Border Problems: Mapping the Third Border
| DOI | http://doi.org/10.1111/1468-2230.12506 |
| Date | 01 May 2020 |
| Published date | 01 May 2020 |
| Author | Jason Grant Allen,Rosa María Lastra |
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Modern Law Review
DOI: 10.1111/1468-2230.12506
THE
MODERN LAW REVIEW
Volume 83 May 2020 No. 3
Border Problems: Mapping the Third Border
Jason Grant Allen∗and Rosa Mar´
ıa Lastra†
The Internet has become the site of economically relevant objects, events and actions, as well
as the source of potential risks to the financial systems. This article builds on a metaphor of
‘border problems’ in financial regulation, exploring a ‘third border’ between the ‘real world’
and ‘cyberspace’—a virtual domain of human interaction facilitated and conditioned by digital
communications systems. Reviewing the ‘cyber-sovereignty’ debate and surveying the divergent
approaches now emerging along geo-political faultlines, we argue that sovereign states still have
a unique and irreplaceable role in guarding financial stability which must be reflected in the
law of Internet jurisdiction: an emerging lex cryptographica financiera. We conclude with a few
observations on how this could affect the design of financial regulation in the coming decade.
INTRODUCTION
Following the Global Financial Crisis (GFC), Goodhart and Lastra presented
a ‘border problems’ metaphor to highlight two basic tensions in the regulation
of financial markets. Their metaphor comprised two borders: the first border
between regulated and unregulated activitiesand entities, and the second border
∗Senior Fellow at the Weizenbaum Institute for the Networked Society. He also holds affiliations at
the Humboldt University of Berlin Centre for British Studies, UNSW Faculty of Law, University of
Tasmania Faculty of Law, and the Cambridge Centre for Alternative Finance.
†Sir John Lubbock Chair in Banking Law at the Centre for Commercial Law Studies, Queen
Mary University of London (QMUL). This article was presented at the Sheffield Institute for
Corporate and Commercial Law 4th Law and Money Conference, Banking in the Shadows – FinTech,
Cryptocurrencies and Emerging Financial Systems (University of Sheffield, 3 September 2018), at the
International Workshop on Financial System Architecture and Stability 2018 (Cass Business School,
10–11 September 2018), at the LSE Systemic Risk Centre conference, The Future of Money and
the Impact of Fintech and Cryptocurrencies (LSE London, 26 November 2018), and it served as the
Background Paper for the 4th CCLS-Bank of England Conference (Bank of England, 4 July 2019).
The authors would like to thank the organisers and participants of these events for their valuable
feedback. The authors would also like to thank ProfessorRoss Buckley, Dr Anton Didenko,Professor
Campbell McLachlan, Professor Chris Reed, and Dr J¨
org Pohle for their comments, as well as the
anonymous reviewers. The usual disclaimer applies. J.G. Allen gratefully acknowledges the financial
support of the Alexander von Humboldt Foundation. All URLs last accessed 17 September 2019.
C2020 The Authors. The Modern Law Review C2020 The Moder n LawReview Limited. (2020) 83(3) MLR 505–538
Border Problems: Mapping the Third Border
between national jurisdictions.1When these borders are crossed (whether by
a regulated entity engaging in unregulated activities, an unregulated entity
engaging in regulated activities, or an entity engaging in regulated activities
in a foreign jurisdiction), an economy faces risks orig inating in unregulated
spaces, with potential implications for both consumer protection and financial
stability.
Since the 1990s, the Internet has become integral to many economically
important—and therefore prima facie legally relevant—objects, events and ac-
tions.2Modern information and communications technology (ICT) makes
transacting across geographical distance quicker, easier, more secure and less
expensive, reducing many of the hurdles faced previously to trading with
counter-parties based in different places. Currently, innovations in financial
technology (Fintech) are making the Internet an important channel for the de-
livery of financial services and products.3Fintech-driven financial services are
diverse, including finance and investment (eg, crowdfunding and peer-to-peer
lending), payments, money, exchanges and infrastructure (eg, mobile money,
virtual currencies including ‘cryptocurrencies’, and foreign exchange), and
consumer interface (eg, mobile application-based financial services).4Many of
these operate in the ‘shadow’ industry, ie, in parallel to conventional, regulated
firms. Although Fintech-based financial products and services are subject to ex-
isting regulations, and although existing regulations are capable of applying to
novel socio-technological practices, the growth of Fintech could cause ‘border
problems’ because it (i) delivers new financial products and services that have
not yet been regulated (eg, ‘cryptoassets’),5(ii) utilises new forms of business
organisation that are not necessarily recognised by the legal system (eg, ‘dis-
tributed autonomous organisations’), and (iii) operates in a ‘space’ which is, by
nature, non-territorial or difficult to define in ter ms of territorial jurisdiction.6
The notion of ‘cyberspace’ itself helps to understand the potential risks
posed by Internet-based financial services. As the term implies, cyberspace
is the communications within a network of digital computers conceptualised
as a place. In a seminal (if now dated) article,7Johnson and Post argued that
1 C.A.E. Goodhart and R.M. Lastra, ‘Border Problems’ (2010) 13 Journal of International Economic
Law 705.
