Chapter 2: Financial Regulation Flashcards
(117 cards)
1
Q
Was designed to set rules and guidelines to be followed to ensure balance among individuals, firms and/or citizens.
A
Regulation
2
Q
Designed to reconcile conflicting interests
A
Regulation
3
Q
A process whereby the designated government authority provides oversight and establishes rules for firms in an industry. Normally, a regulatory agency is identified by law or by order to execute the regulatory framework and serves as oversight of a certain industry or particular firm. Its presence sets the boundaries to manage or control the behavior of the individuals, firms and/or citizens.
A
Regulation
4
Q
Rules and standards are set to oversee the ability of the companies to establish and maintain appropriate levels of capital to sustain its operation. It also includes setting controls over the market factors that will affect the financial sustainability of the firms and players in the industry.
A
Regulation
5
Q
World Bank’ sets regulatory measures to address certain risks and social factors. These are systemic risk, consumer protection, efficiency enhancement, and social objectives.
True or False?
A
True
6
Q
Is the probability of a firm to fail its objective that may result in a ripple effect to the economy
A
Systematic Risk
7
Q
Market Drivers Regulated (1)
A
- Competitiveness
> Governments are duty bound to regulate competition in the financial sector.
> The following activities are regulated in the financial sector: access to capital, credit and loan term offerings, support to providers of financing, management of business risks, transaction costs and tariffs.
> The main determinant of competition are the forces that drive the market i.e. buyers and sellers.
8
Q
Market Drivers Regulated (2)
A
- Market Behavior
(1) integrity in their activities
(2) integrity in representation.
> Regulation will come into play by setting parameters to ensure that firms will comply with certain standards to ensure integrity of the firms and level the playing field.
The government normally sets:
- full disclosure of information
- prohibition on insider trading
- control of new players
- setting minimum capital requirement
- minimum governance rules.
9
Q
Market Drivers Regulated (3)
A
- Consistency
> considered as an important principle in the business.
> Consistency in the market is normally demonstrated by firms through their information disclosure and policies.
> Government role is to set standards to regulate and ensure that information provided in the market is fair, consistent, and conservative.
10
Q
Whereby the government imposes rules to govern the behavior of the financial institutions and financial markets intends to minimize the risk of uncertainty and strengthen the integrity of the firms.
A
Principle of prudential regulation
11
Q
Market Drivers Regulated (4)
A
- Stability
> critical factor that firms should achieve in the long run.
> The regulation must be able to protect the interest of the clients. as well as the companies to enable their corporate sustainability.
12
Q
Is a threat that arises where a segment or firm is not able to meet its commitment because of failure to address the risks of the market.
A
Systemic instability
13
Q
Activities that deal with funding certain transactions or expenditures.
> focused on the trading of securities and financial instruments.
A
Regulators of Financial Activities
14
Q
Setting rules to set standards, control and order on the financial activities, regardless of the source.
A
Financial Activity Regulation
15
Q
Created under the New Central Bank Act or Republic Act 7653 and an attached agency of the Department of Finance.
A
Bangko Sentral ng Pilipinas (BSP)
16
Q
Act as the central monetary authority which will act as a corporate body that is responsible concerning money, banking and credit.
A
Bangko Sentral ng Pilipinas (BSP)
17
Q
BSP shall provide policy directions in these areas. It is also responsible for the supervision of financial institutions and exercise regulatory powers.
True or False?
A
True
18
Q
The function of BSP
Formulates and issues monetary policy aimed at influencing money supply in order to maintain price stability.
A
(a) Liquidity Management
19
Q
Sole responsibility to issue notes and coins representing the national currency for the Philippines. All issuances made by the BSP are with sovereign guarantee and shall be considered legal tender in exchange for private and public debts.
A
(b) Currency Issue
20
Q
BSP acts as the provider of discounts, advances and financial support to financial institutions for them to maintain their liquidity.
A
(c) Lender of last resort
21
Q
BSP regularly supervises the financial institutions and is empowered to exercise regulatory powers over non-bank institutions conducting quasi-banking functions.
