Jeffrey Camarda, S. Lee, Piet de Jong, Jerusha Lee
The financial advisory industry in the USA lacks professional standardization/regulation. There are few guideposts to assess adviser quality, and risks to consumer welfare abound. Some 91% of investment advisers operate on conflicted sales commission licences, although many market themselves as fiduciaries. Using an adviser misconduct scoring framework we report specific misconduct ratings for each of the 625,980 Financial Industry Regulatory Authority (FINRA) advisers, finding elevated misconduct for Certified Financial Planner (CFP®) professionals and commission/fiduciary licensees. For Chartered Financial Analyst (CFA®) professionals, we found the opposite. We propose a unique scoring system to aid consumers in flagging problematic advisers. We also offer simple regulatory policy recommendations, which could enable stronger consumer protection at minimal cost or bureaucratic burden.
{"title":"Badges of Misconduct: Consumer Rules to Avoid Abusive Financial Advisers","authors":"Jeffrey Camarda, S. Lee, Piet de Jong, Jerusha Lee","doi":"10.1093/jfr/fjac012","DOIUrl":"https://doi.org/10.1093/jfr/fjac012","url":null,"abstract":"The financial advisory industry in the USA lacks professional standardization/regulation. There are few guideposts to assess adviser quality, and risks to consumer welfare abound. Some 91% of investment advisers operate on conflicted sales commission licences, although many market themselves as fiduciaries. Using an adviser misconduct scoring framework we report specific misconduct ratings for each of the 625,980 Financial Industry Regulatory Authority (FINRA) advisers, finding elevated misconduct for Certified Financial Planner (CFP®) professionals and commission/fiduciary licensees. For Chartered Financial Analyst (CFA®) professionals, we found the opposite. We propose a unique scoring system to aid consumers in flagging problematic advisers. We also offer simple regulatory policy recommendations, which could enable stronger consumer protection at minimal cost or bureaucratic burden.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2023-02-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46951327","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 article considers the effects of legal protections of creditors within the macro-financial theory of leverage cycles developed by John Geanakoplos. The theory posits that leverage is procyclical. I propose a theoretical framework, ‘Law and Macro-Finance’, comprising two main clams: (1) the strength of legal protections of creditors has an impact on the quantum of debt creditors are willing to underwrite not just the interest rate on that debt and (2) that quantum varies across the cycle in a procyclical fashion. In a boom, when asset prices are higher, leverage decreases, creating incentives for creditors to underwrite additional leverage secured on those assets without increasing the interest rate. The stronger the legal protections of creditors, the stronger the incentives to underwrite additional leverage based solely on the increasing value of the collateral. By creating such incentives, strong legal protections of creditors, associated with claims designated in the law as ‘bankruptcy remote’, will accelerate the boom and increase the vulnerability of the economy to shocks. On the normative side, this article proposes a countercyclical design of strong legal protections of creditors. The design makes the availability of such protections, typically achieved by reliance on the legal doctrine of ‘true sales’, conditioned on the adequacy of the price paid in the transaction. The adequacy, in turn, is determined in reference to the applicable schedule of collateral haircuts determined by the central bank.
{"title":"A Theoretical Framework for Law and Macro-Finance","authors":"M Konrad Borowicz","doi":"10.1093/jfr/fjac011","DOIUrl":"https://doi.org/10.1093/jfr/fjac011","url":null,"abstract":"This article considers the effects of legal protections of creditors within the macro-financial theory of leverage cycles developed by John Geanakoplos. The theory posits that leverage is procyclical. I propose a theoretical framework, ‘Law and Macro-Finance’, comprising two main clams: (1) the strength of legal protections of creditors has an impact on the quantum of debt creditors are willing to underwrite not just the interest rate on that debt and (2) that quantum varies across the cycle in a procyclical fashion. In a boom, when asset prices are higher, leverage decreases, creating incentives for creditors to underwrite additional leverage secured on those assets without increasing the interest rate. The stronger the legal protections of creditors, the stronger the incentives to underwrite additional leverage based solely on the increasing value of the collateral. By creating such incentives, strong legal protections of creditors, associated with claims designated in the law as ‘bankruptcy remote’, will accelerate the boom and increase the vulnerability of the economy to shocks. On the normative side, this article proposes a countercyclical design of strong legal protections of creditors. The design makes the availability of such protections, typically achieved by reliance on the legal doctrine of ‘true sales’, conditioned on the adequacy of the price paid in the transaction. The adequacy, in turn, is determined in reference to the applicable schedule of collateral haircuts determined by the central bank.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2022-09-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138505818","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}
As with the global financial crisis, there are once again demands on central banks and financial regulators to take on new responsibilities, this time for supporting the transition to a low-carbon economy. Regulators can indeed facilitate the reorientation of financial flows necessary for the transition. But they may find themselves walking a tightrope, having to balance exaggerated expectations against limited capabilities and political economy constraints. Their diagnostic and policy toolkits are still in their infancy. Expanding their legal mandates to take on these new, essentially political, responsibilities should be done through the political process and be accompanied by strengthened governance and accountability arrangements. Taking on these new responsibilities can also have potential pitfalls and unintended consequences on financial markets. Ultimately, central banks and financial regulators cannot deliver a low-carbon economy by themselves and should not risk being caught again in the role of ‘the only game in town’.
