Corrosive feedback
Innovations create their own feedback loops, and many of these are dangerous. Risk managers need to pay greater attention to such effects in the future, argues David Rowe
It is widely recognised that many innovations tend to encourage participants to search for ways to avoid associated restrictions. The most widely discussed example of this type of feedback is regulatory arbitrage - a phenomenon that offers the strongest argument for principles-based rather than rules-based regulations. Some corrosive feedback loops, however, have elicited little discussion and apparently limited recognition on the part of risk managers.
One such feedback loop relates to the use
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