A Regulatory Roadmap for Financial Innovation

Private sector innovation – whether it is fintech, biotechnology, the platformisation of the economy, or other developments – is the single most profound challenge that regulators confront today. Financial innovations, which are intangible and fast-moving, are especially challenging. Financial regulators are at the operational front line of making sense of the promise and the risks associated with fintech, and helping to ensure it operates for public benefit. Faced with such a changeable and fast-moving problem, how can regulators “future proof” themselves? This chapter outlines a roadmap for financial regulators who confront fast-moving and profound change in their sectors. It argues that regulators’ first question in any decision-making context should be, “how is private sector innovation, in this case fintech, undermining my assumptions, changing relationships, denaturing products and markets, and seeping around regulatory definitions and boundaries, right now?” The chapter sets out the four basic questions that regulators should consider. It proposes regulatory responses based on better data collection and analysis, innovation research, network theory, and regulatory design. It considers how to make regulation more adaptable and more resilient, and examines the strategic choices regulators can make in framing fintech innovations

Making Regulation Robust in the Innovation Era

The next few years in regulatory history will be pivotal.On one hand, we are witnessing renewed interest in robust state action in the economy and society. Battered by a poorly managed global pandemic and the undeniable persistence of racism and discrimination; terrified about the consequences of climate change; having suffered through years of political tumult and populist anger following a disastrous financial crisis; and having recognized once again that there is more to a person’s value than their economic productivity – it seems clear that over recent decades, public policy swung too far away from the humane, collective, and dignity-affirming priorities that underpinned the postwar Welfare State.At the same time, we know that we cannot simply return to the mid-twentieth century. Innovation is too fast-moving now, and conditions too complex and heterogeneous, to imagine that a replica of the postwar Welfare State would function property. Regulation operates at the front lines of policy now. And today, some of the greatest challenges that regulation faces stem from the speed, extent, and nature of human-driven change. Workable twenty-first century regulatory models will have to contend with the destabilizing, ongoing effects of innovation.After reviewing some Welfare State and Regulatory State history, this chapter suggests that innovation raises three fundamental analytical problems for regulation: information and data problems, visibility problems, and legibility problems. It then sets out five regulatory priorities that will be essential, if a forceful contemporary state is to be resilient in the face of innovation, while maintaining credibility and agency in the service of public priorities

Dogs and Tails: Remedies in Administrative Law

Administrative law in Canada, as in many other Commonwealth countries, centers around judicial review doctrine. Sometimes, one may even get the sense that administrative law and administrative law remedies begin at the point at which a party to an administrative action seeks judicial review of that action through the courts. Yet an overly tight focus on court action misses the hugely important first step in real-life administrative action: the varied and sometimes creative, purpose-built remedies that a tribunal itself may impose. This chapter seeks to provide a broader overview of administrative law remedies as a whole, including not only judicial review but also tribunal decisions at first instance, internal and external appeals, enforcement mechanisms, extralegal strategies, and private law remedies. Along the way the chapter surveys, among other things, some of the unique characteristics of administrative agencies relative to courts, and the Supreme Court of Canada’s evolving understanding of the Rule of Law as a dialogue between branches of government

The Ties That Bind: A Review of Michael Ignatieff\u27s The Rights Revolution

Book Revie

Innovation-Framing Regulation

This paper aims to provide insights into the effective regulation of private sector innovation. It coins a term – “innovation-framing regulation” – to describe a particular quality of the regulation that characterized much of financial regulation in the recent era. After briefly sketching a particular financial innovation (securitization and the marketing of securitized assets on the derivatives markets) it describes three regulatory interactions with that innovation: the Basel II Capital Accords, the Asset-Backed Commercial Paper Crisis in Canada, and the ongoing notice-and-comment rulemaking process surrounding the Volcker Rule in the United States. While each case study is different, in each one the regulatory regime exhibits a lack of understanding about the phenomenon of innovation it is grappling with. The paper identifies three key assumptions that are ripe for re-evaluation: the notion that private sector innovation is beneficial, virtually by definition; the assumption that the regulatory moment is the crucial moment in regulatory design; and the belief that innovation somehow sits outside regulation and can be untouched by it. The paper argues that effective regulation of private sector innovation requires a clearer and more nuanced understanding of innovation, and engagement with the normative choices underpinning innovation-framing regulation

