FinTech and The Law & Economics of Disintermediation

European Corporate Governance Institute - Law Working Paper No. 540/2020

Forthcoming as a chapter in The Routledge Handbook of Financial Technology and law edited by Iris Chiu and Gudula Deipenbrock

Amsterdam Law School Research Paper No. 2020-67

Amsterdam Center for Law & Economics Working Paper No. 2020-06

26 Pages Posted: 3 Sep 2020 Last revised: 7 Jan 2021

See all articles by Fatjon Kaja

Fatjon Kaja

University of Amsterdam

Edoardo D. Martino

University of Amsterdam; European Banking Institute

Alessio M. Pacces

Amsterdam Law School / Amsterdam Business School (ACLE); European Corporate Governance Institute (ECGI)

Date Written: August 30, 2020

Abstract

As FinTech promises to increase competition for both banks and investment firms, we consider the market failures that emerge from its existence, particularly as they relate to issues of financial stability and investor protection. This chapter discusses the wave of technology-enabled disintermediation of financial services, asking how regulation should cope with the risks associated with disintermediating finance.

While regulation of financial intermediaries has been embraced because the industry is particularly prone to market failures, disintermediation has the potential to make current frameworks obsolete. The law & economics problem is twofold: 1) potential market failures, and 2) the issue of enforcement. This chapter discusses the foundations of financial intermediation and the traditional regulatory approaches to both banks and other providers of financial services. Our analysis establishes a distinction between FinTechs working outside and inside the blockchain. For the former, the crucial regulatory trade-off is between efficiency gains from innovation and regulatory arbitrage. For the latter, our analysis suggests that regulating the convertibility of cryptocurrencies into fiat money is a promising strategy not only to safeguard financial stability, but also to attract financial services to the regulatory perimeter, whenever it is efficient to do so.

Keywords: Law & economics, disintermediation, fintech, financial stability, asymmetric information.

JEL Classification: G21, G23, K22

Suggested Citation

Kaja, Fatjon and Martino, Edoardo D. and Pacces, Alessio Maria, FinTech and The Law & Economics of Disintermediation (August 30, 2020). European Corporate Governance Institute - Law Working Paper No. 540/2020, Forthcoming as a chapter in The Routledge Handbook of Financial Technology and law edited by Iris Chiu and Gudula Deipenbrock, Amsterdam Law School Research Paper No. 2020-67, Amsterdam Center for Law & Economics Working Paper No. 2020-06, Available at SSRN: https://ssrn.com/abstract=3683427

Fatjon Kaja

University of Amsterdam ( email )

Roetersstraat 11
Amsterdam, NE 1018 WB
Netherlands

Edoardo D. Martino

University of Amsterdam ( email )

Roetersstraat 11
NE 1018 WB
Amsterdam, 1018 WB
Netherlands

European Banking Institute ( email )

Frankfurt
Germany

Alessio Maria Pacces (Contact Author)

Amsterdam Law School / Amsterdam Business School (ACLE) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

HOME PAGE: http://www.uva.nl/profiel/p/a/a.m.pacces/a.m.pacces.html

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://https://ecgi.global/users/alessio-pacces

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