Routledge Handbook of Financial Technology and Law


I: Policy, high-level principles, trends and perspectivesArtificial intelligence and machine learning in the financial sector: Legal-methodological challenges of steering towards a regulatory ‘whitebox’IntroductionPivotal legal-methodological challenges - a selectionDefinitionsWhat is artificial intelligence?What is machine learning?Interim resultsLegal-methodological approach to relating Al and ML to lawThe need for a macro perspectiveArtificial intelligence and machine learning are used in multiple sectors and contextsUse cases of artificial intelligence and machine learning raise fundamental ethical and legal questionsRange of relevant providers and playersThe wide risk scenarioInterim resultsThe challenge to establish the relevant facts of the case and the ‘FinTech information mismatch’ConclusionBibliographySmart contracts and civil law challenges: Does legal origins theory apply?Technological code and codified lawSmart contracts and freedom of contractFormation of contractsExecution of contractsSpecific challenges of smart contractsFormal requirementsNotarial recording and public authenticationText formWritten and electronic formDeclaration of intentGenerationTransmissionContractual contentConsentInterpretationConclusionReferencesFintech and the limits of financial regulation: A systemic perspectiveIntroductionWhere we are now: the technocratic paradigm of financial regulationThe impact of fintech on the financial system: five key trendsScale and scope of the financial systemSpeed of financial transactionsTechno-centricity of financeTransparency and governabilityBoundary-blurringThe impact of fintech on financial regulation: what has to change?Why the technocratic regulatory paradigm is no longer adequateBringing normativity back in: towards a new regulatory philosophyConclusionBibliographyA regulatory roadmap for financial innovationChallenging timesWhat, about fintech, is genuinely new?What does the regulator know and how does it know it? What does it not know?Networks and nodesWho is innovating?What are the innovations?What is the context?Regulatory structure and implicationsRegulatory boundariesRegulatory assumptionsReflexivity: if you build it, they will comeCan the regulator learn and adapt? What resources are in place to do that?Strategic choicesBibliographyFinTech and the law and economics of disintermediationFinancial technology and disintermediationDisintermediation of bankingWhat banks do and why is it special?Disintermediating lendingDisintermediating money and paymentDisintermediation of investment servicesInvestment firms: problem solvers and problem makersDisintermediating financial servicesA law and economics approach to FinTechFinTech and market failureHow to regulate FinTech?ConclusionBibliographyFinancial technologies and systemic risk: Some general economic observationsIntroductionFinancial technology and systematic risk: old wine in new bottles?From financial technologies to fintechFrom system protection to systemic riskThe interrelation of fintechs and systemic riskSystemic risk affecting fintechsFintechs affecting systemic riskRegulatory consequencesGeneral regulation offintechsSpecial regulation offintechsConclusionBibliographyII: Fintech and lendingFinTech credit firms: Prospects and uncertaintiesIntroductionObtaining funds from the crowdThe FinTech credit worldCharacteristics and evolutionDisintermediation trendsRe-intermediation trendsIssues and significanceElimination versus substitutionBlurring into mainstreamCharting the courseConcluding remarksBibliographyFintech credit and consumer financial protectionIntroductionWhat is fintech credit?Opportunities and risks of fintech creditRegulating fintech creditBibliographyIII: Fintech and payment servicesEU payment services regulation and international developmentsIntroductionPSD II: key elementsThe concepts behind ‘open banking’ and PSD IIBackground, objectives and outlineOpen banking and new types of customer serviceThe requisite safeguards for liberalising the payments marketsIntroductionConsumer protectionComplaints handlingSecurityPSD II market developments in the UKAccount information service providersPayment initiation service providersOther potential new business opportunitiesPSD II as a global regulatory modelMexicoAustraliaCanadaJapanRisksOperational risksDe-risking and non-discrimination requirementsInternal systems of controlChanging business models and data protectionRegulatory focusThe current consumer’s perspectiveConclusionBibliographyCurrent and future liability concepts in European financial market regulationIntroductionThe role of liability rules in European financial market regulation in light of regulatory objectivesDifferent approaches to liability in current European financial market regulationGeneral remarksGeneral obligation to establish private enforcement toolsLiability for non-performance of obligationsStrict liability for loss following unauthorised payment transactionsDevelopment of future liability concepts in European financial market regulationBibliographyIV: Fintech, investment and insurance servicesRobo advice – Legal and regulatory challengesIntroductionWhat is robo advice?Promises and risksKey advantagesPerformanceMacroeconomic implicationsInvestor risksSystemic riskCyber risksArtificial intelligenceRegulatory status quoConclusionBibliographyInsurance and the legal challenges of automated decisions: An EU perspectiveFrom Big Data to automated decisionsData management and new technologiesAutomated decisions: the insurance perspectiveNew technologies, new problemsThe legal challenges of automated decisionsAlgorithms: new gold or ‘black-boxes’?New problems, new solutionsConclusionBibliographyExchange-traded funds (ETFs) and FinTech: Market efficiency and systemic riskIntroductionThe ETF landscapePassive asset management: theoryETFs: the basicsETF investmentFinTech: automated advice and algorithmic tradingRobo-adviceAutomated tradingETFs, automated trading and financial market efficiencyInformation costs and market efficiencyGilson and Kraakman: explaining the mechanisms of market efficiencyThe distribution of information and its effects on market efficiencyIrrational