Digital Finance, Financial Inclusion and Sustainability:
Building Better Financial Systems
2020/21 RGC Senior Research Fellow Scheme
Professor Douglas W. Arner and his team investigate how the global digital transformation of finance and its regulation, as well as the potential of FinTech and regulatory technology (RegTech) can – and more importantly, should – promote sustainable inclusive development, in terms of each of the UN’s 17 Sustainable Development Goals (SDGs) in projects funded by the 2020/21 RGC Senior Research Fellow Scheme.
We work together with the United Nations (UN), World Bank, Bank for International Settlements (BIS), Asian Development Bank, APEC, Alliance for Financial Inclusion and European Bank for Reconstruction and Development on research projects at the crossroads of FinTech, RegTech, digital finance, financial inclusion, and sustainability.
LATEST TEAM RESEARCH ON SSRN / SUPPORTED SITES
G20 Framework Incorporates Policy 4.0 Report Through IMF-FSB Synthesis Paper
'Policy 4.0 Report: Interdependencies in Crypto Ecosystems: Drivers, Implications and Policy Responses' - This research paper discusses the emergence of a paradigm shift in the global cryptocurrency ecosystem, as it develops into a complex network of interrelationships and interdependencies between systems and market participants. The authors highlight the events of the Crypto Winter in early 2022, which underscored the potential for systemic risks and contagion. The paper explores the role of interdependencies in risk management and crisis control mechanisms in the crypto ecosystem, using case studies of significant events in 2022-2023. The authors argue for the need to build regulations based on actual vulnerabilities and focused approaches to address market failures and negative externalities. They suggest three fundamental adjustments to risk management and crisis mitigation, including substantial remodelling of internal risk frameworks, restructuring of risk control and crisis mitigation practices through regulation and supervision, and appropriate guidance to support the evolution of decentralised frameworks. Keywords for this research paper include FTX, cryptocurrency, crypto regulation, stablecoin, financial crisis, crypto crisis, interdependency, SIFIs, risk management, systemic risks, DeFi, crypto conglomerates, and macroprudential regulation. Douglas W. Arner (The University of Hong Kong - Faculty of Law), Tanvi Ratna (Policy 4.0.), Sijuade Animashaun (The University of Hong Kong) and Jatin Bedi (Policy 4.0).
Corporate Digital Identity: No Silver Bullet, but a Silver Lining
Corporate digital identity streamlines company identification, reducing risks and costs in business transactions. It acts as a key to access financial and non-financial services while providing information to stakeholders. Political support, tech advancements, and policies can boost corporate digital ID, improving efficiency, market integrity, and financial stability. No single solution exists, and various stakeholders like registries, banks, regtech firms, and regulators must collaborate. Legal Entity Identifier (LEI), decentralized identifiers (DIDs), and public individual digital ID reforms benefit small and medium-sized enterprises, fostering sustainable development, employment, and innovation. This paper delves into these innovations and future possibilities in corporate digital ID.
Remaining Regulatory Challenges in Digital Finance and Crypto-Assets after MiCA
This study analyses the need to adopt further EU financial regulation on decentralized finance after the implementation of the Markets in Crypto Asset Regulation and the revision of the Transfer of Funds Regulation, with a special view on crypto lending, crypto staking, crypto custody, the use of non-formal information, NFTs and sustainability.
FinTech: Finance, Technology and Regulation (Introduction to a Forthcoming Book)
In their forthcoming reader-friendly book, Buckley, Arner, and Zetzsche provide a comprehensive overview of FinTech. They cover various technologies such as AI, blockchain, and cryptocurrencies, emphasizing the interconnected nature of finance, technology, and regulation. The authors discuss the evolution of FinTech, highlight key technologies, and stress the importance of managing innovation risks. They also delve into the significance of digital infrastructure, drawing lessons from China, India, and the EU, while considering the impact of crises like pandemics and sustainability challenges. The book concludes by presenting forward-looking strategies for leveraging FinTech to address contemporary global issues.
