Questions and Answers
What is the main objective of the Basel Consultative Group?
What are the three objectives of securities regulation that the International Organization of Securities Commissions (IOSCO) aims to achieve?
What is the main responsibility of the US Securities and Exchange Commission (SEC)?
What is the primary purpose of diagnostic tools in thematic-based supervision?
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Why do regulators require firms to have adequate capital standards?
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What is the primary objective of regulation?
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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 penalty for breaching the General Data Protection Regulation (GDPR)?
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What is the objective of the Dodd-Frank Act?
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What is counterparty risk?
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How do regulators approach Fintech?
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What is the punishment for defrauding securities investors?
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What is the definition of payment services?
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Study Notes
Objectives of Regulation
- Regulation aims to protect consumers, maintain financial stability, and ensure fair market conduct
Approaches to Regulation
- Rules-based approach: focuses on specific, detailed prescriptions for firms to follow
- Principles-based approach: emphasizes high-level principles and outcomes, allowing firms to adapt and innovate
General Data Protection Regulation (GDPR)
- Penalties for breach: up to €20 million or 4% of global annual turnover
- Data subject rights:
- Right to access
- Right to rectification
- Right to erasure
- Right to restriction of processing
- Right to data portability
- Right to object
Dodd-Frank Act
- Objective: to promote financial stability, prevent systemic risk, and protect consumers
Markets in Financial Instruments Directive (MiFID)
- Investment services subject to passporting:
- Reception and transmission of orders
- Execution of orders
- Dealing on own account
Sarbanes-Oxley (SOX) Act
- Section 404: publicly registered US companies must report on internal controls and procedures
- Internal controls report: required at least annually
- Payment services: include services enabling cash to be placed, transferred, or withdrawn
- Punishment for defrauding securities investors: up to 25 years imprisonment
Settlement Process
- Steps in the settlement process:
- Trade execution
- Trade confirmation
- Clearing and settlement
- Custody and asset servicing
UK Bribery Act
- Extraterritorial reach: applies to bribery committed by UK companies or individuals abroad
5AMLD (5th Anti-Money Laundering Directive)
- Additional changes: implementing stricter regulations on cryptocurrency transactions and prepaid cards
Exchange Operators
- Four forms of disciplinary action:
- Public censure
- Suspension of trading
- Expulsion from membership
- Fines
Counterparty Risk
- Risk that a counterparty will default on their obligations
Fintech and Regulators
- Approach: regulators focus on understanding, regulating, and supporting Fintech innovation
- Possible applications of artificial intelligence (AI):
- Risk assessment
- Fraud detection
- Customer service
- Expectations of regulators in relation to Fintech and corporate governance:
- Strong governance and risk management
- Effective use of AI and data analytics
- Compliance with existing regulations
Insurance Markets and Investment Services
- Types of regulators typically covering insurance markets and investment services at a national level:
- Insurance regulators
- Securities regulators
Basel Consultative Group
- Provides a forum for international cooperation and discussion on banking supervision
International Organization of Securities Commissions (IOSCO)
- Objectives of securities regulation:
- Protect investors
- Ensure fair and efficient markets
- Reduce systemic risk
- Eight Principles Relating to the Regulator:
- Independence
- Accountability
- Transparency
- Cooperation
- Proportionality
- Fairness
- Consistency
- Enforcement
US Securities and Exchange Commission (SEC)
- Main responsibility: to protect investors and maintain fair and efficient markets
Thematic-Based Supervision
- Diagnostic tools used:
- Risk assessments
- Compliance reviews
- On-site inspections
UK-Regulated Activities
- Can be split into four categories:
- Depositing and lending
- Investing and managing
- Insuring and reinsuring
- Paying and settling
Capital Standards
- Regulation requires firms to have adequate capital standards to ensure financial stability and maintain public trust
Home and Host State Regulations
- Home state regulation: regulates firms based on their domicile
- Host state regulation: regulates firms based on their activities in the host state
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Description
Learn about the objectives of financial regulation, including consumer protection and financial stability. Explore the rules-based and principles-based approaches to regulation, and get an overview of the General Data Protection Regulation (GDPR).