Question

Outline 3 goals of financial regulation and outline a financial regulation that has been put in place to achieve this goal.

Answer 1

The goals of financial regulation are as follows:-

1) It ensures efficiency of the financial market and also that it continues to function with integrity. That is regulation esnures that financial markets do not behave arbritrarily and that market participants are fair and that contracts could be enforced.

2) It prevents any illegal or illicit activities from being continued. Thus financial regulation is needed to prevent any kind of money laundering, tax evasion and funding of illegal activities or smuggling.

3) Most importantly, it is responsible for the protection of the end consumer and the investors who invest in the various financial instruments being traded in the financial market. Thus protection of the small retail investors is a major goal.

These above goals are met through continual supervision and policy formulation. An example of the same is the enactment of the Sarbanes-Oxley Act of 2002 which made several policies making the auditing and the financial reporting system much more stringent thus preventing corporate frauds and helping retail investors who have invested in the publicly listed companies.