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Laws: 10 Mistakes that Most People Make

The Necessity Of Regulation In The Financial Market

The impact that banks have on the financial systems of a nation is immense. The critical nature of this sector moves any government to institute supervisory measures to check the activities of the bankers.

Existence of unethical and unprofessional activities in one portion of the market can spell terrible impact throughout the industry. Lack of prudence when advancing loans to its customers can land a financial institution in dire straits.

The banks’ customers also need protection from acts of financial misconduct by players in the industry. Other malpractices that the government combats are an abuse of market share.

Financial institutions that monopolize the industry may employ unethical and unfair tactics to obliterate the competition. Bank clients also suffer from such malpractices as the firms exploit them through high prices for services.

Staff in the banks also capitalizes on the privileged information they have access to trade within the banks illegally. Supervising agencies in the industry work with enforce strict compliance to the confidentiality clause existing between the bankers and its clients.

Strict guidelines are set that the banks must obey when they are disbursing financial liability to their customers. The government supervisory role also goes to assure the public that their savings are safe with the banks.

The seriousness with which regulation in the banking industry is regarded is the overreaching effects in case of a crisis. People’s livelihood can be shattered and lives destroyed if the firms they work for close shop owing to malpractices in the financial sector.

Banks at other at times place themselves in trouble by diversifying away from their core business. Some tactics that financial players employ are fraudulent that places their clients in precarious states.

Historically it has been seen that catastrophes are a rarity in the financial sector. But when they happen the consequences are dire. The capitalization of the financial institution must be ample to shield it from the consequences of risks in the industry.

Agencies carrying out the regulatory role in the money market should exhibit that they have considerable confidence in the banking institutions. The regulators must pursue the integration of the culture of ethical practices in the financial systems.

The strategy that the regulating authorities are employing to achieve compliance must be communicated to the players in the banking sector. The repercussions that result from non-compliance should be known.

A proportionate attitude is the way to go for the enforcers and deal with each case according to its peculiarity. Processes that seek to penalise the wrongdoers must have transparency.

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