The concerns of each of those who have looked at the role
of rules in regulation have varied: attention has focused on their
incidence, ⁴ the process of their formation, ⁵ their relationship with
enforcement, ⁶ and their legitimacy. ⁷ The focus of this study differs
again, and its aim is threefold. It is first to build on a junspruden-
tial and linguistic analysis of rules to develop an understanding
of the nature of rules and as a result provide proposals for how
rules could be used in the regulatory process; second, to integrate
that analysis with examples of the use of rules in a particular regu-
latory system, that of financial services; and finally to understand
in greater depth the nature of the regulatory rule making process.

Chapter 1 explores different theories of rules and of interpreta-
tion. It extrapolates from these to offer an analysis of rules and to
develop suggestions for ways in which rules can be used in regu-
lation, ways which take into account their nature and ameliorate
their limitations. It proposes three different but related techniques:
the use of different types of rules, the use and development of inter-
pretive communities, and the adoption of a conversational model
of regulation.

The analysis and proposals of chapter 1 form the framework for
the consideration of the formation and use of rules in a particular
regulatory system, that of financial services, and more particularly,
regulation of the conduct of investment business. Chapters 2 to 5
examine the development of the financial services regulatory system
from its inception, exploring the use made of rules. Chapter 2
looks at the reasons for the introduction of the regulation, and
in particular the significance in that debate of the question, who

-2-