Chapter 2: Industry Regulation Flashcards
What are the objectives & benefits of regulation?
- Increase trust in financial markets
- Establishing an environment that encourages economic development
- Reducing risk of market failures
- Enhancing consumer protection
- Reducing financial crime
What are the 3 models of regulation?
- Rules-Based - detailed rules, strict, inflexible, can’t keep up.
- Principles-Based - more broad, open to interpretation.
- Self-Regulatory Organisations (SROs) - private interests with government oversight.
Who are the 3 main international regulatory bodies?
- BIS - Bank for International Settlements - 60 central banks, hosts the Basel Process
- FSB - Financial Stability Board - has a mandate from governments to promote stability, decisions are not legally binding
- IOSCO - International Organisation of Securities Commissions - group of securities regulators, has its 38 principles that are supported by the G20 & FSB
What are the 3 objectives of securities regulation that define the IOSCO’s 38 principles?
- Investor protection
- Fair, effective & transparent markets
- Systemic risk reduction
What are the 10 categories that the IOSCO’s 38 principles are apart of?
- Relating to the regulator
- Self regulation
- Enforcement of securities regulation
- Cooperation in regulation
- Issuers
- Auditors
- Collective investment schemes
- Market intermediaries
- Secondary market
- Clearing & settlement
Do the IOSCO’s 38 principles have any legal force?
No - but they need to be practically implemented legally in the member countries.
What is the SEC?
SEC (Securities & Exchange Commission) is an independent government agency that oversees the US securities market.
What is the FINRA?
FINRA (The Financial Industry Regulatory Authority) is a self-regulatory organisation that oversees business between brokers & the public.
Who are the 3 supervisory authorities in the EU?
- EBA (European Banking Authority)
- ESMA (European Securities & Markets Authority)
- European Insurance & Occupational Pensions Authority
What are the 4 tools that aid supervision of regulated firms?
- Diagnostic tools - designed to identify, assess & measure risk
- Monitoring tools -to track the development of risk
- Preventative tools - to limit or reduce risks to prevent them from happening
- Remedial tools - to respond to risks when they have happened
What are the 5 main money laundering offences?
- Concealing criminal property
- Arrangements involving criminal property
- Acquisition of criminal property
- Failure to disclose
- Tipping off that a disclosure has been made
What are the 3 stages of money laundering?
- Placement
- Layering
- Integration
Money laundering regulation require firms to adopt identification procedures. What is involved in customer due diligence?
- Identifying & verifying the customer
- Identifying & verifying the beneficial owner
- Understanding the purpose for the business relationship
In the context of insider dealing, how might a person gain insider price sensitive information?
- Being an employee, director or shareholder
- Being an employee of a related company e.g. auditors
- Sourced information directly/indirectly from 1 or 2.
What are some examples of market abuse?
- Insider dealing
- Improper disclosure - insider discloses information to another person
- Misuse of information - any behaviour based on insider information
- Manipulating transactions - trading or placing orders to manipulate the demand/price/supply of an investment
- Dissemination - distributing information that conveys a false impression about an investment when the information is false
- Distortion - Behaviour that gives a false impression of the supply/demand for an investment
