Horizontal Financial Regulatory Structural Model

Introduction

Financial regulation is a process of setting and enforcing rules and regulations intended to protect markets and their participants. The need for regulation is based on the fact that markets are not always as efficient and effective as they are often assumed to be. Financial regulation is a cornerstone of any well-functioning economy, and the structure and approach of financial regulation have evolved significantly over the years. In this paper, we will discuss the horizontal financial regulatory structure mode.

Horizontal Structure

The horizontal structure of financial regulation is a systematic approach to managing risk. It is a process by which the risks present in all aspects of a firms operations, from capital and liquidity to operational risk and customer service, are identified and managed. The horizontal structure is designed to:

• Reduce risk in the entire system

• Enhance the ability of firms to manage risks in all areas of their operations

• Protect market integrity

• Facilitate closer oversight of firms

• Foster competition and market efficiency

• Improve customer protection

The basic principles of the horizontal structure are:

• Establishing multiple layers of regulation.

• Promoting supervision at the functional level by different regulatory bodies with specialized knowledge.

• Requiring active involvement from both external and internal regulators.

• Encouraging cross-border cooperation among regulators.

• Establishing appropriate and effective coordination among the various regulators.

• Enhancing transparency.

Benefits of the Horizontal Structure

The horizontal structure of financial regulation provides a number of benefits for financial institutions and markets. It allows for more efficient and effective regulation of firms, promoting market confidence by creating and enforcing appropriate rules, and protecting consumers by ensuring firms’ compliance. This structure also strengthens the communication between regulators and market participants by promoting dialogue and transparency.

Furthermore, the horizontal structure provides regulators with greater oversight of firms, reduces costs and time associated with compliance, smoothens cross-border cooperation, and fosters healthy competition in financial services. The structure also allows regulators to investigate and intervene in firms where problems may arise, and to assess the systemic consequences of risks.

Conclusion

The horizontal approach to financial regulation is a systematic and well-established structure that provides a number of benefits to firms, governments, and markets. It reduces the risk within the system, enhances the ability of firms to manage risks, and promotes competition and market efficiency. The horizontal structure also facilitates communication between regulators and market participants as well as cross-border cooperation among regulators. Finally, the structure strengthens the oversight of firms, and enhances customer protection.

The horizontal financial regulatory structure model, or the horizontal-integrative regulatory structure model, is a model for financial regulation in which the regulatory authorities are organized in a hub-and-spoke system, in which the hub, which is typically a central or federal authority is responsible for setting the regulatory framework and principles, while the spokes are responsible for the day-to-day supervision and regulation of the financial firms or persons in the industry.

The main goal of this model is to achieve a more coordinated and effective financial regulation system. This model was developed in order to address two main problems that underpinned the financial crisis: the lack of clarity in regulatory roles and responsibilities, and the resulting failure of major regulatory institutions to adequately supervise the industry’s activities.

The primary feature of the horizontal-integrative regulatory model is the centralisation of regulatory and supervisory activities. Under this model, the focus of the regulatory system is on identifying and addressing systemic risks, rather than on individual firms.

The structure of the horizontal-integrative model allows for a more streamlined and efficient approach to regulation and supervision, offering more efficient and effective resolution of conflicts between different regulatory authorities. This model also establishes a clearer understanding of the responsibilities of financial authorities and provides for more integrated and effective regulation and supervision of financial activities and practices.

The horizontal-integrative model is beneficial in many ways. By consolidating regulatory jurisdiction, it facilitates smoother and more effective coordination between supervisors and ultimately strengthens the ability of financial authorities to monitor, identify and react to emerging risks. Moreover, it encourages regulatory innovation and creates a more flexible approach to financial regulation, allowing for the development of more innovative regulatory approaches to address emerging risks. Finally, it also ensures better enforcement of regulations and reduces potential for lax regulation.