Has the Financial Regulatory Environment Improved in the UK? A Capture-Recapture Approach to Estimate Detection and Deterrence

Have regulators improved their capacity to detect or deter financial misconduct since the global financial crisis? This study addresses this question through an analysis that differentiates between detection and deterrence of financial misconduct over the period 2002-2016. To make this determination a CaptureRecapture, trap response model within a difference-in-differences framework is used to examine regulatory notices and supplementary information issued by UK financial regulators with corresponding Australian data employed as an unbiased control. Examining pre- and post-financial crisis periods, we offer evidence, whilst there was no statistically significant change in detection rates for breaches of financial regulation, there was a significant increase in the rate of deterrence occurred after 2010. We interpret this result as an increase in the efficacy of regulation of financial misconduct in recent years.