This paper examines the rise of fintech, its regulation, and the particular challenges these present for an international financial center (IFC), specifically an IFC with limited economic breadth. Fintech offers automation opportunities for financial institutions, and such automation will in most cases make banks more competitive and lower their labor needs. The Hong Kong government has actively embraced fintech to ensure competitiveness, and its regulation tracks leading international positions on ICOs, cryptocurrency and electronic payment. However, Hong Kong regulators have not facilitated fintech activities that would stimulate the local economy, such as equity crowdfunding.
Automation will generally translate into a reduction of human labor, particularly in mid-level jobs. In a large and varied economy, persons laid off from jobs at banks can seek engagement elsewhere. This is not necessarily true in an IFC with a less diversified economy. Hong Kong presents the highly unusual case of persons in a small IFC who have access to a large and diverse economy in mainland China, yet may refuse to seek new positions in the larger workplace for cultural or political reasons. The Hong Kong government has blithely followed a “market leads, government facilitates” philosophy of laissez faire for decades and thus also has failed to prepare for the social costs of fintech. While such preparation would indeed constitute social planning, an activity generally discouraged in Hong Kong, circumstances dictate that the HKSAR government begin to act socially, rather than merely facilitate the largest businesses.
{"title":"Hong Kong's Fintech Automation: Economic Benefits and Social Risks","authors":"David C. Donald","doi":"10.2139/ssrn.3544072","DOIUrl":"https://doi.org/10.2139/ssrn.3544072","url":null,"abstract":"This paper examines the rise of fintech, its regulation, and the particular challenges these present for an international financial center (IFC), specifically an IFC with limited economic breadth. Fintech offers automation opportunities for financial institutions, and such automation will in most cases make banks more competitive and lower their labor needs. The Hong Kong government has actively embraced fintech to ensure competitiveness, and its regulation tracks leading international positions on ICOs, cryptocurrency and electronic payment. However, Hong Kong regulators have not facilitated fintech activities that would stimulate the local economy, such as equity crowdfunding. <br><br>Automation will generally translate into a reduction of human labor, particularly in mid-level jobs. In a large and varied economy, persons laid off from jobs at banks can seek engagement elsewhere. This is not necessarily true in an IFC with a less diversified economy. Hong Kong presents the highly unusual case of persons in a small IFC who have access to a large and diverse economy in mainland China, yet may refuse to seek new positions in the larger workplace for cultural or political reasons. The Hong Kong government has blithely followed a “market leads, government facilitates” philosophy of laissez faire for decades and thus also has failed to prepare for the social costs of fintech. While such preparation would indeed constitute social planning, an activity generally discouraged in Hong Kong, circumstances dictate that the HKSAR government begin to act socially, rather than merely facilitate the largest businesses.","PeriodicalId":376194,"journal":{"name":"ERN: Regulation & Supervision (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131384369","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper contributes to the debate on the adequate regulatory treatment of non-bank financial intermediation (NBFI). It proposes an avenue for regulators to keep regulatory arbitrage under control and preserve sufficient space for efficient financial innovation at the same time. We argue for a normative approach to supervision that can overcome the proverbial race between hare and hedgehog in financial regulation and demonstrate how such an approach can be implemented in practice. We first show that regulators should primarily analyse the allocation of tail risk inherent in NBFI. Our paper proposes to apply regulatory burdens equivalent to prudential banking regulation if the respective transactional structures become only viable through indirect or direct access to (ad hoc) public backstops. Second, we use insights from the scholarship on regulatory networks as communities of interpretation to demonstrate how regulators can retrieve the information on transactional innovations and their risk-allocating characteristics that they need to make the pivotal determination. We suggest in particular how supervisors should structure their relationships with semi-public gatekeepers such as lawyers, auditors and consultants to keep abreast of the risk-allocating features of evolving transactional structures. Finally, this paper uses the example of credit funds as non-bank entities economically engaged in credit intermediation to illustrate the merits of the proposed normative framework and to highlight that multipolar regulatory dialogues are needed to shed light on the specific risk-allocating characteristics of recent contractual innovations.