{"title":"Walking a Tightrope: Financial Regulation, Climate Change, and the Transition to a Low-Carbon Economy","authors":"Dimitri G. Demekas, P. Grippa","doi":"10.1093/jfr/fjac010","DOIUrl":"https://doi.org/10.1093/jfr/fjac010","url":null,"abstract":"\u0000 As with the global financial crisis, there are once again demands on central banks and financial regulators to take on new responsibilities, this time for supporting the transition to a low-carbon economy. Regulators can indeed facilitate the reorientation of financial flows necessary for the transition. But they may find themselves walking a tightrope, having to balance exaggerated expectations against limited capabilities and political economy constraints. Their diagnostic and policy toolkits are still in their infancy. Expanding their legal mandates to take on these new, essentially political, responsibilities should be done through the political process and be accompanied by strengthened governance and accountability arrangements. Taking on these new responsibilities can also have potential pitfalls and unintended consequences on financial markets. Ultimately, central banks and financial regulators cannot deliver a low-carbon economy by themselves and should not risk being caught again in the role of ‘the only game in town’.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2022-08-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42707965","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 article identifies barriers to the complete implementation of the organized trading facility (OTF) as a new category of trading venue under the Markets in Financial Instruments Directive (Directive 2014/65/EU) (MiFID II). It argues that attempts to reconcile the competing claims of incumbent regulated markets and dealer banks operating broker crossing networks in the cash securities markets led to a market design that is not suitable for the over-the-counter (OTC) derivatives markets. The result has been that multilateral trading in the wholesale secondary markets has not been incorporated in trading venues, as was intended, and that changes that are better aligned to market requirements are needed. These include reform of requirements transposed from the cash securities markets, such as standardized fee structures, and relaxation of restrictions on interactions between an OTF and other OTFs or systematic internalizers.
{"title":"MiFID II and the Regulation of Multilateral Trading in OTC Derivatives: Is the OTF Fit for Purpose?","authors":"Simon Helm","doi":"10.1093/jfr/fjac009","DOIUrl":"https://doi.org/10.1093/jfr/fjac009","url":null,"abstract":"\u0000 This article identifies barriers to the complete implementation of the organized trading facility (OTF) as a new category of trading venue under the Markets in Financial Instruments Directive (Directive 2014/65/EU) (MiFID II). It argues that attempts to reconcile the competing claims of incumbent regulated markets and dealer banks operating broker crossing networks in the cash securities markets led to a market design that is not suitable for the over-the-counter (OTC) derivatives markets. The result has been that multilateral trading in the wholesale secondary markets has not been incorporated in trading venues, as was intended, and that changes that are better aligned to market requirements are needed. These include reform of requirements transposed from the cash securities markets, such as standardized fee structures, and relaxation of restrictions on interactions between an OTF and other OTFs or systematic internalizers.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2022-08-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46362873","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 article introduces a revised and updated version of the Financial Reform Database, which is widely used by economists and political economists. In this revision, country coverage is extended from 91 to 100 economies. Also, the time period covered is extended from 1973–2005 to 1973–2013. Furthermore, the coding rule relating to the enhancement of banking supervision is revised to enhance the clarity of the coding criteria used to measure the independence of a banking supervisory agency, taking into account the concepts of institutional independence and supervisory independence. In addition, in order to systematically compare policy changes across time and countries, seven dimensions of financial policies are further divided into 20 financial policy subdimensions, and each of these subdimensional policy scores is separately coded in this revision. This allows researchers to utilize each subdimension depending on their interests. The detailed policy description of each subdimensional policy reform for all countries and all years is made publicly available. In this article, an overview of the updated Financial Reform Database is provided.
{"title":"Introducing the Revised and Updated Financial Reform Database","authors":"Sawa Omori","doi":"10.1093/jfr/fjac008","DOIUrl":"https://doi.org/10.1093/jfr/fjac008","url":null,"abstract":"\u0000 This article introduces a revised and updated version of the Financial Reform Database, which is widely used by economists and political economists. In this revision, country coverage is extended from 91 to 100 economies. Also, the time period covered is extended from 1973–2005 to 1973–2013. Furthermore, the coding rule relating to the enhancement of banking supervision is revised to enhance the clarity of the coding criteria used to measure the independence of a banking supervisory agency, taking into account the concepts of institutional independence and supervisory independence. In addition, in order to systematically compare policy changes across time and countries, seven dimensions of financial policies are further divided into 20 financial policy subdimensions, and each of these subdimensional policy scores is separately coded in this revision. This allows researchers to utilize each subdimension depending on their interests. The detailed policy description of each subdimensional policy reform for all countries and all years is made publicly available. In this article, an overview of the updated Financial Reform Database is provided.","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2022-07-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41869449","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}
{"title":"Corrigendum to: Banking Regulatory Constraints and Personal Bankruptcy Filings\u0000 in the US","authors":"Chintal A. Desai, David H. Downs","doi":"10.1093/jfr/fjac003","DOIUrl":"https://doi.org/10.1093/jfr/fjac003","url":null,"abstract":"","PeriodicalId":42830,"journal":{"name":"Journal of Financial Regulation","volume":null,"pages":null},"PeriodicalIF":2.6,"publicationDate":"2022-03-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44125632","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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