Journal of Financial Regulation and Compliance

Jeke, Leward; Moyo, Clement Zibusiso; Apau, Richard

2025 Journal of Financial Regulation and Compliance

doi: 10.1108/jfrc-06-2023-0078

Although the consequences of illicit financial outflows on the economies of the world continue to exert adverse impacts on many economies of the world, explanations regarding specific drivers of the illicit outflows remain divergent in the literature. This study aims to investigate the effect of financial liberalisation on illicit financial outflows in Africa. Furthermore, the study also examines the effect of macroeconomic stability and institutional quality on illicit outflows.Design/methodology/approachTo achieve the objectives, the study uses a dynamic panel system generalised method of moments technique to analyse annual data from the period 1995 to 2015 of 22 African countries.FindingsThe results show that financial liberalisation helps to reduce illicit capital outflows. Furthermore, improved institutional quality is associated with lower levels of capital outflows, thus affirming the theoretical expectations that stable political environment boost investor confidence. Overall, the study show that financial liberalisation reduces illicit outflows. However, liberalisation without sound macroeconomic stability and institutional quality may avail opportunities for illicit outflows.Research limitations/implicationsThe main limitation of the study was lack of data that spans periods beyond 2015 for most of the variables on financial illicit flows. The available data sources could not test the objectives beyond 2015.Originality/valueCurrent literature on the relationship between financial liberalisation and illicit fund outflows are generally conducted in the context implications on economic growth. However, beyond economic growth, financial liberalisation may impact on illicit financial outflows. Furthermore, other institutional and macroeconomic dynamics may influence illicit financial outflow, especially for developing economies in Africa.

Ntourou, Artemisa; Mallios, Aineas

2025 Journal of Financial Regulation and Compliance

doi: 10.1108/jfrc-03-2024-0036

The purpose of this paper is to assess the latest directives of the European Parliament and the Council – MiFID II and MiFIR – on markets in financial instruments in response to the growth of dark pools in European equity markets.Design/methodology/approachThis paper examines the impact of the new regulatory packages on European equity markets by identifying areas where the legislation is effective and comparing these changes in EU legislation with US legislation on dark pools.FindingsThis paper find that the MiFID II and MiFIR directives, implemented by the European Securities and Markets Authority to address these concerns, have reduced information asymmetry between market participants, thereby increasing competition between regulated markets and alternative trading facilities.Research limitations/implicationsIncreased competition can improve market quality, which has practical implications for financial market regulation and policy formulation.Originality/valueThese findings are novel in the existing literature on high frequency trading through dark pools. They improve the understanding of dark trading and its impact on competition and market efficiency. In addition, this research can assist policymakers in designing effective financial market regulation. The economic analysis of legislation also helps regulators assess the impact of new legal provisions on the functioning of capital markets.

Wong, Michael Chak Sham; Chan, Emil Ka Ho; Yousaf, Imran

2025 Journal of Financial Regulation and Compliance

doi: 10.1108/jfrc-03-2024-0050

This paper examines the impact of Central Bank Digital Currencies (CBDCs), regulated stablecoins and tokenized traditional assets on the cryptocurrency market, following the guidelines set by the Basel Committee. This study aims to analyze the implications for secure storage, cross-border transfers and necessary investments.Design/methodology/approachThe paper uses a policy analysis approach to assess the potential effects of the Basel Committee’s regulations on CBDCs, regulated stablecoins and tokenized traditional assets. It explores their impact on the cryptoasset market, strategies of central and commercial banks, payment systems and risk management.FindingsThe adoption of CBDCs, regulated stablecoins and tokenized traditional assets is expected to grow rapidly in the coming years. It raises concerns about secure storage, cross-border transfers and required investments. Central banks are likely to introduce CBDCs and authorize stablecoin issuance, aiming for efficient monetary policies and risk management. Basel III regulations may lead to asset tokenization by banks, reducing asset size and increasing fee-based income.Originality/valueThis paper provides insights into the potential impact of the Basel Committee's regulations on CBDCs, regulated stablecoins and tokenized traditional assets. It contributes to the understanding of the evolving cryptoasset market and the strategies of central and commercial banks in adopting these technologies. The findings offer valuable information for policymakers, regulators and market participants in navigating the changing landscape of digital assets.

Tran, Dieu; Nguyen, Truc

2025 Journal of Financial Regulation and Compliance

doi: 10.1108/jfrc-06-2024-0106

This paper aims to investigate the impact of capital buffer on risk-taking in the Vietnam banking sector as well as examine the moderating role of capital regulation based on Basel II standards and shadow banking on this correlation.Design/methodology/approachThe capital buffer is measured by the bank’s capital adequacy ratio minus the regulatory capital adequacy ratio, whereas risk-taking is the inverse value of the Zscore indicator. To test the hypotheses, the two-step system generalized method of moments estimation and a data set for the period 2010–2022 were used.FindingsThis study reveals the U-shaped nonlinear impact of capital buffer on bank risk-taking, which means that maintaining high capital buffer forces Vietnamese banks to reduce risky activities, but when the capital buffer is thick enough to resist unexpected shocks, an additional level of capital buffer may lead to excessive risky behaviors. The regression outcomes also explore the moderating role of capital regulation based on Basel II standards and shadow banking. To be specific, applying capital regulation following Basel II has caused banks to behave more cautiously and enhance the negative impact of capital buffer on bank risk-taking, whereas engaging in shadow banking activities has caused them to increase risk tolerance and diminish the negative impact of capital buffer on risk-taking.Originality/valueThis study bridges the gap in the literature regarding the impact of capital buffer on bank risk-taking in a typical emerging market. Especially, the article explores evidence that capital regulation and shadow banking play as moderators between two main interest variables.