The Financialization of Crypto
Cryptocurrencies, blockchain and decentralized finance were designed to address weaknesses in traditional finance, such as the systemic risk and government profligacy at the heart of many financial crises. Yet, failures of prominent crypto firms highlight the flaws in this argument. Crypto is neither special nor immune and has come to feature all the classic problems of traditional finance. As the crypto ecosystem has evolved, the market failures and externalities of traditional finance have emerged — a process we term the “financialization” of crypto. These include conflict of interests, information asymmetries, centralization and interconnections, large numbers of poorly informed, over-enthusiastic market participants, plus agency, operational and financial risks. We argue that the regulation of crypto needs to learn from the centuries of experience of traditional finance: in order to function properly, crypto requires appropriate regulation and supervision to address market failures and externalities, and to support transparency and efficiency. While it appears the “Crypto Winter” of 2022-2023 has prompted the world’s financial regulators to act, policymakers need to overcome the difficulties posed by decentralization as the underlying paradigm of the crypto industry, which results in a multi-jurisdictional environment of crypto markets, participants, infrastructure and intermediaries. We argue that regulatory systems can (and must) now be instituted to ensure the proper functioning of crypto and its interconnections with traditional finance.
EBRD Report: Receivables Finance for MSME Resilience and Economic Growth
Access to financing is vital for the growth of micro, small, and medium-sized enterprises (MSMEs) globally. However, many face obstacles in securing the necessary funds. The European Bank for Reconstruction and Development (EBRD) sheds light on a promising solution in a report led by Catherine Bridge Zoller and supported by Milot Ahma, Liubov Skoryk of EBRD, and with support from Marek Dubovec (International Law Institute), and Giuliano G. Castellano (HKU Law - Asian Institute of International Financial Law). A key focus of this report is "receivables financing" that harnesses the untapped potential of businesses' outstanding customer payments, transforming them into valuable assets that generate working capital. However, regulatory complexities thwart its immense advantages. To address these issues, policymakers can drive change through legal reforms, supporting credit guarantee schemes, and incentivizing financial institutions to offer receivables financing. Learn more through the URL below.
Competing Claims to Cryptoassets
At the height of the ‘crypto winter’, with several crypto- intermediaries filing for insolvency and subjected to schemes of arrangement, who owns what and who has a claim on what becomes all important. Meanwhile, Distributed Ledger Technologies (DLT) are frequently presented as a digital solution to these perennial problems of competing claims to the same asset. This article makes two contributions to the literature: First, we show that neither technology nor law solves the competing claims issue. Second, we suggest policy solutions based on a comparative legal analysis. In essence, the law must: (1) recognise property rights in cryptoassets, (2) provide for negotiability based on the assertion of control over private keys, and (3) facilitate the enforcement of titles in cryptoassets by the interplay of private and financial law. Jannik Woxholth (University of Luxembourg), Dirk A. Zetzsche (Universite du Luxembourg - Faculty of Law, Economics and Finance; Heinrich Heine University Dusseldorf - Center for Business & Corporate Law (CBC); European Banking Institute), Ross P. Buckley (University of New South Wales (UNSW) - UNSW Law & Justice), and Douglas W. Arner (The University of Hong Kong - Faculty of Law)
The Financialization of Crypto: Lessons from FTX and the Crypto Winter of 2022-2023
This research paper discusses the emergence of market failures and externalities in the cryptocurrency ecosystem, a process the authors term as the "financialization" of crypto. The authors argue that while cryptocurrencies, blockchain, and decentralized finance were designed to address weaknesses in traditional finance, they have come to feature the classic problems of traditional finance, including conflict of interests, information asymmetries, centralization and interconnections, and agency, operational, and financial risks. The authors contend that appropriate regulation and supervision are necessary to address these issues and ensure the proper functioning of crypto and its interconnections with traditional finance. The paper also mentions the "Crypto Winter" of 2022-2023, which has prompted financial regulators to act. The keywords for this research paper include financialization, Crypto Winter, financial regulation, FTX, crypto assets, cryptocurrencies, financial stability, decentralized finance, and DeFi. Douglas W. Arner (The University of Hong Kong - Faculty of Law), Dirk A. Zetzsche (Universite du Luxembourg - Faculty of Law, Economics and Finance; Heinrich Heine University Dusseldorf - Center for Business & Corporate Law (CBC); European Banking Institute), Ross P. Buckley (University of New South Wales (UNSW) - UNSW Law & Justice) and Jamieson M. Kirkwood (The University of Hong Kong - Faculty of Law)
Building Regulatory and Supervisory Technology Ecosystems: For Asia’s Financial Stability and Sustainable Development
This paper explores the evolution of technology in the finance sector, particularly in the realm of regulatory compliance and financial infrastructure design. Regulatory technology (regtech) is the use of information technology to aid regulatory implementation, compliance, and monitoring, while supervisory technology (suptech) refers to technology used for regulatory supervision and compliance requirements. The paper highlights the need for an ecosystem approach to regtech strategies and introduces key policy frameworks to enable ecosystem relationships at national, regional, and international levels. It also emphasizes the importance of supporting local innovation ecosystems to support sustainable development and financial stability. Douglas W. Arner (The University of Hong Kong - Faculty of Law), Syed Musheer Ahmed (Independent) and Sangita Gazi (The University of Hong Kong - Faculty of Law)
ROADMAP FOR INCLUSIVE GREEN FINANCE IMPLEMENTATION
Building Blocks to Implement IGF Initiatives and Policies
Alliance for Financial Inclusion (AFI)’s “Roadmap for Inclusive Green Finance Implementation - Building Blocks to Implement IGF Initiatives and Policies" presents the opportunities in which AFI-affiliated countries can mitigate climate disaster outcomes by adopting a green-finance policy development to enhance financial inclusion, support digital access and build financial infrastructure to support crisis resilience, response and recovery.
