What Is Financial Regulation ?

what is financial regulationFinancial regulation is a set of measures aimed at stabilizing the tax and banking system of the country, increasing the budget surplus, and reducing public debt. The purpose of FR is to balance the country's economy and support primary industries through benefits and subsidies. The methods of FR are the tax and monetary policy of the state.

Instruments of Financial Regulation

State supervisory authorities introduce the following solutions that support the general economic policy of government agencies:

  • Tax policy, which includes tax base, tax rate, and provision of benefits to certain categories of payers. These instruments are used by the tax service, which interacts with business owners, ordinary citizens, and state owned enterprises.
  • Property policy, which refers to privatization, the rules for the use of residential and commercial buildings, and depreciation methods of fixed assets belonging to companies.
  • Insurance policy, which includes encouraging new organizations to enter the market and setting rates for life as well as movable and real estate insurance.
  • Credit policy, which refers to setting the refinancing rate as well as the accrual of subsidies, compensations, soft loans, and state guarantees for certain categories of citizens and organizations.
  • Social policy, which includes support for motherhood and childhood as well as socially disadvantaged categories of citizens, such as benefits, compensation, reimbursement of expenses for medical treatment and education. Such instruments motivate people to work efficiently, support the authority of power structures, and stabilize the society.
  • Business support from government agencies, including state orders, investments in individual enterprises, benefits during customs clearance, and provision of research laboratories. Such tools are used by state owned enterprises that collaborate with private businesses.

Objectives of Financial Regulation

The policy of FR should stabilize the current economic situation and create the conditions for the emergence of new and development of existing enterprises. If the state affects the finances of organizations too much, the economy will suffer imbalance, stagnation, and unfair competition.

State policy in the field of FR depends on the level of the general economic development in the country, priority sectors, and the impact of international competition. The main objectives of FR for any state are:

  • Acceleration of scientific and technological progress, which includes production capacities, the introduction of new materials and technologies, and improvement of the population’s working conditions.
  • Adaptation and restructuring of industries, including the enlargement of production capacities by creating new companies or mergers and acquisitions of existing ones.
  • Stimulation of market relations, which refers to the creation of large government orders and inter-industry interaction of companies.

The ultimate goal of financial regulation is to increase the standard of living of the population, create a stable economic situation for the industrial development, and prevent crisis phenomena. The instruments of the state may vary depending on the standard of living of citizens, the political situation, and the country's position on the world stage.

You can find more useful financial terms in our dictionary at https://www.monfex.com/financial-dictionary

UK Financial Regulation

In the UK, financial services and markets are regulated by the Financial Conduct Authority (FCA). The key tasks of this authority are:

  • Enhancing market integrity. The authority makes sure that over 59,000 of the country’s businesses are beneficial to the society and the market as a whole.
  • Promoting effective competition. The FCA ensures that all kinds of firms enter the market and maintain healthy competition in order to protect the consumers’ interests.
  • Regulating the standards of conduct in retail and wholesale markets as well as supervision of trading infrastructures that support those markets.

The key sectors that are subject to the UK financial regulation are general insurance and protection, investment management, retirement income, banking sector, investments, lending sector, and wholesale markets.

Financial Services Regulation

Financial services regulation refers to a set of measures to supervise financial services markets in order to protect the interests of consumers and prevent crisis phenomena.

The main goal of financial services regulation is to ensure the stable and dynamic development of the domestic financial sector and its effective impact on the development of the entire economic system. The main areas of implementation of this goal are:

  • Pursuing a unified and effective state policy in the field of financial services.
  • Protecting the interests of consumers.
  • Creating favorable conditions for the development and functioning of financial services markets.
  • Creating conditions for the effective mobilization and allocation of resources by participants in financial services markets, taking into account the interests of society.
  • Ensuring equal opportunities for access to financial services markets and protecting the rights of their participants.
  • Compliance with legal requirements by participants in financial services markets.
  • Prevention of monopolization and creation of conditions for the development of fair competition in the financial services markets.
  • Promoting integration into the European and global financial services markets.

Financial Market Regulation

Financial market regulation is the process of streamlining the activities of various participants in the market and their operations, authorized for such actions. The process of state regulation includes the following:

  • Legislative activity in the field of regulatory documents.
  • Licensing and control of professional market participants.
  • Antitrust compliance.
  • Protecting investors and lenders.

The international crisis of 2008 made it clear that financial market regulation processes do not always correspond to the level of integration and development of financial markets. Interaction of several financial markets destabilizes individual national markets, thus hampering the work of state regulatory bodies.

For more information on financial markets, refer to our article at Monfex.com.

Summary

The key purpose of FR is to stabilize the state economy, enhance market integrity, and promote the competition on the market. The main instruments of FR are the tax, property, credit, insurance, and social policies as well as the support of businesses by government agencies.

Now you are aware of what is financial regulation and know which authority is responsible for the UK financial regulation. Feel free to browse Monfex.com for more helpful materials.

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