Effective Regulatory Supervision in a Nation's Financial Market

This essay provides a detailed analysis of the UK's financial market and the critical role of effective regulatory supervision. It highlights the functions of the Financial Conduct Authority and the Prudential Regulation Authority in promoting stability, protecting consumers, and fostering healthy competition. The essay also discusses the potential negative impacts of regulatory supervision, such as trade barriers and increased tax rates. Furthermore, it examines the causes and consequences of financial crises, including the 2007 crisis and the impact of the COVID-19 pandemic, emphasizing the importance of fiscal policies and regulatory measures in mitigating these crises. The document also touches upon the challenges posed by digital assets and climate change, underscoring the need for industries to comply with environmental protocols and manage financial risks effectively. Desklib provides students with access to this assignment and numerous other solved papers.

The role and
significance of effective
regulatory supervision
in a nations financial
market.

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Describing role and significance of effective regulatory supervision in financial market of
UK...............................................................................................................................................1
CONCLUSION................................................................................................................................6
REFERENCES ...............................................................................................................................8

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Describing role and significance of effective regulatory supervision in financial market of
UK..........................................................................................................................................1
CONCLUSION................................................................................................................................6
REFERENCES ...............................................................................................................................8

INTRODUCTION
Financial market is a place where buying and selling of securities takes place. These
market help various households to invest their savings at a particular place for getting higher
returns. It plays a vital role in optimum utilisation of resources. Every economy needs flow of
funds for maintaining liquidity which contributes in economic growth(Dong and Liu, 2020).
This essay contains the detailed analysis of financial market of UK. Regulatory supervision is
necessary for monitoring the effects of economic cycles on a nation's growth. Financial crisis is a
situation in which value of the assets get undervalued than actual market price. It can impact
every sector such as banking, industries and stock market. There are several reasons behind crisis
occur in an economy which are not under the control. But effective steps can be taken against
monitoring financial markets.
MAIN BODY
1. Describing role and significance of effective regulatory supervision in financial market of UK
Financial markets are those places where securities trading takes place. Securities such as
bond, derivatives, treasury bills and other commodities. It engages savings into effective use. In
the determination of price level, financial market assist to know the same. It works on the
flexible approach because securities can be easily convert into the liquid form. Every participant
of the market is treated impartially and got every benefit regardless of their caste, gender and
culture. The number of parties involved in the financial market are hedgers, brokers and
arbitrageurs(Jackson and et.al., 2020). Financial markets are divided into four such as money
market, capital market, stock market and bond market. Money market deals in raising short term
finances whose maturity is due within or up to one year. Instruments of money market are call
money, notice money and commercial paper. Capital market instruments are long term which
further divided into primary and secondary market.
Financial conduct authority is founded in the year 2013 ,it supervise the activities of
financial market in UK. Regulatory supervision plays crucial role in achieving nation's objectives
which can be described as follows-
In UK regulatory supervision not only monitors the market but also promote innovations and
adaptation with the continuous changing environment. It aids in predicting risk related to market
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failure which includes plummeted prices of securities. Minimizing risk can be done through
forecasting the market scenario and its ongoing factors. Financial crisis of 2007 in UK hugely
impacted the credit instruments of the money market and people involved in defaults of
payments. But regulatory authorities handled the situation effectively and take several steps for
producing equilibrium point in the markets. Regulatory supervision include government's fiscal
policy and monetary policy(jiang and Kim, 2020). Government liberalisation in the trading
policies as well as reducing import & export barriers boost the economic growth which
positively impact the financial market of a nation. Financial conduct authority is responsible for
protecting the interest of the consumers and make sure that true and fair practices are followed in
regard of trading the derivatives. It also encourages the healthy competition among various
competitors of the market. Prudential regulation authority of the bank of England works for the
awaking public and builds the conceptual clarity regarding norms of financial market through
which secure trading can be done. It lowers the financial crime and contributes in the capital
formation of the nation. Free trading policy allows the investors to plough funds in a particular
organisation by which foreign currency can be welcomed in a specific nation and results in the
financial stability in the money and capital markets. There are many negative impacts on
financial markets due to regulatory supervision. Some are discussed below:
It has been observed in the long run that there are quite negative results recorded in case
of financial market which resulted in more wastage of scarce resources. There have been
uncontrollable rules and regulations carried out by some authorities in UK which have affected
