Global Finance Module 1 PDF

**An outlook on the role of Finance Regulation under the Fourth Industrial Revolution** **INTRODUCTION** We are facing a new paradigm, according to some scholars, the Fourth Industrial Revolution. This revolution, unlike the previous three, involves not only the means of production, but also the i...

**An outlook on the role of Finance Regulation under the Fourth Industrial Revolution** **INTRODUCTION** We are facing a new paradigm, according to some scholars, the Fourth Industrial Revolution. This revolution, unlike the previous three, involves not only the means of production, but also the information management. One of its consequences is the emergence of a new market ecosystem where the new source of power lies in the access, control and availability of data. As we address below herein, part of the response to the international financial crisis of 2008 has involved a series of measures promoting the concentration and centralization of power within the system, both at organizational and regulatory levels, with the initial goal of correcting market failures and of preventing systemic risks. In line with the process of transformation happened in the traditional power structures, thanks to the new digital ecosystem, most groups and organizations in the most developed areas of the world can reach an inexhaustible source of information, which allows them to get a degree of autonomy never before seen in history. Access to and obtaining information is no longer a problem, although, ironically, that has been taken over by another new problem, which is to be able to properly manage and analysis data against such a huge amount of information available. Such dynamism acts as decentralizing driving force regarding the distribution of social power. **FINANCE AND INFORMATION UNDER THE FOURTH INDUSTRIAL REVOLUTION** **AN INITIAL APPROACH** Information is of key importance both for finance and for the process of spreading technological innovation. If the speed of information flow increases, financial markets tend to adapt. A faster dissemination of technological innovation, furthermore, in a global environment, has a consequence that the processes of dissemination and assimilation of technology which took decades in the Twentieth Century now take months or even days. During this period, financial markets, although operatively adapted (Internet-based banking, virtual platforms), did not undergo significant structural changes. In fact, the role of financial institutions, international bodies, financial supervisors, financial products and market performance did barely change during that time. In that same period, we have witnessed the impact that faster dissemination of technological innovation has had on our society, changing most practices, and growing rich those entrepreneurs able to manage efficiently technology and information. **TRADITIONAL RESPONSE OF FINANCIAL MARKET TO TECHNOLOGICAL REVOLUTION** The primary role of financial markets is the efficient distribution of capital resources. The level of efficiency of a particular market shall be directly dependent on the ability of the prices of assets exchanged on that market to reflect the information available at any time. Such concept was already enunciated by Professor Eugene Fama in 1969 --probably, the most-quoted paper in the history of international finance-- known as Efficient-Market Hypothesis (EMH). According to this theoretical approach, in the limit a market is efficient if all the players acting within it have the same information. If that happens, no player would be able to gain advantage from the information obtained, or to predict future developments of prices of an asset from the information available. On this basis, scholars have discussed over the years on market efficiency and certain foundations for different models of financial instruments valuation methods. If a market is efficient, one direct conclusion of EMH is the absence of arbitrage. Thus, in case of inefficiency, that is to say, a possibility of a risk-free profit situation, that market player who detected such inefficiency would have an incentive to remove such inefficiency, thus obtaining a gain and, at the same time, helping the relevant market to be more efficient. Such dynamism caused by arbitrage allows leaving behind the question concerning the efficiency of markets and posing next question: Do markets tend to efficiency? The answer to such question being less controversial. The EMH, in the same way as any other model, is an imperfect approach to reality but has evidenced a great deal of consistency in the way it understands the ability of financial markets to adapt quickly when the information flows and its transmission increases or change. In this sense, a market player who is able to have the faster access to new information shall have a competitive advantage over competitors, given that he will be able to use those arbitrage opportunities associated to such information. **EMERGENCE OF THE FINTECH INDUSTRY** As we have already pointed out, legislators and supervisors have been responding to the last international financial crisis with mechanisms that have tried to solve old problems that today new technologies are solving. However, at the same time, because of the institutional architecture of legislative bodies and international organizations, they are not being able to respond effectively to the challenges that these new technologies are generating. In this respect, legal modernization must involve not only legislators but also all legal operators, supervisory bodies, central banks, courts and other administrative bodies, and in general, all those who register or certify transactions on the market (property and commercial registries and notaries), as well as other operators acting as intermediaries (clearing houses and banks). These players are primarily affected by the disruption that is being caused by the FinTech industry and BlockChain\'s decentralization applications (smart contracts and cryptocurrencies). They should also be the most aware and sensitive about the opportunities and threats that arise for themselves and that will force them to reconfigure soon in order to adapt to the changes. Otherwise, if they do not, or do not promptly promote regulatory changes, they will strain the market players that depend on them, damaging business competitiveness. Clipart Bitcoin Ripple Images, Stock Photos & Vectors \| Shutterstock **EMERGING LEGAL CHALLENGES IN FINANCIAL REGULATION** The great challenge of Law is to regulate a bundle of increasingly complex phenomena within the digital economy whose main asset is the information and speed, security and volume for its spread and analysis. The leading companies of the Fourth Industrial Revolution begin to have specific legal needs that are determined by their particularities and idiosyncrasies: they are multinationals of different sizes, operate in multiple sectors and work on the cyberspace. These new players in the digital economy bring legal challenges that need to be addressed from a regulatory point of view in different areas. In effect, the FinTech industry is not correctly regulated from the different disciplines of the Law. From the point of view of commercial law, urgent regulatory proposals arise, both in competition law, transparency, consumer law and financial regulation. As for competition law, the existence of technological and banking giants that are absorbing the start-ups of the FinTech industry should draw the attention of policy-makers. Financial regulation should take criteria not only based on the size or target market of the company that could be monopolistic or form oligopolies, but a criterion that has not yet been developed: the need for more data from competitors to increase services of that company or maximize the benefits of its current services. In this regard, lawmakers should pay attention to **M&A** operations. **CONCLUSIONS AND LEGISLATIVE POLICY RECOMMENDATIONS** Information is the "raw material" of the Fourth Industrial Revolution. The way it can be managed is being deeply transformed by the new cybernetic tools and the cryptographic ecosystems. Such digital technologies continue to revolutionize the processing of information and its impact on the financial system under a two-staged process: first, a quantitative change (amount of information being transmitted, Big Data), with computerized processes and faster system response speed; and second, a qualitative change (use of information and transformation into knowledge). In this stage, there is not only an increase in the information transmission speed, also, innovation entails changes in the market structure with the emergence of a new specialized industry (FinTech). The development of these information technologies is paramount to understand the emergence of FinTech industry that is changing the market through BlockChain (cryptocurrencies and smart contracts applications) by enforcing amendments to the institutional and legislative framework set before and after the international financial crisis of 2008, an institutional and legislative framework unaccustomed to dealing with the complexity paradigm enhanced by the new information and communication technologies applied to the financial system. In this regard, FinTech is key to understand the EMH general validity and its ability to explain today\'s world economic context. Market tends to efficiency and, precisely, the emergence of BlockChain provides some progress in this respect by technically decentralizing the financial system given that it eliminates transaction costs while preserving the security and reliability of transactions. This is due to technology sophistication based on computing, encryption and networks. **REFERENCE:** Article published in: Archives of Business Research, Vol. 6, Issue 10, pp. 423-434 ISSN: 2054-7404. **Week 1 Activity: 10 pts. each** 1\. Explain why finance activities in the market is affected by emerging development of technology in the country? 2\. What is Crypto currency? Discuss the advantages and disadvantages on entering crypto market.