Financial innovation oversight: a policy framework
AbstractThis paper proposes a policy framework for intercepting, monitoring and containing the unintended harmful effects of financial innovation. The current approach, adopted by several authorities, makes extensive use of the tools of transparency and disclosure, mainly for consumer protection. It has been increasingly recognized that this approach needs to be supplemented with more stringent organizational solutions, which mainly include corporate governance and risk management. This also comprises responsible risk culture, ethical standards, appropriate incentive structure, accountability, and internal controls, which are related more to Â“process innovationÂ” than to Â“product innovationÂ”. In addition to retail financial products, the policy framework also deal with the harmful effects of complex and bespoke financial contracts. This paper gives some practical examples of internal governance procedures and suggests a system-wide monitoring method for structured products. It also discusses some more intrusive policy options, including product preapproval and prohibitions.
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Bibliographic InfoPaper provided by Bank of Italy, Economic Research and International Relations Area in its series Questioni di Economia e Finanza (Occasional Papers) with number 200.
Date of creation: Sep 2013
Date of revision:
Financial innovation; banking supervision; oversight; financial crisis; corporate governance; behavioural economics;
Find related papers by JEL classification:
- G00 - Financial Economics - - General - - - General
- G01 - Financial Economics - - General - - - Financial Crises
- G3 - Financial Economics - - Corporate Finance and Governance
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-25 (All new papers)
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