Financial Institutions and Regulations

This assignment delves into the realm of financial institutions and regulations within the European Union. It explores various aspects, including the role of regulatory bodies like the Bank Board Regulation, the impact of disclosure and reporting requirements, factors influencing audit fees, and the influence of Brexit on the UK's financial service industry. Additionally, it examines the historical development of practices and institutions in finance.

Financial market and
Institutions
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“IMPACT OF BREXIT ON THE UNITED KINGDOM AND EU'S
FINANCIAL REGULATIONS”
Financial market is a place where people buy and sell sale their financial securities.. It is a
broad term which comprises trading of equities, bonds, derivatives, currencies etc. at less
transaction cost. In this, prices are decided at the point of at the intersection point of demand and
supply hence it, may not indicate the real intrinsic value of the stock. Along with this, prices are
largely rely relies upon the transparency of information given by the issuing company so as to
assure efficient and appropriate price (Aldohni, 2016). For instance, derrivative, Forex, Over-the-
counter (OTC), Bond, Money and Stock market etc. are several kinds of financial market where
people purchase and dispose disposed of off their variety of securities for different objectives. On
the other hand, financial institutions are the establishments which carry out the investment, accept
deposits, provide loan and conduct other financial activities. For instance. transactions as well such
as commercial banks, assets management firms, stock brokerage firm, credit union etc. are the
several types of financial institutions. In the present age, almost each and every person deals with
the banks to deposit their savings and take loans to fulfil their capital requirement. All these
institutions are regulated and supervised by supervision by certain rules, regulations, guidelines and
restriction which are known as the financial regulations (Dwyer, 2016). The main aim of such is to
maintain integration of the system by conducting their operations precisely and legally.
Strictly abiding with the regulatory provisions is must, because it plays an important role in
the economic growth and development. The reason behind this is that such such nations which have
adequate finance isare identified very strong so it will be able to as it will be able to deal with the
volatile market situations and patterns. Contrary to this, countries which are facing difficulties due
to insufficient quantum of finance, their profit and losses are dependent upon the recession and
boon. Financial regulations mainly includesFinancial regulations mainly include policies, guidelines
and legal regulations which are decided by the government. Both the private as well as public
institutions are legally liable to follow these this principles and restrictions so as to maintain high
level of integrity. This policy influence and regulate the daily operations of the financial sector in
order to assure the financial stability (Naser and Hassan, 2016). The main importance of the
regulatory practices is they eliminate instability which can be arise due to The regulatory practices
are of huge importance so as to remove instability due to high rate of interest, market uncertainty,
adverse economic shocks etc. These This restrictions and supervisions have been introduced by the
government to ensure effective functioning of the system by absorbing shocks and building
stability.
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EU is political union of 28 member states which are located in the country of Europe. It has
developed a uniform legal system and applied for all the countries whothat are the part of EU. The
major aim of EU policies comprises of freedom of movement of people, services, goods, capital etc.
within its internal market. Moreover, applying standard policies on all the trading practices are also
its main objective. Furthermore, in the monetary union, it has been declared that all of the member
nations are allowed to use EURO as their currency while other European nations can use pound
only (Wallace, Pollack and Young, 2015). According to the scenario, EU successively launched
wide range of regulatory initiatives which aimed at ensuring great level of integration by the
removal of trade barriers which may hindered the cross-boarderborder services across Europe
continents. With regards to EU, financial regulations are of great significance due to varied reasons.
For instance, monetary instability due to sudden increase in interest rate eventually can bring larger
decline in the lending and may collapse the loan market. It It impact negatively affected the
borrowers the borrowers because the cost of debt will be increased and as a result, they have to pay
more money for the loan repayment (The role of financial regulations, 2016). Along with this,
uncertain market situations due to recession, political instability, crash of stock market also declined
the financial system's ability to screen fund borrowers and may lead to credit rationing. Therefore,
in this respect, enforcement of legislations, regulations and policies ensure effective cash flow
within the nation and provide safety from being bankrupt by administrating inflow and outflow of
money (Casu and et.al., 2016).
Regulatory provisions of the financial sector also influence the banking structure, decline
cost of borrowing and enhance the product portfolio of the corporate sector. It maintainmaintains
market confidence, securesecures consumer protection, reducereduces crime by consistent
supervision and also regulates foreign participation in the market. In UK, Bank of England (BOE),
Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) are the regulatory
authorities which establish their control over monetary activities of the institutions. However, EU's
laws compriseslaws comprise of European Banking Authority (EBA), European Securities and
Market Authorities (ESMA), European Insurance and Occupational Pension Authority (EIOPA) and
European Systemic Risk Board (ESRB) etc (Kudrna, 2016). Eurozone nations formed a uniform
supervisory mechanism under the European Central Bank. For instance, licensing system, minimum
capital, maintaining reserves, corporate governance, disclosure of their performance, credit rating
requirement etc. are several regulations, which all the EU member states needs to follow while
carrying out their operations.
Moreover, UK's FCA also imposed penalties to the institutions which do not took take
reasonable care in the prevention of restricted practices like bribery and the risk of corruption as
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well. Along with this, it also regulates UK banking and insurance sector to protect whistle-blowers.
