RegTech and the Reconceptualisation of Financial Regulation

I agree with just about everything Jonathan Macey (2017) says in his symposium contribution. His claim that bureaucratic tendencies toward regularity—specifically, treating like cases alike—generate errors in categorization seems appropriate to me. His explanations of the pathologies in financial regulation should fall in the category of essential or required reading for anyone who chooses to write on the topic. Where I differ from Macey is in the choice of framework, or perspective from which to view the pathologies. Whereas Macey adopts an “error cost” framework, which is clearly appropriate for this symposium, I would build explicitly on a “public choice” framework.

IntroductionThis study explores the integration of financial stability regulation in professional soccer within the framework of sport governance, focusing on the German context. The research examines how financial regulations influence key governance principles such as accountability, transparency, and sustainability, while also addressing the challenges posed by the dynamic nature of professional soccer.MethodsA qualitative methodology was employed, using focus group discussions with nine experts, including representatives from soccer clubs, auditing firms and other relevant stakeholders. The discussions aimed to capture diverse perspectives on the impact of financial stability regulation on governance practices within the German soccer league and clubs.ResultsThe findings reveal that financial stability regulation is effective in promoting financial discipline and accountability at both league and club levels. However, the study also identifies challenges, such as the need for greater harmonization of regulatory frameworks across different levels of professional soccer and the potential benefits of implementing incentive mechanisms within the financial stability regulation to improve governance at the league and club levels.DiscussionThe study underscores the importance of a multi-dimensional approach to financial stability regulation, considering political, systemic, and organizational dimensions. It highlights the potential for improving governance through the adoption of independent governance models and more practical applications of governance principles. Future research could further explore these areas, offering insights that could enhance the effectiveness of financial regulation in professional soccer and potentially other sport contexts.

The global financial crisis that started in 2007 sparked several academic debates about the role that financial sector regulators played in the crisis and prompted policy reforms in the financial supervision architectures of several countries. This book focuses on the question of what accountability, independence, transparency and, more generally, governance mechanisms applicable to financial regulators can better contribute to building responsive, responsible and effective regulatory and supervisory frameworks that tackle the weaknesses of the pre-crisis regimes. It re-visits the concepts of accountability and independence of financial regulators as well as the main economic theories underlying financial services policy-making, in light of the crisis experience. In addition, it critically examines the post-crisis institutional frameworks of financial regulation and supervision in the EU, the US and Canada with a view to assessing whether the financial regulators of the post-global financial crisis era are well suited to effectively address the challenges and threats that global financial markets pose to the stability, integrity and good functioning of financial systems as well as to the protection of consumers, investors and society at large.Topics addressed in this volume include:- The theoretical foundations of accountability and independence in financial regulation after the crisis; - The influence of economic theory on the quality of financial regulation and supervision;- Accountability in the European Banking Union and the European System of Financial Supervision;- Post-crisis structures of financial regulation in the US and their impact on consumer/investor protection and financial stability;- The role of financial supervision architecture in the stability of the Canadian financial system. The contributors to this volume are economists, lawyers, political scientists and sociologists from both academia and practice. Therefore, this book will be highly relevant to scholars and practitioners in these areas.

As part of the response to the financial crisis, the ECB has been transferred tasks in banking and financial supervision. In parallel to its traditional mandate, the implementation of monetary policy, it is now responsible for ensuring financial stability and acts as a central supervisor of credit institutions. This paper deals with challenges that arise from entrusting the ECB with tasks of banking and financial supervision and therefore the ambiguity of the term “financial market regulation in the crisis”. Financial market regulation in the crisis can be looked at from two perspectives: On the one hand, it can be understood as being a response to the crisis. On the other hand, the term can imply that financial regulation itself is in a crisis. In this paper the difference between the two possible interpretations is discussed based on the example of the ECB and its tasks in banking and financial supervision. To this end, the new fields of activity of the ECB and possible problem areas are presented. Afterwards, it is concluded that financial regulation has developed from a financial market regulation in response to the crisis into a crisis of financial regulation.

