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Applications of the legislative and regulatory framework (2) (10 key…
Applications of the legislative and regulatory framework (2)
10 key principles relating to the provision of financial services (SICI FOR MICI)
Integrity
Conflicts of interest
disclosure, internal rules of confidentiality, declining to act.
Information about customers
seek information about their circumstances and investment objectives
Financial resources
Relations with regulators
Market practice
Observe high standards of market conduct and comply with any code or standard in force
Information for customers
So that customer can make balanced and informed decision
Customer assets
segregation and identification
Internal organisation
proper records, well-defined compliance procedures
Skill, care and diligence
10 key principles relating to institutional investment practices (REPEAT CAFE)
Regular reporting
SIP
publish results of monitoring of advisers and managers
Effective decision-making
decisions taken by those with relevant skills, information and resources
Performance measurement
Expert advice
contracts for actuarial and investment advice should be opened to separate competition at regular intervals
Fund should be prepared to pay sufficient fees to attract a broad range of providers
Activism
circumstances in which managr will intervene in a company
approach they will use in doing so
how they measure effectiveness of this strategy.
Transparency
Clear objectives
meet liabilities
takes account of attitude to risk
Appropriate benchmarks
Focus on asset allocation
greater impact on results than stock selection
consider full range
should reflect fund's characteristics
Explicit mandates
should not exclude any set of financial instruments without clear justification in light of specific circumstances of fund
Explicit mandate with each investment manager
objective
manager's approach to achieve objective
benchmark(s)
risk parameters
clear timescales of measurement and evaluation
Factors that have contributed to increase in cross-border markets and transactions in EU
removal of barriers
launch of Euro
global deregulation
new technology
Four barriers to integration of retail financial services
different types of product offered
cost of regulation
tax systems that differentiate between local and foreign products
cultural preferences
Financial Services Action Plan
wide range of measures to provide a legal and regulatory environment that supports integration of EU financial markets.
aims
single wholesale market
open and secure retail market
prudent rules and supervision
Measures (TIM MUPPET FIA)
Transparency Directive
minimum requirements for financial reporting and disclosure
Insurance Mediation Directive
Regulates intermediaries selling insurance products
Markets in Financial Instruments Directive
covers organisation and conduct of business of investment firms and how markets operate, including:
pre and post trade transparency
execution policies
client classification
conflicts of interest
conduct of business of investment firms
Market Abuse Directive
Harmonises rules on prevention of insider dealing and market manipulaiton
Updated solvency requirements for insurers, policyholder protection and reinsurance supervision
Prospectus Directive
Enables an issue of securities to be sold across EU, once that issue meets the prospectus requirements in one country
Pensions Fund Directive
Regulates cross-border pension schemes based on mutual recognition of home state regulation
European Company Statute
enables companies to set up under a single European charter, so they don't need to register in a number of different countries
Taxation of Savings Income Directive
Aims to prevent cross-border tax evasion by individuals
Fair Value Accounting Directive
Updates EU directives on the valuation of assets
(endorsement of) International Accounting Standards
(extension of) Anti-money laundering legislation
main responsibilities of board of directors (LOAD SARA)
(ensuring the company meets its) legal obligations
overall direction of the company
(arranging for the) accounts to be produced
(approving) dividend payments and proposing them to shareholders
(ensuring the company remains) solvent
appointing senior management (and new board members)
(setting the) remuneration of senior executives
(running an) audit committee to ensure that appropriate financial and risk controls are in place
Aims of IFRSs
reliable and consistent accounting data
transparent accounts
give insight into financial condition of firm
single set of standards world-wide
enables access to financial markets
prevents companies having to produce results on several bases
helps investors to make comparisons
IFRS vs UK GAAP
simlar but...
IFRS requires revaluation of A and L to reflect concept of "fair value" (broadly, market value).
For institutions trading in investments, IFRS 9 requires...
investments to be shown at fair value on balance sheet
any result profit or loss on revaluation to be shown in the statement of comprehensive income