{"title":"The Case for a Normatively Charged Approach to Regulating Shadow Banking - Multipolar Regulatory Dialogues as a Means to Detect Tail Risks and Preclude Regulatory Arbitrage","authors":"M. Thiemann, Tobias H. Troeger","doi":"10.2139/ssrn.3465534","DOIUrl":"https://doi.org/10.2139/ssrn.3465534","url":null,"abstract":"This paper contributes to the debate on the adequate regulatory treatment of non-bank financial intermediation (NBFI). It proposes an avenue for regulators to keep regulatory arbitrage under control and preserve sufficient space for efficient financial innovation at the same time. We argue for a normative approach to supervision that can overcome the proverbial race between hare and hedgehog in financial regulation and demonstrate how such an approach can be implemented in practice. We first show that regulators should primarily analyse the allocation of tail risk inherent in NBFI. Our paper proposes to apply regulatory burdens equivalent to prudential banking regulation if the respective transactional structures become only viable through indirect or direct access to (ad hoc) public backstops. Second, we use insights from the scholarship on regulatory networks as communities of interpretation to demonstrate how regulators can retrieve the information on transactional innovations and their risk-allocating characteristics that they need to make the pivotal determination. We suggest in particular how supervisors should structure their relationships with semi-public gatekeepers such as lawyers, auditors and consultants to keep abreast of the risk-allocating features of evolving transactional structures. Finally, this paper uses the example of credit funds as non-bank entities economically engaged in credit intermediation to illustrate the merits of the proposed normative framework and to highlight that multipolar regulatory dialogues are needed to shed light on the specific risk-allocating characteristics of recent contractual innovations.","PeriodicalId":376194,"journal":{"name":"ERN: Regulation & Supervision (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129672836","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, we analyse the current dynamic definitions of the Solvency Capital Requirement (SCR) and we propose a new dynamic and time consistent formulation of the SCR, that is compliant with the Solvency II directive. In case of a single liability cash-flow at maturity, Devolder and Lebégue (2017) analyse the time-consistent dynamic formulation of the SCR using iterated risk measures. Firstly, we extend the iterated-SCR (ISCR) formulation to the case of multiple liability cash-flows. However, the iterated formulation of the SCR presents some drawbacks. Devolder and Lebégue (2017) show that using iterated risk measures, the ISCR becomes quite expensive for long term liabilities. Moreover, we show that in case of multiple liability cash-flows, the ISCR is not completely compliant with the Solvency II directive. In fact, ISCR does not answer to a fundamental regulator request: the capital to be held by insurance company to meet obligations over the following year. Then, starting from the static definition in Christiansen and Niemeyer (2014), we propose a dynamic version of the SCR, that is time consistent and encompasses the drawbacks of the iterated formulation. Our proposed dynamic definition of the SCR, called additive-SCR (ASCR), indicates the expected total capital requirement for the period from time zero to the liabilities maturity. Moreover, the ASCR can be decomposed in the annual expected-SCRs (ESCR), which represent the expected regulatory capital for the next year, not only at time zero but also at the futures payment dates. Hence, we build a term structure of expected annual SCRs.
{"title":"Time Consistent Solvency Capital Requirement Under Solvency II.","authors":"A. Gambaro","doi":"10.2139/ssrn.3536479","DOIUrl":"https://doi.org/10.2139/ssrn.3536479","url":null,"abstract":"In this paper, we analyse the current dynamic definitions of the Solvency Capital Requirement (SCR) and we propose a new dynamic and time consistent formulation of the SCR, that is compliant with the Solvency II directive. In case of a single liability cash-flow at maturity, Devolder and Lebégue (2017) analyse the time-consistent dynamic formulation of the SCR using iterated risk measures. Firstly, we extend the iterated-SCR (ISCR) formulation to the case of multiple liability cash-flows. However, the iterated formulation of the SCR presents some drawbacks. Devolder and Lebégue (2017) show that using iterated risk measures, the ISCR becomes quite expensive for long term liabilities. Moreover, we show that in case of multiple liability cash-flows, the ISCR is not completely compliant with the Solvency II directive. In fact, ISCR does not answer to a fundamental regulator request: the capital to be held by insurance company to meet obligations over the following year. Then, starting from the static definition in Christiansen and Niemeyer (2014), we propose a dynamic version of the SCR, that is time consistent and encompasses the drawbacks of the iterated formulation. Our proposed dynamic definition of the SCR, called additive-SCR (ASCR), indicates the expected total capital requirement for the period from time zero to the liabilities maturity. Moreover, the ASCR can be decomposed in the annual expected-SCRs (ESCR), which represent the expected regulatory capital for the next year, not only at time zero but also at the futures payment dates. Hence, we build a term structure of expected annual SCRs.","PeriodicalId":376194,"journal":{"name":"ERN: Regulation & Supervision (Topic)","volume":"53 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121450437","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Peer-to-peer (P2P) lending, defined broadly as the use of non-bank online platforms that match borrowers with lenders, is arguably one of the most important innovations in the area of alternative finance. It changes the way lenders and borrowers interact, reconstructs the credit market by driving massive disintermediation, and reshapes our general understanding of financial systems. This Article analyzes the current state of the P2P lending market with the goal of developing policy recommendations to facilitate the safe growth of this important market segment. It starts by providing an extensive overview of the P2P lending market from four different perspectives: the financial intermediary role of the platforms, the characteristics of the market, benefits and risks faced by market participants, and its regulation in leading jurisdictions. This descriptive analysis demonstrates how the P2P lending market has changed over time and identifies recent trends, risks, and challenges that require regulatory attention. In light of this analysis, the Article then proceeds to develop three policy recommendations. First, it shows that P2P lending platforms, originally designed to serve as online marketplaces that only match lenders with borrowers, have gradually evolved into new financial intermediaries that perform various brokerage activities and provide tools intended to help lenders manage their credit risks. It then argues that regulation should be modified to better suit this new financial intermediary role and discusses key considerations. Second, the Article proposes imposing consistent disclosure standards tailored to the characteristics of different types of P2P lending platforms. It presents specific examples of such disclosure requirements and provides justifications for imposing them. Finally, the article outlines key concerns related to the increasing involvement of institutional actors in P2P lending platforms — adverse selection among different types of lenders and growing financial stability risks — and discusses their regulatory implications.
