Observatory for Responsible Innovation

Mines ParisTech and the Observatory for Responsible Innovation have the pleasure and privilege to announce the award of the 2012 the Dufrénoy Prize for Responsible Innovation, a distinction aiming at signaling remarkable initiatives for the development of a culture of responsibility in innovation. In accordance with the initial thematic focus of the Observatory for Responsible Innovation, the 2012 edition of the Dufrénoy Prize tackles responsibility in innovation in the financial services industry.

An open call for nomination was launched earlier in 2012, and a jury panel composed by the members of the Observatory’s Working Group on Responsible Innovation in Finance examined the nominations and proceeded to the selection of three initiatives that represent a remarkable contribution to responsible innovation in finance: the Reserve Bank of India, for its precautionary approach to the regulation of derivative markets; EGAMO, for the development of cooperative democratic principles in asset management;  MyHemera, for its potentials for a transparent assessment of complex financial products. The three initiatives will be presented and receive the award during a ceremony to be held at Mines ParisTech, in Paris, on June 18, 2012.

The Reserve Bank of India, India’s Central Bank, was nominated for its calibration policy in the regulation of financial products (some background papers: Gopinath 2010, Epstein & Crotty 2009). The panel concluded that the Indian regulatory approach to OTC derivative markets, known for its precautionary gradual approach to the introduction of financial innovation, is a crucial source of inspiration for the development of a culture of responsible financial innovation in today’s world, a culture of testing and of attention to potential negative effects in the diffusion of new, sophisticated financial products.

EGAMO, the asset management service of the MGEN (Mutuelle Générale de l’Education Nationale, a French mutual insurance company), was nominated for its distinctive mutual approach to finance. The panel observed MGEN’s commitment to alternatives to a financial logic focused solely on high returns, and to the democratic governance of financial decisions.

MyHemera, a community web-based platform that aims at gathering and sharing several quantitative approaches for the valuation and risk assessment of complex derivative financial products through a simple modular architecture, was nominated for its potential contribution to a sound collective appraisal of financial products and the ensuing reduction of negative externalities in financial innovation. The panel considered this initiative as a promising path for a safer financial environment.

Le débat sur l’innovation responsable en finance organisé par l’Observatoire pour l’innovation responsable le 30 novembre 2011 est mentionné dans le dernier ouvrage de Pascal Canfin, Ce que les banques vous disent et pourquoi il ne faut presque jamais les croire (Les Petits Matins, 2012, p. 53). Pascal Canfin est député européen (Groupe des Verts), membre de la commission Affaires économiques et monétaires, et initiateur du projet Finance Watch. Son ouvrage expose, de manière accessible et polémique, les analyses tirées de son expérience au Parlement européen et invite ainsi à prolonger le débat.

Andrew Palmer‘s February 25th 2012 special report on financial innovation for The Economist provides a deeply relevant and accurately researched investigation on the kinds of problems that have been at the center of the discussions and initiatives of the Observatory for Responsible Innovation in that area (Andrew Palmer contributed to the Observatory’s November 30th Conference). The full report is available for download here and an audio presentation can be listened to here.

The report focuses on the interpretation of irresponsibility in financial innovation, on the innovation drive in today’s financial services industry, on the protection of retail investors, on exchange-traded funds, on the problems of high-frequency trading, on financial infrastructure and clearing processes, on small-business lending and on default risk and collateral management.

(And thanks to Andrew for the kind mention to the Observatory in the acknowledgments!)

In connection to its recent activities on responsible innovation in the area of finance, the Observatory for Responsible Innovation is preparing the 2012 edition of the Dufrénoy Prize. An open call for nominations and more details about the prize are available here.

Participants to the November 30 2011 conference on “Debating Responsible Innovation in Finance” signaled a number of hot issues in contemporary financial innovation: from the potential perils of new, complex financial products to the consequences of high-frequency trading, from the role of incentives in the financial services industry to the democratic assessment of financial problems and solutions (see a brief summary in this previous post). A group of contributors to the Observatory for Responsible Innovation (Alexandre Pointier, Stéphane Delacôte, Yamina Tadjeddine, Marc Lenglet, Fabian Muniesa and Annalivia Lacoste) share their analyses of the debates in the last issue of Debating Innovation. See “Debating responsible innovation in finance: viewpoints and commentaries” (in English) and “Débattre l’innovation responsable en finance : regards croisés” (in French).

The commentaries offer analyses and interpretations on the form and content of the discussions, on the emerging controversies, and on the meaning of “debating” on such a challenging topic. As one of the contributors put it: “The Observatory for Responsible Innovation was created because we started to realize the huge gap existing between the financial world on one side, and governments and civil society on the other side – a gap that is both an information gap and a cultural gap. This kind of debate is undoubtedly the first necessary step to reconcile these two worlds.”

The last issue of Debating Innovation, the journal of the Observatory for Responsible Innovation, is now out and available here. In the piece titled “After Inside Job: consequences, problems and perspectives”, Charles Ferguson, the director of Inside Job (2010, Sony Pictures Classics), answer our questions on the aftermath and consequences of his acclaimed documentary film. The film focuses on the booming of financial innovation from the late 1990s onwards (securitization of subprime loans, development of credit derivatives) in the North-American financial services industry, on regulatory liberalization, and on the lack of accountability and the systematic corruption that characterized the activities of most dominant actors during that period.

In this interview, Charles Ferguson reflects on the consequences of Inside Job and on the crucial responsibilities and issues that still need to be addressed. Among the fundamental problems that need to be addressed, Charles Ferguson explains, are the role money plays in politics in the United States and the economic pressure for regulators to move to the private sector.

