Luigi Federico Signorini: Behavioural insights for conduct supervision

Introductory remarks by Mr Luigi Federico Signorini, Deputy Governor of the Bank of Italy, at the Bank of Italy/FinCoNet International Seminar on Financial Consumer Protection, Rome, 15 November 2019.

The views expressed in this speech are those of the speaker and not the view of the BIS.

It is my great pleasure to open the International Seminar on Financial Consumer Protection, jointly organized by Finconet and the Bank of Italy.

The theme of this seminar is the subject of much discussion and a driving force in the evolution of business conduct regulation and supervision. Behavioural economics has provided important insights. We would be well advised to take them into account when framing regulations and performing supervisory tasks in the financial sector.

Understanding how people make economic choices is central to economics. Economic models, however, will never be able to do justice to the full range of motivations, reasoning and impulses behind human behaviour. Economics needs to simplify and select. At the same time, it needs to remain open-minded enough to see the pitfalls of simplifying assumptions. Economic models have always been challenged over time, with new approaches subverting the conventional wisdom of the day; as in all sound science, progress in economics has been driven by people challenging received wisdom, pointing out its flaws, and proposing corrections. Yet it has always retained the basic concept that agents will respond to incentives and that in most circumstances the collective wisdom resulting from innumerable fallible individual choices is superior to comprehensive top-down planning, enlightened as the latter may be. Adam Smith did not have to invoke utility maximisation to conceive of the invisible hand, nor did Ricardo to discover comparative advantage: two of the most counterintuitive, and most enduring, cornerstones of economics.