1.3 Reasons for risk management Flashcards
The c___ for regulation is not clear, even given the importance of effective risk management for organizations and their stakeholders.
clear
All organisations are subject to regulation of their risk management decisions. Which sector is particularly subject to additional regulatory oversight?
Financial services - aimed at protecting the overall financial system and preventing misconduct.
What is meant by “self regulation”
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.
What is the benefit of a system of “self regulation”?
The regulation is agreed and enforced by those being regulated, ensuring that the regulation is appropriate.
What is the disadvantage of a system of “self regulation”?
The system is hard to sustain because of limited enforcement. Organisations will be reluctant to punish one another as they may be next.
What is “asymmetric information”?
A situation where one party to a transaction has more material knowledge than the other.
A key factor needed to ensure market efficiency is i__________.
Information
What is meant by “public goods”?
A good, service or other benefit available to all members of a society (e.g. air and water).
What is the “public goods problem”?
Individuals or organisations may make risk management decisions that benefit them but do not protect wider environments and financial systems.
What are the two types of market failure?
Asymmetric failure problem
Public goods problem
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.
ineffective
stakeholder
enforcement
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.
function stakeholders