1.3 Reasons for risk management Flashcards

1
Q

The c___ for regulation is not clear, even given the importance of effective risk management for organizations and their stakeholders.

A

clear

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2
Q

All organisations are subject to regulation of their risk management decisions. Which sector is particularly subject to additional regulatory oversight?

A

Financial services - aimed at protecting the overall financial system and preventing misconduct.

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3
Q

What is meant by “self regulation”

A

A process where a group of professionals or organisations agree to set and enforce specific risk management standards. This could be managed by a trade association or institute.

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4
Q

What is the benefit of a system of “self regulation”?

A

The regulation is agreed and enforced by those being regulated, ensuring that the regulation is appropriate.

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5
Q

What is the disadvantage of a system of “self regulation”?

A

The system is hard to sustain because of limited enforcement. Organisations will be reluctant to punish one another as they may be next.

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6
Q

What is “asymmetric information”?

A

A situation where one party to a transaction has more material knowledge than the other.

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7
Q

A key factor needed to ensure market efficiency is i__________.

A

Information

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8
Q

What is meant by “public goods”?

A

A good, service or other benefit available to all members of a society (e.g. air and water).

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9
Q

What is the “public goods problem”?

A

Individuals or organisations may make risk management decisions that benefit them but do not protect wider environments and financial systems.

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10
Q

What are the two types of market failure?

A

Asymmetric failure problem

Public goods problem

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11
Q

The costs of regulation come from over-regulation or i_____________ regulation, where organisations are required to reduce risk below the optimum level that balances the needs of different s___________ groups or where organisations face excessive compliance and e___________ costs.

A

ineffective
stakeholder
enforcement

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12
Q

Compliance costs include the costs of maintaining a compliance f_______ or providing information to regulators. This means that s___________ , who regulation is meant to protect, may end up paying some or all of the costs associated with compliance.

A
function
stakeholders
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