Journal of Financial Regulation and Compliance

- Publisher:
- Emerald Group Publishing Limited
- Publication date:
- 2011-12-21
- ISBN:
- 1358-1988
Issue Number
- Nbr. 29-3, June 2021
- Nbr. 29-2, February 2021
- Nbr. 28-4, October 2020
- Nbr. 29-1, July 2020
- Nbr. 28-3, April 2020
- Nbr. 28-2, March 2020
- Nbr. 28-1, December 2019
- Nbr. 27-4, August 2019
- Nbr. 27-3, July 2019
- Nbr. 27-2, May 2019
- Nbr. 27-1, March 2019
- Nbr. 26-4, November 2018
- Nbr. 26-3, July 2018
- Nbr. 26-2, May 2018
- Nbr. 26-1, February 2018
- Nbr. 25-4, November 2017
- Nbr. 25-3, July 2017
- Nbr. 25-2, May 2017
- Nbr. 25-1, February 2017
- Nbr. 24-4, November 2016
Latest documents
- Crypto assets regulation in the UK: an assessment of the regulatory effectiveness and consistency
Purpose: The UK authority published its first regulatory guidance on crypto-assets in July 2019. This paper aims to critically evaluate the effectiveness of the crypto-asset regulation in the UK and the consistency of the existing regulatory scheme. Design/methodology/approach: This paper adopts comparative methods to carry out the analysis. The paper begins by elaborating the development of crypto-assets alongside the financial innovation in the world and pinpointing the core Acts and Regulations applied to crypto-assets in the UK. The paper also discusses a court case in the EU to highlight an argument among legal professions concerning crypto-assets classification. Findings: Through carefully analysing relevant primary and secondary legislation of the UK and EU, this paper identifies some unclarified issues in the regulatory framework and discovers three flaws in the regulatory system. The paper concludes that the effectiveness of the current regulatory scheme is poor and room for improvement exists. Originality/value: The paper provides the first review and a thorough analysis of the Laws and Acts applied to the crypto-asset regulation in the UK. It also calls on a simpler and clearer regulatory scheme from the perspectives of market participants and consumers. The discovered issues in the crypto-asset regulation in the UK may urge authorities to improve the existing regulatory frameworks and legal provisions.
- Improving regulatory capital allocation: a case for the internal ratings-based approach for retail credit risk exposures
Purpose: The purpose of this study is to demonstrate that the internal ratings-based (IRB) approach provides more effective risk discrimination than the standardized approach when calculating regulatory capital for retail credit risk exposures. Design/methodology/approach: The author uses four retail credit data sets to compare regulatory capital appropriation using the IRB approach and the standardized approach. The author follows the regulatory capital calculation method recommended under Basel III. For the IRB approach, the author uses a logistic regression to determine the probability of default. Findings: The results suggest that the IRB approach provides more effective risk discrimination across individual exposures, which allows more regulatory capital to be held against riskier exposures and less regulatory capital to be held against less risky exposures. The author further argues that the Basel III output floor, as presently constructed, may disincentivize the use of the IRB approach and further diminish the value of secured lending under the IRB approach. To address this issue, the author offers two simple adjustments to the current design of the output floor. Originality/value: While studies have argued the idea of risk-sensitive regulatory capital, the author has not observed any research that empirically compares the risk-sensitivity of regulatory capital across retail credit exposures, which makes up a significant portion of many banks’ credit exposures. This study also highlights what appears to be a major point of concern for the output floor, which is set to be phased in starting January 2022. This is of particular value because this point has not appeared to receive any attention in the literature thus far.
