Financial Market Regulation
The regulation of financial markets plays a vitally important role in the global economy by maintaining public confidence and trust in the markets, protecting investors from fraud and abuse, and preventing financial crises. Governments typically regulate financial markets through a combination of legislation, regulation, enforcement, and supervision.
Financial markets around the world are facing a period of unprecedented change, as governments seek to respond to the needs of investors and to make their markets more efficient. Regulations governing financial markets have been changing rapidly in an effort to improve market access, reduce volatility, and protect investors.
The Basel Accords are a set of four international agreements designed to facilitate global financial stability and market integrity on the part of the banking sector. The Basel Accords provide principles-based standards on bank capital adequacy and credit risk, market risk, operational risk, and liquidity risk. These standards seek to ensure that banks have adequate capital to cover their losses, are well-run and transparent, and have adequate liquidity to fund their activities.
In addition to the Basel Accords, governments around the world are implementing a variety of regulations to ensure the smooth functioning of their financial markets. Regulations governing securities markets, for example, seek to protect investors against financial losses resulting from fraudulent activities like market manipulation, insider trading, and other forms of investment fraud. Regulations governing the licensing of market players and financial advisors are intended to protect investors from unscrupulous brokers, traders, and other financial professionals.
Finally, governments are increasingly focusing on reducing systemic risk in the financial system. Through the implementation of regulations such as the Dodd-Frank Wall Street Reform and Consumer Protection Act, governments are attempting to reduce the use of complex financial instruments, reduce excessive speculation, increase transparency, and curb systemic risk in the financial system.
Overall, regulatory reforms are meant to bolster public confidence in the financial markets, protect investors from financial losses resulting from fraud and market abuse, and reduce systemic risk. Although the regulatory landscape is constantly evolving in a world of increased complexity and global interdependence, regulations help make financial markets safer, sounder, and more efficient.
