Does financial structure still matter for technological innovation when financial technology and financial regulation develop?

Financial inclusion is one of the top priority issues as an important key towards reducing extreme poverty and increasing shared prosperity by giving people easier access to financial facilities.The World Bank and the G20 countries have a high commitment to providing financial inclusion for organizations, companies and the general public.The issue of financial inclusion was greatly amplified during the COVID-19 crisis.The objective of this study is to find out the relationship between financial inclusion, financial technology and financial regulation on business performance.This research uses the variables provided by the Enterprise Survey for data published in June 2022 carried out by the World Bank called the World Bank Enterprise Survey or WBES June 2022.SmartPLS was used for the data analization method.The results of this study found that financial technology has a positive influence on financial inclusion and financial performance, both by itself and mediated by financial inclusion.However, financial regulation has a negative impact on financial inclusion and business performance, either by itself or mediated by financial inclusion.This research suggests investors and entrepreneurs in the future to improve their company's performance by increasing the financial inclusion and financial technology of the company.In addition, this study suggests regulators provide relief from regulations on the use of financial facilities so that companies can carry out business activities smoothly.

The purpose of this original study is to critically analyse the emergence and development of the national models of financial regulation, international standards and codes, and regional and national financial regulation and supervision (for the cases of the UK, USA, Sweden, the EU, and Finland). The research raises both academic and regulatory concerns. The relevance and purpose of this research arise from a need for an academic analysis of the economic nature and classification of financial market regulation systems. They represent a theoretical justification for changes in the policies and supervisory practices of national and international regulatory authorities in response to innovations in financial technologies and instruments, digital products, and risks. Secondly, it will stimulate more systematic work on regulatory databases, registration, and reporting procedures in various economies in different financial markets. The author identifies five main systems of national financial regulatory markets: the multi-tiered, multi-agency US system, the twin peaks model (UK), and the mega-regulatory model (Sweden). There is a thorough review of the international standards and institutions that work for the stability of financial systems. The analysis of the regional and national systems of financial regulation and supervision is based on the examples of the EU and Finnish institutions. National macro- and micro-economic regulation and supervision have been examined, with a focus on the US Federal Reserve and the US Treasury. An important result of the study is the systematisation of the directions of the development of national and international regulatory institutions (since the 1980s). First, the minimum capital and credit risk requirements for banks (the 1980s) were complemented in the 21st century by buffer reserves, liquidity, and leverage standards. Second, regulation focuses on ensuring the sustainability of the national economy. The regulatory focus is on ensuring the sustainability of national and global financial systems. Third, there is an increase in the number of supervised institutions. Fourth, there is a division of the functions between central banks (macro-economic regulation) and one or two mega-regulators (micro-economic regulation and supervision). Fifth, there is a division of labour between the international financial institutions (BIS, IMF, and WB) and national regulators. Sixth, the focus is on protecting consumers and investors and countering money laundering and the financing of terrorism. Seventh, there is an understanding based on a common approach by central banks to new financial technologies and cybersecurity.

This article tries to examine possible rational payoffs of cooperative and non-cooperative interaction between the financial regulator and companies in the financial technology industry. To understand the interaction paradox within the financial technology industry, a framework based on Game Theory Prisoners Dilemma Payoff Matrix is used to iterate conditional probabilities that represents the possible decisions given by both the financial regulator and the fintech companies. The possible decisions and consequences of cooperative or non-cooperative decision from each of the player, are encoded into a 2 X 2 matrix to illustrate the conditional probabilities, then analyzed to find the best interaction option. Indonesian financial regulators have not provided clear regulations about the financial technology industry on broad terms inclusive of major types of fintech businesses commonly found in Indonesia. Indonesian financial regulators represented by the Bank Indonesia (Indonesian Central Bank), Ministry of Finance, and Otoritas Jasa Keuangan (Financial Services Regulator), only enacted regulations for certain types of fintech, such as peer-to-peer lending, digital banking, and digital payments. Many other types of fintech have not been regulated or inadequately regulated for business boundaries, liabilities, and obligations toward the consumers. The financial regulators mostly rely on enforcement efforts to fulfill the mandate to promote innovation, protect market integrity, ensure clarity in the market. However, these enforcement actions have potential harms to the mandate if the financial regulators cannot provide clear regulations or ensure enforcement predictability, transparency, and consistency. The best possible rational option for the legal interaction between financial technology companies and financial regulators would be to cooperate. The second-best option would be the company cooperating while the financial regulator does not cooperate. The third option would be both the company and the financial regulator do not cooperate. The least beneficial option would be for the company not to cooperate while the financial regulator cooperates. This article presents a possible contribution to corroborating the conjecture that the best possible rational option for the legal interaction between financial technology companies and financial regulators, would be to cooperate.