{"title":"A Revolution in Progress: Regulating P2P Lending Platforms","authors":"Moran Ofir, I. Sadeh","doi":"10.2139/ssrn.3530901","DOIUrl":"https://doi.org/10.2139/ssrn.3530901","url":null,"abstract":"Peer-to-peer (P2P) lending, defined broadly as the use of non-bank online platforms that match borrowers with lenders, is arguably one of the most important innovations in the area of alternative finance. It changes the way lenders and borrowers interact, reconstructs the credit market by driving massive disintermediation, and reshapes our general understanding of financial systems. \u0000 \u0000This Article analyzes the current state of the P2P lending market with the goal of developing policy recommendations to facilitate the safe growth of this important market segment. It starts by providing an extensive overview of the P2P lending market from four different perspectives: the financial intermediary role of the platforms, the characteristics of the market, benefits and risks faced by market participants, and its regulation in leading jurisdictions. This descriptive analysis demonstrates how the P2P lending market has changed over time and identifies recent trends, risks, and challenges that require regulatory attention. \u0000 \u0000In light of this analysis, the Article then proceeds to develop three policy recommendations. First, it shows that P2P lending platforms, originally designed to serve as online marketplaces that only match lenders with borrowers, have gradually evolved into new financial intermediaries that perform various brokerage activities and provide tools intended to help lenders manage their credit risks. It then argues that regulation should be modified to better suit this new financial intermediary role and discusses key considerations. Second, the Article proposes imposing consistent disclosure standards tailored to the characteristics of different types of P2P lending platforms. It presents specific examples of such disclosure requirements and provides justifications for imposing them. Finally, the article outlines key concerns related to the increasing involvement of institutional actors in P2P lending platforms — adverse selection among different types of lenders and growing financial stability risks — and discusses their regulatory implications.","PeriodicalId":376194,"journal":{"name":"ERN: Regulation & Supervision (Topic)","volume":"38 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121139777","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
One of the main activities of any state is the formation, distribution and use of public financial One of the main activities of any state is the formation, distribution and use of public financial resources. The idea of the present work lies in the research of the problem of the state regulation of the State Corporation Deposit Insurance Agency (DIA). The DIA is huge on financial matters and regulates the wide variety of aspects from banking problems to pension deposits. The practical value of the work in its practical advice on amending Russian legislation and law enforcement practice to make state corporations accountable to the state.
{"title":"The Deposit Insurance Agency’s Role in the Financial and Pension System of the Russian Federation","authors":"A. Shashkova","doi":"10.2139/ssrn.3527890","DOIUrl":"https://doi.org/10.2139/ssrn.3527890","url":null,"abstract":"One of the main activities of any state is the formation, distribution and use of public financial One of the main activities of any state is the formation, distribution and use of public financial resources. The idea of the present work lies in the research of the problem of the state regulation of the State Corporation Deposit Insurance Agency (DIA). The DIA is huge on financial matters and regulates the wide variety of aspects from banking problems to pension deposits. The practical value of the work in its practical advice on amending Russian legislation and law enforcement practice to make state corporations accountable to the state.","PeriodicalId":376194,"journal":{"name":"ERN: Regulation & Supervision (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131319962","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Technology is a gift that keeps on giving and the advent of cryptocurrencies is no exception. Like its predecessors in technological innovation, it has elicited a globally mixed reaction. It has exposed cracks in our financial system, fixed them and created new ones. In a paradoxical twist of bewilderment and fascination, it has simultaneously enticed and repulsed regulators worldwide in varying degrees. This paper envisions a practical solution for the efficient regulation of cryptocurrencies that lies not only in the law but in an economically justifiable approach which involves the participation in the mining of cryptocurrencies by governments on a sufficiently international scale.