A
(d) Financial supervision
22
Q
Manages the financial foreign currency requirement of the Republic by ensuring sufficient international reserves will be made available on time. This is to preserve the international stability and position of the Philippine Peso.
A
(e) Management of foreign currency reserves
23
Q
Composed of seven members.
A
Monetary Board
24
Q
The board is chaired by the?
A
Governor of the BSP
25
And composed of six other members coming from:
1 member - member of the cabinet designated by the President of the republic (that cabinet member can designate an undersecretary of his department to attend on his behalf)
• 5 members shall be coming from the private sector (3 members shall serve for a term of six months while 2 will serve for three months).
• All members can only be re- appointed once.
26
The Governor acts as the Chief Executive Officer of the BSP.
True or False?
True
27
In order to carry its functions, it is supported by four sectors/functions.
Is responsible mainly for the supervision and regulation of banks and other financial institutions under the scope of the BSP.
(1) Financial Supervision Sector
28
Amis to conduct the formulation of monetary policy, ensure its implementation and assess its effectiveness.
(2) Monetary and Economics Sector
29
Will be responsible in the production, distribution, disposal or retirement of currencies in the Philippines including security documents, commemorative medals and medallions.
(3) Currency Management Sector
30
Which is the support group of the BSP that conducts the human capital management, financial services, information technology support and other corporate resource management. More specific information is available on the Organization Primer of the BSP.
(4) Corporate Services Group
31
The Monetary Board of the BSP is also mandated under the Truth in Lending Act to impose the rules and regulation to carry the provisions of the act.
True or False?
True
32
The information needed to be disclosed by the creditor are lifted from the law as follows:
1. the cash price or delivered price of the property or service to be acquired;
2. the amounts, if any, to be credited as down payment and/or trade-in;
3. the difference between the amounts set forth under clauses (1) and (2);
4. the charges, individually itemized, which are paid or to be paid by such person in connection with the transaction, but which are not incident to the extension of credit;
5. the total amount to be financed;
6. the finance charge expressed in terms of pesos and centavos; and
7. the percentage that the finance bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation.
33
Any entity or person who in connection with any credit transaction fails to disclose the required information or violates the Truth in Lending Act shall be penalized:
• at least Php100
• or in an amount equal to the 2x of the finance charge that creditor imposes.
34
If the creditor also willfully violate, they may be fined by:
• not less than Php1,000 to Php5,000
• or imprisonment for not less than 6 months.
35
If the creditor is a government agency or any political subdivision or the Philippine Government itself may not be imposed by these penalties and charges.
True or False?
True
36
Four types of deposit accounts
(liabilities in their point of view)
Deposits that can be withdrawn upon demand through checks and offer very minimal interest since this can be withdrawn easily.
Demand deposits or checking accounts.
37
Deposits that earn interest at a level below market interest rates, can be withdrawn upon demand and do not have a specific maturity.
Savings deposits.
38
Deposits that are placed on money markets that have slightly higher interest rates (money market rates) compared to savings deposits but can be withdrawn only after a short period of time
Money market demand account
39
Deposits that have a fixed maturity date and depositors may earn interest at a fixed or floating interest rate.
Time deposits (or certificates of deposits)
40
Include borrowing through issuing financial instruments in the money and/or bond market and borrowing reserves from the BSP.
Non-depository sources
41
Is a standing credit facility offered by the BSP to aid banks to meet temporary liquidity needs through refinancing the loans that banks extend to their clients.
Rediscounting
42
For banks participating in the clearing operations of the Philippine Clearing House Corporation, BSP offers an overdraft credit line (OCL) facility to cover for any shortfall demand deposit accounts of the banks with the BSP resulting from clearing operations.
True or False?
True
43
Deficit in a deposit account resulting from withdrawing more money than what is deposited in the account.
Overdraft
44
For solvent banks experiencing liquidity problems resulting from causes beyond their control, BSP offers fully secured emergency loans to serve as financial assistance to help in resolving liquidity woes.
True or False?
True
45
Serve as insurer of deposits placed in banks. PDIC plays a significant role since this entity protects depositors through deposit insurance coverage which help maintain financial stability in the market.
