- Credit risk
This chapter considers the various sources of legal risk. Understanding the sources of legal risk is at least as important as understanding the component parts of a detailed definition. Only in this way can we understand why legal risks arise in the first place. Developing such an understanding is crucial to designing systems and procedures intended to manage the risks. The sources of legal risk include the behaviour of financial institutions (i.e. limited legal awareness, failure to implement legal advice, exploiting the letter of the law, and outsourcing), the nature of financial markets (i.e. financial innovation, new market sectors and convergence, and cross-border business), problems with the law (i.e. bad law, policy concerns, inaccessible law, and unpredictable judicial reasoning), and the interaction of law and finance (i.e. hard and soft law, interaction of soft law and consumerism, and globalization).
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