Topic 11 International regulation Flashcards
- Explain the minimum capital adequacy requirements for a bank.
The minimum capital adequacy requirements are specified in terms of a bank’s solvency ratio.
A bank is required to keep a solvency ratio of at least 7 %.
Its own funds must amount to at least 7% of its risk-weighted assets. ‘Own funds’ means the bank’s paid-up share capital, plus any retained profits.
- Under the Capital Requirements Directive (CRD), what is the capital requirement for an adviser who gives investment advice but does not hold client money?
Advisers who give investment advice are subject to a capital requirement of €125,000, with a reduction to €50,000 if they do not hold client money or assets.
- Which of the following two statements is true?
a) The solvency capital requirement (SCR) is the risk based capital required to ensure that there is a probability of at least 95.5 per cent that the firm will be able to meet its obligations over the next 12 months.
Statement a is false. The Solvency Capital Requirement (SCR) is the risk-based capital required to ensure that there is a probability of at least 99.5 per cent that the firm will be able to meet its obligations over the next 12 months.
3b) The minimum capital requirement (MCR) is set at a probability of 85 per cent that the firm will be able to meet its obligations over the next 12 months.
Statement 2 is true. The Minimum Capital Requirement (MCR) is set at a probability of 85 per cent that the firm will be able to meet its obligations over the next 12 months.
- What is the purpose of the Markets in Financial Instruments Directive (MiFID)?
The purpose of MiFID is to ensure that:
a firm that is subject to MiFID has the right to operate throughout the European Economic Area through a ‘single passport’ based on single authorisation in its home state;
there is a high and consistent level of home state regulatory control.
- MiFID applies to insurance companies. True or false?
False – MiFID does not apply to insurance companies.
