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Thread: What is a financial regulator?

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    Default This post is sponsored by a content payout program available to anyone to participate. What is a financial regulator?

    What is a financial regulator?

    Though trading on financial markets entails high risk, still it can generate extra income on condition that you apply the right approach. By choosing a reliable broker such as InstaForex you get access to the international financial markets and open your way towards financial independence. You can sign up here.


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    Definition

    A financial regulator is a law that governs banks, investment companies and insurance companies. Financial regulators protect against financial risk and fraud. But financial regulators must be balanced with the need to enable capitalism to operate efficiently. Regarding policy, Democrats support more regulation. Republicans promoted deregulation.

    Why Financial Regulation Matters

    Regulations protect customers from financial fraud. This includes unethical mortgages, credit cards, and other financial products. Effective government oversight prevents companies from taking excessive risks. The regulations will prevent Lehman Brothers' failure from catching the government off guard.

    Laws such as the Sherman Anti-Trust Act prevent monopolists from abusing their power. Monopolies cheat prices, sell the wrong products, and stifle competition. It happens when speculators increase the price of shares, houses and gold. When the bubbles burst, they create crises and recessions.

    Government protections can help some important industries get started. Examples include the power and cable industry. Companies will not invest in high infrastructure costs without the government to protect them. In other industries, regulations can protect small or new companies. The right rules can encourage innovation, competition and increased consumer choice.

    Regulations protect social problems. Without them, businesses will ignore environmental damage. They will also ignore disadvantaged areas such as rural areas.

    When Regulations Create Threat

    Regulations become problematic when they hinder free markets. This is the most efficient way to set prices. This increases the efficiency of the company and lowers costs for consumers. In the 1970s, wage-price regulations distorted markets and led to stagflation.

    Regulation can hinder economic growth. Companies must use their capital to comply with federal regulations instead of investing in factories, equipment and people. Businesses create profitable products in unexpected areas. Regulators continue to be aware of the dangers this innovative product often poses. Some industry leaders have become too comfortable with their regulators. They influence them to create rules that benefit them and stifle competition.

    Who Regulates the Financial Industry
    There are three types of financial regulators.


    Banking

    The bank regulator performs four functions that maintain trust in the system. they check the safety and health of the bank. Second, ensure that the bank has adequate capital. Third, they guarantee savings. Fourth, they evaluate every potential threat to the entire banking system. The Federal Deposit Insurance Corporation inspects and oversees approximately 5,250 banks, more than half of the total system. When a bank fails, the FDIC intermediates its sale to another bank and transfers the depositor to the buying bank. The FDIC also guarantees savings, checks, and other savings accounts.

    The Dodd-Frank Wall Street Reform and Consumer Protection Act strengthened the Fed's power over financial companies. If anything becomes too big to fail, it can be turned over to the Federal Reserve for oversight. The Fed is also in charge of the big banks' annual stress tests. The Office of the Currency Control oversees all national banks and federal savings associations.4 It also oversees the national branches of foreign banks.

    Financial market

    The Securities and Exchange Commission is at the center of federal financial regulation. It maintains the standards that govern the stock market. It reviews the company's filing requirements. It oversees the Securities Investor Protection Company. The SIPC guarantees the customer's investment account in case the brokerage company goes bankrupt. It reviews documents filed under the Sarbanes-Oxley Act of 2002. Most importantly, the SEC investigates and prosecutes violations of securities laws and regulations.

    The Commodity Futures Trading
    Commission regulates the commodity futures and swap markets. Commodities include food, oil and gold. The most common swap is an interest rate swap. The use of unregulated credit default swaps helped to cause the 2008 financial crisis. The Federal Housing Finance Agency was established by the Housing and Economic Restoration Act 2008.6 This agency oversees the secondary mortgage market.

    The Consumer

    Financial Protection Bureau is under the US Department of the Treasury. That ensures banks aren't too expensive for credit cards, debit cards, and loans. This requires banks to explain risky mortgages to borrowers. The bank must also verify that the borrower has income.


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    Who is a Financial Regulator
    A financial regulator can be regarded as an individual that is saddled with the responsibility of regulating the financial service of financial markets. The financial regulator are usually an individual that work for either the government or independent bodies. Financial regulators are usually in every financial market such as the stock market, foreign exchange market, binary options etc. The work of financial regulators in the forex market is very important and they are one of the integral part of the financial market. The financial market is full of brokers that are ready to exploit or defraud traders, the financial regulators try to prevent and protect traders from such act from the brokers, and also to prevent manipulation of the financial market. Many financial regulators are accountable for some particular market within a particular country. The functions of financial regulators in the financial market are very much.

    Functions on Financial Regulator
    These are some of the functions of financial regulators in the financial market.
    1. The major function of financial regulators is that they provide information to people and also prevent the from illegal practices of some players in the financial market, such as the brokers.
    2. Another function of financial regulators is that they regulate the financial markets and are also in charge of payment of currency.
    3. The financial regulators are accountable for the efficiency of the market and also for stabilizing financial the financial market.
    4. The financial regulators are responsible for enforcing law on the rules and regulations and also the guidelines that are expected to be followed in the financial market.
    5. The financial regulators are accountable for ensuring good service provider in the financial market.
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    Though trading on financial markets entails high risk, still it can generate extra income on condition that you apply the right approach. By choosing a reliable broker such as InstaForex you get access to the international financial markets and open your way towards financial independence. You can sign up here.


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    The financial regulator governs the financial services sector within a territory including markets, exchanges and firms. They work for the government or independent standard agencies to secure financial services meet industry-specific regulations.The roles of financial regulators are to work for applicable laws, try to avoid cases of market manipulation, establish the competence of financial service providers, execute inspections, protect traders and clients, and investigate and trial misconduct, such as insider trading.

    The way it makes an impact on the market

    Government regulations affect the financial market industry in a lot of ways, but the impact depends on the kind of regulation.
    Increased regulation generally means a greater burden for people in financial services, since it takes a good time to adapt to business practices that follow the new regulations.

    As an advantage, some regulations help companies remain accountable and increase internal controls with those companies.
    The major problem of these regulatory bodies is that it increases the workload for people in the industry who ensure regulations are adhered to. Also, recent research demonstrates that the difficulties in regulators around the world face in motivating innovations in the financial system, especially emerging mobile payments and banking platforms.

    Approaches of regulators choice can have an overwhelming effect on people’s financial well-being. Though innovation is a neutral force, its consequences can be clearly positive, facilitating consumer transactions, as the ATM did start in the 1960s.

    Financial regulators still also wrestle with how to respond to financial innovation in such a way that it promotes commerce and protects market participants. For instance, consumers started using credit cards in the 1950s, and again in 1968, the Congress passed the Truth in Lending Act to promote the informed use of consumer credit products by the need of disclosures about their terms and costs.

    So, we can see how the financial regulators create great impacts be it negative or positive in the financial market, globally.
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