FINANCIAL

REGULATION
LEARNING OBJECTIVES
• Identify the drivers that will affect the financial sustainability;
• Recognize the different financial regulators in the Philippines; and
• Identify the risks in the financial market.
FINANCIAL REGULATORS
• Regulatory bodies are established by governments or other organizations to oversee the
functioning and fairness of financial markets and the firms that engage in financial activity.
• The goal of regulation is to prevent and investigate fraud, keep markets efficient and
transparent, make sure customers and clients are treated fairly and honestly, and ensure
balance and protection of the interest of all players in the systems.
RISKS IN THE FINANCIAL SYSTEM
• Systematic Risk – inherent to the entire market of a market segment and beyond the control
of the investors (e.g. inflation rates, foreign exchange rates, natural disaster).
• Unsystematic Risk – associated with a specific industry, segment, or security which is caused
by internal factors that can be controlled or reduced in a relatively short period of time (e.g.
changes in regulations, entry of new competitors).
• Business Risk - the chance that the company will be unable to cover its operating costs (e.g.
consumer preferences, demand).
• Non-Business Risk – outside the control of a business that may impact the operation (e.g.
operational challenges, technology).
• Financial Risk – the chance that the company will be unable to cover its financial
obligations.
• Country/Sovereign Risk – the risk that the government could default on payment of its
debt.
RISKS IN THE FINANCIAL SYSTEM
• Political/Event Risk – the probability that the political decisions, events or conditions will
significantly affect the profitability of a business (e.g increased taxes, terrorism).
• Reinvestment Risk – the financial asset needs to be reinvested in lower-yielding assets or
investments due to decreasing interest rates.
• Refinancing Risk – the risk that the cost of re-borrowing funds could be more than the
return earned in the investment.
• Interest Rate Risk - the chance that changes in interest rates will adversely affect the value of
an investment.
• Exchange Rate Risk - the exposure of future expected cash flows to fluctuations in the
currency exchange rate.
• Purchasing-Power/Inflation Rate Risk - the chance that changing price levels caused by
inflation or deflation in the economy will adversely affect the firm’s or investment’s cash
flows and value.
RISK PREFERENCES

• Risk-Indifferent - no change in
return would be required for
an increase in risk.
• Risk-Averse - an increase in
return would be required for
an increase in risk.
• Risk-Seeking – a decreased in
return would be accepted for
an increase in risk.
MARKET DRIVERS
• Competitiveness - the main determinant of competition are the main forces that drives the
market (buyers and sellers).
• Market Behavior - the behavior of the firms in the industry can be regulated by their
behavior (integrity on their activities and integrity on their representation).
• Consistency - the company must ensure that they provide sufficient information to their
customers.
• Stability - an external and fatal factor to be considered in the financial market (most of the
players failed to survive because they lack the ability to forecast and to mitigate the market
risk).
FINANCIAL REGULATORS
BANGKO SENTRAL NG PILIPINAS (BSP)
• is the central bank of the Republic of the Philippines.
• established on July 3, 1993 pursuant to the provisions of the 1987 Philippine Constitution
and the New Central Bank Act of 1993.
• took over from Central Bank of Philippines, which was established on January 3, 1949 as
the country’s central monetary authority.
• enjoys fiscal and administrative autonomy from the National Government in the pursuit of
its mandated responsibilities.

Functions:
• Price stability through the conduct of monetary policy.
• Financial stability by managing systemic risks and promoting a secure and reliable banking
system by ensuring the safe and sound operation of banks and other BSP-supervised
financial institutions.
• Efficient payment and settlement system by providing channels through which funds are
transferred among banks and other institutions.
BOARD OF INVESTMENTS (BOI)
• an attached agency of Department of Trade and Industry (DTI).
• responsible for the development of investments here in the Philippines.
• leads the promotions of various industries and investment opportunities in the country.
• assists Filipino and foreign investors to venture and thrive in vast areas of economic
pursuits and acts as a one-stop shop in doing business in the Philippines.
SECURITIES AND EXCHANGE COMMISSION (SEC)
• the national government regulatory agency charged with supervision over the corporate
sector, the capital market participants, and the securities and investment instruments
market, and the protection of the investing public.
• created on October 26, 1936 by Commonwealth Act (CA) 83 also known as The Securities
Act.
• tasked to regulate the sale and registration of securities, exchanges, brokers, dealers and
salesmen.
• responsible in developing and regulating the corporate and capital market toward good
corporate governance, protection of investors, widest participation of ownership and
democratization of wealth.
• supervises more than 600,000 active corporations and evaluates the financial statements
(FS) filed by all corporations registered.
• develops and regulates the capital market, a crucial component of the Philippine financial
system and economy.
INSURANCE COMMISSION (IC)
• a government agency under the Department of Finance.
• supervises and regulates the operations of life and non-life companies, mutual benefit
associations, HMOs, and trusts for charitable uses.
• issues licenses to insurance agents, general agents, resident agents, underwriters, brokers,
adjusters and actuaries.
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