The regulation of finance is central to the growth and development of every economy. Financial regulation determines the overall character of the financial system, the relationship between borrowers and savers, the allocation of capital, and the macroeconomic performance of the economy. Financial market regulation is distinct from regulation of other sectors of the economy because of the essential infrastructural role of finance—all other sectors of advanced economies depend on the financial system. Despite its enormous importance, financial regulation normally has low political salience. Except in times of crisis, most voters—and therefore politicians—have relatively little interest in the matter. This can be attributed in part to the complex and technical nature of financial markets and regulation, which relatively few people understand well. Low political salience facilitates a regulatory process that is very heavily shaped by regulators (technocrats) and the industry they regulate, with only minor direction from elected political leaders. In the long history of capitalism, bank and financial system crises have been regular occurrences. Regulation, or regulatory failure, is often seen as a cause of crises, but regulatory change is also the response. Thus any given financial regulatory regime is never settled for long. After the Great Depression, advanced capitalist economies introduced highly restrictive financial regulatory regimes designed to minimize systemic risk from bank failures. In the postwar period, restrictive regulatory regimes were combined with capital controls that limited international movements of capital. The postwar Bretton Woods international monetary regime stabilized fixed exchange rates through such controls and, when necessary, lending by the International Monetary Fund (IMF) to countries that could not pay for their external debts. Starting with the collapse of the Bretton Woods regime in the early 1970s, all the advanced economies started liberalizing financial market regulation and removing capital controls as part of a broader shift toward a neoliberal economic philosophy. These deregulatory measures brought about a dramatic transformation of domestic financial systems and the reemergence of a dynamic and rapidly growing international financial market. Such dynamic and internationalized financial market was, in large part, the root cause of the early-21st-century financial crisis. The Great Financial Crisis of 2008 precipitated widespread review and revision of financial market regulations at both the domestic and international levels. These revisions include a shift from private self-regulation to state-driven regulation of financial markets, the centralization of regulation at the level of the European Union, and a closer cooperation between states in forging international regulatory standards. Nonetheless, despite the dramatic growth of the international financial market and transnational efforts to coordinate regulation, financial regulation remains overwhelmingly a domestic affair.

The financial crisis of 2007-2008 showed up many inadequacies in the pre-crisis approach to financial stability regulation. The response from legislators and regulators has been to implement a broad new range of regulatory tools – individual solutions to individual regulatory failings highlighted by the crisis. But the prevailing cost-benefit philosophy that informed financial stability regulation in the United States prior to the crisis persists today – there has been no real effort to rethink the overarching philosophy behind financial stability regulation. Because a cost-benefit approach gives too much primacy to the short-term interests of the financial industry, this Article rejects cost-benefit analysis and develops a substitute precautionary philosophy for financial stability regulation, drawing analogies from the literature on the use of the precautionary principle in regulating complex environmental systems. A precautionary philosophy is more responsive than cost-benefit analysis to the complexity and fragility of the financial system, directing financial regulators to err on the side of caution and to prioritize the stability of the financial system over the short-term interests of the financial sector. While this Article is primarily intended to advocate a change in the philosophy that underpins financial stability regulation (and thus provide a cogent theoretical framework for regulators implementing Dodd-Frank and future reforms), this Article also explores a more practical framework for precautionary review of innovative financial products. This operates as a concrete illustration of how the precautionary philosophy might be operationalized: the key practical implication of such an approach is that it will shift the regulatory burden to the financial industry to demonstrate why regulation of a new product is unnecessary. As this Article demonstrates, this burden-shifting entails many benefits, including mitigating issues of regulatory capture and collective action problems, and remediating limits on regulatory funding and expertise.

Financial regulation in sports is usually discussed in the context of representing an instrument against ‘financial doping’. Notwithstanding the merits of this discussion, this paper takes the opposite perspective and analyses how market-internal financial regulation itself may anticompetitively influence sporting results. Virtually every regulative financial intervention distorts sporting competition to some extent and creates beneficiaries and losers. Sometimes, the actual winners and losers of financial regulation stand in line with the (legitimate) goals of the regulation like limiting financial imbalances or preventing distortive midseason insolvencies of teams. However, financial regulation may also display unintended side effects like protecting hitherto successful teams from new challengers, cementing the competitive order, creating foreclosure and entry barriers, or serving vested interests of powerful parties. All of these effects may also be hidden agendas by those who are implementing and enforcing market-internal financial regulation or influencing it. This paper analyses various types of budget caps (including salary caps) with respect to potentially anticompetitive effects. UEFA’s so-called Financial Fair Play Regulations are highlighted as an example. Furthermore, the paper discusses allocation schemes of common revenues (like from the collective sale of broadcasting rights) as another area of financial regulation with potentially anticompetitive effects. Eventually, the effects of standards for accounting, financial management and auditing are discussed.

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.

This paper examines previous financial crises and recessions while introducing the imminent millennial’s financial crisis and recession. Using the United States of America and the United Kingdom as leading western states examples and Nigeria as an example of an emerging state, this paper examines the successes of financial systems and regulations that have been used to combat previous recessions. The successes of international financial regulations in ensuring financial stability are also examined. This paper acknowledges that although, financial regulations have developed over time in response to global needs, there are financial regulation imperatives needed to combat the upcoming millennial’s recession and ensure global financial stability. It is argued that more inclusion in international financial regulation and enforceable laws in favour of private citizens in the face of financialisation is needed globally. In addition, the creation of stringent laws, regulatory agents’ refurbishment and augmentation of deposit insurance which has grown since the time of the Great Depression in the area of financial regulation is urgently needed in order to combat the upcoming millennial’s recession. This paper refrains from giving ethical recommendations because the current laws on financial regulations is built on soft laws guided mainly by the principles of ethics.