investors and market inefficiencyHerding, feedback loops and momentum tradingHerding and automated tradingETFs, automation and the effects of ‘mistakes’ on market pricingLimits to arbitrage in passive, automated marketsConclusion: regulatory philosophyBibliographyV: Fintech, financial inclusion and sustainable financeFinTech, financial inclusion and the UN Sustainable Development GoalsIntroductionFinancial inclusion and sustainabilityFinancial inclusion: two sides of the same coinFinancial inclusion: a developing country topic?FinTech, financial inclusion and sustainabilityFinTech and financial inclusionFinTech and sustainabilityFour pillars of digital financial transformationPillar I: digital ID and eKYC - establishing the foundationPillar II: open, interoperable electronic payment systems - building connectivityMobile moneyRegulatory infrastructure for an open electronic payments systemPillar III: electronic government provision of services - expanding usageElectronic payment:government salaries and transfersElectronic payment and provision: other core servicesPillar IV: design of financial market infrastructure and systemsTransforming credit provision: from collateral and microfinance to cash-flowAdding insurance and investments to savings and creditDeveloping a comprehensive strategyStrategic approachThe challenge of technologyBuilding innovation ecosystemsTowards inclusive and balanced sustainable growthBibliographyDigital transformation and financial inclusionIntroductionFinancial inclusion as a public policy concernAdvantages and risks of the technological transformationTurning digital transformation into inclusive growthConclusionBibliographyDisintermediation in fund-raising: Marketplace investing platforms and EU financial regulationIntroduction: ‘platform economy’ and disintermediation in fund-raisingInvestment-based crowdfunding: main featuresMain classifications and market descriptionOpportunities offered and risks raised by IBCMain legal issues and regulatory trends in EuropeEUfinancial regulation: application of existing rulesSpecial national crowdfunding regulationsThe introduction of the European crowdfunding service providers regulationConclusionsBibliographyVI: Cryptocurrencies and cryptoassetsCryptoassets in private lawIntroductionDefinitionsOwning cryptoassetsHolding cryptoassetsTransferring cryptoassetsEncumbering cryptoassetsSmart contractsConclusionBibliographyCryptocurrencies: Development and perspectivesIntroductionThe emergence of cryptocurrenciesBitcoin and early altcoinsSmart contracts on the ethereum virtual machineCurrent legal issues - an overviewPropertyTransferMoneyContractPrivate international lawThe next generation(Global) stablecoinsCentral bank digital currenciesLegal challengesConclusionBibliographyDistributed ledger technology and sovereign financingIntroductionThe legal framework governing sovereign debt: challenges in contracting with statesIntroductionBankruptcy procedure for states and collective action problemsEnforcement challengesSovereign immunityThe local law advantageIssuance of sovereign bonds on the ledgerOrdinary issuance of bondsBond issuance recorded on distributed ledgerBonds denominated in cryptocurrency issued with DLTThe effect of DLT on the legal framework of sovereign borrowingBorrowing costs and market access for sovereign debtorsEased debt crisis resolution for the sovereign debtorSovereign issuance of ‘cryptocurrencies’‘Cryptocurrencies’ and central bank digital currenciesIssuance of cryptocurrencies as a means to raise capitalConcluding remarksBibliographyLaw and regulation for a crypto-market: Perpetuation or innovation?IntroductionPayment tokensUtility tokensAsset tokensTitle tokensCommodity tokensHybrid tokens and convertible tokensInnovationConclusionBibliographyVII: Markets and tradingHigh-frequency trading – regulatory and supervisory challenges in the pursuit of orderly marketsIntroductionExploring the risks to orderly trading in HFT marketsThe defining features of HFT marketsFlash crashes and other disruptive market eventsMarket-wide fragility and systemic repercussionsAn overview of the EU regulatory responsesRegulatory and supervisory challenges to maintaining orderly and stable markets in trading environments with HFT participationIntroductionLack of conceptual clarity and knowledge regarding the nature, scale and scope ofHFTConflicting regulatory objectivesRegulatory challenges raised by current market structure and market functionalityConclusionBibliography‘Trustless’ distributed ledgers and custodial servicesIntroductionThe myth of (direct) propriety rights in cryptoassetsHolding patternsStoring and using cryptoassetsThe limits of blockchain technologyEmpirical evidence and (other) rationalesThe developers’responseIndirectly held cryptoassets Trusted (crypto) intermediariesIndirect holding patternsRegulationOutstanding legal challengesNature of intermediated cryptocurrenciesShortfallsNegotiabilityInternal soundness and cross-border compatibilityConclusionsBibliographyVIII: Regtech and Suptech‘Computer says no’– benefits and challenges of RegTechIntroduction‘RegTech’Benefits of RegTechFaster and more effectiveReduced risk of individual errorsReduction of compliance costs?Additional advantage of Supervisory RegTech and Regulatory RegTech - updating regulationAdditional advantage of Supervisory RegTech and Regulatory RegTech - regulation is more preciseRisks and challengesCostsInaccurate ReefTech solutions lead to systematic errorsRisks of standardisationPrivacy, data-protcction and cybersecurity risksComputing power and data capacityDehumanisationRegulatory RegTech: additional problems of democratic legitimacy and regulatory accountabilityThe role of supervisorsConclusionBibliographyFinTech, RegTech and SupTech: Institutional challenges to the supervisory architecture of the financial marketsIntroductionRegulatory trends and approaches in the FinTech sectorFinTech: an evolving regulatory framework‘Structured experimentalism’: innovation hubs and sandboxesFacing new risksTowards more cooperation, coordination and collaborationThe evolution of RegTechThe development of SupTechConcluding remarksBibliography
 
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