Regulation Flashcards
(15 cards)
Aim of regulation
CRIP
C: confidence in system
R: reduce financial crime
I: intervene with inefficiencies
P: protect consumers
**professionalism and professional bodies
Cost of regulation
Direct
*administration
>collection, examination, monitoring
*compliance
>maintaining appropriate records
>collating information
Indirect
>reduce competition
>reduce product innovation
>reduce consumer protection mechanisms produced by market itself
>undermining sense of professionalism from intermediaries and advisors
>change in consumer behaviour
*false sense of security
*irresponsible actions
Need of regulation
Confidence
Asymmetric information
Need for regulation
Confidence
*increase confidence in system
* prevent systemic issues
Assymetry of information
*puts those with less information at a disadvantage
Forms and regulation
- Prescriptive
*detailed rules setting out what may or may not be done - Freedom of action
*freedom
*rules on publicity- inform 3rd parties - Outcome based
*freedom of action
*prescribed outcomes that will be tolerated
Regulatory regimes
*unregulated (markets/lines of business)
*voluntary
*self- regulation
*statutory regulation
*mixed
Unregulated
*cost of regulation outweighs benefits
*professional only market
*market with commodity products and guaranteed benefits sold on price
Voluntary
*can be effective
*vulnerable to lack of public confidence
*vulnerable yo few rogu3 operators refusing to co-operate
Selft- regulation
- Organised and operated by participants
- Regulation is economic good that consumers are willing to pay for
3.used to avoid government imposed regulations
Self-regulation - good
Good
*system implemented by people with greatest knowledge of market
*implemented by those who have greatest incentive for cost-bemefit ratio
*respond rapidly yo changes in market needs
*might be easier yo persuade co-operation
Self-regulation - bad
*closeness of regulator to industry
*regulator might be biased towards industry point of view
*may inhibit new entrants to a market
Statutory- good
*less open to abuse
*command greater public confidence
*efficient running if economies of scale is achieved - grouping activities by function
>market conduct
>regulatory solvency
Statutory - bad
*costly
*inflexible
*outsider point of view, not very clued up
*
Regulation and climate change
- Consider cc in business decision and strategic planning
- Disclose and report on cc risks and opportunities
- Consistent and reliable means of assessing, pricing and managing cc risks
- Incorporate environmental social governance into investment mmgmnt decisions
- Risk management process - financial risk from cc
- Scenario analysis to inform risk identification and estimate impact of financial risk arising from cc
- Impact of cc on meeting obligations towards stakeholders
Function of a regulator
GRIIPE
G: government policy (influence and review)
R: register and vet business and individuals- authority and conduct
I: inform customers and puboic
I: investigate breaches and impose sanctions
P: supervise prudential management of financial business
E: enforce conduct
