The Ability to Regulate, Govern and Control Financial Services Systems
This chapter describes how Financial Services systems can be viewed as open dynamic systems and how negative and positive feedback loops can be used to understand the behaviour of these systems including their interactions with the environments. It provides some key learnings from cybernetics, the study of feedback systems and resilience engineering in a discussion of regulation, governance and control of Financial Services systems. The chapter shows that how macro-prudential regulatory functions failed to detect and act on early warning signals. Corporate management comprises the set of control activities used in Financial Services system to keep a corporation on track to achieve its business objectives. The concept of state variables is used in control theory to denote variables that can be used to predict and anticipate a system's future states. In Financial Services systems such sophisticated real-time monitoring and control systems are typically found layered around key technology components, such as the networks leveraged by the global Financial Services system.