Regulation of financial risks in emerging markets : past, present, and future

Regulation of risks in banking is driven by evolution of financial intermediation and markets, and vice versa. The study analyzes a changing nature of financial institutions' regulatory and supervisory trends in emerging markets over last 20 years, providing outlook for the future. Although the principles of the Basel Accord have long been the cornerstone of banking regulation in the world, precise requirements and scope were reformed and implemented in response to crises and global trends. At the turn of the century, the regulatory themes in EMs were focused on ensuring financial stability which was closely associated with regulatory and supervisory independence. However, the global financial crisis of 2008-2009 has changed the paradigm from partial improvements under financial liberalization regime to a world-wide regulation tightening on the basis of close coordination between regulators and supervisors in the world. The role of the G-20’s Financial Stability Board was to ensure that initiatives are implemented globally, which further enhanced convergence of financial risks regulation in EMs and DMs. In recent years, that uniformity started to decline as the number of local peculiarities and initiatives impacting banking business increases: some countries eased or lifted certain globally accepted restrictions, yet imposing local regulations (including financial sanctions). Functioning of financial institutions in emerging markets becomes more and more complicated. Modern technological innovations enter spheres of compliance and supervision via RegTechs and SupTechs as a solution to this growing number of such inconsistences.