Relief and Rescue During the COVID-19 Pandemic: Financial Regulatory Suspensions in the United Kingdom

The COVID-19 crisis has severely impacted economic activities globally, entailing wide-ranging policy responses. A crucial piece of the mosaic in the policy response comes from financial regulation, as financial regulators have adjusted regulatory rules in order to allow the financial sector to meet the policy goals of ‘rescue and relief’. We argue that although the twin policy goals of relief and rescue meet immediate needs of many households and corporations caused by unexpected stressful conditions, the regulatory suspensions introduced by financial regulators obscure hazards to regulators, regulated financial entities, households and corporations and may fall short of the policy goals desired. This is because such regulatory suspensions may not be as temporary as they seem and their impact on institutional stability should not be assumed to be minimal. Based on the policies and experience in the UK, the article situates the deployment of regulatory suspensions within the theoretical framework for legal elasticity developed in Pistor’s legal theory of finance, and argue that the very legal nature of elasticity is structural in nature, and gives rise to questions regarding institutional change, apart from whether any particular policy outcomes are achieved. Regulators and policymakers’ reluctance to engage with the structural nature of legal elasticity is pursuant to their perspective that regulatory suspensions during the COVID-19 crisis are only temporary. However, we critically caution that such reluctance to engage in institutional questions raised by deploying legal elasticity risks greater hazards to legal certainty, institutional stability and ultimately policy outcomes in due course. We make a series of recommendations to improve financial regulators’ decision-making processes relating to regulatory suspensions. These recommendations are built upon our overarching argument that regulatory suspensions need to be understood in the fullness of the theoretical framework for legal elasticity. We draw upon but also extend Pistor’s legal theory of finance to that end. First, we propose that regulators should anticipate that institutional dissonance follows from deploying regulatory suspensions and should proactively seek to evaluate all relevant aspects and considerations pertaining equally to institutional stability and change. Second, regulators should engage constructively in relational paradigms with relevant public sector agencies, regulated entities, and broader stakeholders in order to monitor and supervise the outworking of legal elasticity. Third, regulators should put in place ex ante frameworks for preparing for crisis management and the potential use of legal elasticity in order to be better prepared for engagement with this complex regulatory tool. These approaches facilitate more richly considered and holistic decision-making on the part of regulators and policymakers, even if it is not perfectly clear what substantive policies may work optimally in a crisis such as induced by the COVID-19 pandemic.