Financial services firms are exceptionally vulnerable to reputational risk. Concern over the reputational risk of agreeing to a deferred prosecution was central to the collapse of Arthur Andersen in 2002. The accounting firm refused to agree to a negotiated settlement in the aftermath of the investigation into complicity in the collapse of Enron on the grounds that it would be catastrophic to the firm's standing.  Given the externalities, what mechansisms can be used to leverage the power of reputation as a restraining force? This series explores the options at the level of the firm, the market in which it is nested and the mechanisms open to regulators to design pro-active strategies.