Regulatory powers of financial oversight authorities

Abstract

This research paper will try to find the best methods and structures of financial regulation by analyzing different aspects of regulation referred to below. To really capture the problem, one needs to understand who regulates and whether the structure of a particular regulator, like unified as the cases are in Armenia (the Central Bank of Armenia), Singapore (the Monetary authority of Singapore), Georgia (the National Bank of Georgia) etc., twin-peaked like in the United Kingdom, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), Australia, Australian Prudential Regulation Authority (APRA) and Australian Securities and Investments Commission (ASIC), or multiple specialized regulators for each financial sector as in the USA, matters. This paper will refer to the aforementioned structural differences and distinctions trying to assess their advantages and disadvantages. In addition, the question arises on what to regulate and how; whether only banks, bank holdings, insuring companies, other financial institutions or the so called shadow banking companies like hedge funds must be regulated as well, and whether prudential regulation is enough or conduct of business rules are necessary to achieve a safer and more sound financial system. The distinction must be drawn between the aimed results of regulations. The thesis will also study the new financial architecture by referring to recent proposals and acts adopted by developed countries such as the United States of America or the United Kingdom. This will include the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Volcker Rule also known as section 619 of the Dodd-Frank Act and ring-fencing approach, which was recommended by the UK Independent Commission on Banking and is rather similar to the Volcker Rule. The need for a stricter consumer oriented regulation and supervision must be analyzed to understand if stricter consumer protection regulation and supervision can help decrease the risk of failures of financial institutions and thus avoid crises, for instance, such as the U.S. subprime mortgage crisis that was a nationwide banking emergency and contributed to the U.S. recession of 2007-2009 and to enhance the protection of investors especially the unsophisticated ones.