Unintended consequences of financial regulations: a study of corporate compliance burdens: A conceptual review

This conceptual review examines the unintended consequences of financial regulations, focusing specifically on the compliance burdens imposed on firms. Although ensuring stability, showing what happens in markets and building trust in the financial industry, these regulations tend to harm small and medium-sized enterprises (SMEs). Using theories of regulation, institutions, cost-benefit analysis and choice, the study examines how companies handle rules that are difficult to follow and shows how important it is for firms to find a balance between the expenses of obeying the law and the time and effort wasted on extra paperwork. An analysis of various sources highlights that due to the extra expense of complying with regulations, big firms survive whereas small firms (may) disappear, impacting innovation, leaving their markets or bending the rules.

Emerging issues identified include the limited exploration of non-financial burdens such as cultural and reputational impacts — and the lack of consistent, multidimensional metrics to capture the full scope of compliance costs. The review emphasises that more research is needed to see how rules influence businesses in newly developed economies. It further emphasises the need to make regulation that is structured, flexible and fits both policy and economic purposes. The analysis helps regulators in developing strategies to make compliance easier while still following the regulations and it shows companies how best to deal with compliance challenges. Generally, the analysis provides a broader perspective on the effects of financial rules on corporate behaviours, expenses and the long-run survival of organisations.