The potential impact of digitisation upon the regulation of financial markets and products

Abstract

This chapter examines the potential impact of ever-increasing digitisation upon the regulation of financial products. It outlines a methodology for assessing the implications of digital developments for existing regulatory regimes and for developing the right level of reform to those in order to ensure that new digital financial products do not operate beyond the ambit of the regulatory environment. The chapter considers two instances: the first is the regulation of cryptocurrencies and distributed ledger technology; the second is the use of digital processes and algorithms for trading in securities and making business decisions, including lending decisions, which raises broader issues of the future use of artificial intelligence. Financial regulation consists of legislative, regulatory and soft-law rules and principles that apply to financial firms and their senior management. A 2011 Treasury report highlighted that: ‘macro-prudential policy seeks to augment the existing regulatory framework by focusing on systemic risk.