Premium Essay

The Importance Of Financial Regulation

Submitted By
Words 1529
Pages 7
Regulation is any set of rules imposed by governments or agents of governments that seek to change the behavior of economic agents, usually with the objective of improving the economic welfare of the whole community. Financial regulation guides and monitors what financial institutions do and the regulations are there to improve economics stability.

In this essay I am going to look at two different types of regulations, rules and principles based regulation. Rules based regulation brings about compliance cost for firm and monitoring costs for regulators, while, principles based regulation (PBR) relies more on ethical behavior and transparency of business dealing.

Also I going to look at financial regulators, who they are and what their duties
…show more content…
Post-crisis, it is now evident that Principles based regulation (PBR) was a huge contributing factor to the problems faced during the crisis, light touch PBR placed too much of an emphasis on managers of firms to conduct their business with integrity and be answerable for their decisions. (

For example: A period of surprising stable growth was seen in the United States in the early 2000’s. Smooth liquidation of long-term capital management led to a “too big too fail” expectation in the U.S financial sector. The extended period of growth led not just to over-optimism but low interest rates and excessive risk taking and increasing property prices. These trends in the banking industry contributed to the lending boom and housing frenzy that laid the foundation for the U.S
…show more content…
Ireland moved to light touch based principles in 2000’s and the banks took advantage of the increase in interbank lending but regulators did not seem to worry about this. Small commercial banks increased loans by about 20 to 40% per annum and shareholders were happy with the large increase in profits. Due diligence was not carried out on amount of loans issued and its loan to value ratios increased to over 100% in some cases. The low interest rates and boom time incomes meant that the increase in loan to value ratio was

Similar Documents

Free Essay

Generally Accepted Auditing Standards

...vital role within for-profit organizations, non-profit organizations, government, and the economy. With many standards, rules, procedures, and regulations placed on auditing financial reports for organizations, one would obtain an understanding as to the Generally Accepted Auditing Standards (GAAS). These GAAS were collaborated by members of the American Institue of Certified Public Accounting (AICPA) in the 1940's. In the 1940's, three guidelines to include General Standards, Standards of field work, and Standards of reporting. Each of these topics includes details as to the "flow" of the auditing process. After the Sarbanes-Oxley Act of 2002, (SOX), the regulations were increased with detail, and offered more insight as to the consequences of not following the "rules". The Public Company Accounting Oversight Board, (PCAOB), obtained more duties to assist in reviewing material relevant to auditing and auditors. One of the points one may find interesting is the importance of the regulations lack of required documentation. Rather than placing detailed requirements on included reports it lays a framework of guidelines of which to include, and what material needs to be disclosed. The main purpose for the regulations is to promote full disclosure and transparency, a common element which was missing prior. Commonly, many find the regulations to apply to for-profit and publicly traded organizations, however; many are inclusive for other organizations too. Island Ceremonies,......

Words: 737 - Pages: 3

Premium Essay


...of the following is the best definition of wealth? a. the sum of all current and future income b. the total of all assets and all income c. the total of assets and income less any liabilities. d. the sum of current income and the present value of future income. (d, moderate) 2. Stocks and bonds would be classified as: a. real assets b. indirect assets c. personal assets d. financial assets (d, easy) 3. Technically, investments include: a. only financial assets. b. only marketable assets. c. financial and real assets that are marketable or non-marketable. d. only financial and real assets that are marketable. (c, easy) 4. The retirement plans that guarantee retirees a set amount of money each month are known as: a. 401(k) plans b. self-directed plans c. defined-benefit plans d. defined-contribution plans (c, moderate) The Importance of Studying Investments 5. The investment professionals that arrange the sale of new securities are called: a. arbitragers b. traders c. investment bankers d. specialists (c, moderate) 6. Another name for stockbrokers is: a. specialists b. registered representatives c. security analysts d. portfolio managers (b,......

Words: 1615 - Pages: 7

Premium Essay

Hong Leong

...JOB DESCRIPTION Job Title: Practice Manager Location: Practice Responsible to: Clinical Director/Regional Director Job Objectives/Purpose Oversee the smooth and efficient organisation of the practice administration. To ensure all company procedures as set out in Branch Procedures Manual** are carried out effectively. To ensure all financial information is reported correctly and accurately to Support Office and administrative protocols are in place. Ensure the reception area is staffed effectively and the management and efficiency/co-ordination is managed to be best needs of the business. Ensure that all employees are aware of the fact that all clients are to pay on departure and with the Clinical Director have responsibility for managing this requirement.. Main responsibilities: General Management Office Management • Be able to reconcile receipts, day sheets, income reports, bank deposits and the petty cash, and understand the essential components of any reconciling system. . • Be able to set and enforce effective credit control – to include monitoring debtors, sending regular invoices and statements, dealing with overdue account collection and the small claims court, queries on accounts, setting up payment agreements. Be able to complete pet insurance claims and deal with queries. • Be able to deal effectively with day to day banking transactions, e.g. credits, automated credits and debits,......

