Chapter 3 - Regulation Flashcards

1
Q

Aims of regulation

A

Correct market inefficiencies
Protect consumers
Maintain confidence
Reduce financial crime

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2
Q

Direct costs

A

Administering the regulation

Compliance for regulated firms

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3
Q

Indirect costs

A
Alteration in consumer behavior
Undermining of sense of professional responsibility 
Reduction in self regulation 
Reduced product innovation 
Reduced competition
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4
Q

Need for regulation

A

Maintain confidence

Deal with info asymmetries

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5
Q

Functions of regulator

A

Influence and review government policy
Vetting and registering firms
Supervising prudential management of financial organizations
Supervising conduct of financial businesses
Enforcing regulations and investigating breaches
Providing information to the public

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6
Q

Areas addressed by regulation

Information asymmetries

A

One party more info than other
Lead to anti selection
Exacerbated by complex and long term nature of financial contracts
Mitigation: disclosure, Chinese walls, cooling off periods, customer legislation, whistle blowing

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7
Q

Areas addressed by regulation

Maintaining confidence

A

Problem in one area spreads
Mitigating: capital adequacy, integrity, industry compensation, orderly and transparent markets, stock exchange requirements

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8
Q

Regulatory regimes

A
Unregulated markets
Voluntary codes of conduct
Self regulation
Statutory regulation
Mixed

Can be
Prescriptive
Freedom of action
Outcome based

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9
Q

Role of major financial i stitutions

A

Central Bank - control or influence economic variables
State intervention - provision of products, control premium rates
Large market participants - influence premium rates

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10
Q

Climate risk related policy and regulatory developments

A

Consider climate risks
Effectively disclose clime risks and opportunities
Consistent and reliable means of assessing, pricing and managing climate risks
Incorporate ESG factors
Incorporate financial risks
Use scenario analysis
Consider impact of climate risks on ability to meet obligations

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