CH 2. Legal, Regulatory and Tax Environment

Question 1

General Types of (FI) Financial Institutions Regulations

Answer 1

-Monitoring and managing the overall safety and soundness of the banking system -Setting and implementing monetary policy -Determining guidelines for the chartering of banks and other depository FI’s -Allocating credit toward certain sectors of the economy and protecting consumers -Protecting investors purchasing securities through FI’s

Question 2

Issues affecting FI’s

Answer 2

Globalization - no true central regulatory authority - Growing dominance of a few FI’s - unregulated hedge funds, equity funds and investment opportunities.

Question 3

Primary Regulators

Answer 3

• Central Banks - Financial Stability Board (FSB) - Bank for International Settlements (BIS) - Basel Committee on Banking Supervision(BCBS) - European Payments Council(EPC) & Singl Euro Payments Area (SEPA) - European Securities and Markets Authority (ESMA) - International Association of Deposit Insurers (IADI) - International Organization of Securities Commissions (IOSCO) - Financial Action Task Force (FATF) - International Association of Insurance Supervisors (IAIS)

Question 4

Central Banks responsibilities

Answer 4

• Monetary Policy - Currency Issuance - Supervision and Regulation - Government Services - Depository Institution Services

Question 5

Primary goals of FSB

Answer 5

• maintain financial stability - promote the openness and transparency of the financial sector - Implement international financial standards - Conduct Periodic peer reviews

Question 6

Bank for International Settlements (BIS)

Answer 6

• est 1930 - Link between Central Bank and and other agencies - Provide financial statistics Sponsors 3 committees - Group of governors and heads of supervision (GHOS) - Committee on the Global Financial System(CGFS) - Committee oon payment and settlement systems(CPSS)

Question 7

BASEL Committee on Banking Supervision (BCBS) Goals

Answer 7

• est 1974 - Basel I…minimum capital requirements for large banks - Basel II…expanded risk ratings -Basel III….stress testing of banks and market liquidity risk

Question 8

EPC and SEPA

Answer 8

EPC supports the SEPA, single european payments area - Standardization of payment systems(wire, cards, check…) and practices across borders

Question 9

International Organization of Securities Commissions (IOSCO)

Answer 9

Standard setter for securities markets

Question 10

Financial Action Task Force (FATF)

Answer 10

• composed of 30 countries. - promote policies to combat money laundering

Question 11

IAIS

Answer 11

International Assoc of Insurance Supervisors - Insurance regulation in 140 countries

Question 12

US Regulatory Agencies

Answer 12

-CFTC, Commodity Futures Trading Commission -CFPB, Consumer Financial Protection Bureau -DOJ, Dept of Justice -FDIC, Fed Deposit Insurance Corp FinCEN, Financial Crimes Network FINRA, “Fianancial Insustry Regulatory Authority FSOC, Financial Stability Oversight Council NCUA, National Credit Union Admin OFAC, Office of the Foreign Assets Control THE Secret Service SEC, Securities and Exchange Commission

Question 13

FDIC

Answer 13

-Provide deposit insurance for all insured FI’s -Supervising selected depository institutions -Acting as a trustee in the event of bank failures

Question 14

FINRA

Answer 14

Financial Industry Regulatory Authority -REgistering and educating industry participants -Examining brokerage firms -Writing and enforcing rules related to federal securites laws -Informing and educating investing public -Administering the primary dispute resolution forum for investors and registered firms.