Compliance with the EU and UK law, protection of customer rights etc. are the primarily need
through which the financial market are abided (Enriques and Zetzsche, 2015). Apart from it,
regulations are also necessary because informational asymmetries and lenders inability to monitor
borrowers lead to increase agency cost and thereby impact the financing cost as well. It affects
firm’s firms borrowing capabilities as negative shocks to the market value decline the value of the
assets which can be used by the organizations as a collateral security. This in turn, financial market
will be less willing to lend money because of higher possibility of the potential loss.
It must be keepkept in mind that only two nations that are Denmark and UK do not have
legal compulsion to join EURO. Hence, in UK, Bank of England regulates the institutional practices
and regulations, whilst all the other countries are complying with ECB's policies (Dwyer, 2016).
Therefore, thisthese two different regulators in a single market isare considered as an issue.
Although, both the regulations are in close cooperation but still, many differences are existed which
bring a difficulty in the proper functioning of the financial market (Leuz and Wysocki, 2016).
Moreover, interest of tax contributors is also in bearing cost also represented differently by both the
nations and arisen issue. Another problem is regarding the is regards to regulatory offices and their
physical location. Thus, it becomes clear that setting ana uniform set of policies becomes necessary
for the successful operation of the financial sector.
Scenario stated that, recently, UK left the EU on 23rd June 2016. As a result, UK is required
to change their regulatory framework and laws. It is because global financial service provider
institutions whothat use London subsidiary is required to need to restructure themselves and take
decisions that how much of their operations should be transfertransferred elsewhere in EU (Vazquez
and Federico, 2015). It will impact both UK and EU to a major extent. Most importantly, after
leaving EU, UK will not be able to take the benefits of FTA. As a result, they cannot carry out cross
boarderborder transactions, which in turn will, decline their trading volume. Along with this, it can
also decrease the decline the attractiveness of UK for the investment purpose. Thus, its serious
impact will be that it jeopardise UK trade and investment. Moreover, new regulatory regime in UK
also would be likely to come into existence. On the other hand, according to Norwegian model,
separation of EU and UK will not provide political flexibility to Brexit. Contradicting this, UK
trade with the EU as a most favoured country hence, it definitely provide flexible arrangements to
the nation (Battiston and et.al., 2016).
The impact of Brexit on the EU and UK relationship can be greatly evaluated by examining
the Brexit paradox. In this, Swiss and FTA based models are the most likely approaches. In
accordance with this, regulatory divergence will increase the cost of trade and damage the trade
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volume and the position of UK in the EU's supply chain. Such high cost need to be bear by both the
consumers and businesses (Driffield and Karoglou, 2016).
(Source: Vazquez and Federico, 2015)
Both the Swiss orThe Swiss and FTA relationship states that both the nations are the most
important trading partner of each other. Moreover, Brexit will also affect EU in the terms of Foreign
Direct Investment (FDI), liberalisation, immigration, trade and industrial policy, financial, financial
services, budget and uncertainty etc. Breaking relationship with EU will influence UK negatively as
it will be less attractive nation in the terms of getting investment from rest of the European Union
countries. for investment from Europe (Flower, 2016). This in turn, UK needs to take necessary
actions to undercut the EU standards so as to attract more FDI for the economic growth and
development. Moreover, restriction on cross boundaries transactions will also create an adverse
impact. It is because UK cannot gain freedom in the movement of goods and services across various
nations of the EU. Besides this, its severe impact will be that it will become becomes very harder
for the EU to block minority due to illegal measures (Armstrong, 2015).
(Source: Driffield and Karoglou, 2016)
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Apart from this, UK will surely gain flexibility over industrial policy, but still, loss the scale
based benefits. However, loosing collaboration in the research and weakening of competition policy
are the two other disadvantages for the EU. Regarding to trade policy, it can be much harder for the
UK to resolve their trade disputes. Contrary to this, EU will be less attractive trading nations
without having UK as a member country. Moreover, EU can lose their budgetary discipline , it is
because, UK is one of the major net contributorcontributors to the EU. Furthermore, risk due to
political contagion and uncertainty has is an unfavourable impact on the business in EU. Besides
this, in the supply chain, half of the EU imports are intermediates with the UK. Thus, it can be said
that it will significantly reduce their trading (Flower, 2016). However, in the comparative study, it
has been founded that EU is a greater important commercial partner of the UK than UK is for EU.
On the contrary to this, UK is a major source of demand for the EU countries. 1/10th of the total EU
exports are particularly to the UK whilst 50% of UK exports are to EU. Thus, the imbalance in trade
will increase their UK's trade deficit with the rest of the EU nations.
Apart from this, with the EU membership, UK is able to take passporting advantage, which
demonstrates that British Bank and other insurance companies can render their services across EU.
While, afterAfter Brexit, it will not be possible unless a special negotiation has been arranged.
