Financial Regulatory Framework

Study Notes

Overview

The financial regulatory framework refers to the set of laws, rules, and institutions that govern the financial system, aiming to maintain stability, protect consumers, and promote economic growth.

Key Components

Legislative Framework: Laws and regulations that establish the foundation for financial regulation, such as the Dodd-Frank Act in the US.
Regulatory Agencies: Independent bodies responsible for enforcing regulations, such as the Federal Reserve, Office of the Comptroller of the Currency, and Securities and Exchange Commission in the US.
Supervisory Bodies: Institutions that oversee and monitor financial institutions, such as the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (BCBS).

Objectives

Financial Stability: Preventing and mitigating risks to the financial system, such as bank failures and market disruptions.
Consumer Protection: Ensuring that financial institutions treat customers fairly and honestly, and provide them with accurate information.
Market Integrity: Maintaining fair and efficient markets, free from fraud and abuse.

Key Regulations

Banking Regulations:
- Capital requirements (e.g., Basel Accords)
- Liquidity requirements
- Risk management and supervision
Securities Regulations:
- Disclosure requirements (e.g., prospectuses)
- Trading practices and market conduct
- Investor protection
Insurance Regulations:
- Solvency requirements
- Policyholder protection
- Market conduct and practices

International Cooperation

Basel Committee on Banking Supervision (BCBS): Sets global standards for banking regulation and supervision.
International Organization of Securities Commissions (IOSCO): Promotes cooperation and standard-setting for securities regulation.
Financial Stability Board (FSB): Coordinates international efforts to promote financial stability and regulation.

Challenges and Reforms

Global Financial Crisis (2008): Highlighted the need for stronger regulation and oversight.
Dodd-Frank Act (2010): Major reform of the US financial regulatory framework.
Ongoing Challenges: Regulatory arbitrage, fintech innovation, and cross-border regulatory coordination.

Overview

The financial regulatory framework is a set of laws, rules, and institutions that govern the financial system to maintain stability, protect consumers, and promote economic growth.

Key Components

The legislative framework establishes the foundation for financial regulation, such as the Dodd-Frank Act in the US.
Regulatory agencies, like the Federal Reserve, Office of the Comptroller of the Currency, and Securities and Exchange Commission, enforce regulations.
Supervisory bodies, like the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (BCBS), oversee and monitor financial institutions.

Objectives

Financial stability aims to prevent and mitigate risks to the financial system, such as bank failures and market disruptions.
Consumer protection ensures fair and honest treatment of customers by financial institutions, providing accurate information.
Market integrity maintains fair and efficient markets, free from fraud and abuse.

Key Regulations

Banking Regulations

Capital requirements, such as Basel Accords, ensure banks have sufficient capital.
Liquidity requirements ensure banks have sufficient liquid assets.
Risk management and supervision monitor banks' risk-taking activities.

Securities Regulations

Disclosure requirements, such as prospectuses, ensure investors receive accurate information.
Trading practices and market conduct regulate fair market practices.
Investor protection safeguards investors' interests.

Insurance Regulations

Solvency requirements ensure insurers have sufficient capital.
Policyholder protection safeguards policyholders' interests.
Market conduct and practices regulate fair market practices.

International Cooperation

The Basel Committee on Banking Supervision (BCBS) sets global standards for banking regulation and supervision.
The International Organization of Securities Commissions (IOSCO) promotes cooperation and standard-setting for securities regulation.
The Financial Stability Board (FSB) coordinates international efforts to promote financial stability and regulation.

Challenges and Reforms

The Global Financial Crisis (2008) highlighted the need for stronger regulation and oversight.
The Dodd-Frank Act (2010) reformed the US financial regulatory framework.
Ongoing challenges include regulatory arbitrage, fintech innovation, and cross-border regulatory coordination.