Contemporary Issues In Accounting And Finance

Financial regulation has been a central and a recurring issue in contemporary policy discussions. According to Sir David Tweedie (a former chair of the IASB), the purpose of Accounting Regulation is to “keep capitalism honest”.Yes, transparency of financial institutions can only be achieved through regulation.In response to Sir David Tweedie, I think that financial markets are in dire need of financial regulation.

Financial markets deal with finances, and it happens that finance is regulated over and above the way other industries are regulated since finance normally exhibit market failures that can have devastating consequences.

The following are the reasons as to why Financial Markets should be regulated: Financial markets can only work best if they are regulated. Regulations will ensure investors are fully informed, and the markets are free from any form of manipulation or fraud. In the unregulated financial market, investors lack adequate information to guide their investments as companies have the incentive not to share their financial information.
 This is why accounting regulators require companies to have a full disclosure (transparency) of their accounting information. Stringent rules against manipulation and fraud are required in all transactions provided by the financial markets in order to ensure transparency and honesty. A financial regulator will balance the interests of the consumers of financial products who are unsophisticated together with those of the sophisticated sellers.
 The financial regulator’s aim will be consumer protection- to protect the vulnerable consumers of financial services. When financial markets are regulated, there will be no breakdown of management control in the financial market companies. Also, under financial regulations, a threat of failure of one financial institution will not affect other institutions, a situation, which can lead to the collapse of the financial market. If financial markets are not regulated, then market failure resulting from one financial institution could have devastating consequences on the other institutions. Better regulation like the statutory regulation of financial markets is therefore required to limit the amount of harm one financial institution can cause to the other. For example, the risks taken by one financial institution can harm other firms.
When a financial institution fails, it ends up harming its clients, employees, creditors, vendors and also other firms that lent their money to the vendors, clients and creditors. This potential loss does not restrain the financial institutions from taking greater risks that may be more harmful to other firms. Financial regulation is therefore required to make sure financial institutions do not harm others or to limit the magnitude of harm done to other financial firms. More government intervention through regulation is required to make the financial markets more stable and to improve how they work and more so in terms of transparency.
Even though financial markets claim that statutory regulation is based on bureaucratic rule-writing attitude, the statutory regulation is important in financial markets to ensure transparency in the financial institutions. There is the need to have stringent rules that will govern all the operations of the financial institutions if at all honest is to be experienced in capitalism. Financial regulation on financial markets is required for a successful and healthy economy. Financial regulators focus on the soundness and safety of financial markets and highly focus on the harm that such companies can cause to the stability of the financial system.
A stable financial system is one where companies continue providing critical financial services. For example, the Prudential Regulation Authority (PRA) works together with the Financial Conduct Authority (FCA) to conduct regulation in the UK financial markets as per the UK standards to prevent market abuse and for a healthy and successful UK economy. The financial markets in the UK did not become world class until the establishment of the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), which were formed after the abolishment of the Financial Services Authority (FSA) following the perceived regulatory problems and failures during the 2007-08 financial crises.
This made the UK financial markets more stable and honest, hence a healthy UK economy. Contemporary Issues In Accounting And Finance
Financial institutions today complain that the problems they are experiencing are as a result of over-regulation. However, this is not the case as the financial institutions are suffering as a result of their lack of confidence in the financial regulators. The financial institutions do not want to follow or adhere to the regulation rules and standards and when a problem is experienced, the blame the financial regulators for over-regulation. As standard setters, financial regulators do not bow to pressure from the financial institutions rather they are always persistent to fully regulate the institutions as per the set regulations.
 Financial regulators are always sensitive to business concerns and are independent and firm in the face of special interests. This is not the case in self-regulation where the market and industry practitioners may bow to pressures, hence resulting into lack of transparency. Financial regulators are not easily compromised like industry practitioners whose interests are in the financial business. Based on the above points, it is, therefore, important for the financial markets to be regulated by a statutory regulator as this is the only way to ensure honesty and transparency in the financial institutions. In fact, Governments should do more to regulate financial markets. The success of the financial market and the economy at large depends on how well the financial institutions are regulated by a statutory regulator.