Chapter 9: Applications of the legislative and regulatory framework (2) Flashcards
Key principles underlying legislation of financial services (10)
- Integrity
- Skill, care and diligence
- Market practice
- Information about customers
- Information for customers
- Conflicts of interest
- Customer assets
- Financial resources
- Internal organisation
- Relations with regulators
Key principles underlying the legislation and regulation of institutional investment (11)
C - Clear objectives
A - Activism
P - Performance measurement
E - Expert Advice
R - Regular reporting
A - Appropriate benchmarks
T - Transparency
E - Explicit mandates
F - Focus on asset allocation
E - Effective decision-making
E - Effective operations
Directors are responsible for: (6)
- the solvent trading of the company and compliance with regulations
- the production of accounts
- the appointment of management
- approving dividend payments
- safeguarding the assets of the company
- preventing and detecting fraud and other irregularities.
Ensuring directors act in shareholders’ interests (3)
- formal audit committees
- independent remuneration committees
- a proposed extension of directors’ liability
IFRS 9 requires that: (2)
- investments are shown at fair value in the balance sheet.
- revaluation profits and losses are show in the income statement
Legislation of institutional investment - Effective decision-making
Decisions should only be taken by persons or organisations with the skill, information and resources necessary to take them effectively.
Legislation of institutional investment - Focus on asset allocation
Strategic asset allocation decisions should receive a level of attention that fully reflects the contribution they can make towards achieving the fund’s investment objective.
Legislation of institutional investment - Activism
Managers should incorporate an explicit strategy on activism, making clear the circumstances in which they will intervene in a company, the approach they will use in doing so and how they measure the effectiveness of this strategy.
Transparency - A ‘Statement of Investment Principles’ should set out: (5)
- who is taking which decisions, and why this structure has been selected
- the fund’s investment objective
- the fund’s planned asset allocation strategy, including projected investment returns on each asset class, and how the strategy has been arrived at
- the mandates given to all advisers and managers
- the nature of the fee structures in place for all advisers and managers, and why this set of structures has been selected.
The requirement of to have a Statement of Investment Principles ensures: (4)
- the investment manager, trustees, and investors have a clear understanding of the investment strategy
- there is a clear legal framework for awarding fees, hiring and firing, and reporting requirements
- trustee focus on their responsibilities towards investment
- trustees and investment managers understand and can explain deviations from the strategy.
Directors (main responsibility)
Directors, including shadow directors, are responsible for the overall direction of the company, primarily for the benefit of shareholders.
It is ultimately the responsibility of directors to ensure a company meets all its legal obligations and to be responsible for the solvent trading of the company.
main role of non-executive directors
The main role of non-executive directors is to provide an impartial view on the board of directors and in particular to represent the interests of the shareholders.
Advantages of IFRS (2)
- It will make it easier for companies to obtain listings on different stock exchanges as they not have to produce multiple sets of accounts.
- It will also help investors making comparisons between companies listed on different exchanges.
The aims of the IFRS (3)
- to 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.
