Challenging the regulators: Enforcement and appeals in financial regulation

This article investigates the conditions under which regulatees challenge regulatory sanctions in court. Targets of enforcement have the right to make independent regulatory agencies (IRAs) accountable in court, but IRAs would prefer not to have their enforcement actions challenged. This article argues that, when deciding whether to contest regulators through appeals, regulatees consider the price of harming the regulatory relationship. Regulatory litigation is expected to be shaped by the type of enforcement measures at stake, the type of entity (i.e., firm or individual), and the kind of relation between firms and authorities (i.e., primary regulators). The empirical analysis relies on more than 3,700 cases from 18 financial regulators covering 13 European countries between 2004 and 2020. Results suggest that enforcement actions that impose costlier sanctions and target individuals are at higher risk of appeal; in contrast, firms sanctioned by their national primary regulators show less appetite for appeals.