growth and sustainability of company dealing in finance sector. It has affected not only their
growth and expansion but their present position in market. It has also led to a situation which had
been depressing in situation such as pandemic where every country had been coping up there
were no support hands available for any companies and markets. Government and authorities
having power and possession in hands made it difficult for every organisation to even sustain in
market and maintain the position they have created over years(Lassoued, Atti and Sassi, 2018).
Regulatory supervision is counted as a base for formulating future ideas, setting up of
goals and objectives for future courses. It has imposed trade barriers in UK which led to decline
in import and export. This further formed a chain leading to decrease in profit margin and
production as well. Regulatory supervision are such authorities which have the power to generate
and improve profit margin or make it difficult for financial markets to even run. It did not allow
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financial markets to implement innovative ideas and think of something different. It led to
situations which have been unpredictable and hard to overcome from. Tax rates imposed in UK
by regulatory supervisions are higher and which affect the working of business directly. It leads
to inefficiency in work and less of surplus funds are available with finance companies to invest
in something else for expanding its scale of operations(Liu and et.al., 2020).
Authorities also affect in managing expenses and sale charges. It also includes taxes and
charges implemented in case of trade cycle which helps to expand business over globe. If there is
no tax relaxation and subsidies provided to financial markets it will lead to conditions such as
deflation in economy. Such negative impacts must be found a solution for better functioning of
companies in market. Also it can also lead to debt situation in case of non-recovery of loans
which might lead to closure of companies in the long run and adverse situations to cope up from.
Financial crisis : It is a situation in which assets of an organisation or economy lost its
value or price decreased due to several financial as well non financial factors. In this situation an
organisation is unable to pay its debts as well as face problems in operating daily activities which
is due to liquidity issues. Stock market crash, credit crunch and currency crisis are some of the
examples of financial crisis.
In 2007, the UK was badly affected by stock market crash. Before, the global financial
crisis inflation was lower and growth of economy was rising. These factors signify the positive
outlook through which many investors were ploughing the funds in the financial market. Excess
investment results in financial bubble. Lehman brothers purchased large share in the stocks and
at the time of selling the stock market disturbed completely(Ortiz and et.al., 2018) .
Problem of liquidity crisis also occurred because non performing assets of banks were
increasing rapidly and financial institutions were not in a position to lend money to the public.
Purchasing power of the economy reduces and economic growth steep down.
In the recent era, there are various changes took place which hampers the growth of the
nation and decline the economic growth. The rise in the digital technologies also introduce the
digital assets. for instance, crypto currency is the new innovation. These assets saves the time by
using online methods for trading in securities. Floatation cost can be reduced by using digital
assets. The transaction speed is very fast, secure and assists in tapping new market opportunities.
However, it also involves huge cost in managing the system of digital assets(Pak and Iwata,
2020).
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Covid-19 is a global pandemic which impacts every sector of the economy. Global health
crisis not only impacts the health but also reduces the profitability of the market. Lock down
across the globe shut the operations of overall economy. The production activities of
manufacturing concern declines because employees were working from home and their physical
absence decreases the production. Employees were not getting their payments and increases the
labour turnover. The debts were accumulating because of lag in payments to creditors and
suppliers. working capital management was disturbed and industries were facing problem of
liquidity. Length of the operating cycle was increased and firms were facing difficulties to
manage liquid assets for their daily operations. Issues related to stock piling and stock out
depending upon the nature of industry creates problem in achieving equilibrium(Ouyang, Li and
Du, 2020).
Failure in payment increases the credit risk and many firm's credit rating were
plummeted. Industries were not able to acquire funds at a reasonable prices and optimum
utilisation was not achieved.
In today's world, everything is working with innovations but its negative impact can not
be ignored. Increase in temperature and climate change are the current issues which degrades the
environment. Every organisation is trying hard to comply with the protocols and conventions
made by distinct departments. Achieving the target of zero carbon emission is a key challenge
for every industry. In production concern, many hazardous chemicals are discharging into the
surroundings and impacts the air quality index. Conducting the operations by complying with
environmental protocols increases the cost of an industry. Firm has to incur more of its expenses
in achieving environmental targets(Rizvi and et.al., 2020).
The companies who are capable to reduce their carbon footprints, easily earns good
profits, revenue and brand value. For instance, Nestle and unilever also achieved increased
profits and customer satisfaction. Industries are able to manage the finance and corporate social
responsibility effectively.
Financial turmoil impacts the corporate bond market. The minimalist model on pandemic
based on macro economic factors are useful for understanding and tackling the issues of global
pandemic. In this model, first critical factor was productivity. It states that lock down increases
the unemployment level and lay off large number of employees. Due to this production level
stuck in danger level. Another key factor was credit market imperfection, as the name suggests
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creditors were not confident about their debtors because default risk was increased due to