Words: 1811 - Pages: 8

Premium Essay

Awc Inc

...MacDonald President, AWC Inc. Subject: Recommendations for Compliance to Environment Regulations Dear Mr. Alex, Please find enclosed the report on the analysis of the situation AWC is facing regarding the provincial environment regulations and impacts of the options available. It also has evaluation of possible options and the recommended plan of action for AWC Inc. Sincerely Yours, Anirban Chandra Management Consultant. Summary Situation Analysis • AWC. Inc.-medium sized aluminum fabrication company, paternalistic, employee friendly with extremely committed employee base • Highly competitive market with low entry barrier • Recession in construction industry, at least to stay for three years -AWC survives on quality, price and efficiency • Canada-US trade agreement-competition in local market but US market is now accessible • New product-unique, price high volume order • Second welding line to meet the demand of the new product • Noncompliance with the Government Regulations regarding pollutions • Present welding line exposes employees to toxic products, also damaging for the environment • Recently government sensitiveness on environment related issues • Punishable offence under law with considerable probability. • Emissions systems- Exhaust systems Recirculating emissions, more expensive, satisfying employee safety and environment regulations • Impact on cash flow (for insolvency), and income statement. Problem......

Words: 1683 - Pages: 7

Premium Essay

Germany and Profit Attribution

...Germany Ulf Andresen* Regulations Provide Further Guidance on the Application of the Authorized OECD Approach to the Attribution of Profit to Permanent Establishments The author considers the recently issued Regulations on the application of the authorized OECD approach under existing German tax treaties, specifically for the allocation of profit to permanent establishments. 1.  Permanent Establishment Profit Attribution Regulations Issued On 13 October 2014, the Upper House (Bundesrat) adopted the “Regulations on the Application of the Arm’ s Length Principle on Permanent Establishments in accordance with section 1(5) of the Foreign Tax Act (Aussensteuergesetz)” (Permanent Establishment (PE) Profit Attribution Regulations) (the Regulations).1 These Regulations were drafted by the Ministry of Finance and were adopted by the Upper House based on the delegated power in section 1(6) of the Foreign Tax Act granted by the parliament (Bundestag). The Regulations have the quality of law and, thus, are binding on taxpayers, the tax administration and the tax courts in Germany. They provide the long-awaited guidance for taxpayers on how they should apply, in practice, the authorized OECD approach under section 1(5) of the Foreign Tax Act, which is effective in Germany for all financial years commencing after 31 December 2012. The rules in the Regulations are effective for financial years starting after 31 December 2014. For taxpayers, this means that......

Words: 6508 - Pages: 27

Free Essay

Ethical Standards in Accounting

...Table of Contents Abstract 3 Introduction 4 Importance of Transparency 7 What Regulation Typically Covers 7 Regulatory Agencies 8 Accounting Reform 10 Conclusion 13 References 15 Abstract Within the accounting profession there are many complex ethical issues that must be dealt with quite often. It is important that the people working within the industry provide high quality financial statements and always pay close attention to ethical concerns that may arise. Since ethics is such a major concern in the accounting industry, a rules based system is in place for enforcing ethical concerns. There are many regulating bodies that exist that enforce many highly detailed regulations that people within the industry must follow at all times. Throughout history there have been several major accounting scandals that have been followed by new regulation to ensure that these problems do not come up again. CLERP 9 and the Sarbanes-Oxley Act are just a couple of acts that have caused significant changes to the accounting world in recent times. This paper will look at some of the different issues that accountants face as well as some of the regulations that seek to end unethical behavior.   Ethical Standards in Accounting Introduction The accounting industry is an always changing and constantly growing industry. Accounting plays a vital role in society and business and up until recently accounting was considered to have some of the highest......

Words: 3480 - Pages: 14

Premium Essay

Regulation and Deregulation of the Financial Industry

...In recent months and years, there has been much debate about regulation of industries and markets.  Especially in financial markets, this is an issue that has come up after the collapse of the housing, financial, and financial derivatives market last year.  Take the financial industry and imagine being a manager of a bank, insurance company or investment fund.  What are the main reasons in favor and against regulating this industry?  What are the economic benefits and dis-benefits of either approach?  What are the micro vs. the macro considerations of selecting an approach of governmental oversight and monitoring?  How much regulation do you favor in this industry?  What are your personal views on this matter? The importance of good regulation in the financial sector is necessary as 1. Companies can seek capital in the markets confidently to get on doing business without paying a significant market risk premium 2. The businesses of financial industry may operate profitably and efficiently and across the borders, while treating customers honestly and fairly. 3. All market participants can start understanding their obligations. 4. The consumers and investors participation can be in confident manner by taking use of trustworthy and reliable information to make decisions. The disadvantages of regulation would be 1. The customers would be affected negatively because of higher transaction costs due to requirements of clearing and reporting. 2. The......

