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The basis of financial regulations

2020-06-24 来源: 51Due教员组 类别: Report范文

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下面为大家整理一篇优秀的essay代写范文 -- The basis of financial regulations,文章讲述2007年的金融危机是影响整个世界的动荡。金融法规是公众关注的焦点。健全的金融市场应受到有效的金融监管框架的监管。本文对金融监管基础进行了深入探讨,分为三个部分:金融机制改革,制度风险监管和投资者保护。将在英国的背景下分析这三个基础。

 

The basis of financial regulations

Financial crisis in 2007 is a turmoil that affects the whole world. Financial regulations are a focus from the public. A sound financial market should be regulated by the effective financial regulatory framework. In this essay, bases of financial regulations are deeply discussed, which is divided into three parts: reform of the financial mechanism, regulations on system risks and the protection of investors. The three bases will be analyzed under the background of the United Kingdom.

Reform of Financial Mechanism

The first base of a sound financial market is the reform of the financial mechanism. After 2007 financial crisis, the United Kingdom has carried out a large-scale reform of the financial mechanism, which demonstrates in two dimensions.

On the one hand, the government in the UK has carried out quick financial reform on legislation. On February 21 2009, Banking Act2009 came into effect. Compared with the previous various banking laws, there are five characteristics of the law. Firstly, it entitles Bank of England with greater responsibilities and authorities to prevent and response to financial risks. Secondly, Financial Stability Committee has been set up under the board of directors of the Bank of England. The duty of the committee is to judge the nature of the financial risk, pay attention to the formation and development of the financial risk and formulate and implement the strategy of the financial stability. Thirdly, it further strengthens the Bank of England’s oversight of the payment system. Fourthly, Special Resolution Regime has been set up in order to carry out rapid intervention to banks immersed in the crisis. Fifthly, it aims to more effectively protect the interests of depositors. (Mcknight, 2009)

On the other hand, on June 16 2010, a more thorough reform of Britain's financial regulatory system has been released to the public. According to the reform, Bank of England, UK’s central bank, takes the responsibilities of Financial Service Authority. Bank of England is charged of macroeconomic risks, monitoring risks of banking and insurance industries. (UK Treasury, 2010)

The above two reform measures not only demonstrate the determination of the government and have injected inspirations. After this round of financial regulatory reform, the Bank of England will develop and implement monetary policies and perform a prudent macro management and micro prudential supervision function, significantly improving the status of financial supervision.

The central bank occupies the core position in a country's financial system, which has great significance on a country's financial stability. The central bank has the responsibility of maintaining the stability of the financial system. But in actual operation, central banks of different countries have different legal authorities, which depend both on the national legislation process and the countries’ market economy operating mechanism. But with the frequent financial crises, it will produce stimulation to corresponding legislation of various countries’ financial regulatory agencies, forcing countries to strengthen the financial supervision mechanism so as to enhance the security of the financial system. The function of the central bank is gradually strengthened in this process and the responsibilities of the central bank are enlarged.

Considering the complexity and systematicness of modern finance and overlapping characteristics of modern financial and other industries, traditional focus only on banking financial supervision is insufficient. There is an urgent need to legislative ideas and creativity. The traditional regulatory authority of the central bank is too small and restrictions are too much. Mobilized regulatory power and regulatory resources are limited, which is difficult to effectively restrict banks’ behaviors. From the point of view of the financial reform in countries like the United Kingdom, the authority of the central bank is further expanded.

Regulations on System Risks

The second base is strengthening regulations on system risks. Through the reform of UK financial mechanism, regulations and supervisions on system risk are clearly put forward in two aspects.

On the one hand, it pays close attention to systematically important financial firms. The scale of these companies is often very large and their business involves all aspects, which have a great impact on the majority of the market. Once any of these large enterprises are in the crisis, it will cause damage to the entire financial system. Although the idea of a free market economy does not encourage government restrictions on financial enterprises’ scale and the interference to the specific business of financial enterprises, it is very necessary put forward appropriate requirements to these giant enterprises. Through the appropriate ways, these enterprises can have the knowledge of social responsibilities, market disciplines, capital requirements and crisis coping strategies. The knowledge and the idea have guiding significance and it can help reduce these risks of financial enterprises and improve the security of the financial system as a whole.

