What is the primary objective of structural regulation of financial services firms?

• A. Enforce compliance by financial services providers with consumer law.
• B. Minimise risks to the financial system.
• C. Ensure only those with sufficient financial standing and integrity can become financial services firms.
• D. Ensure financial services providers remain solvent at all times.

Answer: (C)

The main idea behind structural regulation is about who is allowed to operate in the financial services market. It establishes entry requirements so that only firms with adequate financial resources, governance, and integrity can become financial services providers. By using licensing and fit-and-proper tests before a firm can start offering services, regulators aim to prevent under-capitalized or unscrupulous operators from entering the market, which protects consumers and helps maintain market stability over time.

While enforcing consumer law and protecting consumers (a separate regulatory focus) is important, structural regulation is specifically about eligibility and qualifications to enter the market. It’s not a guarantee that a firm will always be solvent (that relates to ongoing prudential supervision) and it’s broader than just minimizing systemic risk, which is a broader objective that includes ongoing oversight and macroprudential measures.