Financial Services Regulation Research Articles

Crisis And Bank Performance In The Covid-19 Era: Russia Case Study

This study aims to investigate Russia's financial performance during the COVID 19 outbreak and the financial crisis. We use indicators of bank financial performance as the dependent variable in this study. An indication of bank success is bank profit after taxes. As independent variables, general reserves and finance were utilized. For this investigation, the Russian financial services regulator used a sample of all bank transactions across the country that were recorded (Central Bank of the Russian Federation). This study covers a population of all financial institutions in Russia, including those that are registered and those that are not, throughout a monthly time span from January 1995 to January 2021. We found that financing generally has a very favorable impact on Russian banking performance. However, general reserves have a detrimental impact on Russian bank performance. This makes perfect sense since in a stable economy, financing is the spearhead of bank income with measurable risks so when financing increases, bank income also increases. On the other hand, if the reserves increase, more money will settle and in the end, it will have an impact on the loss of opportunities to earn income. However, during a crisis, financing becomes very risky so it is negatively related to bank performance during a crisis, but it is reserved that are the driving force for bank income from deposits to the central bank.

Наслідки впровадження воєнного стану для ринків капіталу України

The paper dwells upon peculiarities of regulation of financial services markets in Ukraine, considering the state regulators’ redistribution of powers. It was revealed that significant factors of positive perception of the regulation quality and efficiency of markets are operational reliability, flexibility, publicity, information activity, the efficiency of response to external challenges, predictability of actions to implement restrictions and liberalization. The author established that significant risks to the integrity of capital markets are associated with the operational capacity of financial institutions and financial infrastructure entities, and the regulator. The paper states that the total cessation of financial instruments and transactions can be considered justified only for a short and predictable period to minimize the influence of residents of the aggressor state, which in current conditions does not require significant technological difficulties, but only the political will of the regulator. It is substantiated that the permission to circulate only a small share of government securities (military bonds) is insufficient for investment activities, diversification of portfolios of financial institutions and meeting the population’s demand, which in the following conditions can invest in assets devoid of regulatory restrictions or outside the available legal field. The paper discusses the validity of the grounds for termination of government bonds circulation in martial law and mechanisms to minimize the relevant risks of the state and the interests of government bond owners to prevent panic fall in domestic government prices. The author summarized the consequences of long-term restrictions on the circulation of financial instruments and activities of institutional investors for capital markets and specific sectors of the economy, including construction.

Government Agencies, In Search of Disputes

Normally, dispute resolution involves two parties in conflict with each other. But the United Kingdom's financial services regulators specialize in creating schemes where there is strictly speaking only one participant: the regulated firm that has broken their rules.

Retaining Influence in Post-Brexit International Financial Regulation: Lessons from the UK’s FinTech Framework

Abstract A common rhetoric has emerged among UK authorities when it comes to how to deal with a potential loss of influence in the regulation of financial services after Brexit: as divergence from the EU increases, it will be necessary to retain the UK’s influence as a rule maker through an enhanced engagement via international standard-setting bodies (ISSBs). This article argues that placing an excessive focus on the role of ISSBs to mitigate the UK’s loss of influence might be misguided, based on an analysis of the UK’s past relationship with these regulatory networks, alongside an assessment of their historical shortcomings and increasing limitations. Furthermore, this article advances the argument that the UK FinTech regulatory approach might serve as a successful complementary template for influence, combining a domestic framework with the development of a domestic-led network. For that purpose, this article compares initial responses to FinTech regulation at the UK, EU, and international levels, focusing on the Financial Conduct Authority’s regulatory sandbox and Global Financial Innovation Network to show how the UK’s regulatory ethos was effectively exported, constraining the options available to other countries while also framing the debate at the international level.

Equivalence Decisions in the EU and UK Financial Services Sectors Post-Brexit

Financial services are largely left out of the EU-UK Trade and Cooperation Agreement that was reached at the end of December 2020. The issue of cross-border market access for financial services firms based in the EU and in the UK could be resolved by the adoption of mutual equivalence decisions. The UK made a number of equivalence decisions pre-Brexit to allow EU-based financial services firms access to the UK market. The EU has not reciprocated. Consequently, UK-based financial services firms have moved business into the EU to maintain client access. The article discusses advantages and disadvantages of the EU and the UK’s different strategies as regards market access and whether equivalence decisions in the area of financial services can be used to build up a trustful relationship between the EU and the UK post-Brexit. Equivalence decisions, Brexit, pre-Brexit regulation, post-Brexit regulation, financial services regulation, Joint UK-EU Financial Regulatory Forum, market efficiency, market relocation, Singapore-on-Thames, systemic risks

2021. Securities and Financial Services Regulation

2021. Securities and Financial Services Regulation

Resilient regulatory systems in a world of complexity

The U.S. system of state-based insurance regulation has existed for over 150 years, and its state-based foundation is an anomaly in financial services regulation. The resilience of state-based regulation is due to its decentralized structure, which prioritizes experimentation, coupled with the collaboration fostered through the NAIC, which creates the foundations for efficient intervention when necessary. This balance is well-suited to regulating insurance markets, which are best described as complex adaptive systems.

