Please note: There is a limited number of seats at the disputation. There will therefore be registration in advance and you will find the form HERE Deadline for registration is 30th of January.
Trial lecture - time and place
Adjudication committee
- Professor Lee A. Bygrave, University of Oslo (leader)
- Professor Gordon L. Clark, University of Oxford (1. opponent)
- Professor Iris Chiu, University College London (2. opponent)
Chair of defence
Dean Ragnhild Hennum
Supervisors
- Professor Mads Andenæs
Summary
Fair, orderly and sustainable financial markets?
Exploring regulatory challenges arising in a complex, interconnected and evolving financial system amidst increased societal expectations
The research question
Given its importance, the financial sector in modern economies around the world is subject to comprehensive and detailed regulation and supervisory arrangements, most commonly aiming to improve the functioning of the financial system and promote financial stability. The overarching research question posed in this article-based doctoral dissertation is:
How and to what extent does processes of change relating to the goals, structure and functions of the financial system create new challenges for financial regulation and supervision?
Background and context
Over the past decades, the structures and functions of the financial system have been subject to rapid and radical change. Phenomena like globalisation, financialisation and technological advances have pushed forward the development of new business models, financial products and trading patterns, in the process attracting market entrants other than the institutions that have traditionally populated the financial landscape. The financial system has grown larger, more complex and more interconnected, increasingly straddling jurisdictional borders. The societal role and impact of the financial system has come under increasing scrutiny, reflecting a shift in perceptions as the financial system increasingly is expected to contribute to broader social and environmental goals. The main bulk of existing financial regulation was not moulded with this financial system in mind, raising pressing questions for legal scholarship.
Research design and methodology
Three of the dissertation’s articles are based on a case study of high-frequency trading (HFT), which has become a ubiquitous presence in financial markets over the course of the last few decades, and the European regulation recently put in place to tackle this phenomenon. The case study resulted in Papers I–III that investigate whether and how the structure and function of markets with HFT presence pose challenges for regulators in their quest to design and enforce regulation that successfully meets the longstanding regulatory goals of fair and orderly financial markets, as well as more recent sustainability-related regulatory objectives. Furthermore, the thesis explores the consequences that could follow if such challenges are met by inadequate regulatory responses, particularly those occurring at the system-level. Here, the analysis builds on insights from the case study, but also includes two additional papers (IV and V), focusing on developments in the perception of how systemic risk originates, pathways for the propagation of risk across the financial system, and potential remedial measures. Paper IV discusses the institutional framework of the European Systemic Risk Board (ESRB) and analyses its expected efficacy in counteracting the build-up and mitigation of macroprudential risks to financial stability. Paper V discusses the relationship between climate change and systemic risk in the financial sector, with a focus on the regulatory challenges brought on by emerging climate-related risks.
Building on legal methodology, and integrating interdisciplinary elements, I constructed a framework for analysis in which the findings from each of the five papers were mobilised to show how the changing landscape of modern financial systems presents financial regulators and supervisors with difficult challenges threatening to hamper the efficacy of their efforts to maintain a well-functioning and stable financial system. This framework allowed me to separate the analyses of the drivers and effects of financial change in three discrete categories:
- Changes in the goal function of financial regulation
- Changes in the structure, functions and behaviour of the financial system
- Changes with regards to the effectiveness (and the perception thereof) of the regulatory responses
Findings and conclusions
The analyses showed that all three categories mentioned are afflicted by processes of change in manners that create new or exacerbate already existing regulatory challenges in the field. These challenges may hamper the effectiveness of financial regulation and, furthermore, complicate the assessment of the efficacy of any regulatory measure. Due to the increasing size, complexity and interconnected nature of the financial system, also involving a potential for influencing large-scale systemic and societal risks (i.a. financial crises or climate-related risks), effects of regulatory failures are difficult to gauge. The thesis contends that this should prompt a re-examination of the underlying theoretical premises of financial regulation as well as the catalogue of regulatory instruments, which today relies heavily on disclosure and conduct rules. For instance, reintroducing more emphasis on structural regulation could be conducive to countering the systemic risk dimensions and further the supervisory oversight of the financial system. This gives rise to new questions that warrant further research in the future.