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ARM 400 > Section VIII: Compliance > Flashcards

Section VIII: Compliance Flashcards

1
Q

What are the two types of Compliance?

A
  • External (rules set by government)
  • Internal (set of internal standards set for itself)
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2
Q

What is the difference between mandatory and voluntary compliance?

A

Mandatory compliance refers to standards the organization has to meet to avoid legal action, voluntary standards are set by their own organization.

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3
Q

What are three compliance drivers?

A
  • Business Risks
  • Higher Standards
  • Stakeholder Expectations
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4
Q

What are the four major responsibilities of the Chief Compliance Officer (COO)?

A
  • Coordinating Compliance Efforts
  • Monitoring Compliance Programs
  • Serving as Liaison on Compliance Issues
  • Promoting Education about Compliance Requirements
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5
Q

What is the Dodd-Frank Act?

A

This act increases the regulation of the financial services industry and imposes strict consumer protection laws.

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6
Q

Define Principles-based Regulation.

A

The approach states the desired outcome and gives the company being regulated the discretion and freedom to meet the outcome in their own way.

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7
Q

What are the advantages of Principles-based Regulation?

A
  • Diverse
  • Encourages Innovation
  • Flexible
  • Outcome Focused
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8
Q

What are the disadvantages of Principles-based Regulation?

A
  • More communication is required
  • Uncertainty due to no set rules or steps to take
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9
Q

Define Rules-based Regulation.

A

Regulators define specific rules that govern the regulated company’s conduct. The company must comply with the exact terms defined by the rules.

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10
Q

What are the advantages of Rules-based Regulation?

A
  • Predictable
  • Set Rules
  • Set Violations
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11
Q

What are the disadvantages of Rules-based Regulation?

A
  • Less Innovation
  • Loopholes
  • More Rules
  • Non-Responsive
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12
Q

What are the four types of Regulatory Compliance?

A
  • Principle based
  • Rules based
  • Evidence based
  • Risk based
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13
Q

When developing a risk-based regulatory framework, what are the six key steps?

A
  1. Identify and evaluate regulatory requirements
  2. Determine and establish risk appetite
  3. Create and define steps to achieve goals
  4. Set performance indicators
  5. Implement the regulatory system
  6. Monitor and revise as needed
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14
Q

What is the Basel I Agreement?

A

Created in 1988, required central banks in major industrialized nations to meet shared capital requirements. The goal was to reduce bank risk and control competition.

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15
Q

What is the Basel II Agreement?

A

Second of the Basel Accords created in 2004. Provides recommendations on banking laws and regulations for international banks and the international banking market. Banks must hold adequate capital reserves based on their current portfolio.

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16
Q

What is Basel III Agreement?

A

Revised standard developed in response to the global financial crisis that began in 2007. Designed to strengthen banking regulation, supervision, and management. Basel III has yet to be implemented.

17
Q

What is Systematic Risk?

A

A risk that affects the entire market and cannot be avoided through diversification.

18
Q

What are the six risk management processes for Basel III?

A
  1. Identify Risks
  2. Measure Exposure
  3. Develop & Implement
  4. Monitor Risk Exposures
  5. Take Action
  6. Report Banks Risk Exposures to Management
19
Q

What are the eleven principles in the risk management standard for Basel III?

A
  • Board of Directors
  • Change Management
  • Control & Mitigation
  • Disclosure
  • Monitoring & Reporting
  • Resilience & Continuity
  • Risk Appetite & Tolerance
  • Risk Culture
  • Risk Management Framework
  • Risk Identification & Assessment
  • Senior Management
20
Q

What is the difference between Solvency I and Solvency II?

A

Solvency I did not touch on risk management but instead focused on establishing realistic standards for minimum capital requirements.

21
Q

What are the three pillars of Solvency II?

A
  • Risk Management Standards
  • Reporting Requirements
  • Qualitative Financial Requirements
22
Q

What does Solvency II regulate?

A

It allows EU regulators to apply requirements to all operations of any insurance company operating in the EU, except in the United States.

23
Q

What are the five things Solvency II requires of insurers?

A
  • Meet the solvency capital requirement
  • Maintain effective internal control, audit, and actuarial systems
  • Perform their own assessment of risk and solvency
  • Use quantitative risk measurements in their decision-making
  • Utilize and implement an effective risk management strategy
24
Q

What are the two fundamental components of a complaince program?

A
  • Compliance Culture
  • Due Diligence
25
Q

What are the nine components the Federal Sentencing Guidelines say an effective compliance and ethics program should contain?

A
  • Communication
  • Delegation
  • Incentives
  • Management Screening
  • Monitoring
  • Oversight
  • Policies
  • Reporting
  • Responsivity

ARM 400 (9 decks)

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