Regulatory Suspensions in Times of Crisis: The Challenges of Covid - 19 and Thoughts for the Future

Abstract

The Covid-19 crisis in 2020 severely impacted the corporate and in turn, the financial sectors of the UK, entailing responses from financial regulators to implement unprecedented regulatory suspensions that affect both the financial sector and the real economy. We argue that regulatory suspensions are a unique crisis management tool and give rise to certain concerns and implications. We offer two case studies in regulatory suspension that show how inherently flexible laws and regulations became an anchor for unexpected suspensions or adjustments in other regulatory provisions and laws. These create implications for rebalancing of regulatory objectives and distributive effects and also for incentivizing certain behaviours amongst affected constituents. These institutional implications may be temporary or have a longer-term effect, and we argue that there is a need for a robust and rational regulatory decision-making framework in relation to regulatory suspensions, as part of crisis management. We sketch the contours of such a framework which includes rational balancing of the cost and benefits of regulatory objective trade-offs, distributive effects and institutional implications. We advocate a broad and deep 'humanizing' approach to balancing cost and benefit in regulatory suspensions, drawing upon Sunstein's work. We also advocate a coordinated and inclusive procedural approach to crisis management, including regulatory suspension decisions, that would enhance regulators' preparedness and intuitive skill in this area.