- Cross-border banking and foreign branch regulation in Europe
Purpose: This paper aims to examine the relevance of cross-border activity in the European banking sector, evaluating the role of differences in regulation to explain the level of interest in entering foreign markets. Design/methodology/approach: The sample considers all banks in the European Union (EU 28) existing at year-end 2017, and information about the ultimate owners’ nationality to classify local and foreign banks is collected. The analysis provides a mapping of regulatory restrictions for foreign banks and evaluates how they impact the role of foreign players in the deposit and lending markets. Findings: Results show that the lower are the capital adequacy requirements, the higher are the amounts of loans and deposits offered by non-European Economic Area banks and, additionally, the higher the probability of having a foreign bank operating in the country. Originality/value: This paper provides new evidence on regulatory arbitrage opportunities in the EU and outlines differences among EU countries not previously studied.
- Shadow economy in Africa: how relevant is financial inclusion?
Purpose: This study aims to investigate the possible relationship between financial inclusion and shadow economy in selected African countries. Design/methodology/approach: The study uses panel data estimation technique and Toda and Yamamoto causality approach. The data of selected African counties over a period of 2005–2015 are sourced from World Bank Development Indicators, International Monetary Fund International Financial statistics database and International Country Risk Guide. Findings: The results show that financial inclusion reduces the size of shadow economy. The causality results show that there is a unidirectional causality moving from financial inclusion to shadow economy. The results demonstrate that a country with lower level of corruption and higher level of growth can benefit more in reducing the size of shadow economy through financial inclusion. Originality/value: This study provides the first evidence of the link between financial inclusion and shadow economy from the Sub-Saharan Africa perspective. The study suggests that financial inclusion may be useful in affecting the size of shadow economy in Africa.
- Private pension fund flow, performance and cost relationship under frequent regulatory change
Purpose: This paper aims to investigate private pension fund investor sentiment against fund performance and cost in an environment of frequent regulatory changes. The analyses are conducted in a low return, high-cost private pension fund market environment, which makes it easier to observe the relationship between investor sentiment to return and cost. Design/methodology/approach: This paper conducts fixed effect, random effect and random effect within between effect panel data analyses of all Turkish private pension funds from 2011 to 2019. This paper conducts the analyses using aggregate data and subsets based on fund characteristics and pre-post regulation periods. Findings: When regulations provide compensation and improve market efficiency in a pension fund market, investor focus shifted from performance to cost. Investors allocated assets with respect to return realization when adequately compensated for risk or had favorable cost contract clauses. Consequently, investors in pension funds with lower expected returns and no special fee reduction clauses tended to adopt the strategy of cost minimization. Research limitations/implications: The overlap of regulatory change periods could complicate the ability to distinguish the impact of any one specific change. The findings therefore cannot be generalized to differently structured markets. Practical implications: Regulatory changes could lead to a switch of investor objectives. When regulatory changes compensate investors and increase market efficiency, investors objective could switch from performance to cost. Originality/value: This study investigates investor sentiment in a relatively young private pension fund market, in which the relevant regulatory body ambitiously implements frequent changes in regulation. The selected market is unique in the sense that it has negative real returns and high costs, which make investor focus to return and cost more readily apparent.
- Have EU derivative policy reforms since the 2008 financial crisis been designed effectively?
Purpose: In response to the 2008 financial crisis, the European Union (EU) comprehensively restructured its derivative regulation. A key component of this new framework is a reporting obligation for every derivative trade. As the reporting requirement does not involve public disclosure of the information, existing academic analysis on reporting regulations to-date, which focusses on public disclosure, is limited in predicting the effectiveness of the reform. This paper aims to assess whether the reform has been designed effectively based on the regulatory setup in the UK. Design/methodology/approach: Framing the reporting regulation as a moral hazard problem with asymmetric information, this paper uses a game-theoretical approach to evaluate whether the new derivative reporting obligation effectively induces firm compliance. I also discuss potential extensions of the derivative reporting model, with particular emphasis on how the framework could account for heterogeneous firms and different regulatory tools. Findings: Based on the theoretical analysis, this paper finds that while firms are unlikely to comply fully with derivative reporting requirements, it is possible to induce relatively high firm compliance. Although this does not mean we are immune from another financial crisis, the derivative reporting requirements should equip EU regulators to monitor a more transparent and secure derivatives market. Originality/value: This paper provides a theoretical foundation for further study of post-crisis derivatives reforms. In particular, the implications of the model point to an empirical strategy to test the accuracy of the model.