{"title":"Chasing the Wind? A Case for Competitive Popularity as an Approach to Regulating Cryptocurrencies","authors":"E. Mensah","doi":"10.2139/ssrn.3529921","DOIUrl":"https://doi.org/10.2139/ssrn.3529921","url":null,"abstract":"Technology is a gift that keeps on giving and the advent of cryptocurrencies is no exception. Like its predecessors in technological innovation, it has elicited a globally mixed reaction. It has exposed cracks in our financial system, fixed them and created new ones. In a paradoxical twist of bewilderment and fascination, it has simultaneously enticed and repulsed regulators worldwide in varying degrees. This paper envisions a practical solution for the efficient regulation of cryptocurrencies that lies not only in the law but in an economically justifiable approach which involves the participation in the mining of cryptocurrencies by governments on a sufficiently international scale.","PeriodicalId":376194,"journal":{"name":"ERN: Regulation & Supervision (Topic)","volume":"34 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132028380","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Are government guarantees or fnancial regulation a more effective way to prevent banking crises? I study this question in the presence of a negative feedback loop between the fscal position of the government and the health of the banking sector. I construct a model of fnancial intermediation in which the government issues, and may default on, debt. Banks hold some of this debt, which ties their health to that of the government. The government's tax revenue, in turn, depends on the quantity of investment that banks are able to fnance. I compare the effectiveness of government guarantees, liquidity regulation, and a combination of these policies in preventing self-fulflling bank runs. In some cases, a combination of the two policies is needed to prevent a run. In other cases, liquidity regulation alone is effective and adding guarantees would make the fnancial system fragile.
{"title":"Financial Stability with Sovereign Debt","authors":"Ryuichiro Izumi","doi":"10.2139/ssrn.3520333","DOIUrl":"https://doi.org/10.2139/ssrn.3520333","url":null,"abstract":"Are government guarantees or fnancial regulation a more effective way to prevent banking crises? I study this question in the presence of a negative feedback loop between the fscal position of the government and the health of the banking sector. I construct a model of fnancial intermediation in which the government issues, and may default on, debt. Banks hold some of this debt, which ties their health to that of the government. The government's tax revenue, in turn, depends on the quantity of investment that banks are able to fnance. I compare the effectiveness of government guarantees, liquidity regulation, and a combination of these policies in preventing self-fulflling bank runs. In some cases, a combination of the two policies is needed to prevent a run. In other cases, liquidity regulation alone is effective and adding guarantees would make the fnancial system fragile.","PeriodicalId":376194,"journal":{"name":"ERN: Regulation & Supervision (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123471727","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Between January 2016 and February 2018, Bitcoin were in Korea on average 4.73% more expensive than in the United States, a fact commonly referred to as the Kimchi premium. We argue that capital controls create frictions as well as amplify existing frictions from the microstructure of the Bitcoin network that limit the ability of arbitrageurs to take advantage of persistent price differences. We find that the Bitcoin premia are positively related to transaction costs, confirmation time in the blockchain, and to Bitcoin price volatility in line with the idea that the delay and the associated price risk during the transaction period make trades less attractive for risk averse arbitrageurs and hence allow prices to diverge. A cross country comparison shows that Bitcoin tend to trade at higher prices in countries with lower financial freedom. Finally unlike the prediction from the stock bubble literature, the Kimchi premium is negatively related to the trading volume, which also suggests that the Bitcoin microstructure is important to understand the Kimchi premium.
