What you Should Know About Financial Markets Regulation
There are both positive and negative results of regulating the financial markets. Stock market investors prefer regulation of the industry for a number of reasons. For example, regulation prohibits rogue activities such as insider trading, which can leave investors with huge losses. In some countries, regulation work is left to a single body. In other cases, multiple players may regulate the same industry players. Regardless of the bodies in charge, regulation has its benefits and downsides.
Countries Follow Different Rules
Every country has regulatory bodies that set up specific rules that have to be followed by participants in the financial sector. The regulatory bodies have various powers and responsibilities in the markets they are in charge of.
In some jurisdictions, a single regulatory body is in charge of all matters related to the financial industry. Therefore, investors that want to participate in the financial sector have to deal with the regulator in one way or another. Examples of the areas that a regulators body may be in charge of include insurance, banking and trading securities. The same body may make the rules in all these types of financial activities.
Having a single regulatory body in charge of the financial sector has its advantages. For investors, operating in the financial markets becomes easier when there is only a single regulator to deal with. Both players and investors can easily get the guidance they need regarding specific issues related to the financial sector. Finally, investors can have all their concerns addressed in one go when they contact the regulator.
Having a single regulator eliminates any gray areas or cracks in terms of enforcement. The regulator can also easily address all the concerns that player in the securities or other financial markets may have.
Working with Different Regulators
In some countries, the financial industry is divided into subsectors which are then regulated by different bodies. For example, all matters related to insurance may be regulated at the state level. However, the central government may take on the task of regulating the banking sector. Other bodies may be in charge of regulating other subsectors such as futures trading, stock market, and so on.
Multiple regulators in a market also have their pros and cons. For instance, when there are multiple regulators in the industry, players and investors are likely to get specialized help. If there was only a single regulator in the country, providing specialized help would be nearly impossible. Moreover, having more than one regulator encourages cooperation among the bodies since there is no one with unlimited power.
The above are the advantages and disadvantages of having both single and multiple regulators in the financial sector.