Compliance Sample Questions – Final Exam

1. Briefly explain financial stability and its importance to shareholders, depositors, taxpayers etc.!

Financial stability is a status where the financial system is able to:

• Resist shocks

• Overcome financial imbalances

• That could lead to an essential impairment of the financial efficiency (=savings are transferred at lowest cost to the most risk adjusted profitable investments)

Requirements for financial efficiency are:

• Competitive markets

• Reliable information

• Well established legal system in order to enforce agreements

2. Briefly explain goals, tasks and enforcement powers of banking supervisors!

GOALS of banking supervisors are:

1. Protection of investors/consumers

2. Ensuring that the markets are fair, efficient and transparent

3. Reduction of systemic risk

4. Reduction of financial crime

5. The maintenance of consumer confidence in the financial system

TASKS of banking supervision

ENFORCEMENT power of regulators:

1. Power to inspect and request information

2. Power to seek orders to compel a business to comply

3. Power to remove directors and auditors

4. Power to appoint an administrator

5. Power to impose administrative sanctions and/or to seek orders from courts or tribunals

6. Power to initiate or to refer matters for criminal prosecution

7. Power to suspend operations or trading

3. Briefly give an overview of the European and the Austrian banking supervisors: Name them Their roles and tasks Cooperation between European and Austrian banking supervisors

European banking supervisors:

Establishment of a European System of Financial Supervisors (ESFS), comprising of a network of national financial supervisors cooperating with European Supervisory Authorities (ESAs) that take care of micro-supervision by safeguarding the financial soundness of individual institutions and consumer protection

1) EBA (European Banking Authority)

· is an independent EU Authority which works to ensure effective and consistent prudential regulation and supervision across the European banking sector

· Main Task is a creation of a European Single Rulebook: Common supervision standards for the member states of the EU

· Remark: The supervision of the banks is mainly the responsibility of local supervision authorities and the ECB (for significant banks)

2) EIOPA (European Insurance and Occupational Pensions Authority)

· Supervision of registered insurance companies (incl. re-insurers) as well as pension funds

3) ESMA (European Security Market Authority)

· Supervision of Securities Market and Stock Exchanges

· Tasks (inter alia): approval of rating agencies, AIFM (Alternative Investment Management) guidelines, regulation of hedge funds, private equity funds and closed-end funds

4) ESRB (European Systematic Risk Board)

· Early recognition, prevention and control of systematic risks in financial markets

· Cooperates with the three ESAs

· e.g. in cooperation with ESMA, ESRB will control systematic risks of OTC derivative products and issue laws that certain derivate products are to be traded over the Stock Exchange (if systematic risk for OTC trading is assessed as too high)

Austrian banking supervisors:

1) Ministry of Finance

· Supervision of supervisors

· Measures to prevent crisis in the Austrian banking and financial system

2) Austrian National Bank

· On-site inspection of banks (partly together with ECB)

· Banking Analysis

· Supervisory Reporting

· Assignment for financial market stability

3) Financial Monetary Authority (FMA)

· Comprehensive financial services authority

· On-site inspection of less significant institutions

4) Staatskommissionär

· Permanent Body of FMA (employee FMA) for banks of total assets > EUR 1bn

· Supervision of financial development

· Present with Annual General Meetings

· Reporting to FMA

ECB cooperates with the national supervisory authorities (NSAs)

The division of supervisory tasks depends on whether the supervised bank is deemed "significant" or "less significant." This differentiation is based on the size, economic relevance, and scope of cross-border activities of the supervised bank

The ECB directly supervises significant banks. In doing so, it cooperates with the NSAs, which in Austria are the Financial Market Authority (FMA) and the OeNB. Joint Supervisory Teams (JSTs), which are made up of staff of the ECB and the NSAs, carry out the ongoing supervision of these banks. Each JST is headed by a coordinator, who is a staff member of the ECB. The JST coordinator is responsible for the implementation of supervisory tasks and activities. The national supervisory authorities directly supervise less significant banks. In Austria, the FMA remains the authority in charge of taking supervisory decisions concerning less significant banks, and the OeNB continues to be responsible for the overall risk assessment ("fact finding").