What Is Functional Regulation?

The term functional regulation refers to an approach that aims for supe☂rv🥂isory regulation of an individual company's products and services by qualified, independent parties. The appropriate supervisory body is normally an entity with special expertise in the organization's functions, products, or services. Functional regulation is the opposite of institutional regulation, which focuses on the structure or nature of the organizational entity.

Understanding Functional Regulation

Functional regulation is based on the products and services that an organization offers, including 澳洲幸运5官方开奖结果体彩网:commodities and transactions. This is in contrast to institutional regulation, which is made up of a series of rules that govern the actual organization as a whole. As such, a bank that offers different financial product꧟s and handles multiple transactions may come under the purview of multiple regulatory bodies. Each one of these oversꦇees the transactions, products, or commodities that fall under its jurisdiction.

Functional regulation ensures that the most qualified and knowledgeable people supervise and monitor the daily functions of a specialized field. For example, an insurance company would ideally be supervised by state insurance commissioners, whereas sellers or underwriters of securities would be supervised and regulated by the 澳洲幸运5官方开奖结果体彩网:Securities and Exchange Commis♓🐲sion (SEC).ꦰ It also ensures that the🤡 interests of those who use products and services are fully protected, especially consumers.

In the United States, functional regulation of the financial sector means that multiple regulatory bodies may oversee the operations of banks and other 澳洲幸运5官方开奖结果体彩网:financial institutions, depending on the types of products and services th🤡ey offer. Some of the r🎐egulatory bodies involved in functional regulation in the U.S. include:

• The SEC
• The 澳洲幸运5官方开奖结果体彩网:Fin🐼ancial Industry Regulatory Authori🌠ty (FINRA)
• The 澳洲幸运5官方开奖结果体🐎彩网:Commodities Futures Tr♊ading Commission (CFTC)
• State securities regulators
• Insurance commissioners

Criticism of Functional Regulation

The products, services, and operations of organizations in the 澳洲幸运5官方开奖结果体彩网:financial sector are typically subject to functional regulation. This type of regulation normally invo💮lves monitoring and adjusting to keep abreast of the evolution of these services, products, and operations.

Some blamed the 澳洲幸运5官方开奖结果体彩网:2007-2008 financial crisis on a failure to monitor and appropriately update the functional regulatory system in the U.S., which was based on a system of funding dominated by banks. This basis precipitated the collapse of the banking system when the source of most funding shifted to non-bank sources.

Another flaw in functional regulation is its vulnerability to political whims and its excessive reactivity to the financial crises of the past. Regulations and regulatory bodies are typically updated in response to financial crises that alrꦅeady took place, in the spirit of preventing them from happening again.

In the U.S., the establishment of financial regulatory bodies and the creation of new regulations is heavily based on the prevailing political climate, which has led some to argue that functional regulation in the U.S. is less stable than it could be. For instance, one presidential admi🍬nistration may undo regulations put in place by the pr𓄧evious one.

Fꩵunctional R𓃲egulation vs. Institutional Regulation

As noted above, fun๊ctional regulation is the opposite of institutional regulation. While functional regulation involves the regulatory supervision of the products and services that companies produce and offer to the public.

Institutional regulation, on the other hand, refers ꦺto a series of rules and laws that pertain to institutions as a whole, including banks and other financial institutions. This type of regulation provides the framework fꦉor how an institution is governed.

For instance, the Federal Reserve is one of the regulatory agencies that oversee certain banks. The institutions under its purview must abide by the rules set forth by the Fed or be disciplined.

The Bottom Line

Regulations are rules that are put in place by governing bodies or agencies. They are used to manage systems and put controls in place. This comes in different forms, including functional regulation. These rules and laws govern the products and services that companies offer to the general public. Agencies that are responsible for functional regulation are qualified in providing oversight because of the expertise they have. These checks and balances are in place to ensure that the rights and interests of consumers are protected.