Questions and Answers
What is the primary objective of regulation in the financial system?
What is the main characteristic of principles-based regulation?
What is the primary mission of the Islamic Financial Services Board (IFSB)?
What is the maximum fine for serious infringements of the General Data Protection Regulation (GDPR)?
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Which of the following is NOT a data subject right under the GDPR?
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What is the primary objective of the Dodd-Frank Act?
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What is the main difference between rules-based and principles-based approaches to regulation?
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What is the primary purpose of regulation in the financial system?
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What type of risk can lead to significant financial losses if the counterparty fails to meet their commitments?
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What is the primary goal of regulatory sandboxes in Fintech?
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What is NOT a possible application of artificial intelligence in financial services?
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Which of the following is NOT a regulator's expectation in relation to Fintech and corporate governance?
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What is the primary aim of the Dodd-Frank Act?
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What is the primary focus of the Basel Consultative Group?
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Which of the following is NOT one of the three objectives of securities regulation according to IOSCO?
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Which of the following investment services is NOT subject to passporting under MiFID?
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What is the primary responsibility of the US Securities and Exchange Commission (SEC)?
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What is the primary requirement of Section 404 of the Sarbanes-Oxley Act?
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Which of the following diagnostic tools is NOT used in thematic-based supervision?
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What is the primary purpose of payment services?
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Which of the following is NOT one of IOSCO's eight Principles Relating to the Regulator?
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How often must a company produce an internal controls report under SOX?
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Which type of regulator typically covers insurance markets and investment services at a national level?
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What is the primary aim of the punishment for defrauding securities investors?
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What is the third step in the settlement process?
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What is the extraterritorial reach of the UK Bribery Act?
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What is one of the additional changes made to the 5th Anti-Money Laundering Directive (5AMLD) that came into force in June 2021?
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What is the primary risk associated with counterparty risk?
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What is a key responsibility of Self-Regulatory Organizations (SROs) in a regulatory regime?
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Why is it essential for firms to have adequate capital standards according to regulators?
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What is the primary purpose of host state regulations?
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Which of the following is NOT a category that UK-regulated activities can be split into?
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What is the role of the regulator in overseeing Self-Regulatory Organizations (SROs)?
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What is a key benefit of adequate capital standards in promoting financial stability?
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What is the primary difference between home and host state regulations?
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What is a key power that regulators should have according to best practices?
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Study Notes
Objectives of Regulation
- Protect investors and maintain confidence in the financial system
- Reduce financial crime and ensure that markets are fair, efficient, and transparent
Approaches to Regulation
Rules-Based Approach
- Relies on detailed rules and regulations that prescribe specific behaviors and outcomes that firms must follow
Principles-Based Approach
- Relies on broader principles that set out high-level standards for firms to achieve, allowing them flexibility in how they meet these standards
Islamic Financial Services Board (IFSB)
- Mission: to promote and enhance the soundness and stability of the Islamic financial services industry by issuing global prudential standards and guiding principles
General Data Protection Regulation (GDPR)
- Penalties for breach: up to 4% of annual global turnover or €20 million (whichever is greater) for serious infringements, and up to 2% of annual global turnover or €10 million (whichever is greater) for lesser infringements
Data Subject Rights
- Right to be informed about the collection and use of personal data
- Right of access to personal data and supplementary information
- Right to rectification of inaccurate or incomplete personal data
- Right to erasure (also known as 'the right to be forgotten')
- Right to restrict processing of personal data
- Right to data portability
- Right to object to the processing of personal data in certain circumstances
- Rights in relation to automated decision-making and profiling
Dodd-Frank Act
- Objective: to promote the financial stability of the United States by improving accountability and transparency in the financial system, ending 'too big to fail,' protecting consumers from abusive financial services practices, and ending bailouts
Markets in Financial Instruments Directive (MiFID)
- Investment services that can be subject to passporting:
- Receipt and transmission of orders in relation to one or more financial instruments
- Execution of orders on behalf of clients
- Portfolio management
Sarbanes-Oxley (SOX) Act
- Section 404: requires management to assess and report on the effectiveness of the company's internal control over financial reporting, and requires the company's external auditor to audit and report on management's assessment
- Frequency of internal controls report: annually
Payment Services
- Definition: services that enable cash to be placed on a payment account and all of the operations required for operating a payment account, as well as services that allow cash withdrawals from a payment account and the execution of payment transactions
Settlement Process
- Steps:
- Trade execution
- Clearing, where the details of the trade are confirmed
- Settlement, involving the actual exchange of securities and payment
- Reconciliation to ensure all details match between the trading parties
UK Bribery Act
- Extraterritorial reach: covers bribery offenses committed outside the UK if they involve UK companies or individuals, ensuring broad compliance with anti-bribery standards
5th Anti-Money Laundering Directive (5AMLD)
- Changes made in June 2021:
- Enhanced transparency on the real ownership of companies
- Stricter regulation of virtual currencies
- Broader scope for monitoring financial activities
- Improved cooperation and information sharing among financial intelligence units
Exchange Operators
- Disciplinary actions against registered persons:
- Fines
- Suspension of trading privileges
- Expulsion from the exchange
- Censure or formal reprimands
Counterparty Risk
- Definition: the risk that the other party in a financial transaction may default on their obligations
Fintech
- Regulatory approach: promoting innovation while ensuring consumer protection, financial stability, and market integrity
- Possible applications:
- Fraud detection and prevention
- Risk management
- Customer service through chatbots
- Algorithmic trading
- Credit scoring and underwriting
Corporate Governance
- Regulatory expectations:
- Ensuring robust risk management frameworks
- Maintaining transparency and accountability in operations
- Protecting customer data and privacy
- Implementing effective internal controls and compliance mechanisms
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Description
Learn about the objectives of financial regulation and the differences between rules-based and principles-based approaches. Test your understanding of financial systems and regulatory frameworks.