Philippine Deposit Insurance Corporation (PDIC)
46
PDIC has three main mandates as aligned to public policy:
a. Provision of deposit insurance.
> Maximum amount of Php500,000 (Amended as 1,000,000 this 2025)
> Annual assessment of 1/5 of 1% of total deposit liabilities of its member banks.
47
b. Examination and resolution.
PDIC issues regulations to implement its role as deposit insurer, examine financial soundness of banks and ensure their compliance to deposit insurance regulations and give financial assistance for distressed banks. PDIC works with BSP to keep the Philippine banking system stable.
48
c. Receivership and liquidation.
PDIC is the assigned legal receiver and liquidator of banks that have closed already upon order of the Monetary Board of BSP.
PDIC managing the records, assets and affairs of closed banks in behalf the bank's creditors (i.e. depositors).
PDIC ensures that there is seamless transition between closure to liquidation in order to efficiently dispose assets of the closed banks and use the proceeds to settle the claims of creditors.
49
To regulate and supervise the insurance, pre-need, and health maintenance organization industry.
Insurance Commission (IC)
50
It is governed by the Department of Finance that supervises and regulates the operations of life and non-life companies, mutual benefit associations, and trusts for charitable uses.
Insurance Commission (IC)
51
IC issues licenses to insurance agents, general agents, resident agents, underwriters, brokers, adjusters and actuaries. It has also the authority to suspend or revoke such licenses.
True or False?
True
52
The functions of IC are as follows:
1.Promulgation and implementation of policies, rules and regulations governing the operations of entities engaged in insurance, pre- need, and HMO activities as well as benevolent features.
True or False?
True
53
The functions of IC are as follows:
2. Licensing of insurance, reinsurance companies, its intermediaries, mutual benefit associations, trusts for charitable uses, pre-need companies, pre-need intermediaries, and HMO companies
True or False?
True
54
The functions of IC are as follows:
3. Conducting insurance agent's examinations, as well as processing of reinsurance treaties and request for investments of insurance companies
True or False?
True
55
The functions of IC are as follows:
4. Examination/verification of the financial condition and methods of doing business of entities engaged in insurance business, pre- need, mutual benefit associations, trusts for charitable uses, and HMO companies
True or False?
True
56
The functions of IC are as follows:
5. Evaluation and preparation of statistical reports, studies, researches, annual reports, and position papers relative to insurance, pre-need matters, and HMO matters
True or False?
True
57
The functions of IC are as follows:
6. Review of premium rates imposed by life and non-life companies, mutual benefit associations; statistical reports of adjusters to determine compliance with established standards.
True or False?
True
58
The functions of IC are as follows:
7. Adjudication of claims and complaints involving loss, damage or liability incurred by an insurer under any kind of policy or contract of insurance or suretyship:
True or False?
True
59
The functions of IC are as follows:
8. Review and approval of all life and non-life policies, pre-need, and HMO plans before sale to prospective clients.
True or False?
True
60
National government regulatory agency to administer oversight on the corporate sector, capital market participants and securities and investment instruments and promote corporate governance over these.
Philippine Securities and Exchange Commission (SEC)
61
62
The responsibility and scope of the SEC to include the following:
63
1. Have jurisdiction and supervision over all corporations, partnerships or associations who are the grantees of primary franchises and/or a license or permit issued by the Government;
64
2. Formulate policies and recommendations on issues concerning the securities market, advise Congress and other government agencies on all aspects of the securities market and propose legislation and amendments thereto;
65
3. Approve, reject, suspend, revoke or require amendments to registration statements, and registration and licensing applications;
66
4. Regulate, investigate or supervise the activities of persons to ensure compliance;
67
5. Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies and other self-regulated organizations;
68
6. Impose sanctions for the violation of laws and the rules, regulations and orders issued pursuant thereto;
69
7. Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance on and supervise compliance with such rules, regulations and orders;
70
8. Enlist the aid and support of and/or deputize any and all enforcement agencies of the Government, civil or military as well as any private institution, corporation, firm, association or person in the implementation of its powers and functions under this Code;
71
9. Issue cease and desist orders to prevent fraud or injury to the investing public;
72
10. Punish for contempt of the SEC, both direct and indirect, in accordance with the pertinent provisions of and penalties. prescribed by the Rules of Court;
73
11. Compel the officers of any registered corporation or association to call meetings of stockholders or members thereof under its supervision;
74
12. Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission and in appropriate cases, order the examination, search and seizure of all documents, papers, files and records, tax returns, and books of accounts of any entity or person under investigation as may be necessary for the proper disposition of the cases before it, subject to the provisions of existing laws;
75
13. Suspend, or revoke, after proper notice and hearing the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law
76
14. Exercise such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, the express powers granted the SEC to achieve the objectives and purposes of these laws.
