Over-Regulation Problem

In recent years, over-regulation has become a potential problem in the financial markets which have undergone a plethora of new regulation without stopping. Especially, it has been weakened the competitive position in US as the world’s leading financial market. The normal operating of financial institutions need a certain degree of legislation to regulate otherwise there will be kinds of financial crimes. Nevertheless, what kind of need to control the extent it is difficult to define. This essay will look at dilemma of the regulation in the financial market. In the first part of this essay, it will illustrate what is the regulation and why should be set regulation in the financial markets. Then, it is going to focus on the defects and hazards of over-regulation. How to set up a relatively reasonable measure of regulation will be discussed in the final part.

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Why the financial needs regulation

Regulation is defined as a rule or directive made and maintained by an authority. It includes legal regulation, administrative regulation and self-regulation. Why should set up the regulation in the financial market. Any system of social organization needs the regulation to make it operating healthy. Establish regulation in the financial market because of the following three reasons. The first reason is to provide customers’ profit and maintain the market confidence. The second is reducing financial crime. Ensuring the market fair, efficient and transparent is the third reason. The last but not least reason is that: to reduce the systematic risk of the financial system. The next part will explain details of these factors.

The protection of consumers

As a part of the financial markets, investors are in a weak position. They face being misled, deceived, market manipulation and other threatens. The big problem is that whether or not consumers could get the full disclosure of information for their protection. In UK, the Financial Services and Markets Act 2000 (FSMA) has published a set of applies to the entire financial market regulations in order to protect consumers. Its basic contents include: �the differing degrees of risk involved in different kinds of investment or other transaction, the differing degrees of experience and expertise that different consumers may have in relation to different kinds of regulated activity, the needs that consumers may have for advice and accurate information and the general principle that consumers should take responsibility for their decisions.’ So, the very important function of the financial institutions is that: disclosing information of the financial market accurately, timely and roundly for consumers to relieve them by the threat of potential risk. It not only of the financial industry to implement effective management of a basic premise but also the principle of the open market concentrated expression. Meanwhile consumers have to access to a neutral institution to conduct financial activities, they must always guard against some of the abnormal market behavior.

To reduce the financial crime

The Financial Services and Markets Act 2000 (FSMA 2000) defines the financial crime includes any offence involving: �fraud or dishonesty, misconduct in or misuse of information relating to, a financial market, or handling the proceeds of crime. ’ It also demand �regulated persons taking appropriate measures (in relation to their administration and employment practices, the conduct of transactions by them and otherwise) to prevent financial crime, facilitate its detection and monitor its incidence.’

Despite those consumer protection acts, there are still many violations against consumer interests in the financial markets. For instance, insider dealing, which is insider and improper leaks insider information to other people who have violated the law or regulation in order to make illegal profits according to insider trading in securities market. Insider trading scandal would scare off many investors, which has seriously affected the functions of the securities market normal operating. At the same time, insider trading make securities prices and the formation of index lost their timeliness and objectivity. In other words, it makes prices of securities and indices of a small number of people to use insider information profits, thus violating the rights of consumers.

To deal with the insider dealing, Margaret Cole states in his speech about expect proper conduct including: �appropriate and effective systems and controls in form of robust internal procedures, an insider list that is short as possible and based on need-to-know, a willingness to undertake a thorough internal review following a leak, effective and targeted training of staff including support staff, monitoring of staff personal account dealing, robust controls when dealing with third parties and effective information technology controls.’

Ensuring the market fair, efficient and transparent

The premise of the establishment of fair market should contain an effective regulatory body and operators who compliance with trading rules. A fair market needs a perfect prevention of improper trading practices. Regulation should promote the market efficiency which timely reflects the price information. With the aspect of technical analysis, the volume and price reflects the situation of stock market in the future. So, in order to create a good market environment, regulation also should ensure a high degree of transparency in the financial market.

To reduce the systematic risk of the financial system

Systemic risk is the market risk. It means the impact of changes on the stock market led to a drop in prices of all stocks then stock holders so as to the possibility of damage. It is caused by a common factor. In terms of economic aspects, such as interest rates, the current exchange rate, inflation, macroeconomic policy and monetary policy. When it comes to the political aspects, it often refers to regime change and war conflicts. In the stock market, Systemic risk has affected all the holders, but other than some stock shares some of the high degree of sensitivity. Also, it can not be dispersed investment to be eliminated because the system is the risk of individual enterprises or sectors beyond the control of the social, economic and political systems, so investors to choose their investment portfolio in any case are useless.

Financial market operating would involve uncertain risks. At the time when the risk occurs, regulators need to be able to find an effective