Page 31 - FINAL CFA II SLIDES JUNE 2019 DAY 4

LOS 13.a: Describe classifications of regulations READING 11: CURRENCY EXCHANGE RATES: UNDERSTANDING EQUILIBRIUM VALUE
and regulators.

MODULE 13.1: ECONOMICS OF REGULATION
Regulations can be classified as:
• statutes (laws made by legislative bodies),
• administrative regulations (rules issued by government agencies or other bodies authorized by the government), or
• judicial law (findings of the court).

Outside bodies are not LOS 13.b: Describe uses of self-regulation in financial
regulators themselves markets.
but their product is
referenced by SROs without government recognition are not considered
regulators. Examples regulators.
of outside bodies
include FASB and Self-regulating organizations, while independent of the
IASB.
government and relatively immune from political pressure, may
still be subject to pressure from their members.

Independent SROs when properly supervised by regulatory
agencies have been effective in carrying out the objectives of the
regulation.

FINRA is an SRO recognized by the SEC in the US:
• Its primary objective is to protect investors by maintaining the fairness of
the U.S. capital markets.
• It has the authority to enforce security laws and regulations. Similar
Self-regulating organizations (SROs) for members, e.g. SAICA SROs can be found globally.
May have inherent conflicts of interest, may deter the
recognition of SROs especially in the presence of a more However, the use of independent SROs in civil-law countries is not
formal and effective regulatory structure. SROs nonetheless common; in such countries, formal government agencies fulfill the role of
are attractive in that they increase the overall level of SROs. In these civil-law countries, non-independent SROs may support the
regulatory resources, utilize the industry professionals with the regulatory framework via guidelines, codes of conduct, and continuing
requisite expertise, and allow regulators to devote resources education.
to other priorities.
In common-law countries such as the U.K. and the United States,
independent SROs have historically enjoyed recognition.