When it comes to describing the law pertaining to all aspects of finance, finance law is key. For example, when talking of a law that controls party behavior in which financial regulation forms an element of that law, finance law can be used to describe that law. Furthermore, Finance law consists of three pillars: operating mechanisms, financial system, and financial transactions.
And so, before we dive into highlighting the importance of finance law, let’s first define what finance law is.
What is a finance law?
Well, a Financial law “is the law and regulation of the commercial banking, investment management, capital markets, insurance and derivatives sectors.” This law is crucial to understanding and appreciating the general legal framework for finance, such as the formation of banking and financial regulation sectors.
Financial law also provides a clear legal policy relating to all financial transactions, and it makes up a significant portion of Commercial law.
What is the importance of finance laws and regulations?
The law of finance is a very comprehensive type of law that can be misunderstood quite easily. Therefore, to help provide a clear guide on its importance, we will discuss the following:
- Importance of financial law (specifically commercial law), and
- The importance of financial regulations
This is to help provide a clear distinction of how this law is applicable in different ways or areas.
The importance of Commercial law
Why is commercial law important? Here are some of the key reasons why.
- Stipulates the legal responsibilities of a business and consumer
Whether you are a consumer, supplier, or business owner, you are obligated by a set of ethical and legal responsibilities. These obligations are made to enable successful business transactions with whom you are engaging. For example, when a customer pays for a product or a service, you need to ensure that consumers get what they paid for. Therefore, as soon as money changes hand, the business owner is obliged to complete some set of responsibilities.
However, when it comes to outlined well-defined terms and conditions, this process becomes even more complex. These policies are ideal because they stipulate how a consumer can do certain things, such as filing disputes, requesting refunds, and several other responsibilities.
- Forming the business properly
Commercial law is fundamental when forming a business. This is because it helps separate you from your business, making both of you two different entities. The good thing about this is that it helps the business avoid being held liable in most cases.
Additionally, with commercial law, the commercial law attorney fills the required documentation for your business. This process ensures that your business will adhere to specific laws that it is supposed to according to.
Furthermore, this law also helps categorize your business to be either a partnership, limited or unlimited liability company, corporation, or other entity.
- To avoid lawsuits by examining business processes
A business consists of several processes and transactions. And to ensure all processes and transactions are executed accordingly, then commercial law rules come in. This law provides you with supervisions and rules to which your businesses must follow in any process and transaction.
There are also several forms of litigation to which a business might be exposed to. Therefore, to avoid this, commercial law can also assist in identifying proper business processes or transactions to abide by. Also, when exchanging money in a marketplace, you need to be aware of the legal condition that governs that exchange. And so, this law will not only help understand but also manage financial transactions. Check out the free legal database to learn more on legal topics.
- Helps resolve conflicts and disputes
Business disputes or conflicts handling is a pretty strenuous thing, more so when you are not schooled in commercial law. This is mainly due to the fact that conflicts and dispute handling consist of several stages that will take time to get over. These stages include negotiations, mediation, arbitration, and then litigation.
Needless to say, commercial law is essential for a successful dispute resolution between a customer and a business.
The importance of financial regulations
First of all, ‘what is financial regulation?’ This is a form of financial market regulation or supervision. And so, why is it important?
Well, financial regulation is an important entity in any financial market. This is simply because it helps maintain integrity in the financial market, protecting both businesses and consumers. Additionally, the financial market aims to:
- Uphold confidence and integrity in the financial system,
- Investigate complaints and market misconduct cases and persecute them,
- Protect clients, and
- Offer financial services providers with licenses.
Remember, problems for the broader economy may arise if a bank fails simply because it can no longer meet its obligation to creditors or other depositors. Furthermore, we depend on the financial market to save, borrow, and access money. Also, insurance, taking a mortgage, and getting claims paid are part of it, and without a stable financial system, the whole economy will crumble down. These transactions are what keeps our businesses running well.
How does financial regulation work?
Financial regulation compromises of tow facets: Consumer protection and Prudential regulation
Consumer protection: This regulation ensures that firms provide fair treatment to their customers in all areas. Whether it is managing complaints accordingly or ensure proper sales processes.
Prudential regulation: This regulation ensures that firms are appropriately governed, have appropriate risk control measures in place and that they have good funding to trade safely.
Therefore, for a firm to operate in any financial market, it must meet the prudential regular finance law. Meaning it will be authorized to operate if it has met the stipulated requirements. On the other hand, consumer protection laws ensure that a firm will be able to treat its customers fairly.