Financial regulation

From Nemo

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.

Aims of regulation

The aims of financial regulators are usually:

To prevent cases of market manipulation, such as insider trading
To ensure competence of providers of financial services
To protect clients, and investigate complaints
To maintain confidence in the financial system
To reduce violations under laws

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, securities, insurance and pensions markets, but in some cases also commodities, futures, forwards, etc. For example, in Australia exports from 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.

Regulatory reliance on credit ratings

Think-tanks such as the World Pensions Council 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…