The Observatory for Responsible Innovation is proud to announce the formation of a new working group devoted to the topic of responsible innovation in the energy sector. The group will be led by Pr Eva Boxenbaum, from Copenhagen Business School, who recently joined the team of the Centre de Gestion Scientifique at Mines ParisTech. Eva Boxenbaum is a a renowned specialist in the organizational analysis of innovation and has published extensively on the topic. The working group will be focusing on the problems of built-in renewable energy in architecture. Its activities, debates and initiatives will be soon publicized in this blog and in the Observatory’s main website. Readers wishing to get involved are invited to contact us.

On behalf of the Observatory for Responsible Innovation and Mines ParisTech, the organizing committee would like to thank all participants to the conference on “Debating Responsible Innovation in Finance”, held yesterday, 30 November 2011, in Paris. Their contributions translated into an immensely productive and intense exchange. On the overall, the conference counted on more than a hundred participants: professionals from the financial services industry, journalists, elected representatives, members of regulatory bodies, students and researchers. An updated version of the finale program is available here. A more fine-grained report, with video excerpts of the discussions, will be made available here soon. What follows is just a very brief summary.

The conference started with a welcome address delivered by Benoît Legait, Director of Mines ParisTech. The initial round-table discussion was devoted the problem of “dangerous externalities”: how to tackle negative unforeseen consequences of financial innovation, how to calibrate the introduction of new products and services in the markets, how to test them, how to account for their benefits and their dangers. Shyamala Gopinath, former Deputy Governor of the National Reserve of India, discussed the Indian regulatory experience. Sarai Criado, from the European Commission, directed attention towards critical cases such as ETFs (exchange-traded funds), hybrid complex MTNs (medium-term notes), sovereign CDS (credit default swaps) and liquidity swaps. Andrew Palmer, from the Economist, chaired a lively discussion with the participation of members of the audience.

The second round-table discussion tackled the specific case of high-frequency trading (HFT) and automated trading at large: the controversy on its benefits and on its contribution to liquidity, the dangers this practice can prompt in terms of feedback loops and unintended consequences, and the difficulties it poses in terms of regulatory assessment. The discussion was chaired by Irène Inchauspé, from Challenges magazine, and counted on the viewpoints of Yann Muzika, former practitioner in this area now at Magnet Investment Advisors, Charles-Albert Lehalle, a specialist of high-frequency trading at Crédit Agricole Chevreux, Oliver Burkart from ESMA (European Securities and Markets Authority), Jean-Pierre Zigrand, economist at the London School of Economics, and Yuval Millo, a sociologist of finance, also from the London School of Economics.

Michael Power, Director of the Center for the Analysis of Risk and Regulation at the London School of Economics, provided a series of commentaries on the morning sessions, with a focus on what financial innovation could learn from the governance and assessment of innovation in other areas, from technology to medicine.

The third round-table discussion, titled “responsible actors”, shifted attention to the pressing issue of incentives: not only bonuses but incentives at large, and their capacity to foster responsibility and irresponsibility in financial, economic, regulatory and political behavior. The discussion was chaired by Delphine Liou from BFM Business TV and contributors to the debate were Pascal Canfin, Member of the European Parliament, Jean Pierre Mustier, Head of UniCredit Corporate and Investment Banking Division, Loïc Fery from Chenavari Investment Managers, Olivier Godechot, sociologist at the CNRS and Paris School of Economics, and Nicolas Véron, Senior Fellow at Bruegel and a member of the Peterson Institute.

The fourth round-table discussion introduced the topic of “democratic innovations”: the idea was to discuss measures that could strengthen a more participatory approach to financial innovation and oversight, with a deeper understanding of public scrutiny and collective responsibility in the face of risk and uncertainty. The discussion, chaired by Elsa Conesa from Les Echos, focused on the viewpoints of Michel Péretié, CEO of Société Générale Corporate and Investment Banking, and Valérie Rabault, Head of Market Prospective and Business Risk at BNP Paribas, with the participation of Stéphane Delacôte, Alexandre Pointier and Marc Lenglet, members of the Observatory for Responsible Innovation, in their capacity of former practitioners from the financial services industry.

Bruce Kogut, Director of the Sanford C. Bernstein & Co. Center for Leadership and Ethics at Columbia Business School, offered a view on the afternoon discussion, with a focus on the present situation in the United States.

Participants in the audience also provided key contributions to a debate that proved most challenging and constructive.

Le premier numéro de Debating Innovation, la revue de l’Observatoire pour l’innovation responsable, est désormais disponible en ligne ici. Michel Callon, chercheur au Centre de sociologie de l’innovation et président honoraire de l’Observatoire, expose sa vision de l’innovation responsable dans un échange avec Annalivia Lacoste, chef de projet pour l’Observatoire, intitulé “Défendre l’innovation responsable” (une version en langue anglaise est disponible aussi : “Defending responsible innovation”). Dans une conversation intitulée “Philosophie et finance : aux prises avec la responsabilité”, des spécialistes de l’innovation financière discutent avec le philosophe Jean-Claude Monod, chercheur au CNRS et enseignant à l’ENS. La discussion se poursuit dans “Réagir à la question de la responsabilité en finance”, un autre dialogue autour de la thématique retenue par l’Observatoire pour cet année : l’innovation responsable en finance.

The first issue of Debating Innovation, the journal of the Observatory for Responsible Innovation, is available online here. In English in this issue: Michel Callon, researcher at the Center for the Sociology of Innovation and honorary president of the Observatory, develops his views on responsible innovation in “Defending responsible innovation”, a dialogue with Annalivia Lacoste, the Observatory’s project manager.