The Relationship Between Regulator Trust and How the Regulated Comply: Regulation and Compliance on Bay Street and Wall Street

ABSTRACT Financial regulators, and regulators more broadly, continue to debate how to best secure effective compliance from the regulated. Building on previous research, this interview‐based study contributes to the debate by exploring how the regulated comply as perceptions of the regulator vary. By contrasting views of regulated financial professionals in the United States and Canada, we highlight how letter‐of‐the‐law compliance, at best, abounds when a regulator is perceived to have low trust yet high power, whereas compliance with both the letter and the spirit of the law coincides with high trust and high power. A key implication of this research is that regulators should reflect on the regulatory context that they face, including how they are perceived by the regulated, before deciding which regulatory strategies to implement to secure desired compliance.