The dog that never barks? : examining the extent of regulatory competition : distributed ledger technology in financial services in Hong Kong, London, and New York

Abstract

This research focuses on regulatory competition (RC) between the top international financial centres based on their regulation of financial technology (FinTech), specifically those underlined by distributed ledger technology (DLT). The increased use of FinTech represents an opportunity for governments to advance economic development, leading to more inclusive financial systems. DLT, as a nascent form of FinTech, may be applied broadly through a number of applications, potentially transforming multiple industries, specifically the financial services industry where DLT use-cases have been most prevalent. Given this potential, governments may engage in RC with one another to attract and retain economic activities to their jurisdictions, such as capital investment and human capital, particularly through their regulation of DLT products and services in their respective financial services industries. This study addresses the research question: To what extent are Hong Kong, London, and New York engaged in RC with one another through their regulation of DLT Offerings in their respective jurisdictions? This study aims to identify the extent to which these jurisdictions have been influenced by RC, or the threat thereof, in their regulation of DLT Offerings. Further, it aims to identify how concerned legislative and regulatory texts and policy instruments in these jurisdictions have been formulated according to the influence of RC. As such, this study focuses primarily on the governmental actions and behaviours of these jurisdictions, specifically their legal, regulatory and policy-making competences, as they relate to the regulation of DLT products and services during the key periods of legislative and regulatory development of 2008-2022, as underlined by their institutional lens themes. This study revealed that RC operated on a limited basis between the jurisdictions through a ‘siloed’ approach to RC. In this approach, the jurisdictions advanced their own competitiveness as against others, through a consideration of RC concerns, but absent largely any targeted adjustments to the legislative and regulatory rules governing DLT Offerings directed in specific response to the external competitive pressures. As such, RC operated as one factor influencing the legislative and regulatory development of the rules governing DLT Offerings. This ‘siloed’ approach to RC was evidenced on the basis of three underlying thematic observations, as informed by their respective identified patterns. Most legal analyses have applied RC in the federal government context, whereas this study considers the RC in an international context by focussing on competition between the top international financial centres. It employs a qualitative ‘thicker’ analysis research design, in place of the usual quantitative approach employed in the RC literature, principally through econometric models. It is also framed within the law and innovation context which represents a novel approach since most studies have hitherto focussed on RC in the fields of, among others, corporate governance and environmental regulation. Finally, this study provides a systematic review of the RC hypothesis aimed to provide coherence and consistency to the RC literature by parsing apart its essential elements. In making these contributions, this study enhances our understanding of the field of financial regulation: law and policy.