New Governance in the Teeth of Human Frailty: Lessons from Financial Regulation

New Governance scholarship has made important theoretical and practical contributions to a broad range of regulatory arenas, including securities and financial markets regulation. In the wake of the global financial crisis, question about the scope of possibilities for this scholarship are more pressing than ever. Is new governance a full-blown alternative to existing legal structures, or is it a useful complement? Are there essential preconditions to making it work, or can a new governance strategy improve any decision making structure? If there are essential preconditions, what are they? Is new governance “modular” – that is, does it still confer benefits when applied partially or imperfectly, or does it fail to achieve good regulatory results unless all the elements are in place? This article starts from the conviction that new governance is a promising response to the fluidity and complexity of contemporary regulatory environments. It then draws on three essentially unhappy narratives from recent financial markets regulation (around securities law enforcement, capital adequacy, and the impact of securitization), in an attempt to identify lessons for new governance scholarship at the level of practical implementation. These are not narratives about the failure of new governance structures. However, central to each narrative are components, or incomplete versions of components, that are also central to new governance structures. The paper considers the significance of incrementalism, regulatory capacity, and destabilization and complexity for regulatory design. It closes with some preliminary recommendations for making new governance structures effective, even as implemented by flawed human actors

Macro- and Micro-Level Effects on Responsive Financial Regulation

We are approaching the 20th anniversary of Ian Ayres’ and John Braithwaite’s 1992 book, Responsive Regulation. This paper, which was prepared for a September 2010 workshop at UBC, considers the implications of the recent financial crisis for Ayres’ and Braithwaite’s concept of “enforced self-regulation.” Its main thesis is that flexible and iterative regulatory strategies, such as enforced self-regulation and its progeny, are more porous to influence from different planes of action than prescriptive regulation would be. When focusing on technical regulatory design strategies, scholars should therefore be cautious about bracketing or underestimating the problem of power operating at the “macro level” of political and economic influence. In the context of financial regulation, this background power framework contributed to an under-ambitious regulatory agenda framed around the inevitability of complexity, the clear value of innovation, and the need to minimize the regulatory burden. Also, at the “micro” plane of implementation, the content of regulatory principles was poorly specified because of the lack of a robust regulatory presence, pervasive (and predictable) over-optimism, and an excessive reliance on computer modeling and code to assess risk and compliance. The paper argues that considerable regulatory autonomy and internal analytical capacity is required to make the precise form that flexible regulation takes reflect actual regulatory intention, rather than the influence of these “macro” and “micro” level forces. Among the various contemporary forms of flexible regulation, only meta-regulation – an approach that includes the updated version of Responsive Regulation, as articulated by John Braithwaite in a new article to be published in this volume – has been designed with this kind of systematic learning at the core of its regulatory project

The Banking/Commercial Separation Doctrine in Comparative Perspective

This report, prepared for the Department of Finance, Government of Canada, summarizes research undertaken across five jurisdictions – Australia, Japan, Singapore, the United Kingdom (UK), and the United States (US, federal level only) – with respect to a particular kind of boundary on the business of banking: the separation of banking business from commercial business. “Commercial” here means the provision of non-financial goods and services. This separation exists under what in the United States has long been referred to as the “banking/commercial separation doctrine”. The report considers the historical justifications for the doctrine in the context of the modern “business of banking”, which has changed radically over the past 30 years. It argues that the doctrine has become anachronistic. It carefully considers the regimes in jurisdictions like the UK and Australia, which have no equivalent doctrine. However, the report also argues that the systemic risk and consumer protection concerns that produced the banking/commercial separation doctrine are as real as ever. The report argues for regulating systemic risk and consumer protection risks directly and explicitly, in an evidence-based fashion, rather than relying on the proxy of a blunt, bright-line rule like the separation doctrine

Financial Innovation and Flexible Regulation: Destabilizing the Regulatory State

The author examines the regulatory failures leading up to the financial crisis, the rise of “flexible regulation,” the effects of financial innovation on regulation, and three different case studies that illuminate the drastic effects of that innovation: the Basel II banking regulations, the Canadian Asset-Backed Commercial Paper market, and the process for writing the Volcker Rule. Finally, she examines the underlying assumptions that should be re-examined in order to create more effective regulatory policies