Regulations of Private Wealth

By Ayoob Rawat & Kabir Rawat


Definition of Regulation: A rule or order issued by an executive authority or regulatory agency of a government and having the force of law.


Regulations are written rules that have legal force. Once our ancestors decided to reduce risk and live as communities, some form of discipline was required to guide how each individual would relate to other community members. Civil codes were agreed upon and had to be respected if one wanted to belong to the community.


These civil codes evolved into Law, the earliest recorded being 5,000 to 3,000 BC. As the concept of Wealth and Wealth creation started being understood by our ancestors, the legal framework was an integral part of Wealth management, be it - community wealth or individual wealth.



As civilisation matured, trade and commerce with economic activities between nations, communities and individuals became more widely spread. In line with the need for civilisation to be respected and to evolve, as much of the activities needed to be put under accepted or defined laws.


Financial and Banking Services Regulations have existed since the beginning of institutionalised banking in the temples, then through Monarchs in their kingdom. Whilst the reason for regulation was principally to protect the kingdom from fraud and malpractice, it also allowed taxing the transactions.



These laws had to be publicised as widely as possible to remove any doubt as to their interpretation - to protect the subjects of the nations. Trade and commercial activities had to be monitored to ascertain respect of local laws and course enforcement of the law.


Not only did it survive, financial markets and the businesses providing services have evolved to such an extent that the term Financial Services now encompass services covering not only traditional banking activities - custodian and lending but also brokerage (stockbroking), merger and acquisition, credit cards, electronic banking, commodity trading, insurance, funds management and new Fintech comers.



With electronic banking and globalisation, the exponential growth of international banking there has been a massive dismantling of "segregation of services".  Then as international finance has continued to evolve as nations removed barriers and capital started flowing freely and the distinction between domestic and foreign institutions became interchanging, contagion from one country's financial crisis became more pronounced and spread.


Over the years we have seen the Asian crisis, South America, Russia, Greece and the US credit crunch had a world impact.


So the policyholders started implementing increased international regulations of financial institutions.


Though different countries have different rules, most international banks are in effect Financial Services rather than Banks.




At the core, Governments regulate banks because of the need for a financial safety net to protect depositors and bank shareholders.   But the reality is now different as the Banks themselves get protected and allowed to survive their worst behaviour.


Whilst retail activities - savings in all its form have been regulated, Wealth Management is so far advanced in its work with High Net Worth Individuals that it has been left to its own accord and in places like Switzerland and UK, until recently, apart from compliance with anti-money laundering (even that was only introduced over the last 15 years) there has been no real regulation to speak of.


With the massive frauds, miss-selling and all sorts of scams, authorities are now taking measures to better regulate the sector and to bring more professionalism, transparency and improve the reputation of their jurisdiction.


The mandate of financial services supervisory mandate is to supervise banks, insurance companies, exchanges, securities dealers, collective investment schemes, and their asset managers and fund management companies. Supervisors regulate to protect depositors, creditors and shareholders of banks.


With the super influence of the Federal Reserve, the International Monetary Fund (IMF) and emphasis on monetary policies to keep the economy ticking, commercial obligations of banks has been put aside over the World Financial system and the financial strength of Banks they seem to be able to resist more supervision.


In any event, do the supervisors worldwide have the resources to supervise and if they do, are they really qualify to monitor and control wizard of financial products and hedge funds?


There is sufficient brain at the top, be it the Basel Committee on Banking Supervision (BCBS), the IMF, the Fed and all the other Central Bankers who can certainly stand up to the best in the biggest banks.


Let me quote a few extracts of what Fernando Restoy, Chairman, Financial Stability Institute, said in a speech he gave in Lisbon, Portugal, 1 June 2017 to the CIRSF Annual International Conference:


"But the subprime crisis had basically highlighted an imperfect global financial system with Banks not following sufficiently sound risk management strategies and lacked adequate loss absorption capacity.


Moreover, the global system was highly vulnerable to adverse shocks because of the role played by large and interconnected financial groups that were considered too big to fail. And there were significant shortcomings both in the prudential standards for banks and in how they had been implemented."


"In the crisis management domain, the Financial Stability Board (FSB) has put in place a comprehensive set of principles to help ensure the orderly resolution of systemically important banks (SIBs) along with minimum loss absorption requirements for global SIBs. Together, they represent considerable progress in mitigating the too-big-to-fail problem.


As I mentioned before, however, globally harmonised standards and practices need not be applied to all banks in all jurisdictions. It may be appropriate to apply simpler rules and less intrusive practices in the case of smaller, less sophisticated banks, as is the case now in many jurisdictions.


But at the same time, we need to keep in mind that the application of the proportionality principle should not compromise the stringency of the prudential requirements. It should also carefully weigh potential distortions in the normal functioning of market forces."


You can read the full speech on the web at




While the intention was honest, the result has been that Banks have had to reduce their exposure to cyclically sensitive assets such as small and medium businesses. So the drain away from "Main Street" to create real business locally has continued.


Now when it comes to supervising the end client money and investment, it is just not a priority as the risk is not concentrated but rather well spread among many millions of clients. It is unlikely that Supervisors will pay attention to specifically my savings or yours.


We have been brought up to believe in a world where we are quite contended to give others the management and creation of our wealth. Well, it will not happen as the power the Wealth Management yield has now exceeded their mandate.


So do we take power back? It is the same as taking your neighbourhood back. Take ownership and put more protectors on the street and let them become an army of supervisors!  And the money is there to pay them to do a good job.

So who regulates what!




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