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Financial innovation oversight: a policy framework


  • Gola Carlo

    () (Bank of Italy)

  • Ilari Antonio

    () (Bank of Italy)


This 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 �process innovation� than to �product innovation�. 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.

Suggested Citation

  • Gola Carlo & Ilari Antonio, 2013. "Financial innovation oversight: a policy framework," Questioni di Economia e Finanza (Occasional Papers) 200, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:opques:qef_200_13

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    References listed on IDEAS

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    More about this item


    Financial innovation; banking supervision; oversight; financial crisis; corporate governance; behavioural economics;

    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, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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