Words: 322 - Pages: 2

Premium Essay


...Auditor Independence - Its Importance to the External Auditor's Role in Banking Regulation and Supervision Marianne Ojo Oxford Brookes University - School of Social Sciences and Law; The Institute for Business and Finance Research, LLC; Covenant University January 1, 2006 Abstract: The role of the external auditor in the supervisory process requires standards such as independence, objectivity and integrity to be achieved. Even though the regulator and external auditor perform similar functions, namely the verification of financial statements, they serve particular interests. The regulator works towards safeguarding financial stability and investor interests. On the other hand, the external auditor serves the private interests of the shareholders of a company. The financial audit remains an important aspect of corporate governance that makes management accountable to shareholders for its stewardship of a company. The external auditor may however, have a commercial interest too. The debate surrounding the role of external auditors focuses in particular on auditor independence. A survey by the magazine Financial Director shows that the fees derived from audit clients in terms of non-audit services are significant in comparison with fees generated through auditing. Accounting firms sometimes engage in a practice called low balling whereby they set audit fees at less than the market rate and make up for the deficit by providing non audit services. As a result...

Words: 479 - Pages: 2

Premium Essay

Financial Crisis

...knowing very few things about financial market and services (FMS). However, after 4 weeks of research and many enthusiastic discussions among our group members, it has helped me understand a lot more about FMS as well as the financial crisis, specifically sub-prime crisis. To begin, from doing this project I have come to know that financial markets in the world are interconnected. When US financial system collapsed, with the demise of some of the biggest financial institutions in US, it jeopardised the whole world’s economy. Inflation soars, credit crunch were one of the few horrible effects that the breakdown of US financial system affected financial system worldwide. At the same time, the crisis shook investors’ confidence across the world, which led to low liquidity in financial market and subsequently a devastating global economy meltdown. Furthermore, I have learnt that risk management is indispensable in a financial system, a “make or break” factor. Though taking risk may provide us with a higher return, we can never be overly greedy and take too much risk without handling them probably as they may back-fire. What happened in US is an exact example of what we call “lesson learnt the hard way”. It has definitely shown the world’s investors how immensely vital risk management is in a financial system, proving its undeniable influence on financial market and services. In addition, by doing this project, it has taught me the importance of regulations. One of many reasons......

Words: 414 - Pages: 2

Free Essay


...Microfinance - “the provision of financial services to low-income individuals and households, as well as micro, small and medium enterprises (MSMEs), using specially designed methodologies that will ensure sustainability for the lenders, and lead to improvement in the standard of life for the consumers, while ensuring a triple bottom-line of “developing the person; positively impacting lives; and leading to economic development of the region” as it facilitates large numbers of clients with relevant financial services at affordable prices” - provides an enormous potential to support the economic activities of the low income people and thus contributes to poverty alleviation. Widespread experiences and research have shown the importance of savings and credit facilities for the low income people and MSMEs. This puts emphasis on the sound development of MFIs as vital ingredients for investment, employment and economic growth. There is therefore, need for new, innovative, and pro-poor modes of financing low-income households and MSMEs based on sound operating principles. Implying that, an appropriate policy, legal and regulatory framework to promote viable and sustainable systems of microfinance in a country must be developed (Omino, 2005). The existing microfinance regulation in Kenya, (Microfinance Act 2006), while putting regulation and supervision of Deposit Taking Microfinance Institutions (DTIs) under Central Bank of Kenya (CBK), has, through Section 3(2) of the Act,......

Words: 2232 - Pages: 9

Premium Essay

Study Guide

...23 Principal-agent problem 30 Prisoners dilemma 34 Creative destruction 36 Tax & govt program disincentives 38 Chapter 3 – Government and the Economy Externalities 43 Govt solutions to externalities 48 Govt makes market economy possible – rights, laws, regulations 51 Public goods 57 Redistribution 59 Chapter 4 – Government and the Economy II Govt inefficiency 63 Govt allocation vs private allocation 67 Effects of regulation 69 Effects of taxation 74 Summary 78 Chapter 5 – Economics of Information Adverse selection 81 Firm screening 89 Branding provides information 90 Branding versus commodities 92 Signaling mechanisms 93 Chapter 6 – Productivity and Human Capital Human capital 98 Job creation 103 Effects of human capital on standard of living 105 Productivity 107 Income inequality 111 Chapter 7 – Financial Markets Purposes of financial instruments 118 Efficient markets & index funds 126 Investment guidelines 132 Chapter 8 – The Power of Organized Interests Interest groups & politicians’ incentives 137 Some regulations benefit business 142 Tyranny of the status quo 144 Chapter 9 – Keeping Score GDP: importance, real vs nominal, per capita 150 GDP growth & wage growth 152 GDP...