Reviewed by: A History of Financial Technology and Regulation: From American Incorporation to Cryptocurrency and Crowdfunding by Seth C. Oranburg Florian Vetter (bio) A History of Financial Technology and Regulation: From American Incorporation to Cryptocurrency and Crowdfunding By Seth C. Oranburg. Cambridge: Cambridge University Press, 2022. Pp. 200. This book is an important contribution for financial historians insofar as it shifts away from a purely institutional perspective. At first glance, Seth C. Oranburg's work appears to reconstruct the milestones of the regulations of the U.S. financial markets and their transformation through the introduction of technology. However, a closer reading reveals that the author focuses on a large panorama of actors such as investors, state institutions, financial institutions, and small investors. In doing so, Oranburg highlights that ordinary investors and small businesses are often left behind when it comes to investing. He argues that today's regulatory apparatus in America is incredibly cost intensive for the taxpayer, leads to disparities in wealth, and makes it almost unprofitable for new actors to enter financial markets. Oranburg's book distinguishes itself from other works of financial history by its analysis of the intertwining of regulation and technology. The author bases his arguments mainly on current literature, quotations, advertisements, and photographs. The work covers the period between the 1790s and 2020. After a brief introduction, Oranburg introduces the key concepts of financial regulation and digital investment strategies in eleven chapters. The book focused on the intertwining of technology, regulation, and various actors within the American financial market. In addition, Oranburg demonstrates how laws and regulations prevented financial crises but also caused them. The history of corporate finance and financial markets in the United States is described across three epochs. The author shows that the first era (1790s–1930s) was characterized by capitalism and individualism. It becomes clear that between the 1790s and 1930s, the United States consisted of many unconnected financial markets. However, the advent of technologies such as the railway or the telegraph helped the individual states to grow together into an economic union. Consequently, the advent of technology led to the fact that financial crises took place on a national scale in the United States. The second era (1933–2008), according to the author, was characterized by a centralized command and control approach to securities regulation. Furthermore, the Great Depression had a significant impact on political and economic change in the United States. Here, Oranburg describes how the U.S. government created new federal agencies to counteract inflation after Franklin Delano Roosevelt became president. The Securities and Exchange Commission (SEC) serves here as a case study to demonstrate how the growing federal bureaucracy became increasingly costly for the taxpayer. Thus, it becomes clear that the international crisis also led to centralization and consolidation [End Page 615] in the United States. As a result, New York rose to prominence as a financial center. Silicon Valley started to flourish as investors began to invest in new companies and start-ups instead of publicly listed companies. During this period, America's middle class also began to benefit from these regulations and changes as corporate profits seemed to flow into a growing middle class. From the 1990s onward, Oranburg highlights a fundamental change in investment. Until this time, stocks were primarily owned by large corporations rather than individuals. The author concludes this period with the dot-com era (mid-1990s–2000s) and illustrates through the resulting financial crisis in 2000 how domestic stock markets were reregulated to prevent further crises. In the third era (2008–20), Oranburg uses Bitcoin, social media activism, decentralized finance, and crowdfunding as case studies to show how financial regulation has fallen far behind financial technology. In doing so, he skillfully builds a bridge from the Great Depression to the digital age. He demonstrates that federal laws to regulate communication about investment opportunities from the beginning of the twentieth century are now no longer applicable. Oranburg has managed to write a book that offers financial historians as well as nonspecialists new perspectives. By adding simplified examples of economic theory in each chapter, the book serves as a good introduction for readers outside the field of financial history. These examples help...

