Financial Regulation & Supervision Flashcards

The SEC's Regulation Best Interest (Reg BI) requires broker-dealers to act in whose best interest when making a recommendation?

Answer: The retail customer

Reg BI requires broker-dealers to act in the best interest of the retail customer and not place their own financial interests ahead of the customer's.

What is the key distinction between a bank's 'Tier 1' and 'Tier 2' capital?

Answer: Tier 1 is core capital (highest quality); Tier 2 is supplementary capital

Tier 1 capital consists of the highest-quality, most loss-absorbing capital (common equity), while Tier 2 is supplementary capital with lower loss-absorbing capacity (e.g., subordinated debt).

Which regulatory requirement obligates financial institutions to have plans for their own orderly resolution in the event of failure?

Answer: Living wills (resolution plans)

Living wills, or resolution plans, are required by Dodd-Frank for large financial institutions to outline how they could be wound down without taxpayer bailouts.

The Liquidity Coverage Ratio (LCR) requires banks to hold enough high-quality liquid assets to cover:

Answer: 30 days of net cash outflows under a stress scenario

The LCR mandates that banks maintain sufficient high-quality liquid assets (HQLA) to survive a 30-day liquidity stress scenario.

Under anti-money laundering (AML) rules, what is a 'Suspicious Activity Report' (SAR)?

Answer: A report filed with FinCEN when a financial institution suspects illegal activity

SARs are confidential reports filed by financial institutions with FinCEN when they detect transactions that may indicate money laundering, fraud, or other illegal activity.

The 'Know Your Customer' (KYC) requirement primarily helps financial institutions:

Answer: Verify customer identity and assess money laundering risks

KYC procedures require institutions to verify customer identities and understand the nature of their relationships to detect and prevent financial crimes.

Which agency administers the Bank Secrecy Act (BSA) and receives Suspicious Activity Reports?

Answer: FinCEN

The Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury, administers the BSA and collects financial intelligence including SARs and Currency Transaction Reports.