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4-6.Regulatory Environment, Law Compliances - Coggle Diagram

- - - - 3 Categories
        
        1. Absolute advantage Many territories have an absolute advantage in one area or another, due to lower costs, better climate or geography, better skills, and similar factors.
        
        2. Comparative advantage Say for one territory can produce something more efficiently than another territory. That means it is producing that item, it may not be producing another item, and few territories are able to produce everything more efficiently than all other territories.
        Sometimes it's better to decide to focus instead of producing product unit its better get imported from the than to produce them domestically.
        
        3. Economies of scale A territory that does not yet have the capability to produce items because of development cost.
      - Exchange Rates Goods or services are purchased between the territories, the purchase may be affected by exchange rates. The relative value, or purchasing power, of one territory’s currency can be different—sometimes substantially—than the purchasing power of another territory’s currency. Currency exchange rates are determined either by market conditions or by governments.
      - Taxation Policy: Personal income taxes are responsible for most of the tax burden, but taxes may also include social security contributions and other items that serve to increase the total personal tax burden.
        Income earned in other (i.e., nonhome) territories is likely to be taxed differently. Taxes can be greater than those on income earned domestically.
      - Retirement Policy: Government-provided pension systems vary widely across the globe. Territories generally have been increasing normal retirement ages & decreasing government-supplied benefits. Incentives for people to work longer. Globally, the average retirement age 64.0 to 65.5 years.
        Things should the financial advisor be aware:
        The financial advisor should have a sense of government sentiment in this area, and know the basics of the system in the territory. What are typical retirement benefits and at what age can a person expect to receive them? Is this changing? What are the penalties for stepping out of the workforce (either to raise children, or for some other reason)? Is there a standard private (i.e., contributory) pension or other retirement plan, and how can individuals improve their retirement income by contributing?
        Factors:
        
        what age can a person expect to receive them?
        
        what amount or percentage of a worker’s income can be expected to be replaced during retirement?
        
        what factors may decrease or increase payments during retirement.
        
        Whether income replacement rates vary by gender? Do women generally receive lower benefits than men?
        
        Is the income replacement rate percentage greater for low-income workers than for those who have reached higher income levels.
      - Social Welfare Policy: in places where a social welfare safety net exists, they can find help, and hope say for e.g. if any health emergency arise and your health insurance covers the illness.
- - - - Disclosure Documents: Disclosure is closely related to conflicts of interest, which must be disclosed.
        FA must disclose certain clients information and cannot be misleading, deceptive or confusing.
        
        what must be disclosed,
        
        Name, organization, address & contact information,
        
        Services provided and by whom with relevant qualifications and credentials
        
        Methods of analysis, strategies and risk
        
        Current licenses, Fees and other expenses
        
        Financial advisor compensation like agency relationships and affiliations, and brokerage agreements
        
        relevant business arrangements, Code of ethics, Supervision, Conflicts of interest & any additional information relevant to the relationship.
      - Potential conflicts of interest : Some guidelines
        First, conflicts of interest are generally to be avoided.
        Second, investors should tolerate conflicts of interest only when either unavoidable or potential rewards outweigh the potential risks.
        If conflicts of interest exists then it makes sense to understand the sources of potential conflicts.
        If the financial advisor makes full disclosure and gives the client the opportunity to make an educated decision about working together, conflicts may be mitigated.
        
        3 basic approaches
        
        Be able to identify conflicts when they might be indirect and not obvious
        
        Understand how to manage business so they (client) can avoid conflicts
        
        Ensure that where conflicts arise and are unavoidable they are fully disclosed they are fully disclosed in a way that the client can understand and make an informed decision.
        
        Areas of conflicts of interest and disclosure:
        Principle 2 – Integrity: Provide professional services with integrity i.e. open and honest.
        Principle 4 – Fairness: Be fair and reasonable in all professional relationships. Disclose and manage conflicts of interest.
- - - - 6.2.2.Layering - The funds might be channeled through the purchase and sales of investment instruments, or the launderer might simply wire the funds through a series of accounts at various banks across the globe.
      - 6.2.3.Integration - The funds re-enter the legitimate economy i.e. re-entering back to system. The launderer might choose to invest the funds into real estate, luxury assets or business ventures.
      - 6.2.1.Placement - This is done by breaking up large amounts of cash into less conspicuous smaller sums that are then deposited directly into a bank account, or by purchasing a series of monetary instruments (checks, money orders, etc.) that are then collected and deposited into accounts at another location.
  - - - Identifying the customer and verifying that customer’s identity using reliable, independent source documents, data or information
        
        identity of the beneficial owner
        
        Obtaining information purpose and intended nature of the business relationship
        
        Conducting ongoing due diligence on the business relationship and scrutiny of transactions.