{"title":"Bitcoin Microstructure and the Kimchi Premium","authors":"Kyoung Jin Choi, Alfred Lehar, Ryan Stauffer","doi":"10.2139/ssrn.3189051","DOIUrl":"https://doi.org/10.2139/ssrn.3189051","url":null,"abstract":"Between January 2016 and February 2018, Bitcoin were in Korea on average 4.73% more expensive than in the United States, a fact commonly referred to as the Kimchi premium. We argue that capital controls create frictions as well as amplify existing frictions from the microstructure of the Bitcoin network that limit the ability of arbitrageurs to take advantage of persistent price differences. We find that the Bitcoin premia are positively related to transaction costs, confirmation time in the blockchain, and to Bitcoin price volatility in line with the idea that the delay and the associated price risk during the transaction period make trades less attractive for risk averse arbitrageurs and hence allow prices to diverge. A cross country comparison shows that Bitcoin tend to trade at higher prices in countries with lower financial freedom. Finally unlike the prediction from the stock bubble literature, the Kimchi premium is negatively related to the trading volume, which also suggests that the Bitcoin microstructure is important to understand the Kimchi premium.","PeriodicalId":376194,"journal":{"name":"ERN: Regulation & Supervision (Topic)","volume":"37 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115038093","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This master thesis examines the conceptual and technical specifications of Facebook's Libra project, which provides a comprehensive understanding of the fiat-backed digital currency, the payment system and financial infrastructures for billions of people to be launched in the first half of 2020. The results demonstrate that Libra could potentially accelerate financial inclusion and improve services within the network, but current drawbacks such as the permissioned blockchain and centralized network limit user participation, and resistance from governments, regulators and legislators underlines the disruptive nature of the project, which, if accepted globally, could have a significant impact on the global economy.
{"title":"The Digital Transformation of Payment Systems - Libra`s Impact on the Global Economy","authors":"Enzo Mesanovic","doi":"10.2139/ssrn.3581507","DOIUrl":"https://doi.org/10.2139/ssrn.3581507","url":null,"abstract":"This master thesis examines the conceptual and technical specifications of Facebook's Libra project, which provides a comprehensive understanding of the fiat-backed digital currency, the payment system and financial infrastructures for billions of people to be launched in the first half of 2020. The results demonstrate that Libra could potentially accelerate financial inclusion and improve services within the network, but current drawbacks such as the permissioned blockchain and centralized network limit user participation, and resistance from governments, regulators and legislators underlines the disruptive nature of the project, which, if accepted globally, could have a significant impact on the global economy.","PeriodicalId":376194,"journal":{"name":"ERN: Regulation & Supervision (Topic)","volume":"129 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122548096","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Diego Bartolozzi, M. Gara, D. Marchetti, D. Masciandaro
Using a unique data set, this paper studies the governance of anti-money laundering supervisors known as Financial Intelligence Units (FIUs). Starting from a theoretical framework that highlights four key properties of FIU governance – financial powers, law enforcement features, independence and accountability – we build the first quantitative index of FIU governance. The proposed metrics are then applied in an analysis of 71 countries that explores the drivers of FIU governance properties. Our results show that FIUs’ financial powers tend to be weaker in bank-based economies and stronger in countries with more affiliations with international anti-money laundering organizations. FIU independence and FIU accountability are stronger in countries with higher-quality governments and less opacity in the fiscal and legal systems. With regards to the nexus between country fundamentals and our overall FIU Governance Index, the index generally appears stronger for richer and more transparent countries. It is also stronger for countries with civil (rather than common) law. Finally, given the distinction between administrative FIUs and law enforcement FIUs, we find that overall FIU governance as well as independence and accountability are all weaker in countries with law enforcement FIUs.
{"title":"Designing the Anti-Money Laundering Supervisor: Theory, Institutions and Empirics","authors":"Diego Bartolozzi, M. Gara, D. Marchetti, D. Masciandaro","doi":"10.2139/ssrn.3501650","DOIUrl":"https://doi.org/10.2139/ssrn.3501650","url":null,"abstract":"Using a unique data set, this paper studies the governance of anti-money laundering supervisors known as Financial Intelligence Units (FIUs). Starting from a theoretical framework that highlights four key properties of FIU governance – financial powers, law enforcement features, independence and accountability – we build the first quantitative index of FIU governance. The proposed metrics are then applied in an analysis of 71 countries that explores the drivers of FIU governance properties. Our results show that FIUs’ financial powers tend to be weaker in bank-based economies and stronger in countries with more affiliations with international anti-money laundering organizations. FIU independence and FIU accountability are stronger in countries with higher-quality governments and less opacity in the fiscal and legal systems. With regards to the nexus between country fundamentals and our overall FIU Governance Index, the index generally appears stronger for richer and more transparent countries. It is also stronger for countries with civil (rather than common) law. Finally, given the distinction between administrative FIUs and law enforcement FIUs, we find that overall FIU governance as well as independence and accountability are all weaker in countries with law enforcement FIUs.","PeriodicalId":376194,"journal":{"name":"ERN: Regulation & Supervision (Topic)","volume":"38 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-12-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133196105","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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