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Financial regulation

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Title: Financial regulation  
Author: World Heritage Encyclopedia
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Subject: Financial market participants, Speculation, Law, Securities commission, Stock exchange
Collection: Financial Regulation, Systemic Risk
Publisher: World Heritage Encyclopedia

Financial regulation

Financial regulation is a form of regulation or supervision, which subjects financial institutions to certain requirements, restrictions and guidelines, aiming to maintain the 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 decreasing borrowing costs and increasing the variety of financial products available.


  • Aims of regulation 1
  • Structure of supervision 2
    • Supervision of stock exchanges 2.1
    • Supervision of listed companies 2.2
    • Supervision of investment management 2.3
    • Supervision of banks and financial services providers 2.4
  • Authority by country 3
    • Unique jurisdictions 3.1
  • Regulatory reliance on credit rating agencies 4
  • See also 5
  • References 6
  • Notes 7
  • External links 8

Aims of regulation

The objectives of financial regulators are usually:[1]

  • 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.
  • reduction of financial crime – reducing the extent to which it is possible for a regulated business to be used for a purpose connected with financial crime.

Structure of supervision

Acts empower organizations, government or non-government, to monitor activities and enforce actions.[2] There are various setups and combinations in place for the financial regulatory structure around the global.[3][4] Leaf parts are in any case:

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.[5][6]

Supervision of listed companies

Financial regulators ensures 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.[7][8][9]

Supervision of investment management

Asset management supervision or investment acts ensures the frictionless operation of those vehicles.[10]

Supervision of banks and financial services providers

Banking acts lays 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.[11][12]

Authority by country

Number of countries having a banking crisis in each year since 1800. This is based on )This Time is Different: Eight Centuries of Financial (web site for , which covers only 70 countries. The general upward trend might be attributed to many factors. One of these is a gradual increase in the percent of people who receive money for their labor. The dramatic feature of this graph is the virtual absence of banking crises during the period of the Bretton Woods agreement, 1945 to 1971. This analysis is similar to Figure 10.1 in Reinhart and Rogoff (2009). For more details see the help file for "bankingCrises" in the Ecdat package available from the Comprehensive R Archive Network (CRAN).

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.

Unique jurisdictions

In some cases, financial regulatory authorities regulate all financial activities; in other cases, there are specific authorities to regulate each sector of the finance industry, mainly banking, securities, insurance 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 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.[13]

In the European Union, there are the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA), which are part of the European System of Financial Supervisors. The Eurozone is forming a Single Supervisory Mechanism under the European Central Bank as a prelude to Banking union.

In addition, there are also associations of financial regulatory authorities. At the international level, there is the International Association of Insurance Supervisors, the Basel Committee on Banking Supervision, the Joint Forum, and the Financial Stability Board.

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. Ironically, European governments have abdicated a key component of their regulatory authority in favor of a non-European, highly deregulated, private cartel[14]

See also


  • Ely, Bert (2008),  


  1. ^ UK FSA statutory objectives 
  2. ^ What is Financial Regulation Trying to Achieve?, Riccardo De Caria 
  3. ^ Luxembourg CSSF structure and organisation 
  4. ^ German BAFin supervision organisation 
  5. ^ Suisse finma stock exchange supervision 
  6. ^ German BAFin stock exchange supervision 
  7. ^ Finland FSA supervion of listed companies 
  8. ^ Saudi Arabia market supervision 
  9. ^ Borsa Italiana listed stock supervision 
  10. ^ US SEC Division of Investment Management 
  11. ^ Reserve Bank of India, Department of Banking Supervision 
  12. ^ Luxembourg CSSF Supervision of Banks 
  13. ^ "list of state banking authorities". State Banking Authorities. Consumer Action Website. Retrieved August 5, 2011. 
  14. ^ M. Nicolas J. Firzli, "A Critique of the Basel Committee on Banking Supervision" Revue Analyse Financière, Nov. 10 2011 & Q1 2012, p.72

External links

  • Securities Lawyer's Deskbook from the University of Cincinnati College of Law
  • [1] FINRA Information
  • The Compliance Exchange Jonathan Halsey's financial regulation research resource
  • ICFR (The International Centre for Financial Regulation)
  • Ana Carvajal, Jennifer Elliott: IMF Study Points to Gaps in Securities Market Regulation
  • IOSCO: Objectives and Principles of Securities Regulation (PDF-Datei 67 Seiten)
  • The Samuel & Ronnie Heyman Center on Corporate Governance The Samuel & Ronnie Heyman Center on Corporate Governance
  • The Institute for Financial Market Regulation The Institute for Financial Market Regulation
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