On the other hand, it improves preventive mechanism of risk management system. The improvement of the accounting system increases the transparency of the financial system. It also improves the standardization of financial products and the wholesale banking market infrastructure.

Considering the complexity of modern financial risk, financial regulatory authorities need to carry out some necessary regulatory prediction. The authorities should do some prospective monitoring work and try to avoid the struggling situations with coping with the financial crisis. From the point of view of Britain's Northern Rock Bank crisis, regulatory negligence to take precautions and dereliction of duty is an important reason for causing the crisis. It is regulators’ dereliction of duty that leads to the outbreak risk of Northern Rock Bank. (Linsley and Slack, 2013)

The United Kingdom’s guiding ideology of financial regulatory reform is the establishment of macro prudence combined with micro prudential regulatory framework. Micro prudential supervision is the basis of prudent macroeconomic management, which not only provides sources of information and decision support for macro prudential management, but also shows an important way for the realization of macro prudence. According to the system of risk prevention and control of the macro prudential management, emphasis is laid on that regulatory departments shall strengthen the concept of macro prudential management and overall analysis, monitoring and guard against systemic risks.

Protection of Investors

The third base of a sound financial market focuses on protection of investors. Generally speaking, the harm of the international financial crisis in the banking industry is widespread and far-reaching. Wholesale and retail banking has suffered a great loss. But different from the wholesale banking business, ordinary consumers and small businesses are more dependent on retail banking. They have received larger impact during the financial crisis with more serious damage to the interests. According to the reform plan of the United Kingdom, it stresses that the government in the implementation of the process of financial supervision should pay more attention to the interests of the protection of investors to minimize their risk and loss.

And the UK Treasury has announced a comprehensive reform of Britain's financial regulatory system proposal that puts forward the establishment of the Independent Bureau of Consumer Protection. (UK Treasury, 2010) Coincidentally, the reform plan of the United States also requires the established of Consumer Financial Protection Bureau to provide a clear and concise information for consumers, prevent the unfair and deceptive trade and promote a fair, efficient and innovative financial services market. (Casler, 2011) The reform of the United Kingdom and the United States shows that strengthening consumer protection has been referred to an important content in the financial regulatory reform after the sub-prime crisis.

Because modern financial knowledge is increasingly complex and professional, there is a huge knowledge gap between ordinary consumers and professionals. Information asymmetry of both sides is also a serious problem, which results that ordinary consumers are in a relatively weak position in the face of financial professionals. In a sound financial market, only by establishing a strict standard of protection mechanism and make the interests of ordinary consumers get the reliable protection, financial markets can have deep and long-term development.

After the 2007 global financial crisis, it is clear that financial consumers play an important role in the financial development. If the regulator authorizes only pay attention to the interests of financial institutions, ignoring the protection of financial consumer rights and interests, it is bound to damage the social foundation for the existence in the financial industry, which will also affect the stability of the financial industry. Therefore, strengthening the protection of the financial interests of consumers has become the important content of the reform of financial supervision after the crisis. In all kinds of financial transactions, compared with the financial institutions, financial consumers are in a weak position. In order to reduce and prevent that consumers’ interests are infringed in the transaction, regulatory authorities should carry out operating behavior regulation, enhancing public confidence to the financial sector, preventing financial risks and maintaining financial stability.

Conclusion

The 2007 financial crisis has left a painful lesson to countries and people all around the world. In order to prevent future crisis, the financial market should be based on three perspectives. Reform of the financial mechanism should be carried out to formulate a sound regulatory framework. System risks should also be focused on. Protection of investors is an indispensable part of a sound financial market. With the three bases, the financial market will be more prudent and healthy.

 

Reference

Mcknight, A. (2009), The Banking Act 2009, Law & Financial Markets Review 3(4):325-332.

UK Treasury. (2010), New Program of Financial Regulation: understanding, focus and stability, Website.

Linsley, PM. and Slack, RE. (2013), Crisis Management and an Ethic of Care: The Case of Northern Rock Bank, Journal of Business Ethics 113(2):285-295.

Casler, CL. (2011), The Consumer Financial Protection Bureau. Business Journal.

Yeoh, P. (2011), Reform of Financial Regulations in the UK: Contents and Implications, Business Law Review (10):244-250.

 

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