Financial regulation is an important component of long-term planning of domestic enterprises. The purpose of the article is to investigate the methods of financial regulation of the activities of state and economic enterprises in modern society of the financial and economic conditions. The process of financial regulation actively affects all aspects of the enterprise activities through the selection of financing objects, allocation of funds, depending on their targets, promotes rational use of financial resources, involves the development and justification of planned indicators characterizing the development of the economy in the future. The function of financial regulation in the enterprise management system is one of the basic, central functions that determines the final results of production and sales, economic, financial and investment activities. The mission of financial regulation is to identify the enterprise’s general need for financial resources, in the extent that will ensure its normal activity along with the fulfilment of obligations to its creditors, such as banks, the budget, etc. Financial regulation covers the most important aspects of the financial and economic activity of the enterprise, ensures appropriate control over the formation and use of material, labour and monetary resources, creates conditions for strengthening the financial state of the enterprise. The research methodology is based on general research methods of analysis and synthesis, induction and deduction, observation and abstraction, which are used to systematize the achievements of the theory and practice of modeling the financial system of enterprises. The results of the study showed that the methods of financial management must be actively used in the activities of state and economic enterprises. There can be distinguished the following types of financial regulation: tactical regulation; strategic regulation. Implementation of financial regulation is carried out on the basis of five consecutive stages: analysis of the financial situation, development of the enterprise’s financial strategy, drafting and adjustment of current financial plans, development of operational financial plans. The process of financial regulation is characterized by the general and special principles. Practical implications. At the state-owned enterprises, the process of financial regulation should be implemented through budgeting. Budgeting is a tool for implementing the strategy of the state-owned enterprise, because it ensures an inextricable connection between strategic goals and plans aimed at achieving them. There are the following principles of budgeting organization: unity, separation of income and expenses, balance, independence, completeness of reflection of income and expenses in the budget, general coverage of expenses, efficiency of the use of funds, reliability. The principles of budgeting are as follows: integration, consistency, regulatory approach, end-to-end budgeting, decomposition, economic integrity, and methodological comparability. The main elements of the budgeting system are as follows: financial structure, budget structure and regulations on budget management. Financial regulation of economic enterprises is carried out on the basis of financial indicators, which are formed in the process of all its activities and determined on a certain specific date. A set of methods for assessing the enterprise’s financial indicators is divided into two groups: express diagnostics and fundamental diagnostics of the stability of business operation. Financial indicators are the state of financial resources, their distribution and use, which ensures the development of the enterprise based on the growth of profit and capital while maintaining solvency and creditworthiness under the conditions of an acceptable level of risk. The data characterizing financial indicators of the enterprise mostly include liquidity and solvency, financial stability, business activity, profitability of the enterprise. In order to obtain complete information about the level of sustainability of the enterprise development, the analysis of the current (operational) financial sustainability and the assessment of the prospects for its preservation in the future are carried out. The enterprise’s liquidity is evaluated according to the following indicators: absolute liquidity ratio, quick liquidity ratio, total liquidity ratio (coverage). The following indicators are used to assess financial stability: coefficient of autonomy (concentration of the equity capital), coefficient of manoeuvrability, coefficient of providing assets with the working capital, debt ratio (the ratio of equity and borrowed capital), leveraged capital structure ratio, coefficient of business activity, profitability ratio. Value/originality. The system of measures for financial regulation of enterprises should provide for constant monitoring of the external and internal state of enterprises, the development of measures to reduce the external vulnerability of enterprises, the development of preparatory plans in case of problematic situations, the implementation of preliminary measures to ensure them, the implementation of plans for practical measures in case of a crisis situation, the adoption of risk and non-standard solutions in case of deviation of the development of the situation, coordination of actions of all participants and control over the implementation of measures and their results.

Since June 2007, the creditworthiness of structured finance products has deteriorated rapidly. The number of downgrades in November 2007 alone exceeded 2,000 and many downgrades were severe, with 500 tranches downgraded more than 10 notches. Massive downgrades continued in 2008. More than 11,000 of the downgrades affected securities that were rated AAA. This paper studies the credit rating crisis of 2007-2008 and in particular describes the collapse of the credit ratings of ABS CDOs. Using data on ABS CDOs we provide suggestive evidence that ratings shopping may have played a role in the current crisis. We find that tranches rated solely by one agency, and by S&P in particular, were more likely to be downgraded by January 2008. Further, tranches rated solely by one agency are more likely to suffer more severe downgrades.(This abstract was borrowed from another version of this item.)

Global Financial Crisis of 2008 has caused dramatic structural changes in the financial sector and financial services worldwide. Technological disruption has changed the dimension of finance around the world. Increasing threats of cyber-attacks has raised a serious concern for the banking and financial sector across the entire world. Supervisory mechanisms, compliances and regulations have become the key factors of consideration. The paper stresses out an importance of stringent financial regulations and regulatory compliance in the recent era of technological changes and innovations towards financial stability. This paper attempts to establish a strong theoretical overview of the promise and potential of the Regulatory Technologies (RegTech) for the wider financial ecosystem based on existing academic research and also publicly available practice-oriented insights from industry sources. The purpose of this paper is to develop an insight about the implications of RegTech for financial institutions and regulation. This study will help regulatory standard setters, bankers, investors, national & international financial institutions and other academicians to envisage the future of disruptive potential in financial technology.

