Financial law as we know it today mirrors the traditional structure of the financial industry. In most legal systems, it is thus divided into banking, insurance and investment services law. Over the past few decades, however, the clear separation between financial sectors has gradually evaporated, as business lines have converged across sectors. Moreover, various FinTech solutions have emerged, which do not fit traditional sector boundaries. This raises the question whether a more cross-sectoral approach to financial regulation is warranted.
To answer that question, this paper sets out a research agenda aiming at a cross-sectoral comparison of the entire body of financial regulation.
Very similar problems often get different regulatory solutions depending on the sector in which they are developed. In a financial industry characterised by a blurring of the traditional sectors, this results in certain marked inefficiencies. In a sectorally organised regulatory model, the qualification of a particular institution, product or service as either a banking, investment or insurance institution, product or service is the decisive factor in determining the applicable legal framework. Different rules may thus apply to institutions, products or services based solely on their classification in one of the traditional sectors, without those differences necessarily being substantiated from an economic point of view. For financial institutions offering a wide range of products or services, such a regulatory approach is not efficient as different processes will need to be implemented depending on the formal sector in which the product or service is to be classified. For retail customers, it may moreover be confusing if different standards are applicable to very similar situations. Unjustified differences between banking, investment services and insurance legislation, which do not correspond to differences in the economic characteristics of the institution, product or service, finally also create a fertile breeding ground for regulatory arbitrage, meaning that market participants exploit gaps and inconsistencies in different sets of regulation applicable to economically very similar situations, with a view to avoiding a stricter regulatory framework.
In addition, the financial industry is continuously developing new ways of intermediation (such as crowdfunding, P2P lending and other FinTech techniques) and new financial products and services (e.g. relating to virtual currencies). Regulators are struggling to determine whether those new techniques and products are already covered by regulation and, if not, whether and how they should. One of the problems is that such new techniques and products are not easily qualified as either banking, investment or insurance platforms, products or services, resulting in gaps and inefficiencies in the regulatory framework.
This research not only intends to chart and explain the similarities and differences in regulation between sectors. It also aims to determine what differences can be justified in view of the economic functions and the goals of regulation in each of the sectors, and what differences are on the contrary arbitrary. The final goal of the research is to develop a number of proposals to fundamentally improve European financial regulation, and to provide new insight into this field for legal practitioners in the financial industry.
An international research group has agreed to cooperate in order to implement this challenging research agenda. Their preliminary conclusions will be presented at a conference at Radboud University Nijmegen (the Netherlands) on 15 and 16 October 2018. Attendance of the conference is free of charge.
Veerle Colaert is financial law professor at KU Leuven (Belgium) and Radboud Excellence Initiative Professor at Radboud University Nijmegen (the Netherlands)