Save 30% on all 2023 Study Packages with Code: BLACKFRIDAY30. Valid until Nov. 28th.

Classifications of Regulations and Regulators

Classifications of Regulations and Regulators

The regulators in the market can broadly be classified into those governed by legislative bodies and those produced by the market voluntarily. Let’s look at the types of regulators and their corresponding types of regulations.

Types of Regulators and Regulations

1. Government Agencies

Government-based regulators can be established departments and agencies or sets of independent regulators controlled by the government. Government regulators have a legal authority to approve and implement the regulations within their jurisdiction.

Government agencies are always backed by the courts, which help interpret regulations and rules. Courts expound on the allowed regulatory practice aside from administering punishment in case of any violations.

Classification of Government Regulations

The regulations supported by the government can be categorized into:

  • Statutes: Laws approved by legislative institutions such as the parliament.
  • Administrative regulations or laws: They are the rules passed by government agencies or other regulators.
  • Judicial law: Exposition of the courts on the existing regulations.

2. Independent Regulators

Independent regulators make rules based on their authority and goals (objectives). The authority of the independent regulators often comes from their recognition and the power given to them by a legislative statute or a government department or agency. However, they remain non-governmental institutions.

The contrast between the independent regulators and the government regulators is that the latter does not receive any funding from the government and their decision-making autonomy is limited. The advantage of an autonomous regulation is that they are resistant to political control and pressure and therefore, they can achieve their aims with little hindrance.

3. Self-regulatory Bodies

Self-regulatory institutions are the private organizations that represent and control their members. Just like the independent regulators, they are insulated from political influence and pressures. However, they face pressure from their members.

Self-regulatory bodies obtain their power from their constituent members who agree to operate as per an organization’s rules and standards and their implementation. However, the authority of these organizations is not attached to the rule of law. Instead, it has the power to expel the members who breach the regulations. Moreover, the self-regulatory organizations set the required minimum standards by putting up conditions for membership.


Which one of the following is least likely to be a feature of self-regulatory organizations?

  1. They are independent regulators.
  2. They are mandated to carry out government policies.
  3. They represent and regulate their members.


The correct answer is B.

Self-regulating bodies do not carry out government policies but are somewhat independent of the government and resistant to political influences and pressures.

Reading 8: Economics of Regulation

LOS 8 (d) Describe classifications of regulations and regulators.

Shop CFA® Exam Prep

Offered by AnalystPrep

Featured Shop FRM® Exam Prep Learn with Us

    Subscribe to our newsletter and keep up with the latest and greatest tips for success
    Shop Actuarial Exams Prep Shop GMAT® Exam Prep

    Daniel Glyn
    Daniel Glyn
    I have finished my FRM1 thanks to AnalystPrep. And now using AnalystPrep for my FRM2 preparation. Professor Forjan is brilliant. He gives such good explanations and analogies. And more than anything makes learning fun. A big thank you to Analystprep and Professor Forjan. 5 stars all the way!
    michael walshe
    michael walshe
    Professor James' videos are excellent for understanding the underlying theories behind financial engineering / financial analysis. The AnalystPrep videos were better than any of the others that I searched through on YouTube for providing a clear explanation of some concepts, such as Portfolio theory, CAPM, and Arbitrage Pricing theory. Watching these cleared up many of the unclarities I had in my head. Highly recommended.
    Nyka Smith
    Nyka Smith
    Every concept is very well explained by Nilay Arun. kudos to you man!
    Badr Moubile
    Badr Moubile
    Very helpfull!
    Agustin Olcese
    Agustin Olcese
    Excellent explantions, very clear!
    Jaak Jay
    Jaak Jay
    Awesome content, kudos to Prof.James Frojan
    sindhushree reddy
    sindhushree reddy
    Crisp and short ppt of Frm chapters and great explanation with examples.