International Regulatory Framework - 2

Question 1

What does the Basel Consultative Group provide?

Section 2.2.1

Answer 1

• a forum for enhanced engagement with global supervisors.
• Focuses on deepening dialogue on banking supervisory issues
• Facilitates early-stage discussions on new BCBS (Basel Committee on Banking Supervision) initiatives

Question 2

What are the three objectives of securities regulation that the International Organization of Securities Commissions (IOSCO) aims to achieve?

Section 2.2.3

Answer 2

1. protecting investors
2. ensuring fair, efficient, and transparent markets
3. reducing systemic risk .

Question 3

Describe the main** responsibility **of the US Securities and Exchange Commission (SEC).

Section 2.2.5

Answer 3

• Enforcing federal securities laws.
• Proposing securities rules.
• Regulating the securities industry.

Question 4

Describe the ** mission ** of the US Securities and Exchange Commission (SEC).

Section 2.2.5

Answer 4

• protect investors (all investors should have access to certain basic facts about an investment
  before buying it, and as long as they hold it.);
• maintain fair, orderly, and efficient markets;
• to facilitate capital formation

Question 5

What are some of the key standards produced by the Basel Committee on Banking Supervision (BCBS) ? (3 points)

Answer 5

• International Standards on Capital Adequacy
• Core Principles for Effective Banking Supervision
• Concordat on cross-border banking supervision.

Question 5

What are the three European Supervisory Authorities (ESAs) responsible for overseeing financial services across Europe?

Section 2.2.4

Answer 5

1. European Banking Authority (EBA),
2. European Securities and Markets Authority (ESMA),
3. European Insurance and Occupational Pensions Authority (EIOPA).

Question 6

Explain the role of the European Systemic Risk Board (ESRB) within the European System of Financial Supervision (ESFS).

Section 2.2.4

Answer 6

• oversees macro-prudential oversight of the financial system within the EU
• works to prevent and mitigate systemic risks to financial stability.
• It operates under the responsibility of the European Central Bank.

Question 7

Describe how the European Supervisory Authorities (ESAs) collaborate with national supervisory authorities to enhance financial regulation within the EU.

Section 2.2.4

Answer 7

The ESAs work with national supervisory authorities to improve coordination and raise supervision standards across the EU.

They collaborate with the European Systemic Risk Board (ESRB) to ensure financial stability and enhance the EU’s supervisory framework.

Question 8

How do the ESAs contribute to the development of a single EU rulebook?

Section 2.2.4

Answer 8

The ESAs develop draft technical standards which are adopted by the European Commission as EU law.

They also issue guidance and recommendations that national supervisors and firms must make every effort to comply with.

Question 9

What powers do the ESAs have when a national supervisory authority fails to comply with EU law?

Section 2.2.4

Answer 9

The ESAs have the power to investigate if they believe a national supervisory authority is failing to apply EU law or is breaching it.

If the issue is not resolved, they can issue a recommendation followed by a formal opinion from the European Commission.

If the national supervisor still does not comply, the ESAs can take binding decisions on firms or market participants to ensure compliance with EU law.

Question 10

Describe the ESAs’ role in crisis coordination and their authority during emergencies

Section 2.2.4

Answer 10

If an emergency is declared, they can make binding decisions on national supervisors and firms, subject to certain conditions, to ensure compliance with EU law.

They also have the authority to temporarily ban certain financial activities in specific circumstances.

Question 11

What important functions are performed by professional bodies within financial services markets? (4 things)

Section 2.2.6

Answer 11

1. Uphold the standards of conduct of their members.
2. Deliver training and other support mechanisms.
3. Provide a forum for industry developments.
4. Provide a public face for agreed industry positions to be publicised.

Question 12

What are the key methods used by regulators to implement their objectives? (4 points)

Section 2.3

Answer 12

1. Setting prudential requirements,
2. Establishing business conduct rules,
3. Providing product regulations,
4. Setting requirements for investigation, supervision, and enforcement.

Question 13

How do regulators ensure compliance with the requirements imposed on authorized firms? (3 points)

Section 2.3

Answer 13

Regulators supervise compliance through
* regular reporting,
* risk assessments by firms, and
* adopting a risk-based approach to focus on risks that pose a threat to their objectives.

Question 14

What is a risk-based approach in regulation, and why do regulators use it?

Section 2.3

Answer 14

A risk-based approach allocates regulatory resources to focus on areas or firms that pose the greatest risk to regulatory objectives.

