Bìznes Inform (Feb 2022)
Changing the Paradigm of Financial Market Regulation
Abstract
The modern financial market is a complex and dynamic mechanism that is being rapidly digitalized, new innovative technologies are emerging that change the nature of financial business and the relations between participants. All these phenomena expand the range of challenges and risks, and the threat of their implementation causes the need to change the paradigm of regulation of the financial market. A review of expert studies and conclusions showed that traditional prudential regulation mechanisms are not able to take into account the currrent changes and challenges. The article is aimed at forming a holistic view of determinants and challenges that lead to the need to change the paradigm of financial market regulation, as well as substantiation of the components of the new model of consolidated regulation and supervision. The necessity of forming a risk-oriented model of proportional regulation, focused on preventing growing threats and challenges of the digitalized financial market and its stabilization, is substantiated. It is specified that the evolution of approaches to regulation took place with different dynamics – from simple to synergistic, from adaptive to bifurcation-based, from limited to inclusive. The main determinants of the changes are asserted the following: financial and digital globalization, deregulation, development of information-communication technologies and innovations, digitalization of the market, volatility of market parameters, system risks. It is substantiated that the paradigm shift should take place on the principle of complementarity of traditional monetary policy, prudential and macroprudential regulation on the basis of consolidated supervision and the suptech (Supervisory Technologies). The basis of the new consolidated regulatory model should be a risk-oriented proportional approach that focuses on the volumes and levels of risks taken by different financial institutions. At that, it is expected that the proportionality of regulatory requirements depending on the types of instruments, operations and the level of risk taken will contribute to ensuring market stability, protecting consumers of financial services and stimulating the development of financial business. Prospect for further research is to substantiate the methods and instruments of a proportional risk-oriented regulation.
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