Financial regulation is a form of regulation
or supervision, which subjects financial institution
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
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
, the other two being market practices and case law
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
thumb|U.S. Trade Balance and Trade Policy (1895–2015)
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
and the Virgin Islands
**U.S. Securities and Exchange Commission
** Financial Industry Regulatory Authority
** Commodity Futures Trading Commission
** Federal Reserve System
** Federal Deposit Insurance Corporation
** Office of the Comptroller of the Currency
** National Credit Union Administration
**Consumer Financial Protection Bureau
* United Kingdom
** Bank of England
** Prudential Regulation Authority
** Financial Conduct Authority
* Financial Services Agency
* Federal Financial Supervisory Authority
* Autorité des marchés financiers (France)
* Monetary Authority of Singapore
* Swiss Financial Market Supervisory Authority
* People's Republic of China
** China Banking Regulatory Commission
** China Insurance Regulatory Commission
** China Securities Regulatory Commission
** Reserve Bank of India
** Securities and Exchange Board of India
** Insolvency and Bankruptcy Board of India
** Insurance Regulatory and Development Authority of India
** Pension Fund Regulatory and Development Authority
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
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 Deposit Insurance Corporation
, the Office of the Comptroller of the Currency
, the National Credit Union Administration
, the Office of Thrift Supervision
, as well as regulators at the state level.
In the European Union
, 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
countries are forming a Single Supervisory Mechanism
under the European Central Bank
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
, 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
through the Capital Requirements Directive
(CRD), effective since 2008. In essence, they forced European banks, and, more importantly, the European Central Bank
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
and ultimately taxpayers’ money to strengthen an anti-competitive duopolistic industry.
Financial regulation's limit and future
The problem of psychology and more specifically Apophenia
in Finance has been recently exposed in academic journals
with however little adjustment to the FCA
regulations such as the "Misleading Statement and Actions" and "Client Best Interest" rules.
* Bank regulation
* Financial ethics
* 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
* Virtual currency law in the United States
* Labonte, Marc. (2017)''Who Regulates Whom? An Overview of the U.S. Financial Regulatory Framework''.
Washington, D.C.: Congressional Research Service
* Simpson, D., Meeks, G.
, Klumpes, P., & Andrews, P. (2000). ''Some cost-benefit issues in financial regulation.'' London: Financial Services Authority.
Securities Lawyer's Deskbook
from 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)