Chapter 1 - Approaches to Supervision Flashcards
What does a risk based approach to supervising entail?
Regulators will supervise based on the risk a firm presents to their regulatory objectives.
What are the factors a regulator might consider when seeking to apply a risk based approach to supervision?
- Risks a firm places on the confidence and trust in markets.
- Risks that can lead to market or system failure.
- The risk a firm might lose to promoting public understanding.
- Extent to which consumers might encounter harm.
- The risk of financial crime from a firm.
- The degree to which a firm might pose a risk to a country’s financial stability.
What are RTO groups?
Risks to objectives groups - sources of risks
What are examples of RTO groups?
- Firm strategy
- Business risk - credit, market, operational
- Financial soundness of the firm
- Nature of firms customers and the products offered
- Internal systems and controls and compliance culture within the firm.
- Organisation of the firm - board, management and staff.
What is thematic supervision?
An approach to supervision that allows the regulator to focus on specific issues using a specialised team.
What are the 4 types of tools a regulator can use to aid supervision?
- Diagnostic tools - identify, assess and measure risk.
- Monitoring tools - to track the development of identified risks
- Preventative tools - to limit or reduce identified risks to prevent crystallisation.
- Remedial tools - to respond once a risk has crystallised.
What is relationship based supervisor ?
The regulator has an ongoing direct relationship with the firm supported by periodic visits, meetings and desk based monitoring financial and information returns.
How many principles has the IOSCO produced?
38
What are the IOSCO principles that apply to the regulator? (8)
- Regulator to have clear objectives.
- Regulator to be operationally independent and accountable.
- Regulator to have adequate powers and resources.
- Regulator to have a clear and consistent regulatory process.
- Staff at the regulator must be professional and respect confidentiality.
- Regulator to have a process to monitor and mitigate systemic risk.
- Regulator to review the perimeter of regulation regularly.
- Regulator to avoid conflicts of interest and misalignment of incentives.
Which IOSCO publication stipulates enforcement powers?
Principles for the Enforcement of Securities Regulations (category C principles 10-12)
What sort of powers should regulators have?
- Obtain data, documents and records.
- Seek orders to execute their powers
- Impose sanctions or seek orders from courts
- Power to initiate or refer matters for criminal prosecution.
- Power to suspend trading of securities
- Power to enter into enforceable settlements.
- Power to obtain and share information and prosecute cases of cross border misconduct.
If a firm is too small to have a compliance function, who should take up compliance responsibilities?
Director or senior management
What are the three key standards in the financial supervisory area that the FSB identify?
- IOSCO Objectives and Principles of Securities Regulation
- BCBS Core Principles for Effective Banking Supervision
- International Association of Insurance Supervisors Insurance Core Principles.
What is a supervisory college?
A forum of all EU regulators and some non EU regulators relevant to an area of a banking group.
What will a supervisory college consider?
The risk management of a banking group, its liquidity risk, and recovery plans.
