Regulatory requirements are rules issued by supervisory authorities to regulate and supervise the conduct of financial institutions.
These requirements serve to ensure the stability and safety of the financial system and to strengthen public confidence in the financial sector. Regulatory requirements can cover various areas such as capital requirements, liquidity requirements, risk management, compliance, governance and disclosure. Rules vary by jurisdiction and institution, but are generally comprehensive and detailed.
Capital requirements set out how much equity a financial institution must hold in relation to its risk. This capital buffer is designed to ensure that, in the event of a loss, the bank has sufficient capital to meet its obligations and survive a crisis. Liquidity regulations require banks to have an adequate liquidity reserve to meet short-term obligations.
Risk management regulations require financial institutions to adequately identify, measure, monitor and manage risks. Compliance requirements address adherence to laws and regulations, including anti-money laundering and terrorist financing measures. Governance rules define how an institution is to be managed and administered.
Public disclosure rules require financial institutions to publish certain information in order to increase transparency and enhance public confidence. This includes disclosures on risks, governance, capital and liquidity adequacy and other relevant topics.
Regulatory requirements are of great importance to financial institutions, as breaches can have serious consequences, such as fines, reputational damage and even the loss of a business licence. Effective management of regulatory requirements is therefore essential for financial institutions to ensure compliance and gain the trust of customers and the public.
