Sector regulators Flashcards
What are the 3 areas of EU risk-management regulation?
How is EU regulation documented and enforced? (4)
Who is EU regulation binding on?
How is EU regulation enforced in member states?
Where an organisation operates in multiple EU member states, they may have to comply with slightly different regulations, but what arrangements are in place for certain sectors?
A. The stability of the financial services sector
B. Environmental protection
C. Health and safety
Through EU Directives =
1. Drawn up by representatives from member states
2. Supported by the European Commission
3. Debated and voted on by European Parliament
4. Agreed by the Council of Ministers
EU directives are binding to member states to whom they are addressed
Individual member states make the EU directive law in their own jurisdictions (implemented by the government/regulatory agency) = must comply with EU directive as a minimum, but can go beyond (= regulations may differ slightly)
Passporting arrangements (e.g., for financial services) = allow organisations to only comply with the regulations set by their ‘home’ state (where majority of operations and head office are located)
FINANCIAL SERVICES REGULATION
Risk management regulation for financial institutions covers what 3 main areas?
What are the first 2 generally grouped together known as?
What is the third one known as?
- the financial solvency of financial institutions
- financial market stability
- the conduct of financial institutions, their employees and intermediaries
Prudential regulation
Conduct of business regulation
FINANCIAL SERVICES REGULATION
Why is financial services regulation in Europe led by the EU?
What are the 2 areas of regulation covered by financial services sector risk-management regulation?
In some countries, these 2 areas are covered by what?
Does the EU and its institutions normally have authority to direct the RM activities of organisation operating within member states?
Helps maintain the stability of the European and global financial systems, which are highly interconnected
- Prudential regulation = RM regulation that governs the financial soundness of financial institutions to protect customers and maintain financial stability
- Conduct of business regulation = RM regulation that governs the conduct of business in financial institutions, including financial intermediaries which support the sale of financial products
Separate regulators:
* In Eurozone = (1) European Central Bank (2) each member state, subject to any relevant EU directives, is responsible for all other RM regulation
* In UK = (1) RPA (2) FCA
*In Ireland = (1) European Central Bank (2) Central Bank of Ireland
(Other countries = single regulator e.g., Central Bank of the Russian Federation)
No, but the ECB does for systemically important financial institutions operating in the Eurozone
FINANCIAL SERVICES REGULATION
What is the European Central Bank (ECB)?
What is the ECB responsible for?
What are systemically important financial institutions? (3)
Who regulates UK systemically important financial institutions?
The ECB has a central role in the documentation and enforcement of regulations that are not contained within EU directives. What is the benefit of this?
The central bank for all EU member states that have adopted the Euro
Responsible for maintaining financial stability = implementing and enforcing RM regulation (prudential regulation) for all systemically important financial institutions in Eurozone member states
= (1) bank, (2) insurance company, or (3) other financial institution (e.g. investment firms) whose failure may affect stability of financial system and potentially trigger a financial crisis
The UK Prudential Regulatory Authority (PRA) and Financial Conduct Authority (FCA)
Allows financial services regulation to be updated easily to reflect changes in the risk environment and RM practices
FINANCIAL SERVICES REGULATION
What are the 2 reasons why the financial services sector is the sector with the largest amount of risk-management regulation?
The risk management activities of organisations operating within the financial services sector in the British Isles are regulated by which 6 agencies?
Why can’t organisations authorised to operate in the crown dependencies provide financial services to UK or EU residents? (2)
Because of the:
A. effect that financial institutions can have on financial stability
B. high levels of information asymmetry that exist between financial services institutions and their stakeholders, which could lead to misconduct = mis-selling, market manipulation, or financial crime
- Prudential Regulation Authority (PRA)
- Financial Conduct Authority (FCA)
- Financial Ombudsman
- Guernsey Financial Services Commission (GFSC), if operating in Guernsey
- Jersey Financial Services Commission (JFSC) if operating in Jersey
- Isle of Man Financial Services Authority, if operating in the Isle of Man
(1) prevents an organisation from exploiting any regulatory loopholes
(2) ensures that the financial institutions operating in crown dependencies do not directly threaten the welfare of UK and EU consumers
(The level of regulation is generally lower in crown dependencies than in the UK)
FINANCIAL SERVICES REGULATION - PRA
The Prudential Regulatory Authority is part of which bank?
What are the Prudential Regulatory Authority’s 3 statutory objectives?
What is the Prudential Regulatory Authority responsible for? (2)
Name an example for each responsibility.
The Bank of England
- promote the financial safety and soundness of the firms it regulates
- for insurers, securing an appropriate degree of protection for existing and potential future policyholders
- facilitating effective competition
A. Drafting regulatory policy influenced by EU directives and includes rules and guidance contained in the PRA Rulebook
* Example = policy includes risk reporting to stakeholders
B. The supervision of the organisations that it regulates
* Example = the review of RM policies and taking enforcement action (fines) where necessary
FINANCIAL SERVICES REGULATION - FCA
The Financial Conduct Authority is part of which bank?
What are the Financial Conduct Authority’s 3 statutory objectives?
What is the Financial Conduct Authority responsible for? (2)
Name an example for the first responsibility.
Does the FCA only regulate financial institutions?
The Bank of England
- consumer protection
- protecting the integrity of financial markets from misconduct (such as insider trading)
- promoting competition in financial markets to ensure that consumers get a fair deal
(1) Issuing regulatory policy and (2) supervising firms to ensure they comply with this policy
*Example = Roles and responsibilities for RM and the management of financial crime risks (money laundering and terrorist financing)
No, also any organisation involved in some form of financial service e.g. handling client money or providing financial advice = law and accounting firms, estate agencies, and car dealerships
FINANCIAL SERVICES REGULATION - RPA AND FCA
Compare and contrast the objectives of the PRA and FCA.
