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 and society, but the term has slightly different meanings according to context. ...

or supervision, which subjects financial institutions to certain requirements, restrictions and guidelines, aiming to maintain the stability and integrity of the

financial system A financial system is a system that allows the exchange of funds between financial market participants such as lenders, investors, and borrowers. Financial systems operate at national and global levels. Financial institutions consist of complex, c ...

. 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 i ...

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.

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 Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...

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, mo ...

(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 ...

("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 cr ...

(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 nat ...

(OCC) **

National Association of Insurance Commissioners The National Association of Insurance Commissioners (NAIC) is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia, and five U.S. territo ...

(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 The National Credit Union Administration (NCUA) is a government-backed insurer of credit unions in the United States, one of two agencies that provide deposit insurance to depositors in U.S. depository institutions, the other being the Feder ...

(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 continental mainland. It comprises England, Scotland, Wales and ...

Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the English Government's banker, and still one of the bankers for the Government o ...

(BoE) ** Prudential Regulation Authority (PRA) ** Financial Conduct Authority (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 ...

(FSA),

Japan Japan ( ja, 日本, or , and formally , ''Nihonkoku'') is an island country in East Asia. It is situated in the northwest Pacific Ocean, and is bordered on the west by the Sea of Japan, while extending from the Sea of Okhotsk in the n ...

* Federal Financial Supervisory Authority (BaFin),

Germany Germany,, officially the Federal Republic of Germany, is a country in Central Europe. It is the second most populous country in Europe after Russia, and the most populous member state of the European Union. Germany is situated betwee ...

Autorité des marchés financiers (France) Autorité des marchés financiers may refer to: * Autorité des marchés financiers (France) *Autorité des marchés financiers (Québec) Autorité des marchés financiers may refer to: *Autorité des marchés financiers (France) Autorité des march ...

(AMF),

France France (), officially the French Republic ( ), is a country primarily located in Western Europe. It also comprises of Overseas France, overseas regions and territories in the Americas and the Atlantic Ocean, Atlantic, Pacific Ocean, Pac ...

* 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, bor ...

* 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 List of cities in China, city and Special administrative regions of China, special ...

Swiss Financial Market Supervisory Authority The Swiss Financial Market Supervisory Authority (FINMA) is the Swiss government body responsible for financial regulation. This includes the supervision of banks, insurance companies, stock exchanges and securities dealers, as well as other ...

(FINMA),

Switzerland ). Swiss law does not designate a ''capital'' as such, but the federal parliament and government are installed in Bern, while other federal institutions, such as the federal courts, are in other cities (Bellinzona, Lausanne, Luzern, Neuchâtel ...

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, slig ...

** 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 List of countries and dependencies by area, seventh-largest country by area, the List of countries and dependencies by population, second-most populous ...

: **

Reserve Bank of India The Reserve Bank of India, chiefly known as RBI, is India's central bank and regulatory body responsible for regulation of the Indian banking system. It is under the ownership of Ministry of Finance, Government of India. It is responsible f ...

(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 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 markets. Because ...

, 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 Australia, officially the Commonwealth of Australia, is a sovereign country comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands. With an area of , Australia is the largest country by ...

, 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

, the

, as well as regulators at the state level. In the

European Union The European Union (EU) is a supranational union, supranational political union, political and economic union of Member state of the European Union, member states that are located primarily in Europe, Europe. The union has a total area of ...

, 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 pol ...

countries are forming a

Single Supervisory Mechanism The Single Supervisory Mechanism (SSM) is the first pillar of the European banking union and is the legislative and institutional framework that grants the European Central Bank (ECB) a leading supervisory role over banks in the European Union ...

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 The International Organization of Securities Commissions (IOSCO) is an association of organizations that regulate the world's securities and futures markets. Members are typically primary securities and/or futures regulators in a national jurisdi ...

(IOSCO), the International Association of Insurance Supervisors, the

Basel Committee on Banking Supervision The Basel Committee on Banking Supervision (BCBS) is a committee of banking supervisory authorities that was established by the central bank governors of the Group of Ten (G10) countries in 1974. The committee expanded its membership in 2009 a ...

, the Joint Forum, and the

Financial Stability Board The Financial Stability Board (FSB) is an international body that monitors and makes recommendations about the global financial system. It was established after the G20 London summit in April 2009 as a successor to the Financial Stability For ...

, 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 Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision. It is now extended and partially superseded by Basel III. The Basel II Accord was publi ...

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

itself e.g. when gauging the

solvency Solvency, in finance or business, is the degree to which the current assets of an individual or entity exceed the current liabilities of that individual or entity. Solvency can also be described as the ability of a corporation to meet its long-te ...

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.

References

External links

Securities Lawyer's Deskbook
from the University of Cincinnati College of Law
Ana Carvajal, Jennifer Elliott: IMF Study Points to Gaps in Securities Market Regulation

IOSCO: Objectives and Principles of Securities Regulation (PDF-Datei 67 Seiten)
{{DEFAULTSORT:Financial Regulation Financial law