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Firm size and compliance costs asymmetries in the investment services

Author

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  • Giampaolo Gabbi
  • Paola Musile Tanzi
  • Loris Nadotti

Abstract

Purpose - The purpose of this paper is to find out how effectively implemented are measuring approaches to compliance and whether there is a correlation between the measures implementation, financial specialisation and international activity. The authors evaluate if the regulatory framework implies a measure cost asymmetry, depending both on the proportionality principle and on the existence of different supervisors with an heterogeneous set of enforcement rules. Design/methodology/approach - The analysis is based on a survey involving 84 financial firms (banks, investment companies and insurance companies). Two criteria have been used to interpret the results: the prevailing workability within international and domestic intermediaries; the intermediary typology, creating a distinction between banks other financial intermediaries (FIs) and insurance companies. Findings - Italian financial firms are sensitive to minimise sanctions, but the reputational impact is becoming more important. International firms are more sophisticated than domestic ones for their ability to measure both the probability of non-compliance events and their severity. Banks show the highest attitude to adopt insurance or financial contracts to minimise the negative impact of non-compliant behaviours. Small FIs are late in measuring the exposure and losses due to non-compliance actions. Originality/value - Four years after the Basel Document on compliance, a large percentage of firms is still managing the process within a function with different purposes; nevertheless, reputational impact has become more important. Small intermediaries show a lower attitude to implement a risk management approach, with a capital management sensitivity. This finding addresses the question about the existence of size effect which could reduce the compliance attitude.

Suggested Citation

  • Giampaolo Gabbi & Paola Musile Tanzi & Loris Nadotti, 2011. "Firm size and compliance costs asymmetries in the investment services," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 19(1), pages 58-74, February.
  • Handle: RePEc:eme:jfrcpp:v:19:y:2011:i:1:p:58-74
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    References listed on IDEAS

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    1. Demirgüç-Kunt, AslI & Detragiache, Enrica & Tressel, Thierry, 2008. "Banking on the principles: Compliance with Basel Core Principles and bank soundness," Journal of Financial Intermediation, Elsevier, vol. 17(4), pages 511-542, October.
    2. Giuliana Birindelli & Paola Ferretti, 2008. "Compliance risk in Italian banks: the results of a survey," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 16(4), pages 335-351, November.
    3. Giampaolo Gabbi & Arturo Patarnello, 2010. "Banking reputation bridging risk management and strategic decisions," Banca Impresa Società, Società editrice il Mulino, issue 2, pages 335-358.
    4. James Patton & Ivan Zelenka, 1997. "An empirical analysis of the determinants of the extent of disclosure in annual reports of joint stock companies in the Czech Republic," European Accounting Review, Taylor & Francis Journals, vol. 6(4), pages 605-626.
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    Cited by:

    1. Schenkel, Andreas, 2016. "Compliance-Regulierung aus ökonomischer Perspektive," Arbeitspapiere 168, University of Münster, Institute for Cooperatives.

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