Financial regulation
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Financial regulation is a broad set of policies that apply to the financial sector in most jurisdictions, justified by two main features of finance: systemic risk, which implies that the failure of financial firms involves public interest considerations; and information asymmetry, which justifies curbs on freedom of contract in selected areas of financial services, particularly those that involve retail clients and/or principal–agent problems. An integral part of financial regulation is the supervision of designated financial firms and markets by specialized authorities such as securities commissions and bank supervisors.
In some jurisdictions, certain aspects of financial supervision are delegated to self-regulatory organizations. Financial regulation forms one of three legal categories which constitutes the content of financial law, the other two being market practices and case law.[1]
History
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Financial regulation has ancient roots, often evolving in response to economic crises or the need to standardize commerce. The Code of Hammurabi (c. 1700 BCE) contained standards for lending and the regulation of interest.[2] In the Roman Empire, banking was expanded beyond temples into private and state roles. This led to the creation of distinct financial institutions subject to administrative oversight.[3] During the medieval period, financial regulation in Europe was heavily influenced by religious restrictions on usury (the charging of interest), which shaped the development of early merchant banks in Italy.[4]
In the early modern period, the Dutch were the pioneers in financial regulation.[5] 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:[6]
- 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.
- reduce financial crime
- regulate foreign participation
Structure of supervision
Acts empower organizations, government or non-government, to monitor activities and enforce actions.[7] There are various setups and combinations in place for the financial regulatory structure around the globe.[8][9]
Securities market regulation
Script error: No such module "Labelled list hatnote". Exchange acts ensure that trading on the floor of exchanges is conducted in a proper manner. Most prominent the pricing process, execution and settlement of trades, direct and efficient trade monitoring.[10][11]
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.[12][13][14][15]
Asset management supervision or investment acts ensures the frictionless operation of those vehicles.[16]
Supervision of banks and financial services providers
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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.[17][18]
Financial supervisory authorities
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See also
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- Bank regulation
- Finance
- Financial economics § Financial markets
- Financial ethics
- Financial regulation in India
- 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
- Commodity market § Regulation of commodity markets
- Virtual currency law in the United States
References
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- ^ Joanna Benjamin 'Financial Law' Oxford University Press
- ^ Page Module:Citation/CS1/styles.css has no content."The Code of Hammurabi". Yale Law School Lillian Goldman Law Library. Retrieved 30 December 2025.
- ^ Page Module:Citation/CS1/styles.css has no content."The Evolution of Banking: From Temples to Digital Platforms". Investopedia. Retrieved 30 December 2025.
- ^ Page Module:Citation/CS1/styles.css has no content.Ferguson, Niall (2008). The Ascent of Money: A Financial History of the World. Penguin Books. ISBN 978-0143116172.
- ^ Clement, Piet; James, Harold; Van der Wee, Herman (eds.): Financial Innovation, Regulation and Crises in History. (Routledge, 2014. xiii + 176 pp. Template:ISBN)
- ^ Page Module:Citation/CS1/styles.css has no content.UK FSA statutory objectives, 2016-04-20, archived from the original on 2017-07-07, retrieved 2012-08-21
- ^ Page Module:Citation/CS1/styles.css has no content.De Caria, Riccardo (2011-09-23), What is Financial Regulation Trying to Achieve?, Riccardo De Caria, SSRN 1994472
- ^ Page Module:Citation/CS1/styles.css has no content.Luxembourg CSSF structure and organisation[permanent dead link]
- ^ Page Module:Citation/CS1/styles.css has no content.German BAFin supervision organisation, archived from the original on 2012-08-04
- ^ Page Module:Citation/CS1/styles.css has no content.Suisse finma stock exchange supervision
- ^ Page Module:Citation/CS1/styles.css has no content.German BAFin stock exchange supervision, archived from the original on 2012-07-22
- ^ Page Module:Citation/CS1/styles.css has no content.Finland FSA supervion of listed companies, archived from the original on 2012-10-12, retrieved 2012-08-05
- ^ Page Module:Citation/CS1/styles.css has no content.Saudi Arabia market supervision, archived from the original on 2013-05-18, retrieved 2012-08-05
- ^ Page Module:Citation/CS1/styles.css has no content.Smith, J.; Johnson, P. (2023). "Navigating the regulatory landscape: Security requirements for financial institutions". Journal of Financial Compliance. 12 (3): 45–67.
- ^ Page Module:Citation/CS1/styles.css has no content.Borsa Italiana listed stock supervision[permanent dead link]
- ^ Page Module:Citation/CS1/styles.css has no content.US SEC Division of Investment Management
- ^ Page Module:Citation/CS1/styles.css has no content.Reserve Bank of India, Department of Banking Supervision
- ^ Page Module:Citation/CS1/styles.css has no content.Luxembourg CSSF Supervision of Banks, archived from the original on 2016-03-05, retrieved 2012-08-05
Further reading
- Virág Blazsek, Banking Bailout Law: A Comparative Study of the United States, United Kingdom and the European Union (Routledge, 2020), Template:ISBN
- Labonte, Marc. (2017). Who Regulates Whom? An Overview of the U.S. Financial Regulatory Framework. Washington, D.C.: Congressional Research Service. Script error: No such module "webarchive".
- Page Module:Citation/CS1/styles.css has no content.Reinhart, Carmen; Rogoff, Rogoff (2009), This Time is Different: Eight Centuries of Financial Folly, Princeton U. Pr., ISBN 978-0-691-15264-6
- 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 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)
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