The Aims of the Financial Law - Essay Example

Critically analyze the aims of the financial law Financial law is a branch of law that seeks to establish and instill financial discipline amongst financial institutions, through making provisions for the policies that should guide the relationship between businesses providing financial services and the consumers of such services1. The financial institutions are subjected to varied guidelines, requirements and restrictions, which then ensures that the financial institutions maintains their integrity as they seek to provide financial services to their customers. Financial laws are either established by governments or international bodies such as the IMF and the World Bank, which have established standardized guidelines, polices and regulations that should be observed by financial institutions, especially those seeking to offer their products and services to the global community, to ensure that they adhere to the rules of financial integrity2. The regulations established by financial law for the financial institutions is not only meant to guide their conduct in operations, but also meant to streamline their structures, while also determining the costs involved in their provisions of products and services, such that the financial institutions should not offer their financial products and services at prices that are beyond the regulated and standardized costs. In addition, financial law serves to establish and create an array of products and services that financial institutions should offer to the clients, thus keeps increasing the range of financial services and products offered by the financial institutions from time to time, since the financial institutions cannot just introduce the offering of products and services that are outside the regulation of the financial legal framework3. Therefore, the major aims of financial laws include: Creditor protection First, the major aim of financial law is to serve as the creditor’s protector. Financial laws are established for the purpose of ensuring that the creditor’s investment is protected, since creditors engage in risky businesses of lending money to individuals and institutions, and thus such credits that are given by the creditors must be protected, to ensure that the creditors will get the lending back, as well as the interest that is charged on the money that has been lend4. Financial institutions are the greatest providers of funding for finances both for the governments and the private sector institutions. Therefore, while assessing the credit worthiness of the borrower of the finances, financial institutions need to apply well elaborate standards and policies, which are in turn functions of the financial laws5. The standards and policies that are applied by the financial institutions to assess the creditworthiness of a borrower are derived from the wider array of established financial laws guiding the borrower assessment and evaluation. The need for such standardized regulations for assessing the borrowers is to ensure that the financial institutions do not prejudice against some of the consumers of their products and services, through extending credit facilities to some of the consumers, while denying the same to others6. Further, the provisions of the financial laws also ensure that the creditors are protected from losses that might arise out of the borrowers failing to pay back the money lend, or defaulting in the interest and other charges payable. In this case, financial law serves as the regulator of the relationship between the financial institutions and the consumers of their products and services, through defining the duties that each party owes to the other, and the responsibilities that each party must fulfill. The merit associated with financial law as the credit protector is the fact that; the financial law in this respects serves to enhance credit availability, considering that with the lenders feeling more protected and thus guaranteed that their money is not going to be lost, while still being assured of the fulfillment of the lending contract by the borrowers, the lenders are highly willing to extend credit to the borrowers7. Further, financial law is advantageous in this case, considering that it serves to protect the borrowers against prejudice and bias by the financial institutions, through the establishment of laws that standardizes and guides the evaluation and assessment of the creditworthiness of the borrowers, thus ensuring fairness is observed while determining who the financial institutions should lend to, and who they can deny the credit facilities. Nevertheless, a major weakness that is associated with financial law as a protector of the creditor is that; it introduces standardized guidelines and procedures that must be followed before a financial institution can extend loan and credit services to the borrowers, thus making the process more tedious, time consuming and inconvenient for the borrowers who need urgent financial credit8. Secondly, financial law’s aim is to establish global financial order. This role is especially played by the international branch of financial law, which seeks to establish rules and regulations that guide how the financial institutions interact with each other and also with customers on the international and global front9. The establishment of global financial order is in line with the requirement for the preservation of both the integrity of financial institutions, as well as the protection of the consumers of the services offered by the financial institutions against any act of fraud. The establishment of the rules and regulations guiding the international financial systems is mainly a function of the World Bank and the International Monetary Fund (IMF), which seeks to avert any possibility of the occurrence of a financial crisis internationally, while also serving as the rescuers of different economies during a financial crisis10. The financial system rules and regulations established by these institutions, as well as other international legal bodies, serves to regulate the way financial institutions operates in the international financial systems, through ensuring that the financial institutions seeking to offer financial services internationally are genuine and have genuine intentions, thus setting rules, regulations and restrictions under which such financial institutions should operate11. This way, the international financial systems becomes well defined and predictable, making it even easier for any financial institution seeking to operate on the international financial system to understand the requirements, and thus enter the system with confidence and understanding. The merit associated with financial law’s aim to establish global financial order is that; it ensures that the international financial system is well streamlined and predictable, making it easier for both the international financial institutions and the customers to understand the rules of engagement, and thus be able to undertake their transactions without the fear of the customers being defrauded, or the financial institutions losing12. Further an advantage associated with the aim of financial law to establish global order is that, it ensures that global financial systems operate under standardized rules and regulations on the international market, thus making it possible for customers and consumers of financial products and services to enlist the services of financial institutions outside their domestic jurisdiction. The establishment of global financial order by financial law also serves to alleviate the dangers and risks associated with international commerce, such as the risks of fraud and theft, since financial law serves to ensure that the financial institutions operating in the international financial system have met the security requirements, while also ensuring that the customers have met the authentication regulations13. This way, the risk associated with international crimes for financial institutions and customers has been reduced, although the risk is still existent, and thus a major concern. However, the aim of financial law to establish global financial order has a limitation in that; it restricts the entry of the international market by many financial institutions, through setting the bars for entry into the international financial markets very high, thus locking out some of the financial institutions that would endeavor to take their business internationally. Financial law aims at establishing the right mechanism for the settlement of disputes between customers and financial institutions, as well as between the financial institutions themselves, considering that financial institutions transact businesses among themselves, upon which a conflict may arise14. Thus the major role played by financial law in this respect is the establishment of a system of legal guidelines that guide the resolution of such disputes, through defining the procedures and laws that are applicable in the resolution of such disputes. The disputes in the financial system are not only domestic oriented, but also international, considering that the globalized financial system enables the customers and financial institutions to interact on the international platform (). This way, financial law serves the role of harmonizing the legal dispute resolution among different countries, to ensure that an elaborate system of resolving financial disputes is established. The merit associated with this aim of financial law is that; it makes the legal process more elaborate and easier for courts, through defining the legal procedures that should be applied in the resolution of disputes. Further, financial law is advantageous in this respect, considering that it allows for a mechanism of resolving financial disputes, thus placing both the customers and the financial institutions at ease, regarding resolving the issues arising between them15. However, financial law makes the legal dispute resolution mechanism for financial institutions more complex, through the establishment of standardized rules and procedures for dispute resolution, thus introducing rigidity and complexity in the process16. Bibliography 1.Jun Qian and Philip Strahan. How Laws and Institutions Shape Financial Contracts: The Case of Bank Loans (The journal of finance 6, December 2007) 2803-2833. 2.Eddy Wymeersch, Klaus J. Hopt and Guido Ferrarini, Financial Regulation and Supervision: A post-crisis analysis. (Oxford University Press, 2012). 12-63. 3.E.P. Ellinger, E. Lomnicka, C.V.M. Hare, Ellinger’s Modern Banking Law, Fifth edition, (Oxford: Oxford University Press, 2011) 41-72 Read More