Financial regulation (2024)

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Financial regulation (3)

Complaint Handling

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There is an unparalleled level of regulatory reform taking place globally across financial services. These reforms aim at reducing global markets systemic risk by making them safer. Regulations involving restructuring banks, increasing tax transparency or strengthening capital requirements, are being drawn up and rolled out. These are complex and in many cases overlap products and regional jurisdictions.

Introduction to financial regulation

After the 2008 financial crisis, governments across the world were empowered to push for financial reforms designed to provide greater transparency of transactions and reduce risk in order to make financial systems more stable and better regulated, and to make global markets safer. Furthermore, new capital and bank structure rules are intended to strengthen resilience to any future financial crises and to provide greater consumer protection.

HSBC is committed to implementing the resulting regulations and raise the level of awareness of the reforms among our clients.

Financial regulation (4)

Regulatory Disclosures

Several regulations require financial institutions such as HSBC to publically disclose specific information. These disclosures contribute to increased transparency in financial markets and help market participants make informed decisions.

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AIFMD

The aim of the Alternative Investment Funds Directive (AIFMD), agreed on 8 June 2011, was to establish common requirements governing the authorisation, operations and supervision of AIFMs in order to provide a coherent approach to the related risks and their impact on investors and markets in the European Union.

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BCBS Margin rules

Since 1 September 2016, new initial margin (IM) and variation margin (VM) requirements for non-centrally cleared over-the-counter (OTC) derivatives have been introduced and applied to jurisdictions globally.

These new margin rules originate from a global policy framework and timetable that was published by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions (BCBS-IOSCO). They seek to reduce systemic risk in the non-centrally cleared OTC derivatives markets by ensuring appropriate collateral is available to offset losses caused by the default of a counterparty.

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Financial regulation (5)

Central Securities Depositories Regulation

Following the 2008 financial crisis, the European Commission decided that national Central Securities Depositories (CSDs), in their position as key institutions performing the vital post-trade process of securities settlement, as well as maintaining records of securities accounts and transactions, needed to harmonise their practices and improve the safety and efficiency of transaction settlement.

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Financial regulation (6)

Deposit Guarantee Scheme Directive (DGSD)

The European Commission proposed in July 2010 a comprehensive review of the Directive on Deposit Guarantee Schemes (DGS) aimed at harmonising and simplifying the Directive in order to improve protection of deposits, maintain depositor confidence, and strengthen the safety net.

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Dodd-Frank Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA) was enacted to reduce systemic risk, increase transparency, and promote market integrity within the financial system. In particular, Title VII mandates major structural reform to the Over-The-Counter (OTC) derivatives market.

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Dodd-Frank Volcker Rule

The objective of the Volcker Rule is to stop all proprietary trading (which is defined quite broadly) by commercial banks (such as HSBC) i.e. to cease any risky trading by banking institutions that has no benefit to its customers. It also seeks to prevent the requirements being by-passed by ownership/investment in hedge funds or private equity funds.

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SRD II

The Shareholder Rights Directive II (SRD II) is a European Union (EU) directive, which aims to strengthen the position of shareholders and ensure that decisions are made for the long-term stability of companies. The rules, which will amend the original SRD which came into effect in 2007, are designed to materially enhance corporate governance standards at companies which are registered within the European Economic Area (EEA), and whose securities are traded on EEA regulated markets.

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Financial regulation (7)

EMIR

The European Markets and Infrastructure Regulation (EMIR) is a European Union law that aims to reduce the risks posed to the financial system by derivatives transactions in the following three main ways: reporting of derivatives trades to an authorised trade repository; clearing derivatives trades if entities' derivative trading exceeds certain thresholds; and mitigating the risks associated with derivatives trades by, for example, exchanging margin, reconciling portfolios periodically and agreeing dispute resolution procedures between counterparties.

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Financial regulation (8)

FMSB

The Financial Markets Standards Board (“FMSB”) was established in 2015 as a private sector response to the Conduct problems revealed in global wholesale Fixed Income Currencies and Commodities (“FICC”) markets after the financial crisis. FMSB’s purpose is to help raise standards of conduct in global wholesale markets and thereby make those markets more transparent, fair and effective.

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Financial regulation (9)

Hong Kong Monetary Authority (HKMA)’s market reform

In 2011 and 2012, the HKMA and Securities and Futures Commission (SFC) consulted the market on a proposed regulatory regime for the Over-The-Counter (OTC) derivatives market. To comply with strict international standards, the new regulatory regime focused heavily on the OTC derivatives markets, including reporting of specified OTC derivatives transactions to the Hong Kong Trade Repository (HKTR), clearing of specified transactions at designated Central Counterparties and margining of non-cleared derivatives.

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IBOR reforms

Interest rate benchmarks including, among others, the London Interbank Offered Rate (LIBOR), the Euro Interbank Offered Rate (EURIBOR), the Euro Overnight Index Average (EONIA) and certain other Interbank Offered Rates (IBORs) are being reformed. These reforms are expected to cause some interest rate benchmarks to either perform differently to the way that they do currently or to disappear. This may impact the HSBC products and services you currently use and those we may provide in the future.

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MiFID II

The EU's revised Markets in Financial Instruments Directive (MiFID) and Markets in Financial Instruments Regulation (together MiFID II) came into effect on 3 January 2018. MiFID II seeks to make financial markets in Europe more resilient, transparent and investor-friendly and is part of a number of measures enacted in response to the financial crisis. These include the European Markets Infrastructure Regulation (EMIR), which seeks to make the EU's OTC derivative market safer, and the Securities Transactions Regulation (SFTR) which seeks to regulate the EU's shadow-banking sector.