Objectives are similar, but difference = the PRA is primarily focused on prudential regulation, and the FCA on conduct of business regulation
= PRA is focused on financial stability and the FCA is focused on ensuring that consumers are protected against misconduct
FINANCIAL SERVICES REGULATION - FINANCIAL OMBUDSMAN
What is the Financial Ombusman’s role?
Does the Financial Ombusman regulate the risk-management activities of financial organisations?
Helps resolve disputes between financial organisations and their customers = where it’s decided a customer has been treated unfairly, has legal powers to put the situation right
Not directly, but does issue judgments that can affect organisations RM activities e.g., the judjements that the Financial Ombudsman has made in realtion the miss-selling of PPI
HEALTH AND SAFETY REGULATION
Why does health and safety regulation exist? (2)
Why are market-based incentives for health-and-safety risk-management often thought to be insufficient? (2)
Who are the 3 key stakeholder groups that are protected by health and safety law?
What is a hazard?
- To protect stakeholders from death, injury, and ill health (physical or mental health)
- Market-based incentives (e.g., wages or prices) for appropriate levels of H&S and RM are generally thought to be insufficient
Because of asymmetric information and public-good problems:
- Asymmetric information = stakeholders are unable to asses the level of H&S risk they are exposed to = may be exposed to excessive risk because cannot properly price cost of risk into relationship with firm (their salary or the price they pay for a product or service)
- Public good problems = arise where costs associated with exposure to H&S risks are not fully internalised by the organisation = 3rd parties (local residents) may be exposed to H&S risks as a result of pollution but have no market mechanism available to help them obtain compensation for such risks
(1) employees (primarily), (2) customers, (3) 3rd parties e.g., contractors, neighbours, anyone affected by activities e.g. noise/pollution
= Anything that may cause physical or mental harm to an organisation’s stakeholders
HEALTH AND SAFETY REGULATION
What are the 4 risk-management activities that health-and-safety regulations generally cover?
Most countries manage their health-and-safety regulations via government-appointed agencies who have the power (from law) to do what 3 things?
- The identification and assessment of H&S hazards = who might be affected and how
- Taking appropriate measures to control H&S hazards to protect stakeholders from harm
- Recording H&S incidents and reporting major incidents to regulatory agency
- Implementing appropriate policies and procedures for the above
A. implement new rules and guidance on H&S management processes or the control of specific hazards
B. supervise the H&S management activities of organisations
C. take enforcement action to address any non-compliance
HEALTH AND SAFETY REGULATION
Who is the Health and Safety agency in the UK?
What 3 powers does the Agency have?
What else does the agency do? (2)
Name 5 examples of each.
The premises of many organisations are subject to what?
UK Health and Safety Executive (HSE) = independent regulator that draws powers from the Health and Safety at Work Act 1974
The 1974 Act gives the HSE powers to:
1. Create regulations
2. Inspect health and safety practices in organisations
3. Take enforcement action, (e.g. issuing fines)
Issue a wide range of guidance documents to help organisations improve its H&S management practices = (1) guidance topics and (2) industry specific guidance
Guidance topics = workplace stress, completing risk assessments, dealing with asbestos, working at height, preventing slips, trips, and falls
Industry specific = quarries, food, driving, tree work, the production and use of chemicals and explosives
Periodic inspections by trained HSE inspectors (usually risk-based = riskier organisations (risky sector or reports lots of risk) inspected more frequently
HEALTH AND SAFETY REGULATION
Under the Health and Safety at Work Act 1974, what is the main health and safety expectation on employers?
Under the Health and Safety at Work Act 1974, what are the health and safety expectations on employees? (2)
Who else does the Act cover?
Apart from the Health and Safety at Work Act 1974, the UK Health and Safety Executive is responsible for enforcing what 3 other pieces of UK legislation?
Employers = must ensure that employees are protected from hazards that may endanger their H&S ‘as far as reasonably practical’
Employees = must (1) co-operate with the health and safety activities of their employers and (2) act responsibly to not endanger themselves or others
Covers non-employees who may be at a place of work, including contractors, suppliers, customers and third parties
- Control of Substances Hazardous to Health Regulations 2002 = applies to substances that are especially hazardous (acids, fumes)
- Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 2013 = all organisations in the UK must report significant injuries/diseases/dangerous occurrences to UK Health and Safety Executive (e.g., death on premises, collapse of building, fires, actions that require someone to be taken immediately to hospital or where they cannot work for more than 7 days)
- Employers Liability (Compulsory Insurance) Act 1969 = most organisations must maintain employers’ liability insurance = helps employer pay compensation if employee is ill/injured due to work they do and make a successful liability claim
HEALTH AND SAFETY REGULATION
What are the 3 Health and Safety agencies for the crown dependencies?
What is the Health and Safety agency in Ireland?
How is this agency different from UK and crown dependency agencies?
What is one of its main roles?
- Guernsey Health and Safety Executive
- Jersey Health and Safety Inspectorate
- The Health and Safety at Work Inspectorate for the Isle of Man
Irish Health and Safety Authority
Has a wider focus than other H&S authorities = focus on environment and product safety as well as workplace safety = one of its main roles is to protect human health and the environment
HEALTH AND SAFETY REGULATION - GUERNSEY
As part of the Guernsey Health and Safety Executive’s role in regulating health and safety in Guernsey, what 5 things does it do?
How does the Guernsey Health and Safety Executive operate?
What else must an organisation in Guernsey do?
- provides advice;
- inspects workplace premises;
- investigates major accidents;
- ensures compliance with the relevant Guernsey law via enforcement notices and prosecutions; and
- licenses the use of hazardous materials
Similar to UK HSE = issues rules on H&S in organisations = duties of employers and employees
Purchase employers’ liability insurance
