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Regulation of Financial Markets, Systems and Infrastructure


Legal systems play a pivotal role in the operation of financial markets.  The legal and regulatory framework of the financial system must ensure amongst other things, a suitable structure for regulatory authority, appropriate powers to regulate and supervise markets and products, a credible regime for consumer protection, effective rules for transparent processes and sound governance and an efficient enforcement system. In addition, since banks and other financial institutions hold claims on borrowers, the value of which is dependent upon the certainty of legal rights and the predictability and speed of their fair and impartial enforcement. 

Developing an effective legal and regulatory framework for any financial system is a complex and incremental process.  In particular, it requires a careful assessment of existing rules and institutional arrangements with an understanding of how these operate within the specific economic context of a country or region and, in turn, how legal and regulatory reform most optimally generate sustained economic growth and development. It also requires a careful analysis of the interdependencies of markets and their legal frameworks to ensure that they are aligned and do not create regulatory arbitrage. 

The Global Financial Crisis

The recent global financial crisis clearly demonstrates that even strong institutions supported by a well developed legal and regulatory framework can succumb to a crisis.  However, it is known fact that such systems are able to manage the crisis more effectively, compared to those with weak legal and regulatory frameworks.  A reduced appetite for investment and credit risk, low market confidence and a slowdown in the real economy is likely to place a comparatively heavier burden on the financial sectors of more vulnerable developing economies, potentially prolonging the negative spiral of crisis.  However, a robust legal and regulatory structure can act as a bulwark against the backdrop of the crisis, providing clarity and confidence for market players and consumers alike. 

At the same time, financial crises provide an opportunity to carefully examine existing legal frameworks to remedy the regulatory vulnerabilities that have catalyzed the spread of market turmoil. In the Private sector, financial sector and infrastructure development practice group of the Legal vice Presidency (LEGPS), we are paying close attention to the legal framework of cross border regulation and cross border insolvency of financial institutions. We are working with our clients to help find solutions approaches for the reconfiguration of the legal and regulatory framework based on the lessons learnt and collective wisdom acquired from the current crisis.


With an emphasis on collaboration and co-operation, we work with our client countries, other IFIs, national regulators as well as international regulatory bodies to assist client countries to improve their  legal framework for the regulation of the  financial sector and related infrastructures. In LEGPS we–

  • Carry out detailed analysis of country legal and regulatory frameworks for financial services with a view to assessing their appropriateness for a sound  and safe financial system;
  • Advise on legal regulatory reform, infrastructure and institutional reforms;
  • Provide discrete support for legal and  regulatory components of financial sector projects; 
  • Carry out consumer protection in financial system assessments in collaboration with a team of experts in the Bank.
  • Participate and contribute to the knowledge development and management in the aforesaid areas.

Analysis of Legal and Regulatory Frameworks: Our assessments are done in conjunction with Financial Sector Assessment Program and Financial Sector Reviews or Studies.   Amongst other things, we analyze past and future reforms required to strengthen the enabling environment, review the effectiveness of the regulatory legal framework to ensure that it enables a sound financial system, assess the corporate legislative framework to evaluate its appropriateness in supporting a modern, efficient financial system, assess the effectiveness of the judicial system in supporting the growth and stability of financial markets and the private sector, and other related financial sector  laws. Further, we study the effectiveness of the legal framework governing financial infrastructure such as payment systems, clearing and settlement systems, collateral registries or credit bureaus. The results of the analysis feed into the reform projects of the countries funded by the Bank.  

Advice on legal regulatory reform, infrastructure and institutional reforms: We provide specialist advice on laws governing regulatory institutions and the legal frameworks for regulating financial markets and products, taking into account specific local market conditions, comparable markets and international best practices. We also assist client countries on the enforcement mechanism of financial sector laws. Our remit additionally extends to providing expert guidance on corporate governance rules and practice.

Project Support: We participate in the design, implementation and supervision of the legal and regulatory components of the financial sector project of the Bank. In this regard, we provide our clients cutting edge comparative advice on the legal and regulatory framework implementation and enforcement.  We also provide ongoing supervision of the legal component as required.
Consumer Protection in Financial System: We participate in the consumer protection assessment or diagnostic in selected countries to prepare country-specific recommendations to improve the level of consumer protection in financial system. In collaboration with ECA FPD team, LEGPS continues to play a key role in the development of the Good Practices for Consumer Protection and Financial Literacy (CPFL) regime in countries.  

Knowledge Management and Development: The legal framework for financial sector is complex, dynamic and continuously evolving.  The global financial crisis has further accelerated the pace of change affecting the legal frameworks. We provide intellectual input and guidance on to the policy dialogue and strategy within the Bank in these areas. 

The Team

Vijay Srinivas Tata, Chief Counsel
Nagavalli Annamalai, Lead Counsel
Jose Garrido Garcia, Senior Counsel
Riz Mokal, Senior Counsel
Yesha Yadav, Counsel
The team also includes Peter Kyle, Richard Symonds and Eric Haythorne, who serve as senior consultants.


Regulatory Responses to the Global Financial Crisis

Cross Border Insolvency

Access to Finance and Good Governance

Useful World Bank Websites

Other Websites


Last updated: 2009-07-30

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