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FEATURED RESEARCH  
What Determines the Demand for Compliance Staff?  

Investment banks and other kinds of financial services organisations have hired far more compliance staff in recent months than before. When will the hiring end? What drives such hiring -- and what will the effect on profits and legal professional hiring of these firms? In this paper, we model the compliance staff hiring decision. Looking at the decision to pay outsourced compliance consultants or hire in-house compliance staff, we find that outsourced staff drive productivity and pay in the compliance sector overall. We also create a unique database to assess which countries will have "most" regulation which needs complying with.

 

 

                         

                             Dataset on the level of financial regulation across countries (.xls)

 

 

Dr. Bryane Michael is currently a senior fellow at the HKU Law Faculty's Asian Institute of International Financial Law and the University of Oxford. He teaches by Socratic Method over 200 executives every year in business, economics and law in a range of countries. Such teaching usually results in a new legislative act or executive regulation, Board resolutions adopting various internal controls, marketing plans, capital raising decisions and so forth. He ranks in the top 1% of academics (by SSRN downloads) and speaks at over 70 events each year. Full bio

 

 

 

 

 

 

 

 

 

 

 

 

 

NEW IN 2016-2017

The Role of Hong Kong's Financial Regulations in Improving Corporate Governance Standards in China: Lessons from the Panama Papers for Hong Kong

Hong Kong contributes to poor corporate governance on the Mainland. Could regulatory reform in Hong Kong help improve corporate governance standards/practices (and thus firm value) on the Mainland? In this paper, we discuss ways to incentivize Mainland firms to improve their corporate governance by adopting numerous market-value increasing reforms in Hong Kong. These include the limited extra-territorial application of corporate governance provisions, changes to the Listing Rules to ‘contract’ for better corporate governance, and incentives to collect better corporate governance data. Other reforms include increasing financial transparency (particularly about corporate ownership and control), reducing financial firms’ incentives to trade in shell corporations, regulating relationships with tax havens, and encouraging the redrafting of China’s 2002 Code of Corporate Governance. We provide 31 recommendations and estimate that these recommendations can increase market values on the Mainland by 7% (or in value of roughly $330 billion), while improving the value-added of Hong Kong’s own incorporation/corporate services companies.


The Optimal Design of the Qianhai Special Economic Zone

Qianhai – an innovation park in Shenzhen – has the possibility of boosting innovation in Hong Kong, Shenzhen and in the wider region. This paper analyses the costs and benefits of existing plans for Qianhai and discusses the profit-maximising design of the Qianhai. We review existing evidence about which policies have promoted profitable innovation in the Qianhai region (Hong Kong and Shenzhen) in the past. We also show how a raft of legal changes concomitant with Hong Kong-Shenzhen development of Qianhai can increase innovation-led profits in the two jurisdictions. Some of these changes touch upon the mandate and organisation of the Qianhai Authority itself, and relatively poor-performing innovation agencies and schemes especially in Hong Kong. We find that such a zone would increase innovation-led profits in the logistics, IT, and other Qianhai-targeted sectors by a factor of four in the short-run and a factor of ten in the longer run. As a contribution to the wider field of innovation policy, we derive a model of the optimal innovation agency. That model shows the equilibrium and optimal levels of profits, R&D spending and cash/investment for innovative companies in a particular jurisdiction.


The Prospects and Problems of an IGAD Regional Development Bank

A multilateral development finance institution for the Inter-Governmental Authority on Development (IGAD) region represents the chance to create a strong pro-developmental actor – and energize the IGAD itself. Yet, the IGAD senior officials will need to look beyond the traditional development banking model if they hope to make an impact of the scale needed to drag these poorest of countries out of their poverty. In this paper, we argue for the design of a development bank modelled after successful role models – like the China Development Bank – instead of proven failures. A mix of government and private sector participation, a widely disbursed capital base, and a temporary base in London, will help ensure the proposed IGAD Communities Development Bank acts as bridge and vector of pro-developmental capitalism in the IGAD region.


Bubble Economics: How Big a Shock to China's Real Estate Sector Will Throw the Country into Recession, and Why Does it Matter?

How far do China’s property prices need to drop in order to send the country into a recession? What does this question tell us about the way Bubble Economies work? In this paper, we develop a theory of Bubble Economics – non-linear and often “systemic” (in the mathematical sense of the word) forces which cause significant misallocations of resources. Our theory draws on the standard elements of most stories of Bubble Economics, looking at the way banking, construction, savings/investment, local government and equities sectors interact. We find that Bubble Economies’ GDP growth can depend on property prices changes differently at different times -- depending on risks building up in the economy. We argue that a tacit, implicit Bubble Risk Factor might provide a way of understanding a key variable academics and practitioners omit when they try to explain how economies (mis)allocate resources during bubbles. A 15%-20% property price drop could cause recession, if China’s economy resembles other large economies having already experienced property-related asset crises. However, a 40% decline would not be out of the question.


