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Title: A theory of financial services competition, compliance and regulation
Authors: Michael, Bryane
Falzon, Joseph
Shamdasani, Ajay
Keywords: Financial services industry
Banks and banking -- Law and legislation
Issue Date: 2015
Publisher: EconStor
Citation: Michael, B., Falzon, J., & Shamdasani, A. (2015). A theory of financial services competition, compliance and regulation. University of Hong Kong Faculty of Law Research Paper (1).
Abstract: Do financial regulation advisors help their clients become more profitable? In this paper, we present a model where financial service firms may add to their own compliance teams or hire outside compliance advisors. We derive the conditions under which a financial services firm will want to hire a compliance services company, and show how much money they should spend. Financial services firms in competitive locations like Hong Kong and Singapore will particularly benefit (at least in the short run) from their services. We also show that their advice may lead to an embarrass de riches – whereby the lower compliance costs and higher profit advantages they confer may lead to more regulation. Regulators may furthermore tighten regulation – with the expectation that financial service firms will adapt somehow. We present a fresh perspective on the Menon Hypothesis, deriving conditions under which financial regulations help the competitiveness of an international financial centre. We provide five potential policy responses for dealing with ever ratcheting financial regulations.
Description: Funding for this study comes from the Hong Kong Theme-Based research council grant Enhancing Hong Kong’s Future as a Leading International Financial Centre.
Appears in Collections:Scholarly Works - FacEMABF

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