Global & National Financial Regulators Explained | India–US–UK/EU Guide
A comprehensive guide to India, US, UK/EU financial regulators and global standard-setters, covering AML/CFT, prudential rules, conduct oversight, and emerging regulatory trends.
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It is the regulators' responsibility to render the financial system transparent, ethical, and secure. Regulators must regulate intermediaries, banks, securities markets, and the insurance industry. Regulators must fight money laundering systemically and uphold compliance with the law. International coordination and home regulation release economic globalisation. International non-regulation was witnessed with financial tightness in 2008, and severe surveillance was required increasingly at that time.
India's Regulatory Regime: Sectoral with Overhang of Independent Statutory Bodies
India's regulatory regime is sectoral with an overhang of independent statutory bodies. Reserve Bank of India (RBI) itself is the central bank regulator of banking, payments, and monetary policy. RBI is regulated commercially by law, statutorily, like the Payment and Settlement Systems Act, 2007, and the Foreign Exchange Management Act (FEMA), 1999 (RBI, 2023).
SEBI regulates the capital markets in India. SEBI regulates investor broking firms, stockbroking firms, credit rating firms, and mutual funds to safeguard investors and maintain transparency by provisions of the SEBI Act, 1992. Its action against Karvy Stock Broking is a client securities abuse prevention enforcement action (SEBI, 2023).
Insurance Regulatory and Development Authority of India (IRDAI) oversees policyholder protection, margin of solvency, and product registration within the insurance industry. Financial Intelligence Unit – India (FIU-IND) is India's financial intelligence unit, and their task is to examine suspicious transaction reports (STRs) reported under the Prevention of Money Laundering Act, 2002 (FIU-IND, 2022).
The decentralised nature of the US regulatory system assumes the existence of belief in the many simultaneous agencies. The Securities and Exchange Commission (SEC) oversees capital markets, investment intermediaries, and company disclosure under the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC has led enforcement action on cases in the spotlight, for instance, on fraudulent communications to investors by prominent technology firms (SEC, 2023).
Derivative and commodity markets are regulated by the Commodity Futures Trading Commission (CFTC). The Dodd-Frank Act placed greater importance on the CFTC after the 2008 crisis to include regulation of over-the-counter (OTC) swaps (CFTC, 2023).
FINRA regulates itself, and it is responsible for ensuring that its market conduct compliance regulatory oversight role as a broker-dealer is fulfilled. FINRA is not regulated by the government but collaborates with the SEC and performs routine exams (FINRA, 2023).
The banks are regulated twice by the Office of the Comptroller of the Currency (OCC), the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC) in the case of banks. Systemic risk is managed by the Federal Reserve through monetary policy and regulation of the bank holding companies (Federal Reserve, 2023).
The USA's Financial Intelligence Unit is the Treasury's Financial Crimes Enforcement Network or FinCEN. It enforces the Bank Secrecy Act (BSA) and imposes anti-money laundering (AML) measures, i.e., reporting of suspicious transactions and customer due diligence (FinCEN, 2023).
United Kingdom and European Union: Prudential Conduct Integration
The United Kingdom uses a "twin peaks" structure of behaviour and prudential regulation in that it has two institutions performing the prudential and conduct regulation. Market integrity and consumer protection for products other than those listed above are dealt with by the FCA (FCA, 2023). Stability and security of banks and insurers, and large investment firms, are regulated by the Prudential Regulation Authority of the Bank of England (Bank of England, 2023).
Three institutions of law in the European Union are ESMA, EBA, and EIOPA, where the EU's financial regulation is harmonised. Technical standards of trade repositories and securities markets, and credit rating agencies are set by the European Securities and Markets Authority (ESMA) and overseen by it (ESMA, 2023). Regulated by the European Banking Authority (EBA) are banks, such as Basel III and stress tests. European Insurance and Occupational Pensions Authority (EIOPA) also has supervisory authority in the regulation of insurance and pension schemes within the member states.
Of the many EU finance regulation elements, there will most likely be none more extensive than data protection. Member state regulators implement the General Data Protection Regulation (GDPR), prohibiting the collection, storage, and processing of data, and extending to banks and other financial institutions that manage clients' data (European Commission, 2023).
Global Standard-Setters: Aligning International Financial Rules
Whereas domestic authorities exercise jurisdictional regulation, international standard-setters exercise rules of cooperation and congruence. FATF is the AML and CFT standard-setting leadership. FATF has recommended member FATF jurisdictions bilaterally and maintains grey and blacklists of non-cooperative states. FATF public listing of riskier states has real-world impacts on correspondent banking relations and cross-border flows of investment (FATF, 2023).
Bank for International Settlements (BIS)-led Basel Committee on Banking Supervision leads prudential guidelines for banking supervision. Basel III has been implemented in the majority of cases to introduce reforms to leverage ratio requirements and the introduction of liquidity coverage ratios. Its capital buffers countercyclical aim to provide extra resilience to contracting economies for banks (BCBS, 2023).
IOSCO, or the International Organisation of Securities Commissions, offers cross-border regulation of the securities markets. It fosters standards of market conduct, transparency, and investor protection levels to be maintained under national law (IOSCO, 2023).
Emerging Trends and Regulatory Expectations
Four global trends are reconfiguring the existing financial regulation. Risk-based anti-money laundering (AML) compliance will supersede so-called one-size-fits-all compliance. Regulators now promote institutions to take on more differentiated due diligence (EDD) in the segments of heightened risk, i.e., trade finance or non-resident client segments.
Second, regulation technology, or RegTech, is reshaping the nature of compliance. Artificial intelligence and machine learning are being compelled by regulators to track firms in real time, and algorithmic bias and data privacy are concerns.
Third, ESG regulation is on the rise. Regulators such as the EU's Sustainable Finance Disclosure Regulation (SFDR) oblige financial institutions to report greenwashing conduct and sustainability risk.
Fourth, co-operation is elevated at the global level. They are requesting memoranda of understanding (MOUs) to facilitate information sharing and co-enforcement, wherever there is an international or domestic bank or crypto asset provider to target. International and domestic financial regulator agencies' understanding is the basis of compliance and legal professionals today. Regulators enforce law, but international best practices and standards too, as evolving financial crime challenges and emerging technology evolve.
The firms that are at the forefront of staying ahead of national and international regulatory requirements will be in a good position to manage compliance risk, eschew enforcement issues, and restore dignity to the financial industry.
