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CISI UK Financial Regulation 2023/24 > 1. The Regulatory Environment > Flashcards

1. The Regulatory Environment Flashcards

1
Q

When did the FCA and PRA replace the FSA?

A

1 April 2013

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2
Q

What was the purpose of the FSMA?

A

To provide stronger protection for financial services consumers

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3
Q

What are the two regulatory bodies?

A

Prudential Regulation Authority and Financial Conduct Authority

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4
Q

What replaced the London Stock exchange?

A

The UK listings regime - UK Listing Authority (UKLA)

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5
Q

What is referred to as the FCA Primary Market Function?

A

The UK Listing Authority (UKLA)

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6
Q

What is the FCA solely responsible for?

A

The authorisation and supervision of all the financial institutions not regulated by the PRA, intermediaries and investment exchanges

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7
Q

Who oversees the Financial Ombudsman Service?

A

The FCA

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8
Q

Who oversees the FSCS?

A

The PRA & FCA jointly

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9
Q

Who sets the fees payable by regulated firms?

A

The FCA & PRA

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10
Q

What issues does the PRA focus on?

A

Prudential issues

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11
Q

What issues does the FCA focus on?

A

Conduct and market-related issues, as well as the prudential regulations of all firms not regulated by the PRA

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12
Q

What is meant by “persons”?

A

Natural persons and all other types of legal person, such as firms, bodies, partnerships, trusts.

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13
Q

What is the general prohibition?

A

The criminal offence of conducting regulated activity by way of business in the UK unless a person is authorised to do so, or is exempt.

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14
Q

Which part of FSMA is general prohibition set out?

A

Section 19

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15
Q

What is the punishment of general prohibition?

A

Maximum sentence of two years imprisonment and/or an unlimited fine.

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16
Q

What is an ‘Authorised Person’?

A

Firms that have been authorised by the PRA and/or the FCA to carry out one or more regulated activities.

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17
Q

What is an ‘Approved Person’ ?

A

An individual that has been approved by the PRA and/or FCA to perform a role, or carry out an activity, the nature of which requires regulatory approval.

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18
Q

What constitutes as an Authorised Person?

A

Given authorisation by the FSA (up to March 2013) or the FCA/PRA subsequently, certain overseas firms, investment companies with variable capital or the Society of Lloyds.

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19
Q

What is Part 4A of FSMA?

A

It enables businesses to apply directly to the FCA and/or PRA for permission to conduct regulated activity in the UK.

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20
Q

What are examples of exempt persons?

A

Appointed representatives of authorised persons, recognised investment exchanges, recognised clearing houses, central banks and operators of multilateral trading systems.

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21
Q

Who is the PRA accountable to?

A

BoE

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22
Q

What is the FCA responsible for?

A
  1. Protecting consumers
  2. Keeping the industry stable
  3. Promoting healthy competition
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23
Q

What is the PRA responsible for?

A

The prudential regulation of banks, building societies, credit unions, insurers, major investment firms.

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24
Q

What does the PRA promote?

A

The safety and soundness of the firms it regulates.

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25
Q

How are the regulators funded?

A

From the fees paid by the firms they regulate

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26
Q

Who is the FCA accountable to?

A

UK Government - HM Treasury

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27
Q

What is the FPC?

A

An official committee of the BoE, focusing on macroeconomic and financial issues that may threaten the UK economy

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28
Q

Who has overall responsibility for the UK financial system?

A

HM Treasury

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29
Q

Who appoints the FCA’s board and Chairperson?

A

HM Treasury

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30
Q

What are the Bank of England’s two core purposes?

A
  1. Monetary stability
  2. Financial stability
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31
Q

What is the FCA’s single strategic objective?

A
  1. Ensuring that the relevant markets function well
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32
Q

What are the FCA’s three operational objectives?

A
  1. The consumer protection objective
  2. The integrity objective
  3. The competition objective
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33
Q

What is the PRA’s single general objective?

A

Promoting the safety and soundness of PRA-authorised persons

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34
Q

What is the PRA’s insurance objective regarding contracts of insurance?

A

Contributing to the securing of an appropriate degree of protection for policyholders

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35
Q

What is the supervisory approach?

A

The relevant regulator is required to maintain arrangements to supervise compliance with the requirements imposed on an authorised persons.

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36
Q

What are the two key features of the supervisory model?

A
  1. Enhanced analysis and risk identification.
  2. Created focus on outcome testing.
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37
Q

What are the three types of work the FCA’s risk-based supervisory model based on?

A
  1. Proactive
  2. Reactive
  3. Thematic
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38
Q

What is conduct risk?

