In a constantly evolving financial market, a principles-based framework can adapt better to incoming innovations like those discussed in this guide. Principles offer a larger manoeuvre margin to the authority, when there is a need to fit an entrant product or service into the existing regulatory framework. Despite this, basing regulatory policy on broader, high-level commands leaves ample space for interpretation, hence demanding a bigger effort from the authority to persuade market agents on the applicability and validity of its interpretation of the regulation. It is also possible – and maybe favorable – to use a mix of both prescriptive and principles-based, adapting the regulatory structure to the risks each type of firm faces, who its customers are and the state of financial innovation and the economy in general.1
1. OECD (2020), “Digital Disruption in Banking and its Impact on Competition”, OECD Roundtables on Competition Policy Papers, No. 243, OECD Publishing, Paris, https://doi.org/10.1787/b8d8fcb1-en.
Country Examples
The Markets in Financial Instruments Directive II (MiFID II) aimed at improving competition in the financial instruments market. It demands increased transparency and disclosure requirements in trading, improved suitability and better product governance, while it uniformizes licensing requirements across the European Union. MiFID II was successful in its goal, eg by breaking the monopoly of traditional exchanges and deepening the integration of financial markets. 1;2
1. Johann, T. et al. (2019), “Quasi-Dark Trading: The Effects of Banning Dark Pools in a World of Many Alternatives”, SAFE Working Paper, No. 253, https://doi.org/10.2139/SSRN.3365994.
2. European Commission (2016), Executive summary of the impact assessment accompanying the document COMMISSION DELEGATED REGULATION supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council with regard to definitions, transparency, portfolio compression and supervisory measures on product intervention and positions., https://ec.europa.eu/smart-regulation/impact/ia_carried_out/docs/ia_2016/swd_2016_0156_en.pdf (accessed on 21 August 2025).
