What is Regulation?

What is Regulation
In economics and finance disciplines, regulation is the set of rules, regulations, interventions and sanctions applied to market participants, especially by the public authority. The main purpose of regulations is to ensure the stability of the economic and financial system, to promote competition and to increase the welfare level of society. In this article, you can find answers to the questions what is regulation, what does it do, why is it important, and how is regulation done.

Regulation means regulation; In simple terms, it can be explained as the rules, instructions, practices and standards used to determine the activity limits of individuals, consumers and investors, capitalists, public-private sectors and other institutions and organizations, that is, all market participants.

In other words, regulation, which means the control of activities with social value by an authority, can also be defined as a set of rules created and implemented by any authority with public, private or non-profit sanctioning power, according to its legal scope and powers.

In economics and finance disciplines, regulation is the state authority; It means establishing regulations, rules and institutions to guide, encourage and control the behavior of market participants in order to keep disruptions and failures in the markets to a minimum and to ensure the continuity of economic and financial stability. Public authorities can apply regulations and controls (intervention) in line with their economic goals. These two concepts can be considered as complementary to each other. In short, while the regulation of economic activities is defined as regulation, intervening in the prices that occur freely in the markets is defined as control or price control.

Public authorities have various sets of regulations, in other words economic policy tools, to direct behavior in the markets. These tools are generally divided into two as structural and behavioral regulations. Structural regulations; It covers all kinds of regulations and rule sets aimed at the effective functioning of the market, regulating the level of competition, in other words, aiming to eliminate incomplete or unfair competition and to bring functional functionality to competition. Behavioral regulations are a set of rules that regulate the behavior of market actors for the effective functioning of markets.

The concept of deregulation, as opposed to regulation, means that public authorities reduce or terminate the regulations they apply for various purposes. Deregulation is applied in cases where regulations do not comply with the targets set by the public authority or deviate from basic economic policies.
What Does Regulation Do?

Regulations aim to keep disruptions or failures in markets to a minimum. Market failure or failure is defined as the inability to fully carry out the production, consumption and investment activities required for the effective functioning of the market. The main factors that cause market disruption or failure include lack of competition, monopolies formed in the process, asymmetric information and transaction costs.

Regulations aim to create an environment for a sufficient level of competition or, if the number of actors in the market is small, to ensure that the market participants in question compete properly without further monopolization. Regulations encourage competition in the market and ensure that consumers in all regions and income groups have access to a wider range of goods and services at lower prices.

Why is Regulation Important?

In addition to encouraging competition, regulations; ensures economic and financial stability. While economic stability is aimed with monetary and fiscal policies, financial regulations aim to regulate and supervise financial markets. In the simplest example, ensuring that financial institutions, especially banks, and other companies have strong capital positions and manage risks supports financial stability. Risk management and taking appropriate precautions against risks is also a factor that limits systemic risks. On the other hand, the fact that capital market instruments are subject to certain norms within the scope of financial regulations and are supervised by the public authority ensures that investors are protected from financial abuses.

On the other hand, regulations; It increases the welfare level of society by ensuring that market participants comply with the determined norms, making activities safer and more transparent. By determining the standards of products and services, the rights of consumers and investors are secured. In addition, regulations encourage the fair conduct of economic and financial activities and the balanced distribution of income and rent creation. Some regulations also play a role in environmental sustainability and social responsibility.

How is Regulation Done?

Activities with social value; It can be regulated by any authority with public, private or non-profit sanctions, according to its legal scope and powers.

Public regulations include regulatory interventions and controls made by the state in the economy. Private regulation, on the other hand, is the rules that are created and implemented voluntarily by individuals or companies without the need for any legal sanction. Individuals or companies tend to try to solve problems themselves without the need for state intervention through special regulations.