Global Financial Regulation: Shortcomings and Reform Options

Abstract

Standard‐setting bodies in global finance follow a core‐periphery logic, imposing a rigid dichotomy between standard‐setters and standard‐takers. They also focus exclusively on promoting financial stability. We argue that both attributes are increasingly problematic in today's world of globalised finance. Developing countries outside of standard‐setting bodies are highly integrated into global finance and while they are not systemically important, they are greatly affected by the regulatory decisions taken in the core. Analysing Basel banking standards, we show how the two‐tier structure of decision‐making results in international standards that generate adverse implications for countries in the periphery, particularly developing countries. Focusing on debates over the regulation of non‐bank credit intermediation, we show how the exclusive focus on financial stability can operate to the detriment of other important policy objectives, including financial inclusion. To improve the efficacy of international standard setting we make a series of recommendations aimed at increasing the applicability of standards to a wide variety of jurisdictions, and widening the focus of standard‐setting beyond financial stability. We also propose the creation of a new standard‐setting body for the regulation of fintech that models a more inclusive and holistic approach.

The Effect of Banks' IT Investments on the Digitalization of their Customers

“…In the new digital financial era, which is driven by new banking technologies, regulators should be aware of the potential impact of technological changes driven by the banking industry. It is important to establish a new standard‐setting body for the prudential regulation of digital financial services based on both financial stability and financial inclusion (Jones and Knaack, ). Policy makers should assist banks in helping their customers to go digital, but they must ensure that the highest level of security is guaranteed in order to protect consumers from privacy violations and digital fraud.…”

The Impact of Corporate Sustainability and Digitalization on International Banks’ Performance

“…Finally, a new regulatory setting must be established for the different standards of digital financial intermediation. Since digitalization introduces novel financial practices that largely differ from the traditional ‘brick‐and‐mortar’ model, a new legal framework must be developed under this new paradigm (Frost et al, ; Jones and Knaack, ).…”

Untitled

“…Access to finance and financial inclusion are of growing interest worldwide, particularly in emerging and developing countries (Jones, Knaack, 2019). Partly this is due to the recent efforts to prevent money laundering, financing terrorism or stopping corruption that is notorious in, for example, Central and Eastern European countries (CEEC), Russia, Ukraine, or some countries in Latin America, Africa and Asia (Koudelkova et al, 2015;Arewa, 2019).…”