Regulatory Compliance & Corporate Governance Flashcards

Which concept describes the legal principle that holds a parent company liable for the regulatory violations of its subsidiary?

Answer: Enterprise liability

Enterprise liability theory can hold a parent corporation responsible for a subsidiary's violations when the parent controls or directs the wrongful conduct.

Under SEC rules, Regulation Fair Disclosure (Reg FD) requires that when a company discloses material non-public information to select analysts, it must:

Answer: Simultaneously make the same disclosure to the general public

Reg FD requires that any selective disclosure of material non-public information be simultaneously (or promptly) disclosed to the public to prevent selective advantages.

A 'conflict of interest' policy in corporate governance is designed primarily to:

Answer: Identify and manage situations where personal interests could improperly influence professional decisions

Conflict of interest policies aim to identify situations where personal interests might compromise objective decision-making, and establish disclosure and recusal processes.

Which of the following best describes 'regulatory capital' as it applies to banks under Basel III?

Answer: Minimum equity and other qualifying capital that banks must hold relative to risk-weighted assets

Under Basel III, regulatory capital is the minimum level of loss-absorbing capital (primarily common equity) banks must maintain relative to their risk-weighted assets.

In a corporate governance context, an 'independent director' is typically defined as one who:

Answer: Has no material relationship with the company that could impair objectivity

Independence requires that a director have no material financial, personal, or professional relationships with the company that could compromise their objective judgment.

Which of the following scenarios represents a 'significant deficiency' in internal controls under SOX, as opposed to a material weakness?

Answer: A deficiency that is less severe than a material weakness but important enough to merit attention by those responsible for oversight

A significant deficiency is a control deficiency, or combination of deficiencies, that is less severe than a material weakness yet important enough to warrant attention by those charged with governance.

An enterprise-wide compliance risk assessment should be conducted with what primary frequency according to leading regulatory guidance?

Answer: At least annually, and when significant business or regulatory changes occur

Leading practice and regulatory guidance call for formal compliance risk assessments at least annually, with updates triggered by material business changes or new regulatory requirements.