SEARCH

SEARCH BY CITATION

Keywords:

  • management-based regulation;
  • process-oriented regulation;
  • institutionalization;
  • financial services.

Abstract

This article analyzes the institutionalization of process-oriented regulation, namely: regulatory institutions that allow firms to adapt regulation to their individual circumstances, while holding them to account for the adequacy and efficacy of their internal compliance systems. The article's main focus is on the strategies sought by compliance professionals to attain managers' receptiveness to regulatory expectations. It analyzes British financial firms' responses to a process-oriented regulatory initiative, which sought to transform the widespread culture of product “mis-selling” in this industry. Three key arguments and hypotheses are put forward: first, it is suggested that the existing theoretical literature on process-oriented regulation overly stresses managers' rational, profit-maximizing motivations for (non-)compliance, whilst overlooking their emotive motivations. Second, it is proposed that managers' emotive resistance is expected when regulatory expectations challenge firms' “organizational identities” and thereby their individual identities. Third, it is hypothesized that when process-oriented regulation poses a threat to organizations' identities, its institutionalization will entail delegation of the design and subsequent implementation of compliance systems to managers outside compliance, and reframing of regulatory expectations into existing businesses discourses and methodologies.