This report was written by Prof. Dr. Dirk Zetzsche (ADA Chair in Financial Law - Inclusive Finance, University of Luxembourg), Prof. Dr. Ross P. Buckley (KWM & KPMG Law Chair in Financial Disruption, UNSW Sydney), Prof. Dr. Douglas W. Arner (Kerry Holding Professor in Law, University of Hong Kong), Johanna Nyman (Head of Inclusive Green Finance), Laura Ramos (Policy Manager, Inclusive Green Finance) and Jeanette Moling (Policy Specialist, Inclusive Green Finance)
This paper is available for download at SSRN - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4278277
AFI INNOVATIVE REGULATORY APPROACHES TOOLKIT
Countries are enhancing their digital finance and FinTech sectors for financial inclusion and sustainable development, using innovation hubs and sandboxes with technology support. This toolkit offers regulators guidance on implementing these approaches and complements existing resources.
Digital Financial Services
Working Group (DFSWG)
This Toolkit is a product of the Digital Financial Services Working Group (DFSWG) and its members. The development of this toolkit was led by Douglas W Arner, Ross P Buckley, Dirk A Zetzsche, Eriks K Selga and Roberta Consiglio, with contributions from Jaheed Parvez and Ghiyazuddin Mohammad from the AFI Management Unit.
This paper is available for download at SSRN - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3827568
FINTECH FOR FINANCIAL INCLUSION:
A Framework for Digital Financial Transformation
Digital Financial Services
Working Group (DFSWG)
Global Standards Proportionality
Working Group (GSPWG)
Access to finance and financial inclusion have been important policy objectives, with recent initiatives showing significant progress. However, there is still a need to address the 1.7 billion people who lack access to financial services. To fully harness the potential of financial technology (FinTech) and achieve greater financial inclusion, a framework is needed that includes digital identification, electronic payment systems, and supportive policies and regulations. This framework should be built on four pillars: establishing digital identification systems, developing digital payment infrastructure, promoting account opening and access, and designing digital financial markets and systems. Regulatory changes are necessary to support these pillars and drive financial inclusion and digital economic development.
This report was developed through consultations with members of the Digital Financial Services (DFS) Working Group and the Global Standards and Proportionality (GSP) Working Group, and benefited from inputs received at the G24-AFI Policymakers’ Roundtable at the Spring Meetings in April 2018 and the Global Standards and Policy Committee meeting in June 2018. This was authored by Douglas W Arner (University of Hong Kong, Ross P Buckley (University of New South Wales), Dirk A Zetzsche (University of Luxembourg).
