Chapter 10: Applications of legislative and regulatory frameworks (2)

Question 1

Key principles underlying legislation of financial services

Answer 1

FAM I R SIIC

• Financial resources
• Assets of customers
• Market practice
• Integrity
• Relations with regulators
• Skill, care and diligence
• Information about and for customers
• Internal organisation
• Conflicts of interest

Question 2

Principles underlying the legislation and regulation of institutional practices

Answer 2

REPEAT BAM CO.

• Regular reporting
• Expert advice
• Performance measurement
• Effective decision-making
• Activism
• Transparency
• Benchmarks appropriate
• Asset allocation focused on
• Mandates are explicit
• Clear objectives
• Operations are effective

Question 3

What does a Statement of Investment Principles set out?

Answer 3

• who is taking which decisions and why this structure has been selected
• the fund’s investment objective
• the funds planned asset allocation strategy, including projected investment returns on each asset class, and how the strategy has been arrived at
• the mandate given to all advisers and managers
• nature of the fee structure in place for all managers and advisers, and why this set of structures has been selected.

Question 4

Purpose of a Statement of Investment Principles

Answer 4

Ensures:

• investment manager, trustees and investors have a clear understanding of the investment strategy
• clear legal framework for awarding fees, hiring and firing and reporting requirements
• trustees focus on their responsibilities towards investment
• trustees and investment managers understand and explain deviations from the strategy

Question 5

Directors’ responsibilities

Answer 5

• Ensure company meets all legal obligations
• Responsible for solvent trading of the company
• Account production
• Appointment of management
• Approving dividend payment
• Safeguarding assets of the company
• Prevent and detect fraud and other irregularities

Question 6

Care needs to be taken to ensure directors act in the shareholders’ interests. This is achieved through:

Answer 6

• Formal audit committees
• Independent remuneration committees – for senior executives
• A proposed extension of directors’ liability
• Have non-executive directors
• Remunerating management in such a way as to align their interests with those of the shareholders

Question 7

Main aims of IFRS

Answer 7

• Encourage reliable and consistent accounting data
• Transparency of accounting data
• To have a single set of standards world-wide that enables access to financial markets and prevent companies having to produce results on several bases

Question 8

IFRS 9

Answer 8

For institutions trading in investments it requires:

• investments to be shown at fair value in statement of financial position
• any resultant profit/loss on revaluation to be shown in the statement of comprehensive income