- Has financial inclusion made the financial sector riskier?
Purpose: This paper aims to examine whether high levels of financial inclusion is associated with greater financial risk. Design/methodology/approach: The study uses regression methodology to estimate the effect of financial inclusion on financial risk. Findings: The findings reveal that higher account ownership is associated with greater financial risk through high non-performing loans and high-cost inefficiency in the financial sector of developed countries, advanced countries and transition economies. Increased use of debit cards, credit cards and digital finance products reduced risk in the financial sector of advanced countries and developed countries but not for transition economies and developing countries. The findings also show that the combined use of digital finance products with increased formal account ownership improves financial sector efficiency in developing countries while the combined use of credit cards with increased formal account ownership reduces insolvency risk and improves financial sector efficiency in developing countries. Research limitations/implications: The paper offers several implications for policy and financial regulation. It suggests policies that would reduce the financial risk that financial inclusion poses to the financial sector. Originality/value: The recent interest in financial inclusion and the unintended consequences of policy-driven financial inclusion in some parts of the world is raising concern about the risks that financial inclusion may introduce to the formal financial sector. Little is known about the risks that financial inclusion may pose to the financial sector.
- Dutch investment advisors’ perceptions towards the MiFID II directive
Purpose: The Markets in Financial Instruments Directive (MiFID) II directive was enforced in the EU in January 2018. While EU-member states implemented this directive in their national legislation, investment firms are still enforcing compliance. With the purpose of “investor protection”, the purpose of this study is to investigate the effectiveness of transparency, suitability, warning and information requirements. How do investment advisers view and embrace these MiFID II requirements? Are differences evident within this group of professionals? Design/methodology/approach: In total, 267 Dutch investment advisors serving non-professional investors daily completed structured surveys on their opinion of the acceptance and effectiveness of the MiFID II requirements. The findings are compared with existing literature to examine similarities with other legislation. Findings: The results demonstrated differences depending on the investment firms’ size and investment advisors’ seniority and gender. Professionals should be critical of new legislation and regulations, as it limits their autonomy. However, female investment advisors and those with up to ten years’ experience are less critical of the effectiveness of the MiFID II requirements, embracing them without discussion. Investment advisors in large investment firms believe that MiFID II contributes to investors’ interests, whereas those in small and medium-sized investment firms often do not share this opinion. For example, respondents considered cost transparency an effective requirement to achieve better investment services and protect investors’ interests. Originality/value: The effectiveness and applicability of legislation are often viewed from a legal perspective, and enforcement is essential. However, this study explores legislation from the perspective of professionals under supervision.
- Editorial
- Euro clearing after Brexit: shifting locations and oversight
Purpose: This paper investigates the impact of moving Central Counterparty Clearing Houses (CCPs) that clear euro-denominated transactions to the Eurozone after the withdrawal of the UK from the European Union. Prior to Brexit, the City of London had a dominant position in euro-clearing, but in the aftermath of Brexit, clearing houses might decide to move to the EU27. This paper aims to investigate the impact of moving euro-clearing to the EU27. Design/methodology/approach: This paper provides an economic, political and legal investigation based on desk research. It studies the relevant materials, as they relate to the functioning of Central Counterparty Clearing in the aftermath of Brexit, with specific attention to the potential shift of locations and oversight. Findings: The development of a EU27 financial hub and the possibility to increase oversight over euro-denominated financial transactions, which were partly at the roots of the financial and Eurozone crisis, could strengthen the market shaping of European financial markets. However, localizing euro-denominated transactions in Europe could potentially give rise to efficiency losses and a higher risk for companies and investors. Furthermore, the European regulatory framework currently faces certain weaknesses, obstructing the regulatory potential of the EU. Research limitations/implications: As the Brexit negotiations are not yet finished, this paper does not intend to set out a definite outcome of the processes currently taking place. Practical implications: Shifting locations and oversight of CCPs as a result of Brexit could lead to the establishment of a large financial centre within the EU-27. At the same time, it is to be expected that such a development will have a significant impact on the financial infrastructure of the City of London. Originality/value: There exists an important trade-off with regard to shifting locations that need to be at the forefront of the discussions and the negotiations when dealing with Brexit. This seems to be neglected in a lot of the current policy debates. This paper takes stock of the ongoing debate and how it relates to the functioning of CCPs.