This paper is available for download at SSRN - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3245287
Selected body of work in collaboration with international organisations and academic institutions
FinTech and the Four Horsemen of the Apocalypse
This is a copy-edited version of the contribution accepted for publication in the Banking and Finance Law Review: (2022) 39.1 B.F.L.R. Forthcoming. Ross P. Buckley, Douglas W. Arner, and Dirk A. Zetzsche
UNSW, HKU, UNIVERSITY OF LUXEMBOURG
Financial Data Governance: The Datafication of Finance, the Rise of Open Banking and the End of the Data Centralization Paradigm
University of Hong Kong Faculty of Law Research Paper No. 2022/08, European Banking Institute Working Paper Series 2022 - no. 117 Number of pages: 63 Posted: 25 Feb 2022 Last Revised: 23 Mar 2022 Douglas W. Arner, Giuliano G. Castellano and Eriks Selga
HKU, EUROPEAN BANKING INSTITUTE
Governing FinTech 4.0: BigTech, Platform Finance and Sustainable Development
Forthcoming Vol XXVII of the Fordham Journal of Corporate & Financial Law, UNSW Law Research Paper No. 21-57, University of Hong Kong Faculty of Law Research Paper No. 2021/043 Number of pages: 84 Posted: 14 Sep 2021 Last Revised: 22 Jan 2022 Douglas W. Arner, Ross P. Buckley, Kuzi Charamba, Artem Sergeev and Dirk A. Zetzsche
The Case for a Best Execution Principle in Cross-border Payments
University of Luxembourg Law Research Paper No. 2021-002, UNSW Law Research Paper No. 21-45, Bocconi Legal Studies Research Paper No. 3834335, Forthcoming Journal of Business Law Number of pages: 38 Posted: 04 May 2021 Last Revised: 17 May 2022 Dirk A. Zetzsche, Ross P. Buckley, Douglas W. Arner and Maria Lucia Passador
UNIVERSITY OF LUXEMBOURG, HKU LAW, BOCCONI LEGAL STUDIES
Digital Finance, COVID-19 and Existential Sustainability Crises: Setting the Agenda for the 2020s
University of Hong Kong Faculty of Law Research Paper No. 2021/001, UNSW Law Research Paper No. 21-16, University of Luxembourg Law WPS 2021-003 Number of pages: 31 Posted: 12 Feb 2021 Last Revised: 23 Sep 2021 Douglas W. Arner, Ross P. Buckley, Andrew M. Dahdal and Dirk A. Zetzsche
HKU, UNIVERSITY OF LUXEMBOURG, UNSW
MSME Access to Finance: The Role of Digital Payments
United Nations, Economic and Social Commission for Asia and the Pacific, MSME Financing Series No.7 (June 2022), University of Hong Kong Faculty of Law Research Paper No. 2022/38 Number of pages: 51 Posted: 24 Jun 2022 Last Revised: 27 Jul 2022 Douglas W. Arner, Sijuade Animashaun, Kuzi Charamba and Yixiao Cai
Stablecoins: Risks, Potential and Regulation
BIS Working Paper no. 905 (2020), University of Hong Kong Faculty of Law Research Paper No. 2021/57 Number of pages: 31 Posted: 15 Dec 2021 Douglas W. Arner, Raphael Auer and Jon Frost
BANK FOR INTERNATIONAL SETTLEMENTS, HKU
The Transnational Data Governance Problem
Berkeley Technology Law Journal, Forthcoming, University of Hong Kong Faculty of Law Research Paper No. 2021/039 Number of pages: 67 Posted: 02 Sep 2021 Last Revised: 08 Oct 2021 Douglas W. Arner, Giuliano G. Castellano and Eriks Selga
HKU LAW, BERKELEY TECHNOLOGY LAW JOURNAL
Sovereign Digital Currencies: Reshaping the Design of Money and Payments Systems
15(1) Journal of Payments Strategy and Systems 7 (2021), UNSW Law Research 21-61 Number of pages: 17 Posted: 03 May 2021 Last Revised: 23 Sep 2021 Ross P. Buckley, Douglas W. Arner, Dirk A. Zetzsche, Anton N. Didenko and Lucien van Romburg
JOURNAL OF PAYMENTS STRATEGY AND SYSTEMS, HKU LAW, UNIVERSITY OF LUXEMBOURG, UNSW
Three Decades of International Financial Crises: What Have We Learned and What Still Needs to be Done?
Fragility that periodically erupts into a full-blown financial crisis appears to be an integral feature of market-based financial systems in spite of the emergence of sophisticated risk management tools and regulatory systems. If anything, the increased frequency of modern crises underscores how difficult it is to diversify away systemic risk and that perceptions of perfectly stable financial systems are normally flawed, even if the source of the next crisis remains well concealed to the expert eye.
Ukraine, Sanctions and Central Bank Digital Currencies: The Weaponization of Digital Finance and the End of Global Monetary Hegemony?