A

Conduct risk is the risks posed to customers and the integrity of the financial markets by the way in which firms and their staff conduct themselves

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39
Q

What are the four ‘Fair Treatment of Customers’ consumer outcomes?

A
  1. Ensuring consumers can be confident they are dealing with firms where FTOC is central to the culture
  2. Designing products that meet people’s needs
  3. Giving clear information
  4. Creating no unreasonable barriers after sale
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40
Q

What should firms regard when reviewing their own risks?

A

The FCA’s Annual Business Plan

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41
Q

What are the three focuses of the FCA regarding conduct risk?

A
  1. preventing serious harm
  2. Setting higher standards
  3. Promoting competition
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42
Q

What does the FSMA empower both regulators to do?

A
  1. Making rules
  2. Granting authorisation
  3. Supervising authorised persons
  4. Employ disciplinary measures and sanctions
  5. Enforce the regulatory framework
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43
Q

When did the UK leave the EU?

A

31 January 2020

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44
Q

When did the Brexit transition period end?

A

31 December 2020

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45
Q

What happened to the EU regulation Markets in Financial Instruments Directive “MIFID”?

A

The UK onshored this and it was named UK MiFIR, this legislation applies to all UK regulated firms

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46
Q

How long did the HMT ‘Temporary Transitional Powers’ last?

A

From 31 December 2020 to 31 March 2022

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47
Q

Who oversees the financial services across Europe?

A

The European System of Financial Supervision (ESFS)

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48
Q

What does the ESFS comprise of?

A
  1. European Banking Authority
  2. European Securities and Markets Authority
  3. European Insurance and Occupational Pensions Authority
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49
Q

What is the European Systemic Risk Board?

A

An independent EU body responsible for macro-prudential oversight of the EU financial system.

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50
Q

When did HMT publish the Wholesale Markets Review?

A

July 2021

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51
Q

When was the Financial Services and Markets Bill?

A

July 2022

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52
Q

What does the Financial Services and Markets Bill achieve?

A

It revoked EU law relating to financial services and enables HMT, FCA & PRA to replace is with legislation designed for UK markets.

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53
Q

When were the “Edinburgh Reforms” published?

A

December 2022

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54
Q

What are the “Edinburgh Reforms”?

A

A package of reforms to the financial services regulation, to set the regulatory agenda and focus.

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55
Q

What are the twelve Principles for Business?

A
  1. Integrity
  2. Skill, care and diligence
  3. Management and control
  4. Financial prudence
  5. Market conduct
  6. Customers’ interests
  7. Communication with clients
  8. Conflicts of interest
  9. Customers: relationships of trust
    10.Client assets
  10. Relations with regulators
  11. Deliver good outcomes for retail customers
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56
Q

When was Principle 12 introduced to firms that are subject to the FCA Consumer Duty rules?

A

July 2023

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57
Q

What is the aim of Consumer Duty?

A

To set higher and clearer standards of customer protection

58
Q

When was Consumer Duty implemented?

A

31 July 2023 for new or existing products.

31 July 2024 for products or services available to only existing customers.

59
Q

What products/services does Consumer Duty apply to?

A

Consumer credit
Deposit-taking activities
Insurance
Investments
Mortgages

60
Q

Where is a product or service not in scope of the Duty?

A

Where they are only marketed and approved for non-retail customers or are not provided to another firm under an arrangement

61
Q

Activities relating to non-retail financial instruments are excluded from the Duty if they

A

Have a minimum investment of £50,000.00

62
Q

Activities relating to insurance contracts of large risk are excluded from the Duty if the

A

Risk is located outside the UK

63
Q

What is the Consumer Principle?

A

Principle 12 “a firm must act to deliver good outcomes for retail customers”

64
Q

If Principle 12 applies, which Business Principles no longer apply?

A

Principle 6 (Customers Interests) and Principle 7 (Communication with clients)

65
Q

What are the three Cross-Cutting rules?

A

1 - Act in good faith towards retail customers
2 - Avoid foreseeable harm
3 - Enable and support retail customers to pursue their financial objectives

66
Q

What are the good outcomes the FCA expects

A
  1. The products and services outcome
  2. The price and value outcome
  3. The consumer understanding outcome
  4. Consumer support outcome
67
Q

What is the products and services outcome?

A
  • Products and services designed to meet the needs and objectives of a target group
68
Q

What is the price and value outcome?

A
  • The price of products is fair value for the target market/group
  • There is a relationship between the price paid and the benefit the customer receives
69
Q

What is the consumer understanding outcome?

