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We study the impact of the enforcement of financial regulation by the UK’s regulatory authorities on the market price of penalized firms. Existing studies rely on analyses of multiple events that may distort the measurement of reputational losses. In the UK, the entire enforcement process involves only one public announcement and is accompanied by complete information on legal penalties. We find that reputational losses are nearly nine times the size of fines, and are associated with misconduct harming customers or investors, but not third parties.
The financial crisis of 2007-9 revealed serious failings in the regulation of financial institutions and markets. Prompting a fundamental reconsideration of the design of financial regulation, the financial system has become ever-more complex and interconnected, and the pace of evolution continues to accelerate. It is now clear that regulation must focus on the financial system as a whole, but this poses significant challenges for regulators. Principles of Financial Regulation describes how to address those challenges.
Examining the subject from a holistic and multidisciplinary perspective, Principles of Financial Regulation considers the underlying policies and the objectives of regulation by drawing on economics, finance, and law methodologies. The volume examines regulation in a purposive and dynamic way by framing the book in terms of what the financial system does, rather than what financial regulation is. By analysing specific regulatory measures, the book provides readers to the opportunity to assess regulatory choices on specific policy issues and encourages critical reflection on the design of regulation.
Inadequate regulation of the financial system is widely thought to have contributed to the financial crisis. The purpose of the book is to articulate a framework within which financial regulation can be analysed in a coherent and comprehensive fashion. The book’s approach is distinctive in several respects. First, it views the subject from a multidisciplinary perspective of economics, finance and law. Second, it takes a holistic approach, starting from the premise that financial regulation is best understood in the context of an appreciation of the entire financial system. Third it is international and comparative in nature, contrasting approaches, in particular in the EU and US. The book focuses on underlying policies and the objectives of regulation, using specific regulatory measures as examples. This allows the reader to compare choices in respect of the same policy issue in different regulatory frameworks. This introductory chapter sets out the motivation for the project and outlines the book’s analytic framework and contents.