77
Lead agency to promote investment in the country and thereby generate local and foreign investment in the country. It is an attached agency of the Department of Trade and Industry. The agency provides advisory, actualization and post services to the investors.
Board of Investments (BOI)
78
BOI provides the following services to encourage new investments:
Provide information for knowledge-based research.
Incentivize the investors through the provision of tax holidays, tax and duty exemption of imported capital equipment etc.
Participate through policy advocacy initiatives to ensure that the laws and regulation are investment friendly.
79
The availability of financial resources for deployment in the financial system. It is making the money available for use or for trade or investment.
This balance is managed by the central bank (BSP)
Money supply
80
Money will take the form of the following:
Cash (coins and bills)
Demand deposits
Other Financial Instruments
81
Monetary Policies includes:
• Alignment to the target goals.
• Access to information
• Responsiveness of the variable set
82
Bangko Sentral ng Pilipinas is authorized to have the sole power to issue currency, within the territory of the Philippines.
True or False?
True
83
Consolidated rules and regulations on currency notes and coins issued in the Philippines, for the banks, including their branches, if applicable, must observe the following for the deposit of their notes:
84
Banks shall classify their cash deposits and sort by series and by denomination. They should classify it according to: (1) clean or fit notes; and (2) dirty or unfit notes.
85
Banks shall provide securely sealed bags or containers separately for the clear or fit notes, and for the dirty or unfit notes accompanied by a deposit slip for each type/category. It must be labeled "UNFIT.
86
Handling of deposits, banks' deposits shall be packed in sealed bags or containers in standard quantity of twenty (20) full bundles per denomination. Each bundle contains 1,000 notes in 10 equal straps. Each strap contains 100 notes.
87
Banks located in the provinces may make direct deposits of currency notes, duly identified and sorted, with the nearest BSP regional office/branch. For those without regional offices available, they may arrange it with their respective head offices to be shipped to BSP in Quezon City. The cost shall be borne by the bank concerned.
88
Banks shall incorporate measures on the implementation thereof in their compliance program.
89
For the deposit of their coins, the following are observed:
90
Coins shall be free from adhesive tapes.
91
Coins shall be sorted into fit, unfit or mutilated per denomination and per series.
92
Each bag of coins shall contain the following standard number of pieces and amount per denomination:
93
As described by the BSP in its circulars, a currency note shall be considered unfit for circulation when:
> It contains heavy crinkles which break the fiber of the paper and indicate that disintegration of the note has begun; or
> It is badly soiled/contaminated and/or with writings even if it has proper life or sizing; or
> It presents a limp or rag-like appearance and/or it cannot sustain its upright position when held at the mid-portion of one of the shorter borders.
94
A currency coin shall be considered unfit for circulation when:
> It is bent or twisted out of shape or defaced or show signs of corrosion, but its genuineness and/or denomination can still be readily and clearly determined/identified, or
> It has been considerably reduced in weight by natural abrasions/wear and tear.
95
Unfit currencies are no longer allowed to be used for circulation but may be presented for exchange to or deposited with any bank.
True or False?
