Financial regulation is a form of
regulation
Regulation is the management of complex systems according to a set of rules and trends. In systems theory, these types of rules exist in various fields of biology
Biology is the scientific study of life. It is a natural science with a ...
or supervision, which subjects
financial institution
Financial institutions, sometimes called banking institutions, are business entities that provide services as intermediaries for different types of financial monetary transactions. Broadly speaking, there are three major types of financial inst ...
s to certain requirements, restrictions and guidelines, aiming to maintain the stability and integrity of the
financial system. This may be handled by either a
government
A government is the system or group of people governing an organized community, generally a state.
In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government ...
or non-government organization. Financial regulation has also influenced the structure of banking sectors by increasing the variety of financial products available. Financial regulation forms one of three legal categories which constitutes the content of
financial law
Financial law is the law and regulation of the commercial banking, capital markets, insurance, derivatives and investment management sectors. Understanding financial law is crucial to appreciating the creation and formation of banking and financ ...
, the other two being market practices and
case law.
History
In the
early modern period, the Dutch were the pioneers in financial regulation. The first recorded ban (regulation) on
short selling was enacted by the Dutch authorities as early as 1610.
Aims of regulation
The objectives of financial regulators are usually:
* 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.
Structure of supervision
Acts empower organizations, government or non-government, to monitor activities and enforce actions. There are various setups and combinations in place for the financial regulatory structure around the globe.
Supervision of stock exchanges
Exchange acts ensure that trading on the exchanges is conducted in a proper manner. Most prominent the pricing process, execution and settlement of trades, direct and efficient trade monitoring.
Supervision of listed companies
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.
Supervision of investment management
Asset management supervision or investment acts ensures the frictionless operation of those vehicles.
Supervision of banks and financial services providers
Banking 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.
Authority by country
The following is a short listing of regulatory authorities in various jurisdictions, for a more complete listing, please see
list of financial regulatory authorities by country.
*
United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., federal district, five ma ...
and its territories
**
U.S. Securities and Exchange Commission (SEC)
**
Financial Industry Regulatory Authority (FINRA)
**
Consumer Financial Protection Bureau
The Consumer Financial Protection Bureau (CFPB) is an agency of the United States government responsible for consumer protection in the financial sector. CFPB's jurisdiction includes banks, credit unions, securities firms, payday lenders, mor ...
(CFPB)
**
Commodity Futures Trading Commission (CFTC)
**
Federal Reserve System
The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...
("Fed")
**
Federal Deposit Insurance Corporation
The Federal Deposit Insurance Corporation (FDIC) is one of two agencies that supply deposit insurance to depositors in American depository institutions, the other being the National Credit Union Administration, which regulates and insures cre ...
(FDIC)
**
Office of the Comptroller of the Currency
The Office of the Comptroller of the Currency (OCC) is an independent bureau within the United States Department of the Treasury that was established by the National Currency Act of 1863 and serves to charter, regulate, and supervise all natio ...
(OCC)
**
National Association of Insurance Commissioners (NAIC) (a State-based regulatory standards organization, the
McCarran–Ferguson Act exempts the "business of insurance" from most regulation at the Federal level)
**
National Credit Union Administration (NCUA)
*
United Kingdom
The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the European mainland, continental mainland. It comprises England, Scotlan ...
**
Bank of England (BoE)
**
Prudential Regulation Authority (PRA)
**
Financial Conduct Authority
The Financial Conduct Authority (FCA) is a financial regulatory body in the United Kingdom, but operates independently of the UK Government, and is financed by charging fees to members of the financial services industry. The FCA regulates financ ...
(FCA)
*
Financial Services Agency
The is a Japanese government agency and an integrated financial regulator responsible for overseeing banking, securities and exchange, and insurance sectors in order to ensure the stability of the financial system of Japan. The agency operates w ...
(FSA),
Japan
*
Federal Financial Supervisory Authority (BaFin),
Germany
Germany, officially the Federal Republic of Germany (FRG),, is a country in Central Europe. It is the most populous member state of the European Union. Germany lies between the Baltic and North Sea to the north and the Alps to the sou ...
*
Autorité des marchés financiers (France) (AMF),
France
France (), officially the French Republic ( ), is a country primarily located in Western Europe. It also comprises of overseas regions and territories in the Americas and the Atlantic, Pacific and Indian Oceans. Its metropolitan ar ...
*
Monetary Authority of Singapore (MAS),
Singapore
Singapore (), officially the Republic of Singapore, is a sovereign island country and city-state in maritime Southeast Asia. It lies about one degree of latitude () north of the equator, off the southern tip of the Malay Peninsula, borde ...
*
Hong Kong Monetary Authority (HKMA),
Hong Kong
Hong Kong ( (US) or (UK); , ), officially the Hong Kong Special Administrative Region of the People's Republic of China (abbr. Hong Kong SAR or HKSAR), is a city and special administrative region of China on the eastern Pearl River Delta i ...
*
Swiss Financial Market Supervisory Authority (FINMA),
Switzerland
*
People's Republic of China
China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's List of countries and dependencies by population, most populous country, with a Population of China, population exceeding 1.4 billion, sli ...
**
China Banking Regulatory Commission (CBRC)
**
China Insurance Regulatory Commission (CIRC)
**
China Securities Regulatory Commission (CSRC)
*
India
India, officially the Republic of India ( Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the ...
:
**
Reserve Bank of India (RBI)
**
Securities and Exchange Board of India (SEBI)
**
Insolvency and Bankruptcy Board of India (IBBI)
**
Insurance Regulatory and Development Authority of India (IRDAI)
**
Pension Fund Regulatory and Development Authority (PFRDA)
Unique jurisdictions
In most cases, financial regulatory authorities regulate all financial activities. But in some cases, there are specific authorities to regulate each sector of the finance industry, mainly
banking
A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...
