18) REGULATING FIRMS AND INDIVIDUALS Flashcards
Name six regulated activities
- Accepting deposits
- Dealing in and arranging investments
- Advising on and arranging mortgages
- Mortgage lending and administration
- Advising on and arranging general insurance
- Advising on investments
- Managing investments
- Debt collecting
- Establishing stakeholder pension schemes
Name six examples of regulated investments
Deposits Electronic money Options and futures Shares, company loans, stocks and debentures Units in collective investt schemes Rights under stakeholder pension schemes Mortgage contracts Gilt edged stocks and local authority stocks Insurance contracts incl funeral plans
Three tiers of Senior Managers and Certification Regime (SM&CR)
Core - comply with baseline reqts.
Enhanced - addl reqts by firms classed as representing
greatest risk to consumers or markets
Limited scope - apply to firms exempt under approved
persons regime. Also exempt under some
baseline requirements
Core regime applies to majority of firms and includes the key elements of
- Senior Managers Regime
- Certification Regime
- Code of Conduct
Summarise key elements of Senior Managers Regime
SMR focuses on indi in key roles in relevant firms
FCA has designated Senr Mgt functions for CORE SM&CR firms - fns the regulator feels pose the greatest risk to cust or market integrity if person conducting them is not fit to do so. When a snr mgr moves to a diff role than one is at present or applies for a new snr mgr
they must be pre-approved by the regulator. The appln must be accompanied by a ‘statement of responsibilities’ detailing their particular responsibilities in the firm…once appointed, firms equip them to do their role, and keep it ongoing.
SMR has two extra reqts for ENHANCED firms:
- To maintain a ‘responsibility map’ detailing allocation of responsibilities to snr mgrs…enables regulator to identify which person is responsible when problems arise
- Each acti, bus area and mgt function is allocated a senior mgr with overall responsibility.
A Snr Mgr has the statutory duty of taking ‘reasonable steps’ to prevent regulatory breaches in their area….if regulator can prove breach, can impose penalties to a Snr. Mgr….could be criminal proceedings to show ‘reckless conduct’ has led a bus to fail….could be a max prison sentence of 7 years and/or unlimited fine.
What is ‘Certification Regime’?
Those in junior roles in firms may also cause major damage to a busi when undertaking certified functions - defined as a function involving aspects of firm’s bus where there is a risk of significant harm to firm or its customers - so shd be subject to a ‘Certification Regime’, which the firm should take care to equip the person to carry out the role…in other words firms must make sure the indi in the role are ‘fit and proper’, and they continue to be so on an ongoing basis.
Certification Regime applies to
- significant mgt function
- proprietary traders
- CASS operational oversight functions
- Functions req qualification eg mortg adviser, retail investment adv, pension specialist
- client dealing function eg financial advisers, investment mgrs
- Supervisor of a person in certified role
- those responsible for algorithmic trading
-
What is ‘Code of Conduct’?
Rules under SM&CR by regulator, which apply to Snr Mgrs, Certified persons and other employees (but not those with non-financial roles eg IT support)
Tier one indi conduct rules : CR1-CR5
Tier two conduct rules for Snr Mgrs : SM1 - SM4
What are the rules on ‘Fitness and ‘Propriety’?
1) Honesty, Integrity and reputation - no criminal records, disciplinary proceedings, no known contravention of FCA reglns, or involved with companies which have done so, no complaints esp abt regulated acti, no insolvency or the mgt of an insolvent co, no dismissal from position of trust or disqualification
2) Competence or capability - shd meet FCA trg and competence reqt
3) Finanl soundness - current position, previous bankruptcy,
In addition,
relevant qualification, undergone/going training, competence, has personal characteristics reqd by FCA.
To limit indi with poor conductmoving from firm to firm, snr mgr roles, before appointment are..
verified as ‘fit and proper’, checks done for criminal record and credit check, references covering last six years checked done wh incl breaches of conduct rules.
The Financial Services Register - record of firms, indi and bodies reg by PRA/FCA.
Under SM&CR, FCA publishes a directory of certified and assessed persons for consumers and professionals. Firms are resp for submitting and maintaining a person’s data.
How does FCA prioritise its supervisory activity?
FCA takes ‘proportionate approach’ to supvsn, focusing resources on those areas of indus and firms that may pose greatest risk to its objectives…by using a system w ref to no of customers, and likely impact of bus failure. Based on this, there are 2 categories:
FIXED PORTFOLIO: firms relatively small in no but req highest level of supervision based on size, no. of customers and mkt presence. Supervised by continuous assessment. Has a named supervisor
FLEXIBLE PORTFOLIO: Vast maj of firms fall under this, presenting a lower of risk…supervised by a mixture of targeted supervisory work, and prog of communication and edu….includes most firms, intermediaries. Their FPOC is FCA’s contact centre and does not have a named supervisor.
What is the FCA supervision model?
Three pillars: Pillar 1 (Proactive or group supvsn) - Does not apply to flexible portfolio firms, is forward looking, assessing and addressing issues that could lead to consumer/mkt damage. Cust and mkt integrity at the heart of the firm. Pillar 2 (Event driven, reactive supvsn) - responds swiftly when aware of risks or damage already done. Addresses root causes, mitigates risk and prevents further damage, FCA will hold firm and indi to account Pillar 3 (Issues and products) - Each sector of mkt analysed on an ongoing basis, current events studied, to identify common issues before they can damage eg a particular business practice, or a particular finanl product
The steps that a firm must take to ensure employees are maintaining competence
Firms make sure employees undertake qualification and trg to be competent in their role. Regular review must be taken to for continuation of competence wrt
- technical knowl and appln
- skills and expertise
- changes in mkt and to products, legislation and regulation
Firms must maintain records showing how and when employees’ competence is being assessed. and records maintained and retained for a specific min prd of time ( at least 3 years for non-MiFID bus, 5 years for MiFID bus and indefinitely for indi carrying out pensions tfr)
Advisers must obtain a statement of professional standing each year from an FCA accredited body.
Employees must complete ‘continuing professional development’ CPD - STRUCTURED CPD incl attending seminars, courses, conferences, workshops etc
UNSTRUCTURED CPD incl conducting research as part of adviser’s role, reading indus or other relevant material, coaching and mentoring
Outline FCA’s enforcement powers
Variation of a firm’s permissions: removal or narrowing of acti
Withdrawal of approval: some or all acti removed
Injunction: to stop person from benefiting from action
Restitution: If a person has benefited, FCA can ask court for person to forfeit to FCA, any profit made
Redress: To make it good to identifiable customers by , a court order, or through FOS/FSCS
Disciplinary action: Issue warning notice, publish statement of misconduct, impose financial penalty
Disclosure: After issuing warning and consulting with recipient of notice, to announce the disciplinary action
Enhanced supervision: To deal with issues and failings, enforce remedial action, or impose binding reqts
What is Part 4A permission?
Permission under Part 4A of Financial Services and Markets ACt 2000 to carry out specified regulated acti
What was the main reason for the introduction of Senior Managers and Certification Regime in 2016?
The regime was introduced to clarify responsibilities within firm which makes it easier to hold indi to account for a particular failing…whereas it was difficult to determine indi responsibility when seeking action against a firm in finanl indus.
Under FCA’s enforcement powers, what is the difference between restitution and redress?
Restitution is FCA power, with a court order, to req an indi or firm to forfeit any profit made as a result of contravening an FCA rule.
Redress is when an identifiable customer to be made good to under court order, if a contravention of an FCA has been done.
