Financial regulation is a broad set of policies that apply to the financial sector in most jurisdictions, justified by two main features of finance: systemic risk, which implies that the failure of financial firms involves public interest considerations; and information asymmetry, which justifies curbs on freedom of contract in selected areas of financial services, particularly those that involve retail clients and/or Principal–agent problems. An integral part of financial regulation is the supervision of designated financial firms and markets by specialized authorities such as securities commissions and bank supervisors.
In some jurisdictions, certain aspects of financial supervision are delegated to self-regulatory organizations. Financial regulation forms one of three legal categories which constitutes the content of financial law, the other two being market practices and case law.[1]
History
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In the early modern period, the Dutch were the pioneers in financial regulation.[2] The first recorded ban (regulation) on short selling was enacted by the Dutch authorities as early as 1610.
Aims of regulation
editThe objectives of financial regulators are usually:[3]
- market confidence – to maintain confidence in the financial system
- financial stability – contributing to the protection and enhancement of stability of the financial system
- consumer protection – securing the appropriate degree of protection for consumers.
- reduce financial crime
- regulate foreign participation
Structure of supervision
editActs empower organizations, government or non-government, to monitor activities and enforce actions.[4] There are various setups and combinations in place for the financial regulatory structure around the globe.[5][6]
Securities market regulation
editExchange acts ensure that trading on the floor of exchanges is conducted in a proper manner. Most prominent the pricing process, execution and settlement of trades, direct and efficient trade monitoring.[7][8]
Financial regulators ensure that listed companies and market participants comply with various regulations under the trading acts. The trading acts demands that listed companies publish regular financial reports, ad hoc notifications or directors' dealings. Whereas market participants are required to publish major shareholder notifications. The objective of monitoring compliance by listed companies with their disclosure requirements is to ensure that investors have access to essential and adequate information for making an informed assessment of listed companies and their securities.[9][10][11]
Asset management supervision or investment acts ensures the frictionless operation of those vehicles.[12]
Supervision of banks and financial services providers
editBanking acts lay down rules for banks which they have to observe when they are being established and when they are carrying on their business. These rules are designed to prevent unwelcome developments that might disrupt the smooth functioning of the banking system. Thus ensuring a strong and efficient banking system.[13][14]
Financial regulatory authorities
editSee also
edit- Bank regulation
- Finance
- Financial economics § Financial markets
- Financial ethics
- Financial regulation in India
- Financial repression
- Global financial system
- Group of Thirty
- Insurance law
- International Organization of Securities Commissions
- International Centre for Financial Regulation
- LabEx ReFi - European Laboratory on Financial Regulation
- Macroprudential regulation
- Microprudential regulation
- Regulatory capture
- Regulatory economics
- Securities commission
- Commodity market § Regulation of commodity markets
- Virtual currency law in the United States
References
edit- ^ Joanna Benjamin 'Financial Law' Oxford University Press
- ^ Clement, Piet; James, Harold; Van der Wee, Herman (eds.): Financial Innovation, Regulation and Crises in History. (Routledge, 2014. xiii + 176 pp. ISBN 9781848935044)
- ^ UK FSA statutory objectives, 2016-04-20, archived from the original on 2017-07-07, retrieved 2012-08-21
- ^ De Caria, Riccardo (2011-09-23), What is Financial Regulation Trying to Achieve?, Riccardo De Caria, SSRN 1994472
- ^ Luxembourg CSSF structure and organisation
- ^ German BAFin supervision organisation, archived from the original on 2012-08-04
- ^ Suisse finma stock exchange supervision
- ^ German BAFin stock exchange supervision, archived from the original on 2012-07-22
- ^ Finland FSA supervion of listed companies, archived from the original on 2012-10-12, retrieved 2012-08-05
- ^ Saudi Arabia market supervision, archived from the original on 2013-05-18, retrieved 2012-08-05
- ^ Borsa Italiana listed stock supervision[permanent dead link]
- ^ US SEC Division of Investment Management
- ^ Reserve Bank of India, Department of Banking Supervision
- ^ Luxembourg CSSF Supervision of Banks, archived from the original on 2016-03-05, retrieved 2012-08-05
Further reading
edit- Labonte, Marc. (2017). Who Regulates Whom? An Overview of the U.S. Financial Regulatory Framework. Washington, D.C.: Congressional Research Service. Archived 2017-12-05 at the Wayback Machine
- Reinhart, Carmen; Rogoff, Rogoff (2009), This Time is Different: Eight Centuries of Financial Folly, Princeton U. Pr., ISBN 978-0-691-15264-6
- Simpson, D., Meeks, G., Klumpes, P., & Andrews, P. (2000). Some cost-benefit issues in financial regulation. London: Financial Services Authority.