Asymmetry of resources between regulated and regulator was, and remains, a major hindrance to better regulation. Regulators are charged with regulating institutions with access to significantly greater capital, talent and information. One manifestation of resource disparity is the ‘revolving door’, where regulated firms hire regulators or where people in industry join an industry regulator for a few years and then resume their career in industry.
We often hear concerns about this revolving door, most notably in the US, but also in the UK. The argument is that it gives industry too great an influence on the regulators, generating lax regulation and giving industry an easy ride. This has been labelled the quid-pro-quo effect, alleging weaker legislation arises that improves individuals’ employment potential. Many suggested the use of insider information and the ability to influence the regulatory environment in such cases was a cause of the financial crisis.
