Regulation

Question 1

Aspects of investment regulation

Answer 1

• Currency matching
• Types of assets
• mismatching Reserve
• mismatching Limit
• Prescribed assets
• Amount of the different types of assets
• Custodianship of the assets
• max exposure to Single counterparty

Question 2

Aims of regulation

Answer 2

• Correct market inefficiencies
• protect Consumers of financial products
• maintain Confidence in the financial system
• reduce financial Crime

Question 3

Tools for ensuring confidence in the financial markets

Answer 3

• checks on Capital adequacy
• ensuring Integrity and Competence of practitioners (codes of conduct?)
• industry Compensation schemes
• ensuring Orderly and Transparent markets
• stock Exchange requirements

Question 4

Tools for reducing information (and power) asymmetries

Answer 4

-Price controls
-regulation of sales practices including Cooling off periods
-Whistle-blowing by actuaries
(if client not TCFing)
-Education of consumers
-TCF legislation
-Chinese walls
-Disclosure of information in plain

Question 5

6 Principle of TCF

Answer 5

• meeting the Needs of the identified consumers
• clear Information provided to consumer throughout process
• Circumstances of consumer accounted
• Expectations created are met by products and service
• no unreasonable post-sale Barriers to change/cancel policy
• consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate Culture (customer-centric culture)

Question 6

Functions of a regulator

Answer 6

• imposing Sanctions
• Enforcing regulations
• influencing/Reviewing government policy
• Vetting and registering of firms/individuals before they can conduct certain types of business
• Investigating suspected breaches
• checking Capital adequacy of providers
• Educating consumers and the public
• Supervising prudential management of financial organisations

Question 7

Regulatory regimes

Answer 7

• Voluntary codes of conduct
• Unregulated
• Statutory regulation
• Mixed
• Self-regulation

Question 8

Forms of regimes

Answer 8

-Freedom of action
(just disclosure)
-Outcome-based regimes
-Prescriptive regimes

Question 9

Importance of regulation in financial markets

Answer 9

-Confidence needed in the market
(lack of confidence can cripple the market)
-information and power Asymmetries in the markets
(problem because financial products are long term in nature + have significant impact on the economic welfare of individuals)