Financial Market Regulation

Financial market is one of the world’s most important segments of the economy. It constitutes some kind of a “blood circulation” in which money flows between economic actors. The global economic and financial crisis, that erupted in September 2008, increased efforts to regulate financial services.

Regulation is a set of rules and standards that govern the functioning of financial institutions whose main objective is to increase financial stability and client protection. Regulation can take different forms, ranging from information requirements to strict regulation such as capital requirements. On the other hand, supervision is a process designed to oversee financial institutions to ensure that the rules and standards are used properly. In practice, regulation and supervision are interrelated and therefore need to be considered together.

Regulation and supervision are usually carried out at two levels - national (provided by national organizations, in many cases, national central banks) and international. International organizations issuing the standards have only an advisory function. Within the European Union, there are adopted their own regulatory principles that must be incorporated into the legislation of the Member States. These recommendations are however in most cases based on recommended standards of worldwide regulatory bodies.

International regulation of financial services concerns mainly three areas of the financial market:

• Banking - international advisory institution Basel Committee on Banking Supervision issued the regulatory standard Basel III
• Insurance - international advisory organization IAIS (International Association of Insurance Supervisors) and IADI (International Association of Deposit Insurers)
• Securities - international advisory IOSCO (International Organization of Securities Commissions)

Besides IOSCO these organizations headquarter in Basel (Switzerland) at the headquarters of the Bank for International Settlements (BIS).

Under the auspices of the Basel Committee on Banking Supervision, IOSCO and IAIS, was established Joint Forum to deal with common issues related to banking, insurance and securities, including the regulation of financial conglomerates.