Functions of Financial Regulators

To secure the interests of investors, creditors and financial institutions, financial market is higher regulated by the Government through regulating agencies, like SEBI, BSE, NSE, RBI etc. These regulators performs mainly four functions.

(i) These regulators try to reduce asymmetric information and increase financial transparency.  In market asymmetric information is key reason of financial loss of the investors as they invested wrongly.  The firms and institutions provide limited or misleading information to investors for their maximum profit. Regulators acts as guardian to secure the investors money. 

(ii) These regulators protect the investors from scammers, shysters and from fraudulent schemes like ponzi schemes. A financial institution can not introduce a scheme or bond or public offering without prior scrutiny and approval from the public regulators.  

(iii) They regulate health competitions among financial institutions.  No firm or institution can offer schemes which may lead marker failure or lead to monopolistic control over the marker.  They also regulates entry and exit of financial institutions after due screening and fulfilling commitments respectively. 

(iv) Financial regulators also try to assure soundness of the financial system acting as a institutional lenders, Banker of Banks, Deposit Insurance, limiting competition through financial tools, like Interests, CRR, Repo Rate etc.  They also promotes healthy and progressive financial developments.