wk3 Tutorial 3 Solution

BNK601: Banking Law
Semester 1, 2020
TUTORIAL 3 Solutions
1. Reserve Bank Fijis (RBF) approach to regulating and supervising the financial system is
through the licensing process, regulation strategy, supervision strategy and revocation of
licence. Discuss how RBF carry out its supervision strategy to Fiji’s financial institutions.
To ensure that Reserve Bank’s rule are followed, RBF regularly monitors the activities of
financial institutions through on-site and off-site supervision.
Off-site supervision is conducted through. In monitoring their condition and performance, due
regard is paid to:
 Capital strength
 Large exposure concentrations regulations – tool for limiting the maximum loss a
bank could face in the event of a sudden failure to a level that does not endanger
the banks solvency.
 Asset quality
 Profitability
 Liquidity position
 Foreign exchange operations
 Risk management system
 Control in place for management risks.
On-Site supervision involves visits to licensed financial institutions. During these visits RBF
staff closely examine the institutions operations and policies and procedures as well as their
adherence or conformity with the RBF prudential policies and regulations.
2. The regulation strategy of Reserve Bank of Fiji is developed through the prudential
regulation framework of financial institutions. State the prudential regulation
frameworks carried out by RBF to all the financial institutions in Fiji.
The regulation framework of RBF consists of the:
Banking Policy and Supervision
Insurance Policy and Supervision
Capital Markets Supervision
Superannuation Policy and Supervision
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Exchange Control Policy and Supervision
Licensing Checklist
Payment System Policy
3. A prudential regulation framework that has been developed by RBF in question 2 is the
Banking policy and supervision requirement. State and explain the Capital Adequacy
Requirement Disclosure Requirements for Banks that is being discussed under the
Banking policy and supervision requirement (Use the URL links on your moodle to go
through the RBF link)
One requirement is the Capital Adequacy requirements, licensed financial institutions in Fiji are
required to comply with a risk-based capital adequacy policy. Capital is a measure of how much
a bank’s assets exceed the amount it owes depositors and other ordinary creditors.
Under the guidelines, capital is expressed as a percentage of a bank’s total credit risk weighted
assets exposures. This is referred to as capital ratio. The policy requires banks to maintain a
minimum capital ratio of 8 percent (revised 12%) . Credit institutions are required to maintain a
slightly higher minimum capital ratio of 10 percent ( revised 15%) .
4. State three reasons why prudential regulations are imposed by Reserve Bank of Fiji.
a. Help maintain the confidence of people in banks and therefore the currency.
b. Banks need to be regulated because they form the backbone of the financial and payments
systems of a country.
c. Increase stability of the financial systems.
d. Controlling risks
e. Holding adequate risk.
5. The capital markets channel the flow of funds from saving entities(investors) to
borrowing entities(companies). It provide a system which enables companies to raise funds
directly from investors. Briefly explain who regulates and develops the capital market in
Fiji.
Under the Companies Act (2015), the RBF is responsible for the regulation and development of
Fiji’s capital market.
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6. What are the different markets that make up the capital market in Fiji.
 Equity Market
 Debt Market
 Managed Funds market.
7. Briefly explain what is a primary market and state one example of a financial instrument
that is traded in the primary market.
Primary market issues new securities to investors for the very first time,
Example: Issuing of shares in the primary market:
 Initial Public Offering(IPO) – first time a company issues a debtor a debt security. Eg:
when a listed company issue new shares which is purchased by an institutional investor.
 Investors who buy shares from companies are referred to as shareholders.
8. Briefly explain what is a secondary market and state one example of a financial
instrument that is traded in a secondary market.
Secondary Market is commonly known as stock market. Shares and Bonds are bought and sold
by investors through the stock market. Eg: SPSE
Example: Issuing of Bonds in the Secondary Market
 Markets where existing bond is traded.
 Bonds in Fiji may be traded in the secondary market directly between bondholders or
through an intermediary, called a broker.
 Brokers must be licensed by the CMDA.
9. Discuss the activity that is carried out in an Over-the-Counter facility and who regulates
this facility?
Over-the-counter (OTC) registry provided by Kontiki Stockbroking Limited for companies that
are not listed in the securities exchange. Reserve Bank of Fiji regulates OTC facility.
10. Briefly explain on what is a financial service and how it is regulated?

Financial services is provided through:
1. providing financial product advise
2. deal in financial product
3. make a market for a financial product
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Licensed Financial Advisors advise investors on how they invest. A licensed stockbroker, unit
trust manager or investment adviser can advise investors on the different investment
products available and assist them to make their investment decisions. CMDA is
responsible for the licencing of market intermediaries such as brokers, dealers and investment
advisers.

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BNK601: Banking Law

10. Briefly explain on what is a financial service and how it is regulated?

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