Types of Financial Regulation

3 Key excerpts on "Types of Financial Regulation"

• 

  eBook - ePub

  The Regulation of Mobile Money

  Law and Practice in Sub-Saharan Africa

  • Sunduzwayo Madise(Author)
  • 2019(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  © The Author(s) 2019 Sunduzwayo Madise The Regulation of Mobile Money Palgrave Macmillan Studies in Banking and Financial Institutions https://doi.org/10.1007/978-3-030-13831-8_4

  Begin Abstract

  4. Different Types of Regulation

  Sunduzwayo Madise

  1   

  (1) University of Malawi, Zomba, Malawi

   

    Sunduzwayo Madise

  Email: [email protected]

  Keywords

  Regulation Regulatory capture Regulatory continuum Regulatory space Regulatory spectrum

  End Abstract

  4.1 Introduction

  The term regulation refers to a set of binding rules issued by a private or public body.1 In its most generic form, it represents an “intervention between the parties to a transaction”.2 Fleuriot says that regulation aims at the maintenance of a balance or equilibrium and the task of the regulator is to maintain the various balances among the different actors.3 Ogus refers to regulation as the “sustained and focused control exercised by a public agency over activities that are valued by a community”.4 These are “obligations imposed by public law designed to induce individuals and firms to outcomes which they would not voluntarily reach”.5 It is the threat of some form of punishment or sanction that underpins regulatory enforcement.6 In relation to economic activities, one of the motivations for putting in place regulations is market failure .7 It is trite that a pinnacle tenet of a free market is to leave it to regulate itself and find its own equilibrium. Yet, there will be times when the market may fail to do this, either due to exogenous or endogenous shocks or factors. The reason why the market usually will want less regulation is that it is perceived as an economic cost. According to Dumez and Jeunemaitre , “regulation will be preferred to laissez faire whenever the cost of regulation is less than the transaction costs due to regulation plus the market failure costs”.8

  Different societal systems will have different regulatory standards and objectives. For the financial sector, three things are associated with the need for regulation: correcting information asymmetry, maintaining trust in the financial system and avoiding systemic risk or contagion .9 All these are considered public goods.10 In most economic enterprises, there is information asymmetry between the consumers and the suppliers in favour of the latter.11 This is more so where consumers are dealing with institutions that have a network or web of interconnected ties, which the average consumer cannot fathom.12 Statutory requirements obliging suppliers to disclose information related to their service or product are part of this correction.13 Apart from consumer interests, there are also state interests at play such as ensuring system security and good financial management. Trust is a prerequisite for consumers to procure the service.14 To gain trust, a system must be seen to be working in a fair and an orderly way.15

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  eBook - PDF

  Microfinance

  • Gianfranco A. Vento, Kenneth A. Loparo, Mario La Torre(Authors)
  • 2006(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  The motivation for which a certain industrial sector is regulated derives from the possibility of a market failure. As to the financial system, public authorities use different instruments to promote stability, efficiency and competitiveness in markets and interme- diaries. Along with these principles, which are almost unanimously agreed, most of the authorities that monitor the correct functioning of financial systems focus particularly on the transparency of markets and of financial intermediaries and on their correct behaviour, in order to protect the less-informed subjects operating in financial systems. The provisions that regulate operations of financial intermediaries derive from the above points, focusing in particular on the intermediaries’ assumption of risks and on the monitoring activities of supervising authorities on the obser- vance of such regulations and of the following principles. The definition phase of the most suitable scheme of regulation and supervision for MFIs implies certain choices to be made on: ● the goals to be achieved while regulating the sector; ● the different typologies of regulation that are available, concerning structural principles that define the morphology of the specific financial The Role of Regulation 133 system, prudential principles to limit risk assumption for each interme- diary, protective principles that safeguard the interest of less-informed customers and principles of transparency of operations; ● the available instruments for supervision authorities, based on the above typologies of regulation; ● the intensity of the required corrective interventions. The final goals of regulation described above – stability, efficiency, compet- itiveness, conduct of business and transparency – present a significant level of idiosyncrasy; therefore they cannot all be pursued at the same time and with the same intensity by authorities.

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  Economics for Investment Decision Makers

  Micro, Macro, and International Economics

  • Christopher D. Piros, Jerald E. Pinto(Authors)
  • 2013(Publication Date)
  • Wiley

    (Publisher)

  A significant issue that companies need to face in addressing antitrust (or lack of com- petition) issues is that in many cases they need to satisfy simultaneously a range of regulators. For example, a company may have to satisfy both the U.S. Department of Justice and the European Union if the company plans to use a common product and market strategy across jurisdictions. Despite language and cultural differences, it often will be advantageous to follow a unified strategy around the globe because of business imperatives and likely overlapping 718 Economics for Investment Decision Makers views among regulators of competition. Many of the cases that are significant for the U.S. market are taking place in Europe or elsewhere. 4. REGULATION OF FINANCIAL MARKETS The regulation of securities markets and financial institutions is especially important because of the consequences to society of failures in the financial system. These consequences range from micro-level to macro-level effects. Potential consequences include financial losses to specific parties, an overall loss of confidence, and disruption of commerce. These con- sequences were evident in the 2008 global financial crisis. Securities regulation focuses on such goals as protecting investors, creating confidence in markets (a challenging subject), and enhancing capital formation. Although it is difficult to define tangibly what types of regulatory changes would enhance confidence in the financial system, increasing confidence is at least occasionally cited as one of the motives for securities regulation. Many of the rules oriented toward equitable access to information (which, in turn, encourages capital formation) and protecting small investors implicitly serve the role of promoting confidence in the markets.

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