2009 will be an important regulatory turning point not because there will be more regulation but because there is the potential for a fundamental change in the philosophy for how regulation should be implemented.
There may be significant move from principles-based regulation back to a rules-based system. The old system of rule stifled innovation because action and behavior was set in stone by the regulator. Rules are promulgated. The industry responses in testimony or letters and then the administrative regulations are enacted. There is clarity with rules but it does not allow for much flexibility.
The principle based system allows for concepts of good practices to be developed and the industry has the chance to develop what is the best approach given their knowledge. This is the approach that has been taken in England and Europe. There will be mistakes like a rules based system, but it also allows for more adaptation to change and innovation. There are still rules but not as heavy hand from the regulator.
One hopes that the CFTC will be allowed to continue to develop a principle based system. It has been generally effective for a number of years for exchange traded products and should be allowed to continue.
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