It helps regulators prioritize supervision efforts based on risk exposure.

Question 15

What are diagnostic tools used in thematic-based supervision?

Section 2.3.4

Answer 15

Diagnostic tools are designed to identify, assess, and measure risk within the thematic-based supervision approach.

They allow regulators to focus their resources efficiently and are complemented by monitoring, preventative, and remedial tools.

Question 16

State IOSCO’s eight Principles Relating to the Regulator

Section 2.4

Answer 16

1. The responsibilities of the regulator should be clear and objectively stated.
2. The regulator should be operationally independent and accountable in exercising its functions and powers.
3. The regulator should have adequate powers, proper resources, and the capacity to perform its functions.
4. The regulator should adopt clear and consistent regulatory processes.
5. The staff of the regulator should observe the highest professional standards, including confidentiality.
6. The regulator should monitor, mitigate, and manage systemic risk.
7. The regulator should review the perimeter of regulation regularly.
8. The regulator should manage conflicts of interest and misalignment of incentives.

Question 17

What four categories can UK-regulated activities be split into

Section 2.6

Answer 17

1. Banking activities
2. Investment activities
3. Insurance activities
4. Home finance activities

Question 18

Why does regulation require that firms have adequate capital standards?

Section 2.7.2

Answer 18

Adequate capital standards are required to ensure that firms can
* absorb losses,
* remain solvent, and
* protect consumers from the risk of a firm’s failure.

This is particularly important for maintaining confidence in the financial system and ensuring market stability.

Question 19

Explain the difference between home and host state regulations.

Section 2.8.1

Answer 19

Home state regulations apply to firms in the jurisdiction where they are primarily based and licensed.

Host state regulations apply to firms operating across borders, ensuring they comply with local laws when providing services in a different country within the EU framework.

Question 20

What is the primary role of the Bank for International Settlements (BIS) in the global financial system, and who are its main customers?

Section 2.2.1

Answer 20

• The BIS serves as a central bank for central banks, fostering international monetary and financial cooperation.
• Its main customers are central banks and international organisations.
• The BIS does not accept deposits from, or provide financial services to, private individuals or corporate entities.

Question 21

How does the Basel Committee on Banking Supervision (BCBS) contribute to global banking regulation?

Section 2.2.1

Answer 21

The BCBS provides a forum for international cooperation on banking regulation, improving financial stability by enhancing the quality of banking supervision.

Question 22

Explain the role of the International Banking Federation (IBFed) in facilitating the implementation of BIS guidelines across different countries.

Section 2.2.1

Answer 22

• Collaborates with banking associations from major countries (e.g., Australia, Canada, China, Europe, US).
• Addresses legislative and regulatory issues in the global banking sector.

Question 23

What is the significance of the Basel Accords?

Section 2.2.1

Answer 23

he Basel Accords, produced by the BCBS, provide recommendations on banking laws and regulations, focusing on defining global standards for capital adequacy and liquidity.

Question 24

How do the Basel Accords enhance the stability of the global banking sector?

Section 2.2.1

Answer 24

The Basel Accords help banks withstand periods of financial stress, thereby improving the overall resilience of the financial system.

The accords also promote better risk management, governance, and transparency within the banking sector.

Question 25

How do the working groups within the BCBS, such as the Basel Consultative Group, contribute to the development of banking supervisory standards?

Answer 25

Provide forums for engaging with global banking supervisors and non-member countries on supervisory issues.

These groups facilitate dialogue and gather input early in the process, ensuring that the BCBS’s initiatives are inclusive and well-informed.

Question 26

A multinational bank operating across several countries is struggling to meet the **capital adequacy requirements **recommended by the Basel Accords, particularly in a country within a political union where local laws differ from BIS guidelines.

The bank’s national regulator is part of the Basel Committee on Banking Supervision (BCBS) and has raised concerns about the bank’s risk management and liquidity.

How might the International Banking Federation (IBFed) assist the bank in aligning with the BIS guidelines, and what challenges could arise due to the differing regulations in the political union?

Scenario-based question

Answer 26

• IBFed would assist by coordinating with national banking associations to help the bank implement BIS guidelines.
• It can facilitate communication between the bank and regulators to resolve compliance issues.
• The key challenge is aligning BIS guidelines with the political union’s local laws, which may differ.
• The bank may need to adjust its compliance strategies to satisfy both BIS standards and local regulations.