A
  • Communications with clients are fair, clear and not misleading so customers can make informed decisions
  • Information must be presented in a way that customers can understand
  • Firms understand their target market
70
Q

What is the consumer support outcome?

A
  • Firms support meets the needs of their customers throughout relationship
71
Q

Who is held accountable by the FCA for Consumer duty requirements?

A

A firm’s governing body or equivalent

72
Q

What is the new Conduct rule introduced for firms in scope of the Duty by the FCA?

A

‘You must act to deliver good outcomes for retail customers’

73
Q

What does the FCA believe about the Duty?

A

It will set a higher standard of care for retail customers

74
Q

What is the client’s best interests rule?

A

A firm must act honestly, fairly and professionally in accordance with the best interests of its client

75
Q

What are the six consumer outcomes of the FTOC principle

A
  1. Customers can be confident that fair treatment of customers is central to the corporate culture
  2. Products are designed to meet the needs of consumer groups
  3. Consumers are given clear information and are kept appropriately informed
  4. Advice is suitable and takes account the consumers circumstances
  5. Consumers are provided with products that perform as firms have led them to expect
  6. Consumers do not face unreasonable post-sale barriers
76
Q

What are the 8 PRA Fundamental Rules?

A
  1. A firm must conduct with integrity
  2. A firm must conduct its business with due skill, care and diligence
  3. A firm must act in a prudent manner
  4. A firm must maintain adequate financial resources
  5. A firm must have risk strategy and management systems
  6. A firm must organise and control its affairs responsible and effectively
  7. A firm must deal with its regulators in an open and cooperative way
  8. A firm must prepare for resolution
77
Q

What is APER?

A

The Approved Persons Regime which still applies to a limited number of individuals but has since been replaced by the SM&CR

78
Q

What are the controlled functions of APER?

A
  1. Significant influence functions (SIFs)
  2. Customer dealing function (CF30)
79
Q

What is the PCBS and who was it set up by?

A

Parliamentary Commission for Banking Standards, set up by Parliament

80
Q

What did the SM&CR introduce?

A
  1. Senior Managers Regime (SMR)
  2. Certification Regime
  3. Conduct Rules
81
Q

What are the three categories of firm in the SM&CR and what requirements do they have

A
  1. Core Scope (Baseline)
  2. Limited Scope (Fewer Requirements)
  3. Enhanced Scope (Greater Requirements)
82
Q

What is the only instance where a senior manager would be guilty of misconduct?

A

Only if the FCA is able to demonstrate the senior manager failed to take reasonable steps to prevent a regulatory breach from occurring

83
Q

What kind of individuals does the SMR capture?

A

Senior management team such as the CEO, CFO or CRO and also MLROs

84
Q

What are the SMR classifications?

A

Prescribed Responsibilities - Allocated to most senior

Management Responsibilities Map - Document management and governance arrangements

Duty of Responsibility - Fulfil responsibilities and prevent/stop/remedy breaches

85
Q

What is the Certification Regime?

A

Requires firms to assess on an annual basis, the fitness and propriety of certain employee who could pose a risk of harm

86
Q

What are the 6 Conduct Rules?

A
  1. You must act with integrity
  2. You must act with due skill, care and diligence
  3. You must be open and cooperative with the regulators
  4. You must pay due regard to the interests of customers
  5. You must observe proper standards of market conduct
  6. You must act to deliver good outcomes for retail customers
87
Q

When did Conduct Rule 6 become effective?

A

31 July 2023

88
Q

What are the 4 Senior Manager Conduct Rules (SC)?

A

SC1 You must take reasonable steps to ensure the business of the firm is controlled effectively

SC2 You must take reasonable steps to comply with the relevant requirements and standards of the regulatory system

SC3 You must take reasonable steps to ensure delegation of responsibilities is to an appropriate person

SC4 You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice

89
Q

Where are Senior Management Arrangements requirements contained?

A

In the Senior Management Arrangements, System and Controls Sourcebook (SYSC) of the FCA Handbook

90
Q

What is the overriding requirements of the SYSC Sourcebook?

A

Firms must take care to establish and maintain such systems and controls as are appropriate to its business

91
Q

For who are the requirements known as the “common platform”?

A

Firms subject to the Capital Requirements Directive (CRD) and Markets in Financial Instruments Directive (MiFID)

92
Q

Are the SYSC requirements legally binding on firms?

A

Common platform firms - yes
Not common platforms - some, but not all

93
Q

What is SYSC 4?

A

General Requirements

94
Q

What is SYSC 5?

A

Employees, Agents and Other Relevant Persons

95
Q

What is SYSC 6?

