MAS 100: Financial regulators

• Regulation was designed to set rules and guidelines to be followed that is designed to ensure balance among the individuals, firms and/or citizens as the case may be.
• Regulation is designed to reconcile conflicting interests.
• Public Utility Research Center in the University of Florida defined regulation is a process whereby the designated government authority provides oversight and establishes rules for firms in an industry.
• Regulation is a process whereby the designated government authority provides oversight and establishes rules for firms in an industry.
• Normally a regulatory agency was identified by law or by order to execute the regulatory framework and be an oversight of a certain industry or particular firm.
• World bank sets regulatory measures to address certain risks and social factors.
• Systemic risk is the probability of a firm to fail its objective that will result to ripple effect.
• Consumer protection is a factor to consider that policies enformed assumed the effect to the customer's welfare.
• Efficiency enhancement is a factor that is considered to ensure the dynamism and agility of the policy to adopt in a fast-changing environment.
• In broader scopes, the policy should take into consideration the alignment in the objectives of the society or what is factored as social objectives.
• Financial regulation is a type of regulation whereby rules and standards were set to oversight the ability of the companies to establish and maintain appropriate level of capital to sustain its operation.
• Market Drivers:

  1. Competitiveness
  2. Market behavior
  3. Consistency
  4. Stability
• Government are duty bound to regulate competition in the environment, in this case is the financial sector.
• Financial sector has an important role in shaping the overall economy of a country hence it is a must that this must be regulated.
• It must be noted that the main determinant of competition are the main forces that drives the market: buyers and sellers.
• Their behavior in the market can be demonstrated on their: integrity of their activities and integrity of their representation.
• The government normally sets certain standards to ensure integrity:

  1. full disclosure of information
  2. prohibition of insider trading
  3. control of new players
  4. setting minimum capital requirement
  5. minimum governance rules
• Consistency in the market is normally demonstrated to their information disclosure and policies.
• Information is a vital asset in financial markets.
• Government role is to set standards to regulate and ensure that information provided in the market are fair, consistent, and conservative.
• In accounting parlance, information can be treated as an intangible asset hence value should be tested overtime.
• The principle of prudential regulation whereby the government impose rules or standards that will govern the behavior of the financial institutions and financial markets that grants commitments to minimize the risk of uncertainty and strengthen the integrity of the firms.
• Market stability is an external and fatal factor to be considered by the firms in the financial market.
• In the financial market, the impact of financial risk is something that the regulatory environment should consider.
• Systemic instability is a challenge or threat whereby it arises where a segment or firm was not able to meet its commitment because of their failure to address the risks of the market.
• Regulators of Financial activities:

  1. Bangko Sentral ng Pilipinas
  2. Securities and Exchange commission
  3. Insurance commission
  4. board of investment
• The BSP is created under the New Central Bank Act of 1993 or RA 7653 and attached agency of the Department of Finance.
• The BSP is created under the New Central Bank Act of 1993 or RA 7653 and attached agency of the Department of Finance.
• The BSP is created under the New Central Bank Act of 1993 or RA 7653 and attached agency of the Department of Finance.
• Under the Philippine law, BSP will act as the central monetary authority which will act as a corporate body that is responsible concerning money, banking, and credit.
• BSP shall provide policy directions and also responsible for the supervision of financial institutions and exercise regulatory powers.
• Liquidity Management

  • The BSP formulates and issues monetary policy aimed at influencing money supply in order to maintain price stability.
• Currency issue

  • The sole responsibility to issue notes and coins representing the national currency for the Philippines. All issuances made by the BSP are with sovereign guarantee and shall be considered legal tender in exchange for private and public debts.
• The sole responsibility to issue notes and coins representing the national currency for the Philippines. All issuances made by the BSP are with sovereign guarantee and shall be considered legal tender in exchange for private and public debts.
• The sole responsibility to issue notes and coins representing the national currency for the Philippines. All issuances made by the BSP are with sovereign guarantee and shall be considered legal tender in exchange for private and public debts.
• Lender of last resort

  • BSP acts as a provider of discounts, advances and financial support to financial institution for them to maintain their liquidity.
• Financial supervision

  • BSP regularly supervises financial institutions and is empowered to exercise regulatory powers over non-bank institutions conducting quasi-banking functions.
• Management of foreign currency reserves

  • Manages the financial foreign currency requirement of the Republic by ensuring sufficient international reserves will be made available on time. This is to preserve the international stability and position of the Philippine Peso.
• Determination of exchange rate policy

  • BSP sets the policy that will determine the rate of exchange of Philippine Peso over different currency. Currently, BSP subscribes to a market-oriented foreign rate policy hence the rates are dependent in the behavior of the market.
• BSP shall be governed by the Monetary Board.