What Determines M&A Legal and Financial Advisors’ Competitiveness in an International Financial Centre: Using China's Going Out Policy as a Natural Experiment

Roughly 60% of all publically announced advisors to China’s “Going Out” M&A transactions from 2000 to 2014 were from international financial centres (representing over 70% of deal value). Why did advisors, located so far away from both acquirer and target, manage to dominate the M&A advisory market in the early stages of the “Going Out” policy? What can we learn from the smaller advisors located outside of these financial centres who managed to capture a growing share of this business in “Going Out’s” more recent stages? In this paper, we hypothesize the existence of a “legal complexity externality” that had the effect of increasing a financial centre’s ability to attract international business. We look at the way Going Out advisors have responded to advisory opportunities using what management theorists call “blue ocean strategy.” We show that relationships across geography changed, as large global advisors lost their share of advisory business to advisors outside of international financial centres due to the interplay of these legal complexity externalities and blue ocean strategies. As cities helps foster changes in the law governing Going Out transactions – and as financial and legal advisors adapted their strategies to compete – cities gained or lost Going Out business. We provide 5 recommendations to existing and aspiring international financial centres looking to capture a larger share of global M&A and other investment advisory business.


Does Objectives-Based Financial Regulation Imply a Rethink of Legislatively Mandated Economic Regulation? The Case of Hong Kong and Twin Peaks Financial Regulation

Objectives-based legislation – or laws which focus on achieving particular and concrete outcomes – has become a new and important tool that financial sector regulators use to tackle large and varied financial system risks. Yet, objectives-based legislation – and the frequent principles-based regulation underpinned by such legislation – represents a stark departure from traditional ways of legislating. In this paper, we describe the problems and prospects of implementing objectives-based financial regulation in Hong Kong – in the form of a Twin Peaks regulatory structure. A focus on the objectives of achieving financial market stability and proper market conduct would require a different approach to legislating and regulating in Hong Kong (and most other countries). By describing the way Hong Kong’s legislators would adopt such objectives-based legislation putting a Twin Peaks regulatory structure in place, we hope to shed light on the broader trend in academic and practitioner circles toward thinking about how to use objectives-based legislation to tackle complex social risks. Such an approach may also reduce the use of patchworks of complex inter-agency agreements and rulemaking between traditional regulators as they try to solve large and difficult regulatory problems.


What Role Can an International Financial Centre's Law Play in the Development of a Sunrise Industry? The Case of Hong Kong and Solar Powered Investments

How can international financial centres like Hong Kong increase assets under management – and thus their size and ranking? Most policymakers and their advisors wrongly answer this question by focusing on financial institutions, and the law that governs them. Instead, policymakers need to start by looking at actual markets. What new tastes and technologies need funding? How can such funding fit into already existing geographies of production, distribution and finance? In this paper, we show how a focus on funding sunrise industries can help increase assets under management for the financial institutions operating in an international financial centre like Hong Kong. We show – using the specific example the photovoltaic (solar power) sector – how changes in financial law need to be contingent on market needs. We specifically show how legal changes which promote the securitisation of solar assets (and the sale of these securities) can help increase Hong Kong’s financial institutions’ assets under management. By using this specific case, we hope to provide insight into the broader question of how technological change, geography, and financial law interact.  


The Cost of Antitrust Law to Malaysia's Financial Services Sector

Judging by only economic incentives, Malaysian financial institutions (particularly banks) should completely ignore the Competition Act. The data show that Malaysian banks probably benefit from anticompetitive behaviour. Political and family connections likely facilitate such behaviour. Given that the Malaysian Competition Commission will likely lack the resources to investigate and sanction anti-competitive behaviour in Malaysia’s banking industry – the banks’ best response to the Act probably consists of ignoring it. Maximum fines of 10 million ringgit and revenue-tied penalties of only 10% of worldwide revenue mean that banks still have strong incentives to engage in anticompetitive behaviour and to pay any low fine that might be levied. The best compliance programme for banks in Malaysia likely consists of actions that avoid detection rather than detecting and preventing anticompetitive behaviour. Private rights of action are unlikely to provide any stronger economic incentives for Malaysian banks to adopt strong antitrust compliance programmes and internal audit programmes. By staying the course, Malaysian banks can continue to earn about 15 billion ringgits (approximately US$4.6 billion in anticompetitive rents).

 

RESEARCH AREAS
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Multimedia
MULTIMEDIA
Bryane Michael Discusses Ukraine's Devaluation

In the 1990s, I helped with a 50% devaluation of a major country's currency. In recent times, I have discussed the economic ramifications of Ukraine's devaluation. The grivna had been unsustainably pegged for years. After a devaluation from roughly 10 grivna to the euro to 15, the currency looks in alignment. However, pressures to print money look likely to further erode the value of the grivna. A war in the East looks likely to remove part of Ukraine's GDP -- again making the currency less valuable.

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SEEKING ALPHA BRIEFS

The Law and Economics of Business

I am pleased and honored to join the Warsaw-based CASE as a fellow. If academics understand the world so much better, we should see deeper into the forces that drive companies -- and thus economies. I write articles for services like Seeking Alpha -- applying the theories and intuitions we learn in the academy to the real-world. In line with academic tradition, I am not paid for this.

See these articles online.

Math slides

These are the Post-It notes about math. Alternative site - when I eventually move on.

Disclaimer: The materials and views presented on this website belong only to the author and in no way reflect the views or opinions of the University of Hong Kong (nor any other organisation with whom I or my colleagues are affiliated). This website provides a forum for the NON-PROFIT sharing of educational resources. No materials on this site can be considered either as solicitations for a purchase or the acts of an agent acting on behalf of a principal in any jurisdiction.