blockage in the flow of funds. creditors increase the margin of collateral and value of collateral
decreases borrowing capacity. This model is beneficial for the purpose of understanding market
scenario. Productivity level and credit risk can be attained at correct level by applying this
model. Financial times stock exchange were badly impacted by the epidemic running on a global
basis. Prices of shares declined and investors were dealing with fear of low rate of return on
securities.
There are numerous ways to deal with the problem of financial crisis . Good regulatory
supervision aids in dealing with financial crisis in various ways. some of the methods to tackle
crisis are as follows-
Every country's government frame fiscal policies which help to tackle the situation of
recession. Mainly there are two types of fiscal policies: expansionary fiscal policy and
contradiction fiscal policy. For effective functioning of the economy and achieving equilibrium,
government of UK implement expansionary fiscal policy through which tax rate are decreased
which results in increasing purchasing power of the people of the nation. Elevating the economic
growth of the nation can result into capital formation. In market where fluctuations of demand
and supply takes place, fiscal policy of respective country assist in gaining price stability in the
nation. Stability of price increases the consumer confidence and rise in living standard can be
identified by using policies framed by government. Through taxation policies, government can
earn revenue for smooth conduct of operation of the country. Fiscal policy reduces the partial
distribution of income among various sectors of the economy. Regulation of government and its
policies maintain the trust of public so that they can invest their saving in the financial market of
the particular country. besides, trust of customers it also boost the level of employment in the
country by mobilising savings into the productive uses(Qi and et.al., 2019).
Another important remedial measure, government can take to improve the stability in
financial market and minimise the impact of financial crisis is creation of budgets. Budgets are
the documents which contains the information regarding revenue and expenses and prepared on a
particular date. In UK ,the name of the budget is Budget of her majesty's government and it is
declared by House of Commons and prepared by chancellor of Exchequer. budgeting is done for
several purposes, it signifies the total amount allocated for a specific activity. Revenue and
expenditure shows the sources of all gains and expenses(Qin, Harrison and Chen 2019).
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However, it may not match because of surplus or deficit. Surplus budget is a positive sign for the
economy, when revenue exceeds its expenses. in this case government can invest in several
infrastructure projects as well as focus on each industry's financial structure (Rizvi and et.al.,
2020.). excess funds can be disbursed to the small level enterprises and financial problems can
be resolved by giving more credit facilities to the entrepreneurs.
Maximising liquid proportion in economy helps to deal with the problem of working
capital which is required by each industry. Ploughing funds in the money market is more safer
than capital market ( Simonian and Fabozzi, 2019). For an amateur investor, it is crucial to begin
with investing in money market. In this market, the funds are easily convertible into liquid
assets. Cost of investment is lower in this type of market. Examples of money market
instruments are commercial bill, commercial paper and treasury bills. Investing in capital market
is riskier because the amount of investment is high and uncertainty of return is also involved in
the same. Therefore, safeguarding the financial market consist of investing with taking proper
advise of the brokers and creating more awareness about the stock market and its related issues.
Regulatory supervisors should track progress of the nations and focus on stabilising the
market conditions by using dynamic approach and framing plans related to adapt with the current
and future scenarios of the market. International changes such as elections in the other country or
change of government, attitude, sentiments and expectations of the investors also impacts the
financial markets. Stock market shows either excess bullish or bearish trends which decreases the
trust of the public.
Government and FCA must start several awareness programmes for promoting the
investment activities with inculcating safe habits of doing transactions. The certificate courses in
the UK aids the investors to gain knowledge about money market and capital market. By
studying the important aspects of the market, investors can easily take decisions which result in
higher returns. however, certain situation can not be avoided and needs proper treatment. For that
government and authorities are framing fiscal and monetary policy to tackle the situations of
financial crisis (Wang and Chou, 2018).
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CONCLUSION
From the above essay, it can be concluded that each household sector is investing in
several sectors. However, investing in financial market increases the capital of the nation.
Government and other regulatory authorities such as financial conduct authority supervise the
structure of the financial and Operational plans of the financial institutions. In the above stated
essay, the financial crisis occurred in UK was a huge tragic situation across the globe. Trading
activities were stopped, investors lost their confidence from financial securities and market.
Lehman brothers who were responsible for the financial bubble negatively impacts the stock
market and sudden hike in general price level results in the condition of inflation. Regulatory
supervisors take various action against recession and modify its fiscal policies to adapt the
changing situations of the market. At the time of global pandemic , various scholars proposed
macro economic model for handling the situations of global health crisis. This pandemic hit
every sector of the economy and major fluctuations were observed in the financial market.
Economy experiences negative cash flows where outflows of funds are greater than the inflows
of the funds. Higher authorities Of UK takes various measures to protect the financial market and
ensure healthy trading of the securities.
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REFERENCES
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