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Dissertation defence of Lauren Fahy

Why did some financial regulators crack down on cryptocurrencies, while others were more welcoming?

Why has the UK’s financial regulator had so much success in attracting fintech entrepreneurs to join their sandbox, while others struggle?

What reputation do financial regulators have with startups, and why does that reputation matter for startup compliance and collaboration?

These are some of the questions examined in my dissertation — Regulator reputation and the successful governance of innovation: Lessons from financial technology supervision.

When innovation emerges, regulatory agencies are frequently called upon to intervene. They must find ways to manage risks, facilitate ‘good’ innovations, and guard against ‘bad’. Such regulatory governance is a legal and administrative challenge, but also a stakeholder management one. Regulators need to find ways to manage stakeholder expectations. They must engender stakeholder support for regulatory intervention over the innovation process.

In this context, this dissertation argues a strong regulator reputation is a condition for successful innovation governance. Reputation should be placed – by both scholars and practitioners – alongside well-established success factors like a strong formal mandate, adequate administrative capacity, and conducive organizational culture. This argument is developed through a series of studies about the role of regulator reputation in the governance of recent innovations in finance (‘fintech’) in the United Kingdom, the United States, and Australia.

This dissertation is among the first studies to evaluate the role of regulator reputation in successful innovation governance. Reputation, innovation, and regulatory governance scholarship are integrated into novel, documented methodological tools and theoretical and analytical frameworks.

Findings contribute to addressing gaps in extant theory and literature on the topic, and present several concrete roles reputation plays in successful innovation governance. Collecting data directly from the managers of innovative start-up firms, this offers a rare glimpse into their attitudes to regulators and regulation; sometimes challenging mainstream theories of compliance and cooperation.

For regulatory professionals, this dissertation offers rich insights into ‘what works’ in practice and why. Among these are: reflect on the organization’s reputation with an innovating sector before introducing new instruments like sandboxes; build reputation through direct interactions with innovators and not just mass communications; cultivate a reputation for competence, openness, and fair and proper procedures; and use early interactions with innovators for mutual learning and trust building.

You can read the full dissertation here.

Dutch description below.

Lauren Fahy heeft haar proefschrift, Regulator reputation and the successful governance of innovation, verdedigd op 21 september 2022. In haar onderzoek kijkt Fahy naar innovaties in de fintech sector en de rol van toezichthouders hierin. Bij innovaties wordt verwacht dat de toezichthouder optreedt, zodat ook deze innovaties voldoen aan de reguleringen. Echter, het toezicht houden op en het reguleren van deze innovaties blijkt een uitdaging te zijn:

“In practice, regulatory agencies often face stakeholder opposition, mistrust, hostility, or a complete lack of engagement. While these issues are widely acknowledged, there is very little research on how regulators might overcome potential opposition and secure stakeholder support” (Fahy, 2022: 18).

Volgens Fahy kan reputatie hierin een belangrijke rol spelen: succesvolle regulering van innovatie is niet enkel afhankelijk van de activiteiten van de inspectie, maar, zo stelt Fahy, komt ook voort uit hoe betrokken actoren de desbetreffende inspectie zien, beoordelen en interpreteren. Met andere woorden, een belangrijke voorwaarden voor “succesful innovation governance” is een sterke reputatie (en het management hiervan) (Fahy, 2022: 18).

In haar dissertatie wordt de volgende vraag onderzocht: what role does regulatory agency reputation play in the regulatory governance of emerging innovations? 

Geïnteresseerd in de uitkomsten van haar onderzoek? Lees hier het volledige proefschrift.