Conflicts of interest in the financial systems

Tesina Mafinrisk Marco Scivittaro Matricola: m1026111 Conflicts of interest in the financial systems Conflicts of interest are very common in the financial industry. They are usually exploited when some agents take short-term gains at the longer-term expense of the firm. While they cannot be easily eliminated, their exploitation can be controlled. The market exerts control over conflicts because reputation is important to firms. The most important contribution of regulation is to strengthen the flow of informations to promote disclosure, transparency and good governance structures, supported by an appropriate regulatory oversight. Central to the operations of the financial systems are the “watchdogs”: research analysts, auditors, rating agencies, regulators and prosecutors. They provide overlapping but different types of corporate monitoring, none can be replaced. They play an essential role feared by the companies. The danger is that they may not be able to do their job if they are excessively regulated. Goal should be to strengthen market forces and ensure more disclosure of vital information.