But the following question needs to be constantly asked: “Financial innovation towards what objective?” As long as financial innovation is seen to promote price discovery, greater intermediation efficiency, and hence, overall efficiency and growth, it must be encouraged, but with appropriate safeguards to maintain financial stability. Unproductive financial innovation, however, will need to be discouraged.
Moreover, the debate on financial innovation and regulation has to be considered in terms of potential and systematic relevance of such innovations besides the capabilities for bringing them effectively under the regulatory umbrella (Mohan, 2007).