Chapter 8: Applications of the legislative and regulatory framework (1)

Question 1

A trust

Answer 1

A trust is an agreement under which one party (the trustee) has legal ownership of certain property that they must manage for the benefit of another party (the beneficiary)

Question 2

Corporate governance: (2)

Answer 2

1. corporate governance refers to the high-level framework within which managerial decisions are made within a company.
2. good corporate governance requires management to make decisions based on the interests of relevant stakeholders rather than on their own personal interests.

Question 3

Role of the listings authority (5)

Answer 3

The authority regulates:

1. the financial and business information that is made available to the public at issue.
2. the issue process
3. the financial and business information that is made available post-issue
4. the conduct of the listed security market
5. the conduct of listed companies

Question 4

Common restrictions in all mandates (5)

Answer 4

1. a prohibition on certain assets
2. restrictions on how assets are used. e.g. not for speculative purposes.
3. maximum holdings in certain assets or sectors
4. restrictions on self-investment
5. ethical or social limitations

Question 5

Investment restrictions imposed by regulation (4)

Answer 5

1. requirement to hold government bills and bonds
2. requirement to match by currency
3. restrictions on asset classes
4. admissibility regulations

Question 6

Purpose of restrictions in investment agreements (3)

Answer 6

1. protect beneficiaries
2. encourage market confidence
3. encourage investment

Question 7

Examples of ESG factors - Environmental (5)

Answer 7

1. climate change
2. resource depletion
3. waste
4. pollution
5. deforestation

Question 8

Examples of ESG factors - Social (5)

Answer 8

1. human rights
2. modern slavery
3. child labour
4. working conditions
5. employee relations

Question 9

Examples of ESG factors - Governance (5)

Answer 9

1. bribery and corruption
2. executive pay
3. board diversity and structure
4. political lobbying and donations
5. tax strategy

Question 10

Statement of Investment Principles

Answer 10

1. A Statement of Investment Principles is a written statement governing decisions about investments for the purpose of a scheme.
2. It is for the information and scrutiny of the ultimate beneficiaries.

Question 11

What is a Mandate

Answer 11

A mandate refers to the authority given by the owner of investments to the investment manager whom they employ to manage their investment, i.e. it acts as a business contract between the owner of the investments and the investment manager.