A

Compliance, Audit and Financial Crime

96
Q

What are SYSC 7 and 12?

A

Risk Control

97
Q

What is SYSC 8?

A

Outsourcing

98
Q

What is SYSC 9?

A

Record-Keeping

99
Q

What is SYSC 10?

A

Conflicts of interest

100
Q

What is SYSC 10A?

A

Recording of Telephone Conversations and Electronic Communications

101
Q

What is the FOS?

A

Financial Ombudsman Service

102
Q

What is the purpose of the FOS?

A

A single scheme for dealing with disputes between consumers and financial services firms quickly and informally

103
Q

What is the FSCS?

A

Financial Services Compensation Scheme

104
Q

What is the purpose of the FSCS?

A

To provide a safety net for customers when firms become unable to repay them

105
Q

What is the CMA?

A

Competitions and Markets Authority

106
Q

What is the purpose of the CMA?

A

To make markets work well for consumers, businesses and the economy

107
Q

What is the ICO?

A

Information Commissioner’s Office

108
Q

What is the purpose of the ICO?

A

An independent official body for upholding information rights, promoting access to information and protecting people’s personal data

109
Q

What is the TPR?

A

The Pensions Regulator

110
Q

What is the purpose of the TPR?

A

To ensure employers fulfil their obligations regarding work-based pensions

111
Q

What is the PPF?

A

The Pension Protection Fund

112
Q

What is the purpose of the PPF?

A

Protects people if their employers become insolvent, the PPF will compensate them financially for money lost

113
Q

Who does the PPF report to?

A

Parliament through the Secretary of State for Work and Pensions

114
Q

What is the FPC?

A

Financial Policy Committee

115
Q

What is the purpose of the FPC?

A

Identifying, monitoring and taking action to remove or reduce systemic risks to protect and enhance the resilience of the UK financial system

116
Q

What is the HMRC?

A

HM Revenue & Customs

117
Q

What is the purpose of HMRC?

A

Primary revenue raising agency of the UK, sharing information and expertise

118
Q

What is the BoE?

A

Bank of England?

119
Q

What is the purpose of the BoE

A

Monetary Stability and Financial Stability

120
Q

What is HMT?

A

HM Treasury

121
Q

What is the purpose of HMT?

A

Developing and executing the British Government’s public finance and economic policy

122
Q

What is the purpose of the Upper Tribunal?

A

It is an agency of the Ministry of Justice which aims to appeal decisions made by the regulators, Pensions Regulator and first tier tribunal

123
Q

What is the POTM?

A

The Panel on Takeovers and Mergers?

124
Q

What is the purpose of the POTM?

A

To supervise and regulate takeovers

125
Q

What provision does R. indicate?

A

Rule - Binding on authorised persons

126
Q

What provision does E. indicate?

A

Evidential provisions - not binding in their own right

127
Q

What provision does G. indicate?

A

Guidance - not binding

128
Q

What provision does D. indicate?

A

Directions and requirements - binding on those to whom they are addressed

129
Q

What provision does UK. indicate?

A

UK legislative material - acts of parliaments

130
Q

What provision does P. indicate?

A

The Statements of Principle for Approved Persons - binding on approved persons

131
Q

What provision does C. indicate?

A

Conduct - behaviour which does not amount to market abuse

132
Q

What year was The Unfair Terms in Consumer Contracts Regulations (UTCCRs)

A

1999

133
Q

What year was the Consumer Rights Act? (CRA)

A

2015

134
Q

What does the CRA 2015 enable?

A

FCA has the power to challenge unfair terms in financial services consumer contracts

135
Q

What is the purpose of the UTCCRs?

A

To protect consumers against unfair terms in standard contracts between firms and consumers.

136
Q

When did the CRA replace the UTCCRs?

A

2015

137
Q

What are the CISI Code of Conduct Principles?

A
  1. Personal Accountability
  2. Client Focus
  3. Conflict of Interest
  4. Respect for Market Partners
  5. Continue to Learn
  6. Aware of Capabilities
  7. Respect Others & Environment
  8. Speak Up & Listen Up
138
Q

What is the Internal Audit expected to do?

A

Develop a view of the risks faced by a firm based on their access to all records, date, enquiries, and professional competence

139
Q

What are TPR’s rules with respect to occupational pension schemes?

A

The Pensions Act 2008 requires all UK employers to put staff into a workplace pension scheme and contribute towards it

140
Q

What can happen if an employer does not comply with its legal responsibilities?

A

Compliance notices, penalties, fines, backdating contributions

CISI UK Financial Regulation 2023/24 (6 decks)

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