True
96
BSP may not accept these currencies if:
> The notes and coins can no longer be identified; or
> The coins have indications of filing, clipping or perforation; or
> Notes which have lost more than 2/5 of their surface or all of the signatures inscribed thereon; or
> Notes which are split edgewise resulting in the loss of the whole of or part of, either the face or back portion of the banknote paper; or
> Notes where the Embedded Security Thread or Windowed Security Thread placed thereon is completely lost except when the damage appears to be caused by wear and tear, accidental burning, action of water or chemical or bites of insects etc.
97
The purchasing power is practically based on the?
Consumer price index
98
In economics, this is the weighted average value of the basket of prices of all commodities representing the market.
Consumer price index
99
The commodity groups in the consumer price index are:
Food and non-alcoholic beverages; alcoholic beverages and tobacco; clothing and footwear; housing, utilities and other fuels; furnishings and maintenance costs; health; transport, communication; recreation and culture; education; restaurant and miscellaneous.
100
The degree of movement of the CPI from a period to another is called?
Inflation Rate
101
Two types of inflation
Used for most of the economic estimates since it excludes in the equation the movement of the commodities or incidents with very volatile movement or outliers.
Core inflation
102
Captures the changes of the cost of living based on the movement of the basket of commodities as a whole.
Headline inflation.
103
A set of interrelated processes of settlement of goods or services rendered in exchange for a set of instruments that will undergo either banking or non-banking procedures.
Payment System
104
Characteristics for an Effective Payment System
105
a. Standard methods of transmitting payment messages within the system
> arm's length exchange of transaction whereby the seller or the obligor deliver the goods or render service while the other party will deliver in the instance. However, this became a challenge. especially for those located in a remote location or far from each other.
> Nowadays, this is no longer a challenge. Banking system. already provides different ways to settle obligations or make payments. With the electronic banking or e-banking system, it enables the settlement to be made through fund transfer, online payment or special requests from the bank made virtually.
106
b. Agreed Means of Settlement
Given that the exchange is a contract between the parties, it is essential that they also agree on the manner on how the payment is to be rendered.
In accounts payable processing or AP processing, all transactions for purposes of controls are charged to accounts payable account. Now, the settlement of these transactions varies depending on the manner on how it is agreed for settlement.
The normal means of settlement are as follows:
• Cash or cheque Payment
• Online payment (if the supplier of goods or service is an accredited merchant of a bank)
• Automated Teller Machine.
• Fund transfer
• Credit Cards
• Debt Cards and Stored Value Cards
• Electronic Money
• Manual Money transfer
• Paybox System
• Cash deposit
• Assignment
107
108
c. Common Operating Procedures and Rules
In an online banking system, these agreements are provided as a template to all clients or users of the system. This provides a formal authority to the facility to use information and the users agree to subscribe to the banking policies.
109
Importance of Payment System
Payment system is an essential facility to enable the complete course of the transaction. Based on the characteristics and features of payment system
110
BSP identified the following importance of the system, among others:
• Safe and real time transactions:
• Effective risk management; and
• Facilitates financial market transactions.
111
Safe and Real Time Transactions
The payment systems are designed to safeguard the identity and transaction as a whole especially on electronic payment system facilities.
For e-banking payment system facilities, it is debited to the account of the payor real-time
The Philippine Bureau of Internal Revenue adopts the use of the Electronic Filing and Payment System. This allows individual and corporate taxpayers to file and pay their tax due. This payment system is a hybrid that is primarily designed to encourage compliance in tax filing and facilitates the payment to provide convenience to the taxpayers.
112
Risks of Payment Systems
Ability of the payor to meet the full value of its obligation due to unforeseen charges
Credit Risk
113
Timing difference on posting may affect the visibility of the user or a party to determine that full amount due and end up its ability to calculate currently maturing obligation
Liquidity Risk
114
Risk that payment will not be made on time
Default Risk
115
System downtime and system "bugs" may occur
Technological Risk
116
Changes in rules and regulations affecting the payment system
Legal Risk
117
Facilitates Financial Market Transactions
Certain platforms are integrated with online brokerage companies to
(1) facilitate opening an account
(2) facilitate purchase or sale of the transactions
(3) reduce human intervention to provide an objective approach to manage financial market transactions.
