Functional Regulation
Contents
Unraveling Functional Regulation: A Comprehensive Guide
Deciphering Functional Regulation
Functional regulation is a fundamental concept that dictates the oversight of companies based on their specific business activities rather than their organizational structure. This approach ensures that each sector is supervised by the appropriate regulatory body, tailored to its unique commodities, transactions, or products.
Understanding the Concept
Functional regulation aims to entrust the supervision of specialized fields to experts with the requisite knowledge and qualifications. For instance, insurance companies fall under the purview of state insurance commissioners, while securities sellers or underwriters are regulated by the Securities and Exchange Commission (SEC). This targeted approach ensures efficient oversight tailored to each sector's intricacies.
Navigating Regulatory Landscape
In the United States, functional regulation of the financial sector mandates oversight by multiple regulatory bodies. Banks and financial institutions offering diverse financial products and services may come under the jurisdiction of entities such as the SEC, Financial Industry Regulatory Authority (FINRA), Commodities Futures Trading Commission (CFTC), and state securities regulators. Each regulatory body oversees specific transactions, products, or commodities within its domain.
Examining Limitations
Despite its merits, functional regulation is not without flaws. The 2007-08 Financial Crisis exposed weaknesses in the regulatory system, highlighting the need for consistent monitoring and updates to align with evolving financial architectures. Moreover, the system's susceptibility to political influences and reactive measures post-crisis raise concerns about its stability and effectiveness in mitigating future financial risks.