Moreover, if the the UK is willing to continue their operations with the rest of the EU countries,
than they have to comply with the EU regulations so as to meet the requirement of equivalents
assessment. Currently, many of the UK laws came from EU legislation hence,hence; such rules will
remain applicable until the changes will be made (Piere, 2016). Further, it may be possible that new
UK laws and regulations might be compatible with the EU legislations hence it may bring
significant risk in the financial market. Further, UK is largely dependent upon the EU due to heavy
export of their financial services. Therefore, institutions needs to apply various contingencyvarious
contingency plans so as to get continue access to the single market. Along with this, longer impact
of the decisions to leave EU will be on the UK's regulatory framework.
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(Source: Piere, 2016)
According to the pie diagram, it can be seen that UK is the largest contributor of FDI in the
EU. Therefore, breaking down the relationship may reduce the UK attractiveness as a European
gateway. Falling in investment from the rest of the EU is also an unfavourable impact of Brexit.
However, contradicting to this, it has also been also has been identified that UK has many
advantages which will not affect the be unaffected by the relationship breakdown such as light
regulations, language, deep capital markets etc (Piere, 2016). On the contrary to this, Brexit not
only damage the the the FDI but also adversely impact will create an adverse impact to the UK's
investment intention.
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(Source: The impact of Brexit on the UK and EU, 2015)
EU countries heavily invest money in various sectors across UK. FDI largely comes from
several host countries like Germany, France, Spain, Ireland etc, particularly in energy, wholesale
trade, transportation, manufacturing sector etc. Therefore, ending relationship with the EU can bring
risk for the UK because lower the level of FDI will adversely impact the job opportunities and
create a negative impact on the to the unemployment rate. Apart from this, according to OECD, UK
is the least regulated nation as compare to other countries. Thus, there was not any conflictswas not
any conflict between EU regulations and liberal market economy (The impact of Brexit on the UK
and EU, 2015). However, after Brexit, it will create a serious impact due to highto high regulations
such as taking planning permission and abiding with the rules and regulations etc. On the contrary
to this, with regards to immigration, post Brexit paradox will not allow UK firms to gain talented,
experienced and specialist skills of workforce from the other nations. Hence, they cannot addsadd
high value in their products and services to meet their customer demand effectively. Thus, from the
essay, it can be concluded that Brexit will impact positive positively as well as negatively to as well
as negative impact to both the EU and UK.
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REFERENCES
Books and Journals
Aldohni, A. K., 2016. Is Ethical Finance the Answer to the Ills of the UK Financial Market? A Post-
Crisis Analysis. Journal of Business Ethics. 12(1). pp.1-14.
Battiston, S. and et.al., 2016. Complexity theory and financial regulation. Science. 351(6275).
pp.818-819.
Casu, B. and et.al., 2016. Diversification, size and risk: The case of bank acquisitions of nonbank
financial firms. European Financial Management. 22(2). pp.235-275.
Driffield, N. and Karoglou, M., 2016. Brexit and Foreign Investment in the UK. Available at SSRN
2775954.
Dwyer, R., 2016. A FINANCIAL INSTITUTIONS. World Banking Abstracts. 33(2). pp.81-92.
Enriques, L. and Zetzsche, D., 2015. Quack Corporate Governance, Round III? Bank Board
Regulation Under the New European Capital Requirement Directive. Theoretical Inquiries
in Law. 16(1). pp.211-244.
Flower, J., 2016. European financial reporting: adapting to a changing world. Springer.
Kudrna, Z., 2016. Governing the EU financial markets. Comparative European Politics. 14(1).
pp.71-88.
Leuz, C. and Wysocki, P. D., 2016. The economics of disclosure and financial reporting regulation:
Evidence and suggestions for future research. Journal of Accounting Research. 54(2).
pp.525-622.
Naser, K. and Hassan, Y. M., 2016. Factors influencing external audit fees of companies listed on
Dubai Financial Market. International Journal of Islamic and Middle Eastern Finance and
Management. 9(3). pp.16-28.
Vazquez, F. and Federico, P., 2015. Bank funding structures and risk: Evidence from the global
financial crisis. Journal of Banking & Finance. 61(3). pp.1-14.
Wallace, H., Pollack, M. A. and Young, A. R., 2015. Policy-making in the European Union. Oxford
University Press, USA.
Watts, R.L. and Zuo, L., 2016. Understanding Practice and Institutions: A Historical Perspective.
Accounting Horizons. 30(3). pp.409-423.
Online
Armstrong, A., 2015. UK and EU financial regulations. [Online]. Available through:
<http://ukandeu.ac.uk/uk-and-eu-financial-regulation/>. [Accessed on 9th August 2016].
Piere, J., 2016. Brexit impact on UK's financial service industry. [Online]. Available through:
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<https://www.dlapiper.com/en/uk/insights/publications/2015/10/banking-disputes-
quarterly/brexit/>. [Accessed on 9th August 2016].
The impact of Brexit on the UK and EU. 2015. [PDF]. Available through: <https://www.global-
counsel.co.uk/sites/default/files/special-reports/downloads/Global
%20Counsel_Impact_of_Brexit.pdf>. [Accessed on 9th August 2016].
The role of financial regulations. 2016. [Online]. Available through:
<http://www.treasury.govt.nz/publications/research-policy/wp/2004/04-17/12.htm>.
[Accessed on 9th August 2016].
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