Regulatory Bodies

Regulation in a financial system consists as a means to control existing or possible inefficiencies or market failures within the system. The government has set regulations by appointing regulatory bodies or agencies that are responsible for defining the objectives of the regulatory framework, identifying specific activities required to be performed and determining the medium of implementing the regulatory activities. The regulatory bodies are generally independent and accountable for activities in the financial system, and are considered effective with regards to the financial system.

Objectives of regulatory bodies

The bond objective of regulatory bodies is to enable efficient functioning of the financial sector.
This efficiency can be facilitated by setting a regulatory framework for:

       I.            managing the functioning of the overall economy;

    II.            avoiding contagion or crisis and information asymmetry;

 III.            protecting individual interest;

 IV.            ensuring adherence to the norms, rules, guidelines and policy.

Thus, the objectives of the regulatory bodies can be met by the following:

       I.           
Implementing legislative arts.
Legislative acts are laws passed by legislature that confess relevant regulatory bodies to implement or enforce the law on relevant stakeholders.

    II.           
Establishing financial intermediaries.
Under the legislative acts, government establish financial intermediaries and confer relevant responsibilities. The financial intermediaries are accordingly responsible for mobilising saving to investments. creating easy access to short term and long term funds and enabling risk diversification.

 III.            
Enhancing competition
Healthy competition has been initiated by regulatory bodies, has allowed private sector participants in the financial system in addition to increased autonomy to public sector institutions. For example: the present of private banks and foreign banks in banking sectors has encouraged other public sector banks to offer innovative services like ATMs and internet banking.

 IV.           
Dispute resolution mechanism
There are dispute settlement mechanisms set by regulatory bodies to address complaints of individuals, companies or governments.

    V.            
Market deepening
Major objective of reforms programme is to integrate various segments of the financial system to reduce arbitrage opportunities. Arbitrage means buying/selling commodities, bonds or stocks to gain profit in case of price discrepancies. Market depth means that individuals or companies can have equal access to different financial services across capital and money markets in large volumes without leading to fluctuations or speculation in market prices of commodities, bond and stock.

UK regulatory system

The responsibility for financial stability in the UK is currently shared by HM Treasury the Bank of England (BOE retaining responsibility for systematic risk) and the Financial Service Authority (FAS). This is known as the tripartite system. In the Financial Crisis of 2007/08, the tripartite system was criticised for failing to anticipate the crisis and failing to provide clear, decisive leadership during the crisis.

It can be noted that in the UK, the government intends to abolish the tripartite system. This will result in the FSA ceasing to existing in its current form (April 2013) and the establishment of these new regulatory bodies namely the Financial Policy Committee (FPL), the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). The PRA and the FCA will be responsible for the majority of the function performed by the FSA.