How do Perceptions of Procedural Fairness Relate to Regulatory Compliance? Evidence from Financial Intermediaries

Abstract:     
Numerous countries have recently tightened the regulation of financial intermediation. However, little is known about the factors that affect financial intermediaries’ compliance behavior in practice. Based on the official compliance assessment of financial intermediaries in the Netherlands, which is conducted by the Authority for the Financial Markets, we examine how non-compliance (measured as the number of law violations) relates to financial intermediaries’ perception of procedural fairness (measured as the perception that the extensive regulation makes the firm’s activity unnecessarily difficult). Our results support the idea that perceived procedural fairness motivates firms to acquire knowledge and stay up-to-date with new regulations, which in turn enables them to achieve higher levels of compliance.

Number of Pages in PDF File: 35

Keywords: compliance, regulation, procedural fairness, financial intermediation

JEL Classification: G28, K22, K42

working papers series