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

Uses of Self-regulation

Uses of Self-regulation

Self-regulatory bodies exist in industries such as financial markets. These regulatory bodies are commonly known as self-regulating organizations (SRO’s). SROs are non-governmental organizations that possess the authority to create and implement independent industry and professional regulations and standards.

Unlike the standard market self-regulatory bodies, SROs are recognized and empowered power by government departments or agencies. They have the capacity to deliver in their mandate. Note, however, that they are funded independently and not by the government. An example of an SRO is the Financial Regulatory Authority (FINRA) in the US, which enforces rules and federal securities rules.

Role of SROs

The purposes of SROs vary from one country to another. In some countries, such as the US, SROs have regulatory power, while in some other countries, they are rarely recognized as independent regulators. In fact, in some countries they are non-existent. Although SROs are private organizations, they are not insulated from government-imposed regulations.

Some of the functions of SRO include:

  1. SROs act as a watchdog to protect against fraud or unethical practices by market participants.
  2. Some of the SROs come up with conditions that must be met to be a member, such as having a specific educational background.
  3. They educate market players on the appropriate business practices. For example, SRO may assist investors by providing information on how investments work and guiding them on the methods of reducing risks related to financial markets.


The leading newspaper in a country reports on a regulatory institution that has been granted autonomy by the government and further empowered by a statute. However, the regulatory body is not financed by the government. The regulatory body reported by the media is most likely to be a (an):

  1. Independent regulator.
  2. Government agency.
  3. Self-regulatory organization.


The correct answer is C.

The self-regulators are given authority by the government and are provided power by statutes. They, however, finance themselves (from the money collected from the companies they regulate).

Reading 8: Economics of Regulation

LOS 8 (e) Describe uses of self-regulation in financial markets.

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.