Financial Regulatory System
The financial regulatory system is a set of laws, regulations, and procedures that govern the activities of banks and other financial institutions. It is designed to ensure consumer protection, reduce systemic risk in the banking sector, prevent money laundering and terrorist financing, provide transparency in markets and facilitate orderly functioning.
Regulatory Framework
Each country has its own legal framework for regulating different aspects of finance such as market conduct rules with regards to retail investors or capital requirements for insurers. In general however most systems are based on three main principles: disclosure; prevention; supervision & enforcement.
1) Disclosure – This principle involves making sure all stakeholders have access to accurate information about a firm’s products or services before they enter into any transaction agreement with them. This could include things like product features/risks associated with investments or fees charged by firms when providing advice etc… To this end most countries require financial entities to make certain disclosures related these items either through mandated public filings (such as prospectus documents)or via private agreements between parties involved in transactions e-g broker/client contracts etc..
2) Prevention – The goal here is usually twofold i-e firstly preventing individuals from entering into fraudulent transactions (by using measures such as Know Your Customer checks); secondly ensuring that firms don’t take on excessive levels of risk which may threaten their solvency if left unchecked (through means such as capital adequacy requirements).
3) Supervision & Enforcement – Lastly regulators must be able monitor how well firms are complying with their obligations under existing rules both inside their establishments(via internal audits / inspections )and externally through external investigations conducted by inspectors appointed directly by authorities themselves . In cases where violations occur regulators will then enforce penalties aimed at deterring future instances similar behaviour among regulated entities so that consumers can continue trusting those offering them relevant products/services without fear being taken advantage off financially due malicious practices employed by unscrupulous operators within industry itself .
