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Debate is growing around the expansion of risk-based regulation. The regulation scholarship provides evidence of regulatory failure of the risk-based approach in different domains, including financial regulation. Therefore, this paper aims to provide cautionary evidence about the risk of regulatory failure of risk-based strategy in the financial regulation while using enterprise risk management (ERM) as a meta-regulatory toolkit.

Based on interview data gathered from 30 risk managers of banks and five regulatory personnel, combined with secondary data, this study mainly explores the challenges for meaningful use of ERM based self-regulation in regulated banks. The evidence helps to assess the risk of regulatory failure of the risk-based regulation while using ERM.

The evidence reflects that regulated banks face diverse challenges arising from both peripheral and internal environments that limit the true internalization of ERM-based self-regulation. Despite this, the regulator uses this self-regulation as a meta-regulatory toolkit under the risk-based regulation to achieve the regulatory aims. However, the lack of true internalization of ERM based self-regulation is likely to raise the risk of regulatory failure of risk-based regulation to achieve the regulatory goals. Risk-based regulation is an evolving strategy in the regulatory regime. Therefore, care should be taken while using ERM as a regulatory toolkit before relying on it substantially.

The paper provides empirical insights about the challenges for effective use of ERM as a meta regulatory toolkit that might be useful practically both to the regulators and regulated firms.

The purpose of this paper is not only seek to trace developments that have contributed to the importance of risk in regulation, but also to justify why risk has become so significant within regulatory and governmental circles.

This task will be facilitated through a consideration of theories associated with risk, and by reference to two forms of risk regulation, namely risk‐based regulation and meta regulation. As well as a consideration of the application of both in jurisdictions such as the UK, the paper adopts a comparative approach through references to the their application in jurisdictions such as Germany, Italy, and the USA, and also through a comparison between meta‐regulatory strategies and risk‐based regulation.

This paper concludes that all regulatory strategies should take into consideration the importance of management responsibilities – both on individual and corporate levels. Meta‐risk regulation has not only assumed such a prominent position in regulation through its application in Basel II, but also is preferred to risk‐based regulation – not only because of the element of ambiguity which risk‐based regulation introduces into its assessment (through a consideration of the external environment of the firm), but also because of its impact of the use of external auditors in regulation and supervision.

The practical implications of a move towards risk‐based regulatory strategies, and meta‐regulatory strategies in particular, is that courts are simply not adequately equipped to deal with the pace with which some financial instruments, such as derivatives, operate.

This paper not only introduces originality through its comparative approach and the choice of jurisdictions involved, but also through the attention it draws to the need for more innovative techniques such as meta regulation. Meta regulation can be considered to be the most evolved and collaborative form of regulation, which is best suited for such an ever‐evolving and changing regulatory environment that currently exists.

The current emphasis in anti‐money laundering (AML)/ counter terrorist financing (CTF) regulation on “risk‐based” strategies means that regulatory, law enforcement and reporting agencies need to respond to money laundering and terrorist‐financing threats in ways that are proportionate to the risks involved. However, the way that risk is conceptualized remains vague, and the requirements on agencies imposed by the risk‐based approach involve a significant element of uncertainty. The paper addresses these issues.

This paper examines the attributes of risk as it applies to AML/CTF strategy in the context of regulatory risk and related forms of risk assessment, and argues that there are a number of conditions that must be met if risk‐based decision‐making for AML/CTF is to work effectively.

This paper argues that there are a number of conditions that must be met if risk‐based decision‐making is to work effectively. Three of the most important conditions are that there has to be agreement about what risk is being decided on; there must be explicit, quantifiable models of risk, and those responsible for developing and refining risk‐based decision models must have access to knowledge about the outcomes of assessments.

The paper identifies the need for fundamental changes in the relationship between the regulators and the regulated.

Business schools are increasingly positioning themselves as entrepreneurial risk‐takers. In doing so, they are front‐runners of a marketization trend affecting the entire higher education sector. In response, governments have begun to subject higher education sectors to systems of risk‐based regulation. The purpose of this paper is to study the likely impact of regulatory change on business school behaviour.

The article focuses on the financial dimension of institutional performance and draws on the corporate risk management literature to derive general design principles for managing risk‐taking in business schools. These are matched with a review of the regulation literature to evaluate regulatory effectiveness.

Business schools are facing a double‐hurdle test when managing their risk position. They need to protect their financial solvency with the maintenance of properly functioning risk management systems. At the same time, they will increasingly be subjected to regulatory scrutiny with regulatory shortcomings likely to be mapped into binding but sub‐optimal behavioural constraints. The article offers initial reflections as to how business schools can cope with this double‐hurdle.

Risk management in higher education, here with a specific reference to business schools, has so far been under‐theorized from a financial perspective and, as a consequence, the debate on risk‐based regulation lacks a proper foundation. The article addresses this shortcoming.