Compulsory financial ombudsman under the regulator’s umbrella: Testing a new model of dispute settlement

In post-Soviet countries, the courts are not always effective in resolving consumer disputes. I compare the models of organizing the work of financial ombudsmen in Russia, Kazakhstan, Azerbaijan and Armenia, as well as plans for its implementation in Kyrgyzstan and Belarus. Models of compulsory mediation in a number of European jurisdictions are also analyzed. In some countries there is a tendency towards an increase in the influence of the regulator on the work of financial ombudsmen. The reform of the Russian financial ombudsman is the first attempt at introducing a new compulsory ombudsman model for financial markets. It will be a mandatory stage initiation of a lawsuit in a civil court. The new Russian model is unique, differing both from the models established in the countries of the European Union (centralized, decentralized, professional association), as well as models implemented in other post-Soviet countries. The Russian financial ombudsman model is essentially a combination of Italian compulsory mediation on the basis of coercion before the dispute is considered by the court, and the English financial ombudsman on the basis of a vertical system headed by a sole chairman who is de facto appointed by the financial services regulator, while membership in this system of financial institutions that provide regulated services is generally mandatory. Whether the compulsory financial ombudsman under the Central Bank ‘umbrella’ will manifest itself positively or negatively will determine the possibility of extending this scheme to other categories of consumer disputes in the financial markets and such as housing construction and repair, utilities, and telecommunications with many small and medium consumer claims. Furthermore, since a number of post-Soviet countries continue to rely on the Russian experience, in such countries there may be an expansion of mandatory ombudsmen under the umbrella of regulators as well.

Game Theory of Regulator, Companies, and Cooperation in Indonesian Financial Technology Industry

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.

ESG Risk Is a Core Concern for Financial Services Regulation

ESG Risk Is a Core Concern for Financial Services Regulation

EGULATION AND SUPERVISION OF FINANCIAL SERVICES IN THE ERA OF GLOBAL DIGITALIZATION: EXPERIENCE OF AZERBAIJAN

Abstract. The COVID-19 pandemic necessitated the urgent regulation and renewal of financial and banking services in Azerbaijan in the era of global digitalization. A number of important steps have been taken in the country, which are highlighted in the present article. First and foremost, numerous adopted legal acts, measures taken to increase the volume of non-cash payments and minimize the amount of cash payments have been analysed in the present article. It has been emphasized that strengthening of the role of banks in business financing also stimulates the economic growth as a result of the application of opportunities created by the digitalization of banks, legal entities and population. The importance to carry out reforms in the field of payments, to develop the legal framework, to strengthen institutional capacity has been examined. Next, the use of information technology and the enhancement of digital literacy have been identified as crucial issues. Moreover, digitalization is the main goal of improving risk management in banks and is defined as a strategic approach for the long term. The development of information technology and the acceleration of digital transformation in the international arena have contributed to the formation of modern and different approaches in the financial system, as well as in the operating part of banks. Furthermore, a new prudential system for responding to new challenges has been developed and the existing risk management tools based on international experience have been applied. The widespread use of mobile services over the Internet to facilitate consumer access to these services also plays a significant role in reducing costs and wasted time by creating additional capabilities. Finally, the article shows how the use of modern technological channels has increased the ability to collect and analyse more extensive and necessary information about current and potential customers. Keywords: financial system, prudential, financial authority, information technology, regulator, strategic roadmap. JEL Classification G21, O14, K20 Formulas: 0; fig.: 0; tabl.: 0; bibl.: 19.

