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Regulations of Financial Institutions

Regulations of financial institutions differ from one country to another. The financial institution regulations are delineated by the government authorities of different countries. The principal objective of these government authorities is to regulate the financial activities going on in the country.

The financial regulatory bodies control the stock markets, bond markets, foreign exchange markets, and various other segments of financial markets.

The financial regulations are laid out for the purpose of creating a fair and customer-friendly environment in the financial market of a particular country, which is conducive for economic growth. Some of the examples of financial regulatory bodies are the Federal Reserve Bank (United States), Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), the Financial Services Authority (FSA) in the United Kingdom, the Securities and Exchange Commission (SEC) in the United States and many others.
The statutory objectives of the regulatory bodies of financial institutions include the following:
  • Market confidence: Sustaining confidence in the financial markets is one of the most important objectives of the financial regulatory bodies
  • Consumer protection: Ensuring the most suitable level of customer protection
  • Public awareness: Encouraging public awareness about the financial market through imparting educational programs
  • Eliminating financial crime: The financial regulations are designed for the purpose of reducing financial crimes and frauds
The regulatory principles that are followed by the regulators of financial institutions include the following:
  • Role of management: Regulatory measures on the senior management of the financial institutions so that they do not take decisions that are detrimental to the financial market
  • Innovation: Innovation should be facilitated with restriction so that the financial products and services launched are compliant to the rules and regulations
  • International aspects: Strict monitoring should be there to see whether the international standards are maintained or not
  • Efficiency and economy: The financial resources of a country should be used in the most prudent and effective way
  • Proportionality: The financial regulations that are imposed should be proportional to the advantages that are anticipated from the regulations
  • Competition: There should be strict supervision on the financial market for the purpose of minimizing harmful effects of competition.


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Last Updated on : 27th June 2013

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