On the other hand, activity-based regulation focuses on the activity being undertaken attempting to apply uniform rules to the activity across all regulated entities. For instance, the recent review of the regulatory framework for microfinance loans attempts to provide a uniform regulation for such lending across banks and NBFCs, by having a common definition of microfinance, same business conduct and fair practice requirements, etc.
The Fiscal Compact supports this focus on prevention by creating a new “first line of defence”: balanced budget rules with a constitutional status. Importantly, this shifts the onus for enforcement away from Brussels and onto national institutions, encouraging greater ownership. Indeed, if applied properly, this Fiscal Compact would correct imbalances before the EU level rules ever need to be activated.