The Law-Finance-Technology Nexus in the 21st Century. Is There a Need to Rethink the Limits of Law?

As readily proven by the Credit Crunch and the consequent 2008 Global Financial Crisis, our perception of what law and regulation can achieve to forestall financial calamities and to protect the integrity of the system was seriously mistaken. Besides the misjudged risks generated by financial innovation as well as financial pathology and general incomprehension of finance as such, two further misconceptions are of interdisciplinary nature. On the one hand, the risk-type that was brought to the surface by the Credit Crunch was systemic risk; a risk of complexity and dimensions that was corollary only to the Great Depression erupting in 1929. From a legal perspective, this meant unprecedented interpenetration of various branches of law, from mortgage and corporate to securities law. The central piece in the puzzle – asset securitization – was a synergic product of these. The first conclusion the paper draws is that in the light of this there is a need for a new legal discipline – the law of finance – that would spread over all these branches of law (internal inter-disciplinarity). On the other hand, both the Credit Crunch as well as the subsequent developments on financial markets show that understanding finance and the risks inherent to it are not only becoming increasingly problematic (not only for lawyers) but that some of the risks are unidentifiable (“unknown unknowns”). Finance is inherently complex, yet further exacerbating factors are the growing presence of technology, mathematization of finance (and economics) and the possible synergic effects of various, often seemingly not linked, financial products. The second claim this paper makes consequently is that legal scholarship should face, comprehend and reckon with the roles other disciplines increasingly play in finance (external inter-disciplinarity) and the fundamentally altered nature of finance. Subscribing to the conclusion – on an abstract and theoretical level – that the looming crises should be perceived as multi-disciplinary phenomena that as such require multi-disciplinary panacea and more cooperation from the affected disciplines would be easy. In reality, however, little seems to have changed. Suffice to take a look at law school curricula to realize that actually few have recipes for such seemingly simple but practical questions as how to teach the law of finance, especially where consensus has not been reached even on whether teach it at all. Equally heavy dilemmas are already presented for regulators or judges when deciding on issues from the realms of finance law.