.196) µeffectiveness in organizations is often both the product and the producer of an intense focus on a narrow range of specialized tasks which has as its counterpart blindness to other aspects of one¶s activity¶ (1982) Compartmentalization occurs when a µdistinct sphere of social activity comes to have its own role structure governed by its own specific norms in relative independence of other such spheres. p. p 256.

Unimpaired or uncorrupted state Soundness of moral principle (responsibility?). measures and principles within or between biological and ecological entities µThe condition of having no part or element wanting.. Merely learning and studying the Code of Professional Responsibility is insufficient to satisfy ethical duties as a lawyer¶ . values. honesty (self-interrogation). sincerity (selfsynthesis) Practical not a theoretical issue informed by practice: µLawyers must do more than know the law and the art of practicing it. completeness.Justice Sandra Day O¶Connor . unbroken state. material wholeness. the character of uncorrupted virtue(s).      Integrity is a cluster concept: consistency of actions. They need as well to develop a consciousness of their moral and social responsibilities ... entirety¶ (OED). methods.

its conception of business integrity. however. the introduction of new investigative techniques to reduce systemic problems. . a focus on outcomes. and an emphasis on facilitating inward and outward investment by differentiating the Australian marketplace by demonstrable improvements in business integrity Success.       ASIC has completed a strategic review of its operations. will depend on ASIC¶s ability to cause market participants to embrace the reform agenda including. the development of initiatives to help retail investors manage and protect wealth. the reduction of red-tape in administration. crucially.

` ` ` ` ` The market in unrated.e.g. equity capital. not just trustees and auditors but also copywriters. related party transactions and rollovers and early redemption possibilities and penalties) External gatekeepers should explicitly take disclosure into account when issuing valuations but also risk that enhanced levels of disclosure can obfuscate as well as illuminate Attention must also be placed on and accountability demanded from those providing corporate advisory services and the creation and dissemination of technically legal but misleading advertising (i. credit rating. publishers) Requires professional groups to acknowledge their own responsibility and be accountable: acquiescing to external scrutiny of what codes of conduct mean in practice . unlisted bonds accounts for $8 billion and involves 92 vehicles with variable risk Benchmarked articulation of risk (e. portfolio diversification. production teams. valuation of stock. lending principles. liquidity.

Principles and Social Norms in Capital Markets Integrating Integrity into Accountable Design .` ` ` ` ` Retrieving the Meaning of Accountability in the Causes of the Global Financial Crisis Retrieving the Meaning of Accountability in the Policy Responses Explaining the Gap Between Rhetoric and Substance in Capital Market Regulation Transcending Regulatory Failure by focusing on interaction of Rules.

` Friday. Eddie O Connor. EU Energy Security with Mr Jean Vinois.Global Leadership in the Development of Carbon Markets with Patrick Birley.45. ` ` ` . 6 November at 12. Chief Executive of ECX Carbon Exchange. CEO of Mainstream Renewable Power.45. Does Britain Have a Foreign Policy? with William Wallace (Lord Wallace of Saltaire). 17 November at 12. Friday. Tuesday.45. The European Supergrid with Dr.45. at DG TREN in the European Commission. Wednesday. Europe . 11 November at 12. Head of Unit for Energy Policy and Security of Supply. 13 November at 12.