ARM 400 Chapter 8

Question 1

In regards to compliance strategy, how is compliance defined?

Answer 1

This is the organization’s adherence to external legal and regulatory requirements AS WELL as internal policies and standards.

Question 2

What role does the Chief Compliance Officer (CCO) play?

Answer 2

This individual is tasked with ensuring the organization’s compliance with external requirements such as laws and regulations as well as internal policies and procedures.

Their role is to coordinate compliance efforts as well as monitor the compliance program and act as the liaison on compliance issues.

The CCO must have a working knowledge of every part of the organization but cannot be expected to know all the intimate details.

Question 3

Define principles-based regulation.

Answer 3

A regulatory approach that specifies desired outcomes and allows the regulated entity broad discretion in achieving that outcome.

Question 4

Define rules-based regulation.

Answer 4

A regualtory approach that establishes a detailed set of specific rules to govern conduct.

Question 5

What is regulatory arbitrage?

Answer 5

The practice of circumventing unfavorable regulations by exploiting gaps and inconsistencies in competing regulatory systems. (For example, US versus UK regulations)

Question 6

What is risk-based regulation?

Answer 6

A risk management approach to allocating resources to address risks in a way that will achieve the greatest good.

Question 7

What is evidence-based regulation?

Answer 7

A regulatory approach that collects and uses objective performance data to set, evaluate, and improve policies. Using this approach, regulatory standards are crafted with input from all affected parties.

Question 8

What are a few of the evidence-based indicators that may be used by an organization?

Answer 8

Cost
Performance
Benefits

Question 9

What are the 3 pillars of Solvency II that are intended to ensure the stability of insurers and increase customer confidence?

Answer 9

• Qualitative financial requirements - designed to ensure that an insurer has enough capital to remain solvent.
• Risk Management Standards = meant to help organizations identify and address risks.
• Reporting requirements - created to increase transparency to supervisors and the public so market forces can impose discipline on the industry.

Question 10

What are Basel Standards?

Answer 10

These regulatory standards establish risk management principles for banks and are designed to prevent systemic risk from creating a financial crisis.

Question 11

Financial institutions compelled to adhere to Basel regulatory standards should manage risk by taking these steps:

Answer 11

• Identifying risk
• Measuring exposures to those risks when possible
• Ensuring that an effective capital planning and monitoring program is in place.
• Monitoring risk exposures and corresponding capital needs on an ongoing basis.
• Controlling or mitigating risk exposures.
• Reporting to senior management and its board on the institution’s risk exposures and capital positions.