regulatoryriskandstrategiccontrolsoffinancialinstitutions.docVIP

Regulatory risk and strategic controls of financial institutions: institutional dynamics in an emerged global financial centre Artie W. Ng The Hong Kong Polytechnic University Abstract Prior studies have revealed the interdependency among corporate governance, risk management and management controls in organizations. Such interdependency is considered inevitable within a public sector driven by pertinent policies and regulations. Harnessing a literature review on risk management and management controls pertinent to financial regulations, this study adopts a longitudinal case study to reveal the evolution of strategic controls for financial institutions in an emerged global financial centre. Examining the role of policy in defining regulatory objectives and the development of a specialized institution model dominated by two main financial regulators, it looks into the vulnerability of such financial supervision architecture that instigates unprecedented financial innovation to externalities. Mitigations to such regulatory risk through precautionary measures and strategic controls among the regulated are deliberated. This paper argues that the dynamics between the regulators and the regulated over the increased risk controls are contingent to the externalities of unprecedented systemic risk and resulting control failures. Such increased risk controls are reflected through institutional isomorphism among the regulated financial institutions trailing legitimacy. An underlying institutional dynamic risk management model seeking an optimum within the established financial supervision architecture is grounded. Keywords Risk management, Regulatory risk, Financial institutions, Strategic control, Institutional dynamics Introduction In the recent years, Hong Kong Special Administrative Region of China (Hong Kong) has been viewed as an emerged global financial centre in Asia for a number of its inherent strengths. As articulated by Leung and Unteroberdoerst