Mindel Scott

Financial Services Legal Framework

The way in which financial regulation is applied varies, partly because of the different characteristics of different financial markets and partly because of historical regulatory developments. The mandate of regulators falls into several different categories: other bodies that play a role in financial regulation are inter-agency bodies, government regulators and international regulatory forums. In particular, federal supervisors generally play a subordinate role in insurance markets. Many financial institutions are subject to multiple supervisory authorities as long as they carry out multiple financial activities or are part of a diversified holding structure. Table 1 presents the current structure of federal financial regulation. Regulators can be divided into three main areas of finance – banks (custodians), securities, and insurance (with state and non-federal regulators playing a dominant role). There are also targeted regulators for specific financial activities (consumer protection) and markets (agricultural finance and housing finance). The table does not include inter-institutional coordinating bodies, standard-setting bodies, international organisations or governmental regulatory authorities described later in the report. Appendix A describes the changes to this table since the 2008 financial crisis. The FPC is the specialised macroprudential authority and monitors the stability and resilience of the financial system as a whole, identifies and takes measures to reduce systemic risk. The FPC can ask the FCA and PRA to take certain measures to address systemic risk, but itself has no direct regulatory responsibility for companies licensed in the UK. The PRA is responsible for the authorisation and prudential regulation and supervision of entities that manage material risks on their balance sheets (including banks, insurers and systemically important investment firms), while the FCA is responsible for the authorisation, prudential regulation and supervision of all other FSMA entities (including consumer credit companies and management companies). claims) as well as the operations of all companies.

is responsible. Historically, financial regulation in the United States has evolved with a changing financial system in which major changes are made in response to crises. For example, in response to the financial turmoil that began in 2007, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act; P.L. 111-203) made significant changes to the financial regulatory structure (see Appendix A).1 Congress continues to discuss proposals to change parts of the regulatory system created by the Dodd-Frank Act. Among the main rules that apply to financial services companies are the regulations published to implement the above laws. Many observers believe that the structure of the regulatory system affects regulatory outcomes. For this reason, there is an ongoing debate in Congress on how best to structure the regulatory system. In the context of this debate, this report provides an overview of the U.S. financial regulatory framework. It briefly describes each of the federal financial regulators and the types of institutions that oversee them. It also deals with other bodies involved in financial regulation. Below is a brief overview of what financial regulators are doing and answer four questions in particular: The Office of Savings Supervision was the primary regulator of savings until the Dodd-Frank Act abolished it and delegated its obligations to banking regulators.

Savings are a good example of how the regulatory system has evolved over time to the point where it no longer resembles its original purpose. With a charter that was originally designed to differ significantly from the Bank`s charter (e.g. narrowly focused on mortgages), the regulation of frugality evolved to the point that there was relatively little difference between large, complex savings banks and bank holding companies. Because of this convergence, and due to security and soundness issues during the 2008 financial crisis and before that during the savings and credit crisis of the 1980s, policymakers felt that savings banks no longer needed their own regulatory authority (although they kept their separate charter). For a comparison of the powers of national banks and federal savings banks, see Office of the Comptroller (OCC), Summary of The Powers of National Banks and Federal Savings Associations, July 1, 2019, www.occ.treas.gov/publications/publications-by-type/other-publications-reports/pub-other-fsa-nb-powers-chart.pdf. Because it is difficult to ensure that functionally similar financial activities are legally consistent, all three approaches are necessary and sometimes overlap in a particular area. In other words, risks may come from companies, markets or products, and if regulation is not aligned, risks may not be effectively mitigated. Market innovations also create financial instruments and markets that lie between industry sectors. Congress and the courts have often been asked to decide which body has jurisdiction over a particular financial activity. Companies carrying out regulated activities in the UK are generally required to be authorised by one of the UK financial services regulators (or, for some companies, registered with one of the UK financial services regulators, unless they benefit from an exemption or exclusion. Once approved, the applicable requirements vary depending on the type of regulated activities carried out. One definition of systemic risk is that it occurs when each company rationally manages risk from its own perspective, but the sum of these decisions leads to systemic instability under certain conditions.

Similarly, regulators responsible for overseeing individual parts of the financial system can ensure that there are no threats to stability in their respective sectors, but fail to identify systemic risks posed by unimaginable correlations and interactions between parts of the global system.