A Functional Approach to the Regulation of Shadow Banking
- Date: Wednesday 27 April 2016, 17:00 – 18:00
- Location: Liberty Building
- Cost: Free, registration is required in advance
The interpretation of ‘shadow banking’ and the mapping of the shadow banking universe is the subject of much academic commentary and policy discussions.
This is because ‘shadow banking’ is often used as a catch-all term to refer to financial activities and transactions that may not be subject to traditional realms of regulation, but the amorphous nature of the term is unsatisfactory for informing debates on regulatory perimeter and policy. Often, a ‘functional’ approach is suggested in order to understand the nature of financial activities and transactions that are lumped into the ‘shadow banking’ category. The ‘functional’ approach focuses on the economic function of the financial activity in question, regardless of the type of institution carrying it out. By looking at the economic function performed by the financial activity in question, one may better be able to ascertain the underlying demand and supply for such function and the risks that such functions give rise to, particularly whether systemic risk is implicated. The approach may also highlight the functional similarities and differences with already-regulated financial activity in order to form views as to the regulatory perimeter for shadow banking activities. The ‘functional’ approach to shadow banking is therefore a prima facie useful approach to surveying the universe of shadow banking and informing the policy-making process in relation to shadow banking activities and transactions at national and international levels.
This seminar raises queries as to the limitations of the ‘functional’ approach, and whether such limitations would ultimately hamper the development of regulatory policy. In particular, it will question whether the functional approach is too embedded in market-liberal assumptions, and gives rise to a ‘like-for-like’ presumption in favour of the design of regulatory methodology. Further, it queries whether the functional approach, though conceptually promising, is subject to the legal arbitrage that it seeks to overcome. Nevertheless, this seminar does not deny the achievements made by adopting the ‘functional’ approach and suggests how it should be put to optimal use.
Dr Hse-Yu (Iris) Chiu is reader in law at UCL, where she researchs company law, corporate governance, international and comparative aspects of corporate law and theory. She was a legislative draftsman and State Counsel at the Attorney-General’s Chambers in Singapore prior to joining academia.