UNSW Law Research Paper No. 22-19, University of Hong Kong Faculty of Law Research Paper No. 2022/36 Number of pages: 62 Posted: 23 Jun 2022 Last Revised: 27 Jul 2022 Ross P. Buckley, Douglas W. Arner, Anton N. Didenko and Dirk A. Zetzsche
A Principles-based Approach to the Governance of BigFintechs
UN Dialogue on Global Digital Finance Governance Technical Paper 3.3, University of Hong Kong Faculty of Law Research Paper No. 2021/55, UNSW Law Research Paper No. 21-79 Number of pages: 22 Posted: 07 Dec 2021 Douglas W. Arner, Ross P. Buckley, Kuzi Charamba, Dirk A. Zetzsche and Artem Sergeev
UNDP-UNCDF, HKU, UNSW
BigFintechs and International Governance, Policymaking and the United Nations Sustainable Development Goals: the SDGs in the International Governance of Finance
UNDP-UNCDF, The Dialogue on Global Digital Finance Governance Paper Series, Technical Paper 3.2, 2021, University of Hong Kong Faculty of Law Research Paper No. 2021/31 Number of pages: 25 Posted: 02 Jul 2021 Last Revised: 02 Dec 2021 Kuzi Charamba, Douglas W. Arner and Artem Sergeev
UNDP - UNCDF, HKU
Regulating Artificial Intelligence in Finance: Putting the Human in the Loop
43 Sydney Law Journal 43 (2021) , University of Hong Kong Faculty of Law Research Paper 2021/016 Number of pages: 40 Posted: 22 Apr 2021 Last Revised: 04 Jun 2021 Ross P. Buckley, Dirk A. Zetzsche, Douglas W. Arner and Brian Tang
HKU, UNIVERSITY OF LUXEMBOURG, UNSW, SYDNEY LAW JOURNAL
FinTech and RegTech in a Nutshell, and the Future in a Sandbox
The 2008 global financial crisis represented a pivotal moment that separated prior phases of the development of financial technology (FinTech) and regulatory technology (RegTech) from the current paradigm. Today, FinTech has entered a phase of rapid development marked by the proliferation of startups and other new entrants, such as IT and ecommerce firms that have fragmented the financial services market. This new era presents fresh challenges for regulators and highlights why the evolution of FinTech necessitates a parallel development of RegTech. In particular, regulators must develop a robust new framework that promotes innovation and market confidence, aided by the use of regulatory "sandboxes." Certain RegTech developments today are highlighting the path toward another paradigm shift, which will be marked by a reconceptualization of the nature of financial regulation.
CFA INSTITUTE, HKU
Building Regional Payment Areas: The Single Rule Book Approach
BIS Working Paper No 1016, May 2022, UNSW Law Research Paper No. 22-16, University of Hong Kong Faculty of Law Research Paper No. 2022/25 Number of pages: 53 Posted: 25 May 2022 Douglas W. Arner, Ross P. Buckley, Thomas Lammer, Dirk A. Zetzsche and Sangita Gazi
BANK FOR INTERNATIONAL SETTLEMENTS, UNSW, HKU
Open Banking, Open Data and Open Finance: Lessons from the European Union
Forthcoming in Linda Jeng (ed), Open Banking (Oxford University Press, 2021), Chapter 8, UNSW Law Research Paper No. 21-69, University of Hong Kong Faculty of Law Research Paper No. 2021/49 Number of pages: 47 Posted: 11 Nov 2021 Last Revised: 06 Dec 2021 Douglas W. Arner, Ross P. Buckley and Dirk A. Zetzsche
Policymakers, BigFintechs and the United Nations Sustainable Development Goals
This paper - part of a series from the UN Taskforce on Global Digital Finance Governance - examines existing regulatory frameworks relating to digital finance platforms - "BigFintechs" (BFTs) - and their positive and negative impacts on the United Nations Sustainable Development Goals (the SDGs), with a particular focus on regulatory initiatives in relation to or originating from developing countries.
UN TASKFORCE ON GLOBAL DIGITAL FINANCE GOVERNANCE, HKU LAW
AFI Innovative Regulatory Approaches Toolkit
University of Hong Kong Faculty of Law Research Paper No. 2021/012 Number of pages: 46 Posted: 19 Apr 2021 Douglas W. Arner, Ross P. Buckley, Dirk A. Zetzsche, Eriks Selga, Ghiyazuddin Mohammad, Jaheed Parvez and Roberta Consiglio
ALLIANCE FOR FINANCIAL INCLUSION, UNIVERSITY OF LUXEMBOURG, HKU, UNSW
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Lucien Van Romborg
Alessandro Di Lullo
Eriks Kristians Selga