Contracting to Oblivion: Property Concepts and Financial Regulation

Abstract:     
Within current debates over whether regulation should address complexity of financial products a theme is emerging — that property law concepts can justify regulatory innovation. This theme appears in arguments relating anti-fragmentation and numerus clausus principles (that limit complexity of property interests) to financial markets. This theme also appears in calls to regulate financial products as products per se, analogous to goods regulated for public safety. As lawmakers assess challenges that complexity presents, the private law of property — scholars are observing — already contemplates the notion that complexity in contractual obligations can present market risk. Yet this theme is under-developed. A numerus clausus approach seems to confuse complexity of property — meaning, property that is complex to describe and value — with complexity of rights in property. An ‘anti-fragmentation principle’ approach seems to conflate challenges relating to complex interests with those caused by the existence of numerous interest holders. Scholars have made broad arguments that principles expressed in property doctrine are relevant to financial regulation, but have not actually applied property rules to financial products. This Article discusses the theoretical grounding of a distinction between contracts law and property law, and the utility of this distinction in financial markets. It then examines the potential relevance of property law to financial regulation, vetting possibilities for applying property rules to financial products.

Keywords: property law, financial regulation

working papers series