Featured documents
- A CRITICAL EVALUATION OF THE COMPLIANCE ADMINISTRATIVE CONTROL SYSTEM WITHIN ALBERT E SHARP AND ITS MOTIVATIONAL IMPACT UPON THOSE IT IS SUPPOSED TO CONTROL
Schedule 2 of the Financial Services Act 1986 (FSA) was amended by s. 204(1) of the Companies Act 1989 to make it incumbent on self‐regulatory organisations (SROs) to have a satisfactory mechanism to take account of cost factors in compliance. Critically, however, published regulatory guidelines...
- A regulatory regime and the new Basel Capital Accord
The purpose of this paper is to set the proposed new capital adequacy arrangements in the wider context of what is termed a regulatory regime. The central theme is that the components of the regulatory regime need to be combined in an overall regulatory strategy, and that while all the components...
- An empirical investigation into market risk disclosure: is there room to improve for Italian banks?
Purpose: This paper aims to examine the market risk disclosure practices of large Italian banks. The contribution provides insights on the way banks should provide information about market risk. The problem related to the asymmetric information between banks from one side, and investors and...
- Assignment of individual investors' claims to the Investors Compensation Scheme declared invalid (1) Investors Compensation Scheme Ltd v West Bromwich Building Society; (2) Same v Hopkin & Sons; (3) Alford & Ors v West Bromwich Building Society; (4) Armitage v West Bromwich Building Society
This case concerned the validity of assignments to the Investors Compensation Scheme (ICS) of the claims of various individual investors which arose out of the widespread mis‐selling of home income plans between 1989 and 1991. The factual background to the case is given in a statement of facts...
- Bank informational opacity: evidence from the Tunisian stock market
Purpose: The purpose of this paper is to investigate the informational opacity of Tunisian banks versus non‐banking firms taking into account information environment changes. Design/methodology/approach: This research uses the synchronicity of stock returns as a proxy of informational opacity. It...
- Bank’s perspective on regulatory-driven changes to collateral management
Purpose: – The aim of this paper is to discuss the impact of regulatory-driven changes to the collateral management landscape, indicating operational and technological challenges faced by global investment banks while complying with the new regulatory framework. As it transpires, collateral...
- Blockchain and insurance: a review for operations and regulation
Purpose: The purpose of this paper is to examine the operational and regulatory positions of the employment of Blockchain in the insurance industry. Blockchain technology has attracted wide interest from various stakeholders. Many theorists are predicting that this technology will disrupt financial ...
- CENTRAL EUROPEAN ECONOMIES AND THE FINANCES OF INTERNATIONAL ORGANISED CRIME
After considering the transformation of organised crime since the 1960s, the paper summarises the political and economic conditions in the Soviet Union which encouraged the spread of organised crime. It then considers the example provided by the development of the ‘black economy’ in Hungary, the...
- Commission consults on revision of the European electronic money regime
Background to the European Commission consultation on the electronic money directive (2000/46/EC) with particular reference to the definition of ‘electronic money’, the impact on mobile telephone operators, different structures for payment of goods and services under schemes for the issue of...
- Compliance with Basel 2.5: banks’ approaches to implementing stressed VaR
Purpose: – The purpose of this paper is to outline how banks are coping with the new regulatory challenges posed by stressed value at risk (SVaR). The Basel Committee has introduced three measures of capital charges for market risk: incremental risk charge (IRC), SVaR and comprehensive risk measure ...