Theory of Regulation of Financial Markets: Reasons and Methods

Abstract

Financial market regulation serves stability and protection. The purpose of risks and risk management is to prevent the phenomena of too big to fail, too interconnected to fail, and moral hazards at the micro and macro levels that could lead to a cascading impact. Consumer protection is addressed through disclosure requirements and educational initiatives, shielding consumers from predatory practices. The regulations extend to environmental and societal impacts, promoting sustainable and ethical finance, encouraging environmental practices transparency and incentivising green finance. Ethical finance aligns with global ethical standards and religious principles, shaping financial practices. Governments and international bodies collaboratively establish a multi-level regulatory framework, including national, supranational, and international levels. On the one hand, the different levels and binding rules provide flexibility, but at the same time, this makes uniformity difficult; harmony and consistency require careful supervision and oversight. Regional and national variations may exist in regulatory structures.