International Regulatory Environment - 1

Question 1

State two of the objectives of regulation. (section 1.1)

Answer 1

(1)Protecting investors
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(2) Ensuring market integrity through transparency and fairness

Question 2

State the main differences between rules-based and principles-based approaches to regulation. (section 1.3)

Answer 2

Rules-based: provides detailed and specific rules,

**Principles-based: ** sets broad guidelines, allowing flexibility in achieving the intended outcomes

Question 3

What is the mission of the Islamic Financial Services Board (IFSB)?

(Section 1.4.2)

Answer 3

The IFSB promotes and enhances the soundness and stability of the Islamic financial sector by issuing global prudential standards and guiding principles .

Question 4

What are the penalties for breach of the General Data Protection Regulation (GDPR)?

Section 1.5.1

Answer 4

Up to 4% of global turnover or €20 million (whichever is greater), depending on the severity of the violation .

Question 5

List the data subject rights.

Section 1.5.1

Answer 5

1. right to access,
2. right to rectification,
3. right to erasure (right to be forgotten),
4. right to restrict processing,
5. right to data portability .

Question 6

State the objective of the Dodd-Frank Act.

Section 1.5.2

Answer 6

The Dodd-Frank Act aims to promote financial stability in the United States by improving accountability and transparency in the financial system .

Question 7

Name three investment services that can be subject to passporting under the Markets in Financial Instruments Directive (MiFID).

Section 1.5.3

Answer 7

1. portfolio management,
2. investment advice,
3. execution of orders on behalf of clients .

Question 8

What does Section 404 of the Sarbanes-Oxley (SOX) Act require publicly registered US companies to do?

Section 1.5.3

Answer 8

Section 404 requires publicly registered US companies to establish and maintain an internal control structure for financial reporting and to assess its effectiveness annually .

Question 9

What is the definition of payment services?

Section 1.5.3

Answer 9

Payment services involve activities related to the execution of payment transactions, including direct debits, credit transfers, and payment cards .

Question 10

As required in SOX, how often should a company produce an ‘internal controls report’?

Section 1.5.3

Answer 10

A company must produce an internal controls report annually under Section 404 of SOX .

Question 11

What is the punishment for defrauding securities investors?

Section 1.5.3

Answer 11

The punishment can include severe fines and imprisonment of up to 20 years .

Question 12

List the steps in the settlement process.

Section 1.5.3

Answer 12

• trade confirmation,
• matching,
• netting (if applicable), and
• final settlement

Question 13

What extraterritorial reach does the UK Bribery Act provide?

Section 1.5.4

Answer 13

The UK Bribery Act applies extraterritorially, meaning it covers bribery committed anywhere in the world by UK nationals or companies .

Question 14

What are the additional changes made to 5AMLD that have come into force in June 2021?

Section 1.5.4

Answer 14

The changes include extending AML obligations to virtual currency platforms, prepaid cards, and stricter due diligence requirements .

Question 15

What are the four forms of disciplinary action that exchange operators can take against any person registered by the exchange?

Section 1.6.1

Answer 15

1. fines,
2. suspension of registration,
3. expulsion,
4. other penalties (e.g. restrictions on trading activities)

Question 16

What is counterparty risk?

Section 1.7

Answer 16

Counterparty risk refers to the risk that a counterparty in a financial transaction might not fulfill its obligations, particularly in OTC derivative contracts. This risk is managed through central clearing or bilateral clearing arrangements .

Question 17

How do regulators approach Fintech?

Section 1.8

Answer 17

Regulators approach Fintech through regulatory sandboxes, a technology-neutral approach that allows Fintech firms to test new technology under regulatory supervision. This helps assess whether existing regulations are sufficient or new rules are needed .

Question 18

What are 4 possible applications of artificial intelligence (AI)?

Section 1.8.3

Answer 18

• credit scoring,
• fraud prevention,
• automated trading platforms,
• customer interaction via chatbots .

Question 19

List the expectations of regulators in relation to Fintech and corporate governance.

Section 1.8.4

Answer 19

• board-level involvement,
• engagement from risk and compliance functions,
• proper staff training when managing the deployment of new systems.
• address risks associated with AI, big data, and cyber security .