The Precautionary Principle: Financial Regulation's Missing Ingredient

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.

Regulatory technology (Reg-Tech) in financial stability supervision: Taxonomy, key methods, applications and future directions

Resurrecting the OFR

This chapter explores the inadequacies of our current financial regulatory system when it comes to fintech. It starts by describing the challenges that technological innovation poses for regulation generally, then looks more specifically at the difficulties inherent in regulating fintech. Some financial regulators have been experimenting with new regulatory approaches (like innovation hubs and regulatory sandboxes) in light of fintech’s ascendance, but most of the experimentation so far has focused on supporting private sector innovation, rather than mitigating the negative consequences of that innovation for financial stability. Because the industry’s adoption of fintech innovations (and regtech innovations) poses some challenges for financial stability regulation, Chapter 5 also considers the role that technological innovations by the regulatory agencies themselves (known as “suptech”) can play in addressing those challenges.

This chapter asks three questions: To what degree has the European financial and debt crises spurred new policies and purposeful action toward improved financial stability regulation? Secondly, how can we theorize the processes that link crises and policy? And thirdly, we ask if what has been achieved is likely to be sufficient to avoid another crisis? We measure policy change along three dimensions: level of aggregation, level of governance, and functional scope, and find significant change along the two first. This is explained by the “failing forward plus learning” framework that we develop. We do, however, find enough chinks in the EUs newly erected armour to predict that processes of failing forward will continue. Thus, we conclude that muddling through best describes the EU’s post-crisis efforts in financial stability 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.

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.

The Rationale for a Single National Financial Services Regulator

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

Open Banking: Regulatory challenges for a new form of financial intermediation in a data-driven world

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.

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

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.

This paper focuses on the interactions between financial regulation and competition in financial markets. Those interactions run deep, and involve consideration of both microand macro-prudential regulation, consumer protection, and access/network regulation. Three fundamental issues permeate the analysis. First, competition is associated with failure and exit of suppliers from the industry (as per Schumpeter’s well known “process of creative destruction” metaphor) – which has implications for financial stability regulation if exit is disorderly. Second, digital technology is rapidly changing the competitive landscape of financial markets, raising issues about the appropriate design of financial regulation and its perimeter. Third, information deficiencies and behavioural biases of consumers of financial services and products, and consequent responses of financial firms to those, are important determinants of the nature of competition in financial markets.

Since the economic reform policy was introduced by the Chinese authority in 1978, the Chinese financial regulatory framework has experienced dramatic changes during the past decades. With the rapid development of the capital markets since early 1990s, China’s regulatory framework of financial markets has been moving towards a sector-based model. In 1998, the regulatory power of securities and insurance markets was spun off from the PBOC to the China Securities Regulatory Commission (CSRC) and China Insurance Regulatory Commission (CIRC) respectively. Following the amendment of the Commercial Banks Law of the PRC in 2003, China Banking Regulatory Commission (CBRC) was established which took over the PBOC’s regulatory power of commercial banks and trust corporations. The establishment of the above sector-based regulatory system signals the Chinese government’s intention to consolidate regulatory structure in the financial sector by developing expert regulators. Although financial stability has been emphasized by the Chinese authority as early as before the Global Financial Crisis 2008, the regulatory strategies of systematic risk among different sub-sectors in China’s financial system are changing through the past two decades. This essay aims to briefly draw a whole picture of China’s practice of financial stability regulation during the past twenty year