Financial regulation in sports is usually discussed in the context of representing an instrument against “financial doping”. Notwithstanding the merits of this discussion, this paper takes the opposite perspective and analyses how market-internal financial regulation itself may anticompetitively influence sporting results. Virtually every regulative financial intervention distorts sporting competition to some extent and creates beneficiaries and losers. Sometimes, the actual winners and losers of financial regulation stand in line with the (legitimate) goals of the regulation like limiting financial imbalances or preventing distortive midseason insolvencies of teams. However, financial regulation may also display unintended side-effects like protecting hitherto successful teams from new challengers, cementing the competitive order, creating foreclosure and entry barriers, or serving vested interests of powerful parties. All of these effects may also be hidden agendas by those who are implementing and enforcing market-internal financial regulation or influencing it. This paper analyses various types of budget caps (including salary caps) with respect to potentially anticompetitive effects. UEFA’s so-called Financial Fair Play Regulations are highlighted as an example. Furthermore, the paper discusses allocation schemes of common revenues (like from the collective sale of broadcasting rights) as another area of financial regulation with potentially anticompetitive effects. Eventually, the effects of standards for accounting, financial management, and auditing are discussed.

The financial system and its regulation have undergone exponential growth and dramatic reform over the last thirty years. This period has witnessed major developments in the nature and intensity of financial markets, as well as repeated cycles of regulatory reform and development, often linked to crisis conditions. The recent financial crisis has led to unparalleled interest in financial regulation from policymakers, economists, legal practitioners, and the academic community, and has prompted large-scale regulatory reform. The Oxford Handbook of Financial Regulation is the first comprehensive, authoritative, and state-of-the-art account of the nature of financial regulation. Written by an international team of leading scholars in the field, it takes a contextual and comparative approach to examine scholarly, policy, and regulatory developments in the past three decades. The first three Parts of the Handbook address the underpinning horizontal themes which arise in financial regulation: financial systems and regulation; the organization of financial system regulation, including regional examples from the EU and the US; and the delivery of outcomes and regulatory techniques. The final three Parts address the major reoccurring objectives of financial regulation, widely regarded as the anchors of financial regulation internationally: financial stability; market efficiency, integrity, and transparency; and consumer protection. The Oxford Handbook of Financial Regulation will be an invaluable resource for scholars and students of financial regulation, and for economists, policy-makers and regulators.

Book synopsis: The financial system and its regulation have undergone exponential growth and dramatic reform over the last thirty years. This period has witnessed major developments in the nature and intensity of financial markets, as well as repeated cycles of regulatory reform and development, often linked to crisis conditions. The recent financial crisis has led to unparalleled interest in financial regulation from policymakers, economists, legal practitioners, and the academic community, and has prompted large-scale regulatory reform. The Oxford Handbook of Financial Regulation is the first comprehensive, authoritative, and state-of-the-art account of the nature of financial regulation. Written by an international team of leading scholars in the field, it takes a contextual and comparative approach to examine scholarly, policy, and regulatory developments in the past three decades. The first three Parts of the Handbook address the underpinning horizontal themes which arise in financial regulation: financial systems and regulation; the organization of financial system regulation, including regional examples from the EU and the US; and the delivery of outcomes and regulatory techniques. The final three Parts address the major reoccurring objectives of financial regulation, widely regarded as the anchors of financial regulation internationally: financial stability; market efficiency, integrity, and transparency; and consumer protection. The Oxford Handbook of Financial Regulation will be an invaluable resource for scholars and students of financial regulation, and for economists, policy-makers and regulators.

The single statutory regulator for financial services which is being established in the UK (the Financial Services Authority, FSA) will be the broadest financial regulator in the world, combining prudential, conduct of business and market conduct regulation across the full range of financial services, including banking, securities, investment management and insurance. A few other countries already have single financial services regulators, but the FSA will be the first in a major international financial centre. This paper considers the rationale for establishing a single national financial services regulator. The institutional structure of financial services regulation is important because of the impact of the efficiency and effectiveness of this regulation on the direct and indirect costs of regulation and on the success of regulation in meeting its statutory objectives. To what extent should the structure of financial regulation be driven by the functions which financial services firms undertake, reflecting market developments in the financial services industry? Is there a first-best institutional arrangement which is independent of these market developments, arising perhaps from economies of scale and scope in undertaking financial regulation, or from some underlying logic linking the structure of regulation with the objectives of regulation or with the institutional arrangements for monetary policy and for addressing systemic risk? Are there also implications here for the structure of regulation internationally, not just within national borders? Although the structure of financial regulation must depend in part on what is being regulated and why it is being regulated, this paper takes as given the rationale for financial services regulation as set out in Davies (1998a), Goodhart et al (1998) and Llewellyn (1999). This is not to deny the crucial importance of determining the rationale for intervention - and indeed the key interrelationships between this rationale and the choice of the tools of supervision - but this is too large a subject to cover within this paper.

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

An evolutionary game theory model for the inter-relationships between financial regulation and financial innovation