Regulating Financial Innovation: A Multifaceted Challenge to Financial Stability, Consumer Protection, and Growth

Abstract

The chapter reconceptualizes financial innovation. In this context, it discusses the risks of financial innovation and contemporary regulatory reforms addressing those risks. It provides a critique of contemporary reforms. Finally, it stresses the need for a new framework to regulate financial innovation to foster long-term growth and curb speculation. Regulation ought to focus on altering innovators' incentives through a properly balanced mix of incentives and sanctions.

Keywords: financial innovation, derivatives, securitisations, global financial crisis, shadow banking, Dodd Frank Act, MIFID II, MIFIR, EMIR

JEL Classification: F30, G15, G18, G10, G24, G28