David Ramos Muñoz
In a field as crowded as the Law of Finance, it is hard to be innovative, or systematic. A book that is organised, structured, and has a single message may stick to the known problems; one that analyses novel issues may scatter the thoughts, or, if it is a collective book, reiterate the sexy ideas, while leaving the duller ones untouched. This book is both innovative and systematic and it is a collective book, thanks to its editors (full disclosure: I co-author one chapter, so I know first-hand of the editors’ work). The book chooses a major theme, and covers it top-to-bottom, and it is innovative because the theme, ‘cross-sectoral (unjustified) divergence’ has not exactly been prioritised in academia or policymaking. It is a mistake, which can contribute to regulatory arbitrariness, hinder market efficiency and obscure the rules’ overall finality. And yet this seems to be the first book that aims to tackle the problem comprehensively.
Part I ‘Conceptual Framework’, with five chapters, sets the scene, with chapters on the financial industry’s functioning, and financial regulation objectives as well as examples of cross-sectoralism’s relevance: the FinTech ecosystem, and the Dutch Twin-Peaks supervision experience.
Part II, on ‘Financial Stability’, is a wise choice, which shows what is at stake, and offers a solid analysis. It discusses how systemic risk increases through the migration of activities towards less heavily regulated parts of the system, how corporate governance, remuneration, and outsourcing rules show unnecessary divergence, but also posits that divergence is justified in some cases, as in prudential rules, resolution rules or compensation schemes.
Part III, on consumer protection is extremely thorough, and possibly my favourite. It analyses the divergences in the rules’ scope of protection, as well as in standards on product information, conduct of business, conflicts of interest and product intervention. This part offers a single, carefully woven narrative, I believe largely thanks to the fact that one of the editors, Veerle Colaert, is involved in all but one of the chapters as author or co-author, which clearly helps to ensure that no argument is left unexplored, and no stone unturned.
Part IV discusses supervision, including its institutional architecture (full disclosure: this is the chapter I co-author) and the desirability of Twin Peaks to enhance cross-sectoral consistency (but its policy/political infeasibility), and the problems of cross-sectoral inconsistencies in a cross-border setting. Part V closes with a Summary and Conclusions, which are as succinct in style, as sharp and comprehensive in approach (unsurprisingly, it is authored by Veerle Colaert and Danny Busch, two of the book’s editors, and authors or co-authors, of many of the chapters).
It is hard to offer criticism, even of the constructive kind, for a book that is so transparent in its aim and succeeds so clearly in achieving it. Thus, the following remarks are more words of advice for those who may read the book seeking something that is not there (spoiler alert). First, the book is not primarily a theoretical work; it does not intend to be so. The chapter on ‘Principles’ is an exception, and offers great material, but many of its arguments have no clear continuity in other chapters, since the book tends to cover existing regulations, and their practical application, rather than the academic zeitgeist. Second, the book offers some interdisciplinary views, but it is clearly grounded on legal analysis, which might leave law-and-economics types longing for more. Third, and to use the Twin Peaks analogy, its vision on ‘market conduct’ rules (consumer protection, governance, and so on) is more comprehensive than that on the prudential or crisis-management framework. The chapters on microprudential regulation or resolution are excellent, but someone whose interest lies in these topics could argue that they deserved more chapters. A similar thing could be said of ‘Supervision’. Some chapters in other parts (such as on the experience with Twin Peaks in the Netherlands, in the ‘Conceptual Framework’) could have been placed in Supervision, and perhaps one more chapter could have been added on supervisory practices.
Yet, all I can offer is half-hearted, not heartfelt, criticism. I confess that, to try and think hard about what someone might say to criticise the book I must put myself in the shoes of a person I do not particularly like. From my own personal perspective, this book is ambitious and comprehensive, but very honest about its goals. It is straightforward from its table of contents to its conclusions, and subject to a minute-editing and coordination process by its editors (compliments). This hard work shows and makes the book informative, deep, interesting and a necessary addition for anyone interested in the Law of Finance’s ‘big’, systematic questions.
David Ramos Muñoz is Associate Professor of Law at Universidad Carlos III Madrid.