2 See P. Brey, ‘The Social Ontology of Virtual Environments’ (2003) 62 American Journal of
Economics and Sociology 269, 269.
3 See D.W. Arner, J.N. Barberis, and R.P. Buckley, ‘FinTech and RegTech in a Nutshell, and the
Future in a Sandbox’(2017) 3 CFA Institute Research Foundation Briefs 1; D.W. Arner, J.N. Barberis
and R.P. Buckley, ‘FinTech, RegTech, and the Reconceptualization of Financial Regulation’
(2017) 37 Northwestern Journal of Law & Business 371.
4 See D.W. Arner, J.N.Barber is, and R.P. Buckley,‘The Evolution of FinTech:A New Post-Crisis
Paradigm?’ (2015) 47 Georgetown Journal of International Law 1271.
5 See A. Blandin, A.S. Cloots, H. Hussain, M. Rauchs, R. Saleuddin, J.G. Allen, K.
Cloud, and B. Zhang, ‘Global Cryptoasset Regulatory Landscape Study’ University of Cam-
bridge Faculty of Law Research Paper No 23/2019 at https://papers.ssrn.com/sol3/papers.
cfm?abstract_id=3379219.
6 See C. Reed, ‘Taking Sides on Technology Neutrality’ (2007) 4 SCRIPT-ed 263.
7 For a critical appraisal, see eg, D. Hunter, ‘Cyberspace as Place and the Tragedy of the Digital
Anticommons’ (2003) 91 California Law Review 439; M.A. Lemley, ‘Place and Cyberspace’
(2003) 91 California Law Review 521. Hunter provides a detailed history of the first decade of
the early years of ‘cyberspace as a place’ and we will not repeat that here.
506 C2020 The Authors. The Modern Law Review C2020 The Moder n LawReview Limited.
(2020) 83(3) MLR 505–538
Jason Grant Allen and Rosa Mar´
ıa Lastra
global computer-based communications systems cut across territorial borders,
‘creating a new realm of human activity and undermining the feasibility . . .
of laws based on geographic boundaries.’8This new ‘realm’ of human activity
exists in something analogous to physical space:
While these electronic communications play havoc with geographic boundar ies, a
new boundary, made up of screens and passwords that separate the virtual from the
‘real world’ of atoms, emerges. This new boundary defines a distinct Cyberspace.9
The stronger claims of the ‘cyber-sovereignty’ literature of the 1990s have
not been accepted in the mainstream scholarship10 while the advent of dis-
tributed ledger technology (DLT) has added a new layer of complexity to the
landscape.11 But the metaphor of place-ness has stuck, and it is on this no-
tion that we wish to focus. We incorporate the notion of cyberspace into the
‘border problems’ model by adding a third border between the ‘real world’ and
‘cyperspace’, (terms we define below), and examine the impact of Fintech on
conventional financial regulation.
The objective of financial stability has become mainstream in the decade
since the GFC, but it has yet to be sufficiently anchored in a legal and jurispru-
dential basis. Financial stability remains a broad and discretionary concept and
the economics and legal professions have not reached a commonly agreed def-
inition, even though there is consensus about its relation to the prevention and
containment of systemic risk. Given the transnational nature of systemic risk
generally, the pursuit of financial stability interacts awkwardly with the notion
of national territor ial jurisdiction—especially in the context of cyberspace.
Bearing in mind this financial stability objective, the main contribution of
this article is the development of a conceptual framework for the regulation
of Internet-based financial services. We draw on an interdisciplinary approach
that combines financial law, regulatory theory, social ontology, and, more pe-
ripherally, transnational legal theory and critical studies of legal geography. The
framework that emerges also provides an inroad into the broader ‘Internet
jurisdiction’ debate.
The article, which integrates the third border in financial regulation with the
complexities of cyberspace jurisdiction, is divided into five sections following
this introduction. First, we provide some context by discussing the nature of
‘financial cartography’, or the landscape that our borders are imposed upon.
This section explains what the three borders are and why they are important. In
the second section, we elaborate on what we have identified as the two ‘known
borders’, highlighting the relevant features that we think will help us to under-
stand the posited third border. In particular, we explain what we understand
8 D.R. Johnson and D.G. Post, ‘Law and Borders—The Rise of Law in Cyberspace’ (1996) 48
Stanford Law Review 1367.
9ibid.
10 See C. Reed, Making Laws for Cyberspace (Oxford: OUP, 2012) 7, citing inter alia J. Goldsmith
and T.Wu, Who Controls the Internet? Illusions of a Borderless World (New York, NY: OUP, 2006)
142.
11 See generally P. De Filippi and A. Wright, Bloc kchain and the Law: The Rule of Code (Cambridge,
MA: Harvard University Press, 2018).
C2020 The Authors. The Modern Law Review C2020 The Moder n LawReview Limited.
(2020) 83(3) MLR 505–538 507
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