Adjimah, William Mawuli K.; Boamah, Nicholas Addai; Akotey, Joseph Oscar; Appiah, Kingsley Opoku

2025 Journal of Financial Regulation and Compliance

doi: 10.1108/jfrc-07-2024-0133

This study aims to investigate the conditioning effect of formal institutional environments on the relationship between religious diversity and bank capital decisions.Design/methodology/approachThe study used random effects, generalised least squares regression and the method of moments quantile regression to analyse cross-country variations in bank capital decisions using data from 151 countries between 2000 and 2021.FindingsThe findings show managers take more risks and perceive low regulatory capital as an avenue to success and innovation in more religiously diverse countries. Additionally, institutional quality reverts the negative consequence of religious differences on bank regulatory capital in developing and emerging countries but worsens in developed countries.Research limitations/implicationsThe role of deregulation and economic policy uncertainty can be considered for future research on religious diversity and bank capital decision dynamics.Practical implicationsBank managers may adapt capital ratios to informal institutional factors in individual countries without overlooking the influence of formal institutional indicators.Originality/valueBy advancing studies from an institutional perspective, the authors contribute theoretically to the literature by examining the joint effect of the informal and formal institutional environments on regulatory capital decisions. This will help regulators, supervisors and policymakers better understand the drivers of bank regulatory capital decisions to safeguard the banking systems with the right strategy and policy.

Coffie, Cephas Paa Kwasi; Yeboah, Frederick Kwame; Emuron, Abraham Simon Otim; Ahiabenu, Kwami

2025 Journal of Financial Regulation and Compliance

doi: 10.1108/jfrc-05-2024-0089

The impact of FinTech in sub-Saharan Africa has primarily been limited to financial inclusion. Contrarily, this study aims to deviate from this norm to estimate how FinTech affects carbon emissions in the subregion. This provides policy recommendations for FinTech regulators, service providers and practitioners to consider optimal products and services that reduce carbon emissions.Design/methodology/approachA balanced panel data set from 2009 to 2020 is used and estimated with the fully modified ordinary least squares estimator after checking for cross-sectional dependence, unit root, stationarity and cointegration.FindingsResults from the estimation suggest a negatively significant relationship between financial technology and carbon emissions in these countries. However, domestic credit to the private sector revealed a statistically insignificant relationship with carbon emissions for the same period. Further, foreign direct investment reduces carbon emissions but gross domestic product and trade openness increase carbon emissions in these countries.Originality/valueThe impact of FinTech in sub-Saharan Africa has primarily been limited to financial inclusion. Contrarily, this study deviates from this norm and estimates how FinTech affects carbon emissions in the subregion.

Taib Khan, Fatin Nur Hidayah; Abdul Kader Malim, Nurhafiza; Masron, Tajul Ariffin

2025 Journal of Financial Regulation and Compliance

doi: 10.1108/jfrc-03-2024-0053

The purpose of this study is to examine the role of activity restrictions on the financial intermediation costs in ASEAN countries.Design/methodology/approachThis study used the two-step system generalized method of moments approach to tackle the endogeneity problems. The sample consists of 130 banks from ASEAN countries covering the over 2009–2022 period.FindingsThis study provides valuable insights into various dimensions of activity restrictions within the banking across ASEAN countries. The findings highlight that imposing restrictions on activities such as securities, insurance and real estate can significantly elevate intermediation costs, affecting the overall efficiency of the banking sector. Furthermore, restrictions on ownership lead to higher intermediation costs by limiting operational flexibility, thereby constraining banks’ ability to optimize their financial services.Research limitations/implicationsThe sample of this study is limited to banks in ASEAN countries and focuses only on the regulations restricting banking activities.Practical implicationsThe findings suggest that policymakers should conduct a comprehensive review and potential adjustment of the existing regulatory framework related to restrictions on banking activities to strike an optimal balance between risk mitigation and fostering an environment that enhances banks’ efficiency. In addition, regulators could consider introducing regulatory reforms to ownership-related restrictions to promote greater flexibility and adaptability in the banking sector.Originality/valueThis research contributes to the field of banking by offering valuable insights for policymakers and regulators in ASEAN countries. It provides empirical evidence on the impact of activity restrictions on financial intermediation costs, highlighting key factors for developing more effective regulatory strategies.