The course uses the past financial crises (including the DotCom, 2008 financial crisis and aftermath of the Covid-19 pandemic) as a starting point to discuss the fundamental regulatory challenges and the implications for legislators, regulators, and society as a whole in respect of the main segments of the financial market. Market practice keeps evolving, and the interplay between rationales, or goals, of regulation is constantly being adjusted to reflect new policy considerations. As a result, the rules applying to financial institutions keep changing continuously and globally.
Regulation employs a set of specific strategies, such as risk modelling, disclosure, or structural-operational requirements, that are universal and whose logic remains largely the same. Similarly, regulation uses a number of tools to implement these strategies. These tools are equally universal and can be deployed in varying contexts. However, combinations of strategies and tools are being deployed in different ways to address emerging new or elevated risks, always constrained by the necessity to maintain adequate levels of market efficiency.
This short course identifies these global regulatory rationales, strategies and tools, and traces their application across specific policy areas, such as bank capital requirements, bank resolution, central clearing, securities regulation, consumer protection and digital payment. As a result, participants gain a holistic view of how financial regulation works, and how it applies in core policy areas. Participants will familiarise with relevant international standards, complemented by examples drawn from relevant UK, EU and US rules.
In a general part (Modules 1, 2 and 10), the course explores the axioms of policy making in the area of financial regulation, the ‘why, how & who’. Participants will discuss why policy choices are taken and how the underlying rationales can be categorised, notably market efficiency, systemic stability, consumer protection, crime prevention and ESG (environmental, social, governance) rationales.
The course will go on to identify and scrutinise the concepts that regulators use to achieve these policy goals, in particular building resilience into the system in different forms (capital buffers; operational and cyber resilience), the use of risk models and risk management mechanisms (financial risks; ESG risks), disclosure requirements (financial risks; ESG risks), or governance rules in relation to investors and counterparties. Participants will discuss various styles of supervision, built on the understanding that in practice regulators are taking a closer or more distant stance towards financial institutions.
Further, the general part of the course will consider the ‘who’ of financial regulation and financial supervision, in terms of who makes the rules and through which structures they are enforced. Two different problem spheres need to be identified here: first, the relationship between national, international, and European level; second the relationship of the traditional remit of financial regulation and supervision with other areas of regulation, such as competition or data law.
Lastly, the first part will explore the question of what the object of regulation is – entities, or risk-relevant activities. The traditional difficulty of navigating between entities-based regulation (e.g., ‘banks’) and activity/risk-based regulation (e.g., ‘credit intermediation’) turns out to become increasingly complex, as can be seen from the example of shadow banking, or, more recently, digital finance. This is part of the 10th module, in which the future of regulation in an uncertain world will be discussed.
In its specific part (all other modules), the course will test these themes in relation to concrete areas of regulation. It will bring participants in contact with some of the most discussed regulatory topics of recent years, spanning from the 2008 financial crisis to Covid-19 and public finances. The course will consider banking and financial stability, the Basel bank capital accords, bank resolution and shadow banking in depth. It will analyse how gate-keepers, such as rating agencies, or platforms, such as social media, can be relevant to financial stability.
Relevant policy areas have all been substantially reinforced in recent years – however, critics note that the overhauled rules might substitute new problems for old ones and that the issues surrounding moral hazard, systemic stability and the special treatment afforded to banks by societies are still not solved in a satisfactory manner.
Further, participants will begin to discuss the tectonic shifts caused by the ongoing digitalisation of finance and entry of so called BigTech into the financial market (which is also the subject of a separate course).
The course is internationally oriented and draws most of the examples from the standards set by the global committees (FSB, Basel, CPMI, etc.) and from the post-crisis rules adopted in the EU and the UK, with a few digressions and comparisons with the regulatory debate in the US, without focusing in detail on any specific jurisdiction.