CONSUMER CREDIT GRIEVANCE AND REDRESS MECHANISMS: THE MALAYSIA PERSPECTIVE

This study examines the redress mechanisms accessible to aggrieved consumers dealing with various consumer credit providers in Malaysia. The existing legal and institutional framework characterised by the piecemeal approach has led different groups of consumers to varying levels of access, which can be superior or inferior to one another. The study employs a doctrinal legal research methodology in analysing the two alternative dispute resolution bodies, namely, the Ombudsman for Financial Services, and the Tribunal for Consumer Claims. Primary sources of law, namely, the Consumer Protection Act 1999, the Financial Services Act 2013, the Financial Services (Financial Ombudsman Scheme) Regulation 2014, the Hire-Purchase Act 1967, the Moneylenders Act 1951, and the Pawnbrokers Act 1972, are meticulously analysed along with secondary sources of law that principally comprise journal articles. The study reveals disparities in terms of access to cheap and simple redress mechanisms by various categories of consumers who are aggrieved by the actions of credit providers. The position of bank consumers and those entering into credit sale is accounted for, as there are particular ADR bodies established under relevant legislations to hear their respective disputes. On the contrary, the position of those who wish to lodge claims against moneylenders, pawnbrokers or credit companies offering hire-purchase is problematic. Several recommendations are proposed to resolve this opacity inter alia by referring to the approach adopted by South Africa. This study is significant in ensuring fair access to inexpensive and hassle-free dispute resolutions for all financial consumers, irrespective of the nature of their consumer credit transactions.

The Nexus between Mobile Money Regulation, Innovative Technology and the Promotion of Financial Inclusion in Zimbabwe

The advent of mobile money innovations has given people in rural areas, informal settlements and other poor communities an opportunity to participate in Zimbabwe's mainstream financial economy. However, the technology-driven money services have presented some challenges to the traditional banking sector in general and the regulation of financial services in particular. Firstly, most mobile money services are products of telecommunication corporations, which are not banks. Telecommunication companies use their network reach to provide mobile money services via mobile devices at a cheaper cost than banks across the country in Zimbabwe. As such, banks face unprecedented competition from telecommunications companies that are venturing into financial services. It also appears that prudential regulation of banks cannot keep up with the fast pace at which technological innovations are developing and this has created a disjuncture between the regulation and the use of technological innovations to promote financial inclusion in Zimbabwe. The Banking Act [Chapter 24:20] 9 of 1999, the Reserve Bank of Zimbabwe Act [Chapter 22:15] 5 of 1999 and the National Payment Systems Act [Chapter 24:23] 21 of 2001 have a limited scope in terms of the regulation of mobile money services in Zimbabwe. The Ministry of Finance and Economic Development launched the National Financial Inclusion Strategy (NFIS) 2016-2020 to provide impetus to the financial inclusion of the poor, unbanked and low-income earners in Zimbabwe. However, the NFIS appears to push more for bank-led financial inclusion than it does for innovation-driven initiatives such as mobile money services. This article highlights the positive influence of mobile money services in improving financial inclusion for the poor, unbanked and low-income earners in Zimbabwe. The article also seeks to point out gaps and flaws in the financial services regulatory framework that may limit the potential of mobile money services to reach more people so that they actively participate in the Zimbabwean economy. It is submitted that the Zimbabwean mobile money services regulations and the financial regulatory framework should be carefully amended in line with the recent innovations in mobile money to adequately regulate the use of mobile money services and innovative technology to address the financial exclusion of the poor, unbanked and low-income earners in Zimbabwe.

An inch of progress: new ethics opinion gets real about assistance to fraud and crime

PurposeThe purpose of this paper is to analyze the current law on the professional responsibility of American attorneys to combat financial crimes and developments in light of recent scandals and new ethics opinion from the American Bar Association. Further commentary is offered on the ethics of advancing the mission to not assist clients in financial wrongdoing.Design/methodology/approachThis paper offers a legal analysis of recent developments pertaining to the ethical regulation of attorney conduct regarding client involvement in financial crimes. Examination of these developments in light of contemporary best practices in the banking and financial services industry assists in determining how to improve the current regulatory approach. There is an extensive review of case law and both academic and professional literature.FindingsThe findings of this paper indicate that a proactive culture exists that acknowledges the deficiencies that still exist in the regulation of attorney ethics to combat financial crimes by clients. Still, significant gaps remain that need to be addressed. Further issues remain unresolved in the context of key legal doctrines that set out clear, concise standards for knowledge and assistance.Originality/valueThe value of this paper comes from the careful analysis of present best practices in banking and financial services regulation and how they could be better applied in the context of the attorney–client relationship.

Settlement Mechanism of Banking Fraud and the Role of the Financial Services Authority in Indonesia

The development of technology and digitalization in Indonesia in recent years has been very rapid. In the era of technology disruption, every industry must be ready to adapt to face dynamic changes. The banking industry inevitably has to adapt to existing technological developments. Unfortunately, the developments are also followed by the growth of various frauds in banking. In response to this, Indonesian Financial Services Authority namely Otoritas Jasa Keuangan (OJK) demand banking industry to improve the reliability of Information Technology infrastructure. Several recent cases of mislaid customer funds show several loopholes in the existing banking security system. Customarily, customers who experience similar cases have reported the matter directly to the police authority, which in turn having extensive investigation process. In this paper, authors try to explain the role of OJK in improving the issues settlement, including by improving the banking system. Data is collected from a series of major cases of embezzlement in Indonesian banking and also from Financial Services Regulations to see the role that could be improved. The main conclusions are to report any irregularities to OJK in the first place instead to the police because Financial Services in Indonesia already has its own supervisory agency, and there needs to be massive socialization to customers regarding the reporting mechanism.

