The emergence of financial innovation and its governance - a historical literature review

Abstract

This paper reviews the literature from diverse disciplines in order to trace historically, the emergence of financial innovation and its governance. It starts with a charting of the occurrence of financial innovations throughout history, followed by a chronological mapping of the introduction of mechanisms to govern these innovations. It then discusses findings from the review in order to shed light on the extent to which financial innovation governance approaches used throughout history were sufficiently robust to ensure the emergence of responsible financial innovation. Findings show changing drivers of financial innovation across history with no evidence of specific governance mechanisms for the process of financial innovation itself. What exists are mechanisms for governance of the financial sector, in the form of legal frameworks, policies and self-regulatory mechanisms that place emphasis on regulation of the products of financial innovation after these have been developed and implemented. The paper is concluded with a brief discussion on implications for theory.

Keywords

• financial innovation
• innovation governance
• regulation
• self-regulation
• responsible innovation.