,
securities,
insurance
Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...
and
pensions markets, but in some cases also commodities, futures, forwards, etc. For example, in
Australia, the
Australian Prudential Regulation Authority (APRA) supervises banks and insurers, while the
Australian Securities and Investments Commission (ASIC) is responsible for enforcing financial services and corporations laws.
Sometimes more than one institution regulates and supervises the banking market, normally because, apart from regulatory authorities, central banks also regulate the banking industry. For example, in the USA banking is regulated by a lot of regulators, such as the
Federal Reserve System
The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...
, the
Federal Deposit Insurance Corporation
The Federal Deposit Insurance Corporation (FDIC) is one of two agencies that supply deposit insurance to depositors in American depository institutions, the other being the National Credit Union Administration, which regulates and insures cre ...
, the
Office of the Comptroller of the Currency
The Office of the Comptroller of the Currency (OCC) is an independent bureau within the United States Department of the Treasury that was established by the National Currency Act of 1863 and serves to charter, regulate, and supervise all natio ...
, the
National Credit Union Administration, as well as regulators at the state level.
In the
European Union
The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been ...
, the
European System of Financial Supervision consists of the
European Banking Authority (EBA), the
European Securities and Markets Authority (ESMA) and the
European Insurance and Occupational Pensions Authority (EIOPA) as well as the
European Systemic Risk Board. The
Eurozone
The euro area, commonly called eurozone (EZ), is a currency union of 19 member states of the European Union (EU) that have adopted the euro ( €) as their primary currency and sole legal tender, and have thus fully implemented EMU polic ...
countries are forming a
Single Supervisory Mechanism under the
European Central Bank
The European Central Bank (ECB) is the prime component of the monetary Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union. It is one of the world's most important centra ...
as a prelude to
Banking union.
There are also associations of financial regulatory authorities. At the international level, there is the
International Organization of Securities Commissions (IOSCO), the
International Association of Insurance Supervisors, the
Basel Committee on Banking Supervision, the
Joint Forum The Joint Forum (previously known as The Joint Forum on Financial Conglomerates) is an international group bringing together financial regulatory representatives from banking, insurance and securities. It works under the international bodies for th ...
, and the
Financial Stability Board, where national authorities set standards through consensus-based decision-making processes.
The structure of financial regulation has changed significantly in the past two decades, as the legal and geographic boundaries between markets in banking, securities, and insurance have become increasingly "blurred" and
globalized.
Regulatory reliance on credit rating agencies
Think-tanks such as the
World Pensions Council (WPC) have argued that most European governments pushed dogmatically for the adoption of the
Basel II recommendations, adopted in 2005, transposed in
European Union law
European Union law is a system of rules operating within the member states of the European Union (EU). Since the founding of the European Coal and Steel Community following World War II, the EU has developed the aim to "promote peace, its valu ...
through the
Capital Requirements Directive (CRD), effective since 2008. In essence, they forced European banks, and, more importantly, the
European Central Bank
The European Central Bank (ECB) is the prime component of the monetary Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union. It is one of the world's most important centra ...
itself e.g. when gauging the
solvency of EU-based financial institutions, to rely more than ever on the standardized assessments of
credit risk marketed by two private US agencies- Moody's and S&P, thus using
public policy
Public policy is an institutionalized proposal or a decided set of elements like laws, regulations, guidelines, and actions to solve or address relevant and real-world problems, guided by a conception and often implemented by programs. Public ...
and ultimately taxpayers’ money to strengthen an anti-competitive duopolistic industry.
See also
*
Bank regulation
*
Finance
*
Financial ethics
*
Financial repression
*
Global financial system
*
Group of Thirty
*
Insurance law
*
International Organization of Securities Commissions
*
International Centre for Financial Regulation
The International Centre for Financial Regulation (ICFR) (2009–12) was a UK-based non-partisan organisation focused entirely on financial regulation that operated between 2009 and 2012.
History
IFCR was the product of a collaboration between a ...
*
LabEx ReFi - European Laboratory on Financial Regulation
*
Macroprudential regulation
*
Microprudential regulation
*
Regulatory capture
In politics, regulatory capture (also agency capture and client politics) is a form of Political corruption, corruption of authority that occurs when a political entity, Legislator, policymaker, or regulatory agency, regulator is co-opted to serve ...
*
Regulatory economics
Regulatory economics is the economics of regulation. It is the application of law by government or regulatory agencies for various purposes, including remedying market failure, protecting the environment and economic management.
Regulation
Re ...
*
Securities commission
*
*
Virtual currency law in the United States United States virtual currency law is financial regulation as applied to transactions in virtual currency in the U.S. The Commodity Futures Trading Commission has regulated and may continue to regulate virtual currencies as commodities. The Securiti ...
References
Further reading
* Labonte, Marc. (2017)
''Who Regulates Whom? An Overview of the U.S. Financial Regulatory Framework''.Washington, D.C.:
Congressional Research Service
The Congressional Research Service (CRS) is a public policy research institute of the United States Congress. Operating within the Library of Congress, it works primarily and directly for members of Congress and their committees and staff on ...
.
*
* Simpson, D.,
Meeks, G., Klumpes, P., & Andrews, P. (2000). ''Some cost-benefit issues in financial regulation.'' London: Financial Services Authority.
External links
Securities Lawyer's Deskbookfrom the
University of Cincinnati College of Law
Ana Carvajal, Jennifer Elliott: IMF Study Points to Gaps in Securities Market RegulationIOSCO: Objectives and Principles of Securities Regulation (PDF-Datei 67 Seiten)
{{DEFAULTSORT:Financial Regulation
Financial law