Based on the panel data of Chinese Family Panel Studies (CFPS) and cities from 2012 to 2020, this paper explores the impact of financial spatial structure on household financial vulnerability and the moderating effect of financial regulation and financial technology from the perspective of the "local market effects" and "spatial spillover effects" of finance. It is indicated that: firstly, the "local market effects" and "spatial spillover effects" of financial spatial structure effectively alleviate household financial vulnerability and the conclusion is still hold true after conducting endogeneity analysis and a series of robustness test. Secondly, promoting household entrepreneurship, optimizing asset allocation, and enhancing residents' financial literacy are crucial channels through which financial spatial structure influences household financial vulnerability. Thirdly, financial regulation helps to build a fair and transparent financial market, thereby strengthening the positive effects of "local market effects" and "spatial spillover effects" of finance on household financial vulnerability. Financial technology has improved the quality and efficiency of traditional financial services, helping to further leverage the "local market effects" of finance, while it has no obvious impact on strengthening the "spatial spillover effects" of finance. By subdividing the application areas of financial technology, it is observed that the digitalization of payment and insurance businesses can help alleviate household financial vulnerability through the "spatial spillover effects" of finance.

Effective regulation and technological innovation are key factors in driving the implementation of green growth initiatives. This research investigates how financial regulation and technological innovation influence green growth, proxied by carbon productivity, with data from 1996 to 2020 across ASEAN-5 Countries. A Panel Dynamic Ordinary Least Square (DOLS) model is conducted to analyze the long-run effect on each variable. The result showed that financial regulation, proxied by regulatory quality and economic freedom, positively and significantly influences green growth. Meanwhile, technological innovation has a positive but not significant influence on green growth. According to the findings, this study proposes adopting top-tier regulations and a step-by-step approach to realizing green growth. Meanwhile, the government can also open an investment as funding to improve innovation in green technology

Strengthening the combination of science and technology finance is an important means to implement innovation driven development strategy.Since 2011, the Ministry of science and technology in conjunction with the eight ministries, the Ministry of finance, people's Bank of China and other selected 16 Beijing Zhongguancun, Chengdu hi tech Zone, Shanghai, Wuhan and other areas, to actively promote the combination of technology and finance pilot work, explore the new mechanism of scientific and technological resources and financial resources docking, and made significant progress.This paper attempts to sum up the experience of the pilot areas of scientific and technological financial innovation, in order to provide a good reference for the further development of Inner Mongolia's science and technology finance.

The emergence and acceleration of technology innovation and digitalization in the financial system are increasingly being developed nowadays, especially in the banking and financial sectors. One of them is financial technology, known as FinTech, which increased sustainable business performance in banking. However, it turns out that this synergy and collaboration between banking and fintech has given rise to new problems in the banking and financial system for financial and banking regulators, especially regulatory issues and their implementation. The objective of this study is to formulate policy recommendations for strategies that enhance sustainable performance in the banking sector through leveraging financial technology. For developing policy recommendations, this study uses a mixed-method research approach, which can provide credible research results. The final empirical research results developed a strategic map to inform policy recommendations for sustainable performance improvement strategies in the banking sector for leveraging FinTech. The novelty of this study lies in its application of a mixed-methods approach to formulate policy recommendations for leveraging fintech in enhancing sustainable banking performance. The findings of this study make a significant contribution to the formulation of policy recommendations for Indonesia’s financial regulators, namely Bank Indonesia and the Financial Services Authority.

Security against systemic financial risks is the main theme for financial stability regulation. As modern financial markets are highly interconnected and complex networks, their network resilience is an important indicator of the ability of the financial system to prevent risks. To provide a comprehensive perspective on the network resilience of financial networks, we review the main advances in the literature on network resilience and financial networks. Further, we review the key elements and applications of financial network resilience processing in financial regulation, including financial network information, network resilience measures, financial regulatory technologies, and regulatory applications. Finally, we discuss ongoing challenges and future research directions from the perspective of resilience-based financial systemic risk regulation.

Chapter 15 - Singapore Approach to Develop and Regulate FinTech

Financial Technologies and Financial Regulation

The recent years witness innovative development of financial industry, which attributes to fast progress and in-depth application of information technologies such as big data, artificial intelligence, and blockchain. But, at the same time, they bring challenges to financial regulation and accelerate rise of regulatory technology. Based on challenges to regulatory agencies brought by financial technology development, this study proposes suggestions for the coordinated relationship between financial innovation and financial technology regulation from the perspective of technology empowerment, in order to improve efficiency of financial markets, and reach a balance between financial technology and prevention of systemic financial risks.