Rebooting UK Financial Regulation for a Post-Brexit World - A Conference Summary

Inspired by the Treasury’s consultation on its Future Regulatory Framework Review of finan-cial services regulation in the UK, Peter Andrews (Oxera, SRC), Kevin R. James (LSE), and Eva Micheler (LSE) organized a conference at the LSE’s Systemic Risk Center on 9 February 2021 entitled “Rebooting UK Financial Regulation for a Post-Brexit World”. We thank the speakers and the conference participants for a fascinating set of talks and discussions, and we provide an executive summary of the conference and a brief summary of the each individual presentation below (we note that several of the presentations are available on the Systemic Risk Centre’s webpage).

Breaking the Privacy Gridlock: A Broader Look at Remedies

Divisions over two enforcement issues—private right of action and federal preemption—have long gridlocked the effort to enact federal consumer privacy legislation. A look at regulatory systems outside the privacy field, however, reveals a complex landscape of enforcement mechanisms and remedies, many of which have not yet received much attention in the privacy debate. Insights from financial services regulation, environmental law, labor law, and other fields may offer ideas for assembling an effective web of enforcement for a federal privacy law. In November 2020, we convened two workshops bringing together scholars from fields other than privacy to describe the enforcement and remedies structures in those other fields. In this paper, we offer some insights drawn from those workshops and further research, in the hope that they will generate creative thinking and expand the scope of the remedies and enforcement discussion in the privacy arena.

Analyzing the Impacts of Financial Services Regulation to Make the Case That Buy-Now-Pay-Later Regulation Is Failing

Fee-based Buy-Now-Pay-Later services (BNPL) are becoming widely adopted in many developed countries, including Australia. Across a variety of regulatory approaches there appears to be relatively minimal regulatory coverage of fee-based BNPL. This review applies a results-oriented, behaviourally informed market failure approach to assess the regulatory outcomes of fee-based BNPL. The review makes the case that the impacts of the regulation of fee-based BNPL in Australia demonstrate multiple forms of regulatory failure. The regulatory failure is particularly due to regulatory capture at a broad level and especially in terms of a lack of consumer protections. Consumers may particularly need consideration and protection because understanding the increasing complexity and financial knowledge at the heart of many fintech services is beyond the capability or responsibility of the consumer. Incorporating social and consumer considerations into analyses of regulatory structures can enable analyses of the regulation of fintech and move financial services regulation toward providing more socially useful and sustainable financial services. In the future, a behaviourally informed approach to the regulation of fintech may be beneficial and enhance sustainability.

2020. Securities and Financial Services Regulation

COVID-19 clearly dominated many of the pressing issues in the world in 2020 and necessitated changes such as the suspension of wrongful trading provisions to help financially distressed firms and the restriction on share buybacks in the case of the CARES Act in the US for government bail-outs and by the MAS for financial institutions given capital adequacy relief in Singapore. It also brought greater focus back on the real economy as opposed to the over-financialized one that was described in the introduction to this chapter in the previous Annual Review. One positive thing to come out of a pandemic is that it may reduce the inequalities seen in the world since the 1990s, in particular, without the even greater upheaval that has been thought necessary to level society.

A theory of financial services competition, compliance and regulation

Purpose This paper aims to derive the conditions under which a financial services firm will want to hire a compliance services company and show how much money they should spend. Design/methodology/approach This paper uses a mathematical model to show the intuition behind many of the compliance decisions that cost financial services firms billions every year. Findings This paper finds that hiring compliance firms may save banks and brokerages money. However, their advice may lead to an embarrass de riches – whereby the lower compliance costs and higher profit advantages they confer may lead to more regulation. Regulators may furthermore tighten regulation – with the expectation that financial service firms will adapt somehow. This paper presents a fresh perspective on the Menon hypothesis, deriving conditions under which financial regulations help the competitiveness of an international financial centre. Research limitations/implications The paper represents one of the first and only models of compliance spending by financial services firms. Practical implications This paper provides five potential policy responses for dealing with ever ratcheting financial regulations. Originality/value The paper hopefully launches literature on the compliance service industry – and the buy-or-do decision to engage in financial services compliance. This paper finds that efficient compliance can hurt firms, by encouraging regulation. This paper shows how firms can forestall the extra regulation that comes with easier internet and computerised monitoring.