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Recognition of Luxembourg fintech research in the US

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Publié le mercredi 12 juin 2019

Prof. Dirk Andreas Zetzsche, the ADA Chair in Financial Law and Inclusive Finance at the University of Luxembourg, recently visited three top US universities to present his latest research on the impact of technology on corporate governance practices, as well as to talk about regulatory issues of Digital Asset Funds (also frequently referred to as crypto-hedgefunds).

Over two days, on the 5th and 6th of June, Prof. Zetzsche presented his research paper at Cornell University, followed by a visit at Cardozo School of Law, and a symposium on digital asset funds held at the Columbia University campus.

“The visit helps to position Luxembourg as the centre of fintech research in Europe,” he said, further adding that for European researchers “it’s very difficult to access the US academic world”.

“Such an opportunity”, Prof. Zetzsche explains, “allows me as an academic to strengthen my research activities and to also benefit from an international dialogue, with U.S. colleagues as well as with the emerging fund manager scene at NYC”.

Co-authored with Luca Enriques, Allen & Overy Professor of Corporate Law at the University of Oxford Faculty of Law and Fellow of the European Corporate Governance Institute (ECGI), Prof. Zetzsche’s latest research paper titled “Corporate Technologies and the Tech Nirvana Fallacy” takes an analytical approach on the interactions between technology and humans in corporate boardrooms and argues that human biases may play an important role in the way CorpTech is designed and employed by the board directors.

“CorpTech’’

The authors introduce “CorpTech” as a new term in the research literature for all uses of artificial intelligence, blockchain, smart contracts, Big Data and the like. While RegTech refers to the use of technology in the context of risk management, regulatory oversight, reporting and compliance only, “CorpTech’’ comprises all solutions related to corporate governance, hence RegTech is one part of CorpTech, but CorpTech goes far beyond RegTech: CorpTech may include, for instance, tools to set executive compensation, to identify candidates for top positions within the organisation, to facilitate investor relations, corporate voting and the internal workings of the board of directors, as well as to manage risk and enhance compliance functions.

The term “CorpTech”, however, excludes operations software products such as those used for sales, Research & Development and production management.

The research paper provides a technical context of the main technologies that may disrupt boards’ functions in the near future, including distributed ledgers and blockchains, smart contracts, Big Data and artificial intelligence or machine learning. Further examples of existing CorpTech solutions are detailed in the research.

Human bias versus neutral technology

Most research so far asks the question of whether CorpTech replaces human boards. Enriques & Zetzsche’s research reveals that the human board of directors with the right CorpTech arrangements contribute more value to the firm that those without or the wrong CorpTech arrangements, but more insights are needed into what the right CorpTech arrangements are.

On the lookout for the best CorpTech arrangements, the authors find that fundamental questions underlying corporate governance are unlikely to change under the influence of technology. In particular, conflicts of interest are bound to remain at the heart of corporate governance. In a CorpTech world, the allocation of power over the selection of particular CorpTech solutions will determine the degree of control that any constituency, be it directors, management, shareholders or other stakeholders, can exert over the firm.

Besides his role at the University of Luxembourg, Prof. Zetzsche is a non-executive Director of the Centre for Business and Corporate Law at Heinrich-Heine-University, in Düsseldorf, and an academic member of ECGI, a member of the Consultative Working Group on Financial Innovation at the European Securities & Markets Authority (ESMA) in Paris. He also chairs the FinTech Working Group of the European Banking Institute (EBI) in Frankfurt and contributes to a Blockchain working group in Luxembourg.

The co-authored paper on the impact of CorpTech on boards of directors can be accessed on the link below: www.ssrn.com/abstract=3392321.