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Qualified Financial Contract (QFC) Stay Rules

The Qualified Financial Contract ("QFC") Resolution Stay Regulations ("US QFC Stay Rules") are designed to improve the resolvability and resilience of US global systemically important organizations ("G-SIBs") and the US operations of foreign G-SIBs by mitigating the risk of destabilizing closeouts of QFCs upon an event of a G-SIBs insolvency.

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SFTR

The EU has introduced the Securities Financing Transaction Regulation (SFTR) to increase transparency in the Securities Finance markets following policies introduced by the Financial Stability Board in the wake of the Financial Crisis. Although the EU is the first to implement rules in this space, other regulatory bodies are expected to follow.

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Financial regulation (10)

T+1 settlement cycle in the US, Canada and Mexico

The settlement cycle in the US, Canada and Mexico will be shortened from two business days after trade (T+2) to one business day (T+1) in May 2024. Discover how this change is expected to impact all market participants, including buy-side firms and end-investors.

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UK Banking Reform

The Financial Services (Banking Reform) Act of 2013 is a UK Government proposal aiming to impose higher standards of conduct on the UK’s banks. It also looks to improve their loss-absorbing capacity and outlines plans for the “ring-fencing" of retail and wholesale banking activities.

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Find out more about Financial Regulation

Regulatory disclosures

AIFMD

BCBS Margin rules

Central Securities Depositories Regulation

Deposit Guarantee Scheme Directive (DGSD)

Dodd-Frank Act

Dodd-Frank Volcker Rule

EMIR

FMSB

Hong Kong Monetary Authority (HKMA)’s market reform

IBOR reforms

Client Safe Custody Asset Registration by Market

MiFID II

Qualified Financial Contract (QFC) Stay Rules

SFTR

SRD II

T+1 settlement cycle in the US, Canada and Mexico

UK Banking Reform

2002 ISDA Master Agreement

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Financial regulation (11)

For more information, please contact your HSBC representative.

Financial regulation (2024)

FAQs

What are the purposes of financial regulations to three answers? ›

To make business competitive. To limit and prevent monopolies. To place regulations on prices.

What is financial regulation in simple words? ›

Financial regulation refers to the rules and laws firms operating in the financial industry, such as banks, credit unions, insurance companies, financial brokers and asset managers must follow.

What are the arguments against financial regulation? ›

An argument against regulation is that it makes firms less efficient because they have to bear the cost of compliance. To start with, we should never think about regulation in terms of costs only—we should Page 8 Arguments for and against Regulation 23 think in terms of costs and benefits.

Why is financial regulation necessary? ›

Why Are Financial Regulators Important? Financial regulators have many important jobs, including ensuring that markets operate fairly and also helping to prevent fraud. Proper regulation protects investors from scams and other financial improprieties.

What are the two main goals of financial regulation? ›

The objectives of financial regulators are usually: market confidence – to maintain confidence in the financial system. financial stability – contributing to the protection and enhancement of stability of the financial system. consumer protection – securing the appropriate degree of protection for consumers.

What is the biggest intended benefit of financial regulation? ›

Financial regulation and government guarantees, such as deposit insurance, are intended to protect consumers and investors and to ensure that the financial system remains stable and continues to make funding available for investments that support the economy.

Why is regulation bad for the economy? ›

A common argument against overregulation and excessive taxation is that they impose a net cost on society in the long run. According to critics, government regulations slow disruptive innovations and fail to adapt to changes in society.

What are the arguments favoring regulation of financial reporting? ›

ANSWER: An argument in favor of regulation is that accounting information is a public good, and public goods are under-produced in a free market. Under-production of public goods occurs because producers are not able to impose production costs on all users of the good, and are thus not motivated to meet real demand.

What is the disadvantage of financial law? ›

The disadvantages of finance law include increased costs from regulations, decreased efficiency due to soft law, and a decrease in business profits due to compliance. This can result in a heavy financial burden for businesses.

Why are banks heavily regulated? ›

Regulation protects the Fed and the fdic against losses that will occur when it lends to banks that later fail. the payment system in which banks transfer funds among themselves.

What are the three reasons why regulation is needed? ›

Regulation consists of requirements the government imposes on private firms and individuals to achieve government's purposes. These include better and cheaper services and goods, protection of existing firms from “unfair” (and fair) competition, cleaner water and air, and safer workplaces and products.

How to find out who regulates a bank? ›

If you can't find your bank's name or you have a banking question, you can contact any of the federal bank regulators below:
  1. Office of the Comptroller of the Currency: 800-613-6743.
  2. Federal Reserve Board: 888-851-1920.
  3. Federal Deposit Insurance Corporation: 877-275-3342.
  4. National Credit Union Administration: 800-755-1030.
Oct 16, 2018

What are the 3 major purposes of financial statements? ›

The income statement, balance sheet, and statement of cash flows are required financial statements. These three statements are informative tools that traders can use to analyze a company's financial strength and provide a quick picture of a company's financial health and underlying value.

What is the main purpose of regulation? ›

Effective regulation therefore aims to align private behavior with the public interest. 4 Regulation defines standards for performance, then assigns consequences, positive and negative, for that performance. The common purpose of all regulation is performance.

What are the purposes of financial regulations brainly? ›

Expert-Verified Answer

The purposes of financial regulations are to protect consumers, maintain financial stability, and promote fair competition in the financial industry.

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