The REGTECH Book

I Regulate, Therefore I Am? Regulating Humans’ and Machines’ Conduct and Culture

By Dr Daniel Gozman¹, Jonathan Liebenau ² and Paul Ferris^3 *

¹Senior Lecturer, The University of Sydney Business School

²Professor (Reader), The London School of Economics and Political Science

³CEO, ObjectTech Group

A Brave New World of Regulated Activity

Despite the widespread adoption of complex mathematical models and scientific methods, financial services firms require consumers to place trust and faith in their services and products for the economy to thrive and prosper. Yet, trust in financial and regulatory organizations has been considerably eroded following a spate of systemic breaches in firms post the financial crisis. Public fury has built regarding the roots of the Great Recession and the firms and regulators that contributed to it, resulting in a widely held perception that the financial services industry is deeply compromised through ‘cynical greed’ and ‘malpractice’.¹ Examples often cited include the London Interbank Offered Rate/foreign exchange (LIBOR/FX) benchmark rate rigging scandals, protected personal information (PPI), money laundering scandals, and the deliberate misleading of investors buying mortgage-backed securities.² This has led government and regulators to review and enhance regulations, placing an economic burden on firms to tighten their practices through more stringent regulation (second Markets in Financial Instruments Directive [MIFID II]) and accountability ...