Words: 383 - Pages: 2

Premium Essay

Importance of Ethics in Accounting

...Running head: IMPORTANCE OF ETHICS IN ACCOUNTING Importance of Ethics in Accounting Everest University Importance of Ethics in Accounting Accounting fraud is common but is not as trivial as the common cold; a typical organization loses annual revenues of nearly 5 percent to fraud. In addition, almost one-quarter of reported fraud is exceeding $1 million dollars. The accounting industry is constantly growing and changing. Consequently, difficult decisions have to be made every day. While accountants follow a simple code of conduct; nevertheless, due to the infamous scandal of Enron, the Sarbanes-Oxley Act of 2002 was constructed to reestablish confidence in the public marketplace. The importance of ethics and integrity are highly significant to individuals in this profession. In fact, ethical behavior in accounting is described as “societies accepted standards of moral behavior that is behaviors as right rather than wrong” (Nickels, McHugh, & McHugh, 2013, p. 91). Therefore, accounting as a whole plays a significant role in society and business. At one time, society considered professional accountants to have the highest standard in ethical and moral conduct. While maintaining accurate and truthful statements is an essential part of financial reporting; therefore, as a society as a whole it is essential that a professional accountant fully understand the importance of ethical values. One unquestionably problematic misconception is that ethics consist......

Words: 1065 - Pages: 5

Premium Essay

Lowe's Compliance

...a company’s financial environment is crucial to long term success as well as gaining investors’ and employees’ trust. When an organization demands ethical behavior from it entire workforce, compliance and adherence to various important standards is a much easier task to obtain. This type of environment creates better relationships with shareholders, employees and customers. This behavior also passes savings on to customers and higher dividends to shareholders. Lowes Companies sets this type of expectation throughout its organization. This steadfast dedication to diligent, honest work is apparent when reviewing Lowes annual reports and code of ethics. With dedication to shareholder value, Lowes vows improvement to financial performance by 2015 in its 2011 annual report by implementing the vision, Never Stop Improving™. This promise to shareholders as well as the openness of the company’s financial information shows that Lowes holds ethics and compliance in a high regard from the company’s employees in stores to the workforce on the corporate level. Lowes code of ethics acts as a guideline for any employees who make decisions within the company. Lowes believes in holding its employees to a high standard of integrity and professionalism ("Lowes Companies Code Of Ethics", 2012). When it comes to high standards and the importance of accurate record keeping in the financial environment, Lowes outlines its expectations in its codes of ethics: “The integrity of financial reporting......

Words: 1563 - Pages: 7

Free Essay

Business and Its Environment

...America, free markets, and how the world’s economy is sinking. In addition, alongside the review the purpose of this memo is to provide the findings about the various changes that have resulted in the current economic situation. This is because the main area of focus will be on emerging changes in the financial or regulatory environment. Towards the end, of the memo, conclusion and various recommendations concerning the business will be highlighted. The author of the book is one of the world leading scholar and an expert on market failure. His latest book about the freefall is comprehensive and up to date as it is made up of both the theories and facts. This is one of the most compulsory books for everyone who aims at understanding the financial crisis experienced. In his book, the author has tried to analyze the various economic reasons for the fall of banks. In addition, he goes ahead to expound on the misled faith of the entire nation concerning the ability of the free market to regulate themselves and guarantee wealth to others. In his work, the author has tried as much as possible to criticize those individuals who just muddle through instead of emphasizing on the importance of change. Discussion Summary of the book In this book, it is believed that the market lies at heart for every successful economy....

Words: 1631 - Pages: 7

Premium Essay


...Considerations 3 Importance of Internal Controls 3 LJB Internal Control Assessment 3 Conclusion 4 Bibliography: 5 Introduction: LJB Company has engaged RR Accounting Firm to evaluate their current system of internal controls as LJB Company is planning to go public. Public companies have additional responsibility to shareholders and investors and must ensure integrity over their financial statements by maintaining a strong and effective internal control environment. The purpose of this report is to provide an objective analysis of the control environment of LBJ Company. This report will discuss importance of internal controls and identify both the current strengths and the current weaknesses in LJB Company's control environment within the following sections: 1. Compliance with Federal Regulations on Internal Controls for Public Companies. 2. Importance of Internal Controls. 3. Assessment of Internal Control Environment at LBJ Company. (a) Governance - Tone at the top (b) Segregation of Duties (c) Documentation Procedures (d) Physical Security (e) Human Resources 1. Compliance with Federal Regulations on Internal Controls for Public Companies As LJB Company is considered to be a small organization, going from private owned to public traded will require extensive planning. During planning, LJB must consider the current system of internal controls and the cost versus benefit of becoming compliant with regulations such as the......

Words: 1462 - Pages: 6