Consolidated supervision of financial markets and its likely impact on the supervision of insurance activities

Tomas Žilinskas

Abstract


Effective supervision of financial institutions is one of the key factors in guaranteeing long-term successful functioning of the financial system. Effective supervision is a precondition of stability of the financial system, sound functioning of financial institutions stimulating the development of local financial markets, and attracting capital and foreign investment flows to the country. Consequently, issues on improvement of effectiveness and efficiency of supervision of insurance, banking and securities markets continue to remain important. Moreover, they are influenced by ongoing social changes, developments of global economy, a growing number of financial conglomerates, convergence of supervised financial markets, duplication of functions carried out by supervisory institutions, and etc.
Recent changes in the regulation of activities of financial supervision institutions are mostly focused on search for suitable administrative organisational model of a supervisory institution. The predominating tendency is consolidation of activities of financial supervision institutions to create the system of supervision, which is common for all financial markets and which is run by one supervisory authority.
The problematics of search for the organisational model of supervision of financial markets is also relevant for the Republic of Lithuania, because like in other countries, there are no strict boundaries between banks, securities and insurance markets, which are interrelated with each other. For example, the pension reform involves subsidiaries of commercial banks, financial brokerage firms and life assurance undertakings; insurance services are provided by both insurance undertakings and subsidiaries of commercial banks.
Consolidated supervision of financial markets has many advantages and weaknesses, which might have direct implications for the insurance supervision activities.
It should be noted that consolidated supervision of financial markets cannot address all problems of supervision of financial markets.
There are many gaps in legal regulation of insurance supervision in the Republic of Lithuania, which must be eliminated; however, consolidated supervision of financial markets will not be the main factor, determining higher effectiveness of supervision of the insurance market. On the contrary, consolidated supervision of the financial market might cause a real threat of weaker effectiveness and efficiency of supervision over the functioning of the insurance market.
The process of change of the supervisory model of financial markets should be smooth and crises should be prevented in sensitive financial markets, which have an important role to play in the economic life of the state.

Keywords


financial and tax law; consolidation; legal regulation; supervision of insurance activities

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"Societal studies" ISSN online 2029-2244 / ISSN print 2029-2236