Why should financial markets be devoid of regulation?

The financial industry is undoubtedly the most important part of the modern global economy. With the soaring rates of digitalization, financial markets are intertwined with each other more than ever before. The big financial centers, often called global superpowers, like New York, London, Tokyo, and Paris attract the vast majority of investments from overseas markets. Distance and barriers are no longer an issue with the vast coverage of digital technologies and most importantly the internet.

Financial markets are of utmost importance for our daily lives. The financial cycle is so big that this system practically unites and concerns all other sectors that we get engaged with on a daily basis. In simple terms, when we go to a grocery store and purchase a certain product, the financial operations needed to get it to your home are quite complex. First off, the production line needs to arrange the logistics and financing of the materials needed to produce a certain good. Later on, the relevant company needs to import it into another country, requiring a whole chain of financial transactions and accounting on the way. In the end, the product is purchased and sold by your local corner shop. Therefore, when you tap your card and get a bag of crisps, you are most certainly not the first one who paid for the same product. Rather, an opportunity of purchasing a product is a result of the complex logistical and financial operations occurring throughout different time periods within various nations. Food Supply chain management is just one tiny part of this massive industry.

Besides the sectors that have to do with financial operations but are not directly involved in their functioning, there are many others that are engaged in trading with financial assets. With the better-connected world than ever before, forex trading has become an important part of the industry. A rising number of people exchange currencies on some platforms easily available on the internet. However, due to the overregulation in many countries, the perception of forex trading has shifted to being seen as overwhelmingly positive to negative in many countries. Today, in some parts of the world, the first thing people ask when hearing about forex is the following “is trading gambling?”. But why was this perception even sparked among the public of several nations and how does overregulation correlate with the downfall of many sectors? After all, forex trains are just a small hinge in this gigantic construction. Almost all niches of the financial market are often severely affected by overregulation, resulting in lost jobs and plummeting profits.

Supporting SMEs: small businesses are most vulnerable to regulations

Small and Medium-Sized Enterprises are the real driving force behind modern national economies. Small businesses are what fuel rural communities, districts, and often end up being major corporations. All in all, SMEs are essential for our development and bright future in every way. For example, in the European Union, a business is classified as small if it employs less than 250 people. Based on the statistics office of the European Union, an estimated 99% of all enterprises across all member states employ less than 250 individuals. Therefore, SMEs are the main employers within the European Union. The picture is very similar in the United States where the vast majority of people are employed by private companies that are small or medium-sized.

Considering all the facts and figures we have presented, it is safe to say, that private companies, minimal and medium-sized ones, are behind our jobs, incomes, and savings. Therefore, making sure that SMEs can be easily established and developed is of utmost importance. Without giving them an opportunity to thrive within our financial environments, it is impossible to reduce the unemployment rate or increase the salaries of millions of citizens in every country.

But what is the difference between SMEs and big businesses with thousands of employees? The structure is almost always the same. Both are private enterprises that work for the maximum profit and employee workforce that gets paid. However, the big difference is in how they can bear turbulent economic and financial conditions. Small and medium-sized enterprises are much more likely to go bankrupt after economic downfalls and crises, whilst big businesses remain open with only minor losses.

Besides turbulent and unexpected situations, the SMEs usually can not afford any extra costs. For instance, when setting up a business, some countries impose too many regulations requiring SMEs and their owners to file paperwork and pay an unexpected number of fees for various services. Moreover, the process is usually lengthy and expensive.

On the other hand, some nations are known to be much more business-friendly than others. The Ease of Doing Business ranking by The World Bank is a great example of outlining some of the essentials a country can offer to SMEs. The key indicators for the aforementioned index are starting a business, dealing with construction permits, getting electricity, registering property, getting credit, taxes, and many others.

If SMEs have to pay high taxes and go through lengthy processes, they will likely fail to form as companies. Rather, they will spend big sums of money on different procedures to not even get to the opening day.

Regulations halt the inflow of investments

One of the most important parts of developing any country, especially an emerging economy is to attract investments. FDI (Foreign Direct Investments) are highly beneficial for countries. Such cash inflows come in different forms but most commonly, overseas businesses or individuals invest in setting up businesses in other countries. The less-regulated the market is, the more likely it is for a company to make a significant investment.

Without deregulating the financial market, along with other sectors, major investment inflows are highly unlikely. No one will invest in a foreign country if there is no guarantee that the procedures needed to get the business going are fast and smooth. The low level of corruption along with other factors are also crucial but regulations are naturally where investors look at the first.