This paper aims to study the design of bank capital regulation and points out a conceptual downside of risk-sensitive regulation. The author argues that when a bank is better informed about its risk than the regulator, designing regulation is subject to the Lucas critique. The second-best regulation could be risk-insensitive, which provides an explanation for the leverage ratio as a backstop to risk-based capital requirements. This paper offers empirical predictions and implications for policy.

The argument in the paper is based on analytical results from mechanism design.

Optimal bank regulation could be risk-insensitive, as is observed in practice in the form of the leverage ratio rule.

Counter to conventional wisdom, the paper argues and provides a new explanation for why bank regulation should not be sensitive to the risk of the bank. The paper then offers empirical predictions and implications for policy.

The purpose of this paper is to investigate Financial Action Task Force (FATF)'s risk‐based guidance to combat money laundering and terrorist financing to determine its approach to the identification and management of low‐risk providers, products and transactions.

The paper analyses the relevant FATF recommendations and its guidance notes and reflects on key questions for regulators and financial institutions.

FATF has not defined “risk” for purposes of the risk‐based approach. The absence of a clear definition complicates the identification of low‐risk products. FATF do provide an example of a risk matrix that can be used to identify low‐risk banks, but the example is based on assumptions and generalisations that are not sustainable. In addition, it identifies certain low‐value transactions as “low risk” transactions. The paper reflects on the role of value as an indicator of risk and concludes with a number of suggestions to clarify the conceptual framework.

Low‐risk products and transactions are often overlooked because the risk‐based approach focuses attention on high‐risk matters. Low‐risk products are however crucial to the efforts to increase financial inclusion. The paper identifies gaps in the current conceptual framework and indicates ways in which they can be addressed.

The purpose of this paper is to explain the rule‐based and risk‐based anti‐money‐laundering (AML) approach, to demonstrate the implementation problems in carrying out a risk‐based approach (RBA) to AML and finally propose in what way the RBA should be conducted in China.

This paper analyzes the practice of money‐laundering risk management in Chinese AML programs, compares the rule‐based AML approach and the risk‐based AML approach, and discusses the practical condition of carrying out the risk‐based AML approach in China.

Although China has made significant progress on combating money laundering, the practice of money‐laundering risk management in Chinese AML programs is still weak, and the pre‐conditions for fully implementing the RBA in China are yet to be met.

This paper highlights the practical issues preventing Chinese authorities from fully implementing a risk‐based AML approach, and proposes a “rule‐based but risk‐oriented” AML approach (a partial RBA) in the context of Chinese realities.

This paper aims to argue that the Nigerian banking industry needs to adopt a risk-based regulation as a future regulatory model in the industry. The frequent distress and failures in the industry have shown that reliance on recapitalisation and on credit rating information by the supervisors and investors to determine the health of the financial institutions is less than satisfactory. This is more so when agency ratings suffer accountability deficits.

This paper posits that while the regulation of the credit ratings is necessary for institutional accountability, it is never a substitute for oversight functions and due diligence exercise for both the supervisors and investors in the industry. This exploratory research paper is structured to cover the origin of banking regulation in Nigeria, the recapitalised efforts by the regulators, the problem with the agency ratings and why the future of Nigerian banking regulation should be risk-based.

This research paper posits that while reliance on recapitalisation strategy and agency rating publications is relevant in banks, the future of Nigerian banking regulation should be risk-based.

The Nigerian banking industry should develop effective risk-management structures in line with the international regulatory framework.

The purpose of this study is to replicate Avery and Berger’s (1991) analysis using data from 2001 through 2011. Although risk-based capital (RBC) regulation is a key component of US banking regulation, empirical evidence of the effectiveness of these regulations has been mixed. Among the first studies of RBC regulation, Avery and Berger (1991) provide evidence from data on US banks that new RBC regulations outperformed old capital regulations from 1982 through 1989.

Using data from the Federal Reserve’s Call Reports, the authors compare banks’ capital ratios and RBC ratios to five measures of bank performance: income, standard deviation of income, non-performing loans, loan charge-offs and probability of failure.

Consistent with Avery and Berger (1991), the authors find banks’ risk-weighted assets to be significant predictors of their future performance and that RBC ratios outperform regular capital ratios as predictors of risk.

The study improves on Avery and Berger (1991) by using an updated data set from 2001 through 2011. The authors also discuss some potential limitations of this method of analysis.

This paper aims to investigate the interaction between capital requirements and pricing constraints as measures for insurance regulation.

In a theoretical model framework, the author derives the insurer’s shareholder-value-maximizing response to capital regulation, price regulation and the unregulated strategy as a benchmark; all three strategies are presented in an analytical form.

The paper demonstrates that risk-based capital requirements exhibit an efficiency advantage over price regulation and allow for lower premiums. Moreover, the analysis identifies situations in which price floors make insurance more expensive, but have no positive impact on the safety level.

The comparison between capital regulation and price floors provides policymakers with a methodology to evaluate which regulatory tool is more appropriate. Also, the article discusses that maximum discount rates for European life insurers could be ineffective when the new regulatory framework Solvency II is in place.

In all, the article obtains analytical and informative results with relevant implications for insurance regulation.