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CeFRI: Getting proactive about financial innovation and risk

By Daniel Broby - Posted on 23 June 2016

 Academic Daniel Broby talks about the launch of the Centre for Financial Regulation and Innovation at Strathclyde Business School and what it aims to do.

The repercussions of the credit crisis – the consequence of novel financing and risk sharing – were felt around the world. With this, we clearly saw what the effects of innovation in the financial sector could do. The securitization of sub-prime mortgage derivatives that was supposed to limit risk instead had the opposite effect. This financial innovation didn’t have proper oversight and ultimately we have all paid the price for that as the risk became systemic.

The response to the credit crisis was wide-ranging regulatory change in Europe and the United States. Some of the response was definitely for the better but the point is that it was a knee-jerk reaction and not supported by critical analysis. There was little research, for example, into how the changes would impact capital markets.

I worked in the fund management sector in the City during this time and dealt with the fall-out myself. Now, working at Strathclyde Business School, I have been instrumental in launching the Centre for Financial Regulation and Innovation (CeFRI). This was a response to the call from capital market professionals and academics for more pro-active rules and oversight of financial markets.

As Scotland’s premier business school, we felt we should take a lead on this. With financial innovation happening at such a fast pace, there needs to be timely, economic, industry and social arguments for any change in regulatory oversight.

We officially launched the Centre at an event during our annual Engage with Strathclyde week and the senior Scottish finance professionals present discussed how regulatory authorities could enhance the robustness of markets, whilst minimising the risk of future turmoil.

We want our Centre to be proactive rather than reactive. We need to anticipate innovation and the resulting risk. One of the first areas I’m going to be looking at is digital money. At some point in the future there is likely to be a global digital currency but there has been no research done on this at the moment and it will most certainly have big implications for banks. We want to be at the forefront of anticipating the risk associated with any financial innovation.

As well as research into financial innovation, CeFRI will enable practitioners to exchange ideas on contemporary issues and engage with academics in identifying ways to resolve them. We hope to work with some of the leading names in the finance industry, many of whom are on our doorstep, specifically in Glasgow’s International Financial Services District.

The academic department I work for is practical in orientation which is part of the reason we’re so high in university rankings for Accounting and Finance. CeFRI will contribute to the practical learning, innovation and research already taking place here at Strathclyde Business School.



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