CH 2. Legal, Regulatory and Tax Environment Flashcards
General Types of (FI) Financial Institutions Regulations
-Monitoring and managing the overall safety and soundness of the banking system -Setting and implementing monetary policy -Determining guidelines for the chartering of banks and other depository FI’s -Allocating credit toward certain sectors of the economy and protecting consumers -Protecting investors purchasing securities through FI’s
Issues affecting FI’s
Globalization - no true central regulatory authority - Growing dominance of a few FI’s - unregulated hedge funds, equity funds and investment opportunities.
Primary Regulators
- Central Banks - Financial Stability Board (FSB) - Bank for International Settlements (BIS) - Basel Committee on Banking Supervision(BCBS) - European Payments Council(EPC) & Singl Euro Payments Area (SEPA) - European Securities and Markets Authority (ESMA) - International Association of Deposit Insurers (IADI) - International Organization of Securities Commissions (IOSCO) - Financial Action Task Force (FATF) - International Association of Insurance Supervisors (IAIS)
Central Banks responsibilities
- Monetary Policy - Currency Issuance - Supervision and Regulation - Government Services - Depository Institution Services
Primary goals of FSB
- maintain financial stability - promote the openness and transparency of the financial sector - Implement international financial standards - Conduct Periodic peer reviews
Bank for International Settlements (BIS)
- est 1930 - Link between Central Bank and and other agencies - Provide financial statistics Sponsors 3 committees - Group of governors and heads of supervision (GHOS) - Committee on the Global Financial System(CGFS) - Committee oon payment and settlement systems(CPSS)
BASEL Committee on Banking Supervision (BCBS) Goals
- est 1974 - Basel I…minimum capital requirements for large banks - Basel II…expanded risk ratings -Basel III….stress testing of banks and market liquidity risk
EPC and SEPA
EPC supports the SEPA, single european payments area - Standardization of payment systems(wire, cards, check…) and practices across borders
International Organization of Securities Commissions (IOSCO)
Standard setter for securities markets
Financial Action Task Force (FATF)
- composed of 30 countries. - promote policies to combat money laundering
IAIS
International Assoc of Insurance Supervisors - Insurance regulation in 140 countries
US Regulatory Agencies
-CFTC, Commodity Futures Trading Commission -CFPB, Consumer Financial Protection Bureau -DOJ, Dept of Justice -FDIC, Fed Deposit Insurance Corp FinCEN, Financial Crimes Network FINRA, “Fianancial Insustry Regulatory Authority FSOC, Financial Stability Oversight Council NCUA, National Credit Union Admin OFAC, Office of the Foreign Assets Control THE Secret Service SEC, Securities and Exchange Commission
FDIC
-Provide deposit insurance for all insured FI’s -Supervising selected depository institutions -Acting as a trustee in the event of bank failures
FINRA
Financial Industry Regulatory Authority -REgistering and educating industry participants -Examining brokerage firms -Writing and enforcing rules related to federal securites laws -Informing and educating investing public -Administering the primary dispute resolution forum for investors and registered firms.
The Secret Service
est 1865 -part of US Homeland Security -safeguard payments systems from CC fraud, check fraud, and identity theft
SEC
-Register public offering of debt or equity -Setting financial disclosure standards for selling securities -Requiring companies with publicly owned securities to file financial statements -Regulating mutual funds and investment advisers -Monitoring insider trading to enforce related regulations
7 Basic regulatory areas
- Reg and supervision of FI’s and Financial services 2. Legislation over payment systems and instruments 3. Legislation related to financial crimes, money laundering and financial disclosure 4. Federal Reserve Regulations 5. Regulations relating to investments and securities 6. The UCC 7. Escheatment Legislation
Glass Steagall Act
est 1933 after great depression Gramm-Leach Bliley act repealed almost all of this except the deposit insurance under FDIC
Gramm-Leach-Bliley Act of 1999
Eliminated barriers among functions of commercial banking, investment banking and insurance -Permits financial holding companies that engage in fianancial activities -Allows easier entry by foreign banks into the US -Includes provisions related to consumer protection
Dodd-Frank Wall Street Reform and Consumer Protection Act 2010
Sweeping regulations of banks and FI’s to bring transparency and accountability to the derivatives market. - Closes Regulatory Gaps - Requires Central Clearing and Exchange Trading - Requires Market Transparency - Adds Financial Safeguards - Sets Higher Standards of Conduct
EFTA
Electronic Fund Transfer Act est1978 -defines the rights and and repsonsibilities of customers using all EFT exept wires. -Protects consumers from ATM and POS as long as the customer promptly notifies the bank - Reg E
E-sign
Grants digital signatures the same legal status as ink signatures.
Check 21
clearing of checks via image to expedite the check clearing process
BSA
Bank Secrecy Act -Deter money laundering by requiring FI’s to report suspicious transactions such as: Activity inconsistent with a customers business Attempts by customers to avoid reporting or record keeping requirements Unusual or multiple funds transfer activities Customer who provide insufficient or suspicious information
USA Patriot Act
est 2001 -Grant FBI and DOJ intelligence gathering authority of FI’s to prevent terrorism -Requires banks to KYC -Jurisdiction over Foreign banks in the US -Prevents Shell accounts outside the US
SOX
2002 Improves disclosure of financial statements
Reg D
Fed reserve act of 1913 for depository institutions Fed uses this reg to control the supply of money
Reg E
EFT act Establishes the guidelines for documentation of electronic transfers.
Reg J
Check collection and settlement through the Fed Reserve System
Reg Q
Interest bearing account restriction of Glass Steagall. Prevents interest on Corp DDA’s
Reg Y
regulates Non-Banking activities in which bank holding companies and foreign banking organizations in the US can engage.
Reg Z
Related to the truth in lending act. promoting informed use of credit by consumers. Prohibits issuing CC to consumers under 21. Regulates fees and monitors interest charges to protect consumers.
Reg BB
Requires banks to meet credit needs for the entire community
Reg CC
Expedites funds availability to speed collection and return of checks.
UCC
Uniform Commercial Code Governs commercial transactions in the US - article 3: Negotiable instruments, how banks handle unauthorized signatures. - Article 4: ABank Deposits and Collecitons, addresses the relationship between the bank and the consumer - Article 5: Letters of Credit,
Types of Bankruptcy
Chapter 7: Liquidation Chapter 9: Financially distressed municipalities Chapter 11: Business reorganization Chapter 13: Personal bankruptcy, adjustment of debt Chapter 15: bankruptcies for a company in more than one country
3 Stages of Money Laundering
Placement: deposit from illegal activity Layering: transactions designed to seperate cash proceed from the criminal organization Integration: Creating the legitimate explanation for the funds.