Question 15

The Secret Service

Answer 15

est 1865 -part of US Homeland Security -safeguard payments systems from CC fraud, check fraud, and identity theft

Question 16

SEC

Answer 16

-Register public offering of debt or equity -Setting financial disclosure standards for selling securities -Requiring companies with publicly owned securities to file financial statements -Regulating mutual funds and investment advisers -Monitoring insider trading to enforce related regulations

Question 17

7 Basic regulatory areas

Answer 17

1. Reg and supervision of FI’s and Financial services 2. Legislation over payment systems and instruments 3. Legislation related to financial crimes, money laundering and financial disclosure 4. Federal Reserve Regulations 5. Regulations relating to investments and securities 6. The UCC 7. Escheatment Legislation

Question 18

Glass Steagall Act

Answer 18

est 1933 after great depression Gramm-Leach Bliley act repealed almost all of this except the deposit insurance under FDIC

Question 19

Gramm-Leach-Bliley Act of 1999

Answer 19

Eliminated barriers among functions of commercial banking, investment banking and insurance -Permits financial holding companies that engage in fianancial activities -Allows easier entry by foreign banks into the US -Includes provisions related to consumer protection

Question 20

Dodd-Frank Wall Street Reform and Consumer Protection Act 2010

Answer 20

Sweeping regulations of banks and FI’s to bring transparency and accountability to the derivatives market. - Closes Regulatory Gaps - Requires Central Clearing and Exchange Trading - Requires Market Transparency - Adds Financial Safeguards - Sets Higher Standards of Conduct

Question 21

EFTA

Answer 21

Electronic Fund Transfer Act est1978 -defines the rights and and repsonsibilities of customers using all EFT exept wires. -Protects consumers from ATM and POS as long as the customer promptly notifies the bank - Reg E

Question 22

E-sign

Answer 22

Grants digital signatures the same legal status as ink signatures.

Question 23

Check 21

Answer 23

clearing of checks via image to expedite the check clearing process

Question 24

BSA

Answer 24

Bank Secrecy Act -Deter money laundering by requiring FI’s to report suspicious transactions such as: Activity inconsistent with a customers business Attempts by customers to avoid reporting or record keeping requirements Unusual or multiple funds transfer activities Customer who provide insufficient or suspicious information

Question 25

USA Patriot Act

Answer 25

est 2001 -Grant FBI and DOJ intelligence gathering authority of FI’s to prevent terrorism -Requires banks to KYC -Jurisdiction over Foreign banks in the US -Prevents Shell accounts outside the US

Question 26

SOX

Answer 26

2002 Improves disclosure of financial statements

Question 27

Reg D

Answer 27

Fed reserve act of 1913 for depository institutions Fed uses this reg to control the supply of money

Question 28

Reg E

Answer 28

EFT act Establishes the guidelines for documentation of electronic transfers.

Question 29

Reg J

Answer 29

Check collection and settlement through the Fed Reserve System

Question 30

Reg Q

Answer 30

Interest bearing account restriction of Glass Steagall. Prevents interest on Corp DDA’s

Question 31

Reg Y

Answer 31

regulates Non-Banking activities in which bank holding companies and foreign banking organizations in the US can engage.

Question 32

Reg Z

Answer 32

Related to the truth in lending act. promoting informed use of credit by consumers. Prohibits issuing CC to consumers under 21. Regulates fees and monitors interest charges to protect consumers.

Question 33

Reg BB

Answer 33

Requires banks to meet credit needs for the entire community

Question 34

Reg CC

Answer 34

Expedites funds availability to speed collection and return of checks.

Question 35

UCC

Answer 35

Uniform Commercial Code Governs commercial transactions in the US - article 3: Negotiable instruments, how banks handle unauthorized signatures. - Article 4: ABank Deposits and Collecitons, addresses the relationship between the bank and the consumer - Article 5: Letters of Credit,

Question 36

Types of Bankruptcy

Answer 36

Chapter 7: Liquidation Chapter 9: Financially distressed municipalities Chapter 11: Business reorganization Chapter 13: Personal bankruptcy, adjustment of debt Chapter 15: bankruptcies for a company in more than one country

Question 37

3 Stages of Money Laundering

Answer 37

Placement: deposit from illegal activity Layering: transactions designed to seperate cash proceed from the criminal organization Integration: Creating the legitimate explanation for the funds.