ABSTRACT
Supervision of the financial markets has become over the last twenty years or so, an increasingly important element of the financial system. It is progressively moving away from passive compliance checks, towards becoming a real and active influence on the financial markets. It is encompassing a growing range both of issues and entities and is undertaking an ever-deeper insight. Financial supervision is also increasingly acquiring regulatory powers through the extensive application of self-produced “soft” regulatory norms as well as accumulation of resources (proliferating particularly after the recent global financial crisis).
The goal of this chapter is to provide a systematic review of principal challenges facing currently financial supervision and review the interrelationship between financial innovations and regulatory and supervisory systems. These systems on one hand define the frameworks within which financial systems operate and on the other hand they are a part of the innovation process itself.
The chapter is split into three parts. Its first part discusses the theoretical foundations of the supervisory system, indicating the sources of its powers, including its societal role. In the second part we take a close look at the changing supervisory paradigm in its current form. The third part reviews the new challenges facing financial supervision in its search for innovations which adapt to new requirements, and the available opportunities in the development of its new toolkit. Particular attention is given to the use of the institution of whistleblowing and technology-enabled suptech applications.
