2. Regulatory And Legal Environment Flashcards
0
Q
What is the role of the PRA?
A
Prudential Regulation Authority
Regulate all deposit taking institutions, insurers and investment banks
1
Q
When did the PRA and FCA come into being?
A
April 2013
2
Q
What is the role of the FCA?
A
Ensuring financial services providers put the customer first
Promote effective competition
Ensure integrity of how markets operate
Prudential regulation of firms not dealt with by PRA
3
Q
What are the 4 objectives of the FSA with regard to the UK financial system?
A
- Market confidence
- Stability
- Consumer protection
- Reduce financial crime
4
Q
In what way does the FSA employ a risk based approach?
A
Concentrate on big risks
Accept that some failure is unavoidable
Prioritise risks through probability and severity analysis
5
Q
What four risks did the FSA outline in the paper “A new regulator for a new millennium”?
A
- Prudential - collapse due to poor management
- Bad faith - mis-selling, fraud, etc.
- Complexity or unsuitability - lack of understanding by consumers
- Performance risk - investments fall short of forecasts
6
Q
What are the powers of the FSA?
A
Fines, disciplinary action, criminal proceedings
Making rules
Approving and keeping record of key people in the industry
Cooperating with courts
7
Q
Name eight groups to whom the FSA is accountable.
A
- Governors
- Non-exec directors
- Parliament
- Public
- Courts
- Treasury
- Practitioners and consumers
- Complaints Commissioner
8
Q
What is the MiFID?
A
Markets in Financial Instruments Directive
Conduct of business requirements
Major per of FSAP
9
Q
Give a timeline of Basel directives.
A
Basel I - 1988
Basel II - 2007 to 2008
Basel III - 2013 to 2018
10
Q
What is the CRD?
A
Capital Requirements Directive
EU implementation of the Basel rules
11
Q
What is Pillar I?
A
Minimum capital requirements.
Standardised and IRB approaches
12
Q
What is Pillar II?
A
Supervisory review.
Extra capital for risks not captured in Pillar I.
13
Q
What is Pillar III?
A
Disclosure.
Firms required to publish certain risk and capital information.
14
Q
When did the consumer credit directive (CCD) come into force?
A
February 2011
15
Q
What are the seven key elements of the consumer credit directive (CCD)?
A
- Adequate explanations
- Check creditworthiness
- Credit reference data requirements
- 14 day grace period
- Inform customer of debt is sold
- Intermediaries disclose fees
- Right to partial early repayment
16
Q
What are the three high level aims of the consumer credit act 2006 (CCA)?
A
- Empower consumers to challenge unfair lending
- Set minimum standards of information provided to consumers
- Extend protection to all types of consumer credit
17
Q
What are restricted and unrestricted credit agreements?
A
As defined in Consumer credit act 2006 (CCA):
Restricted: applies to goods and services
Unrestricted: applies to cash loans for any purpose
18
Q
How does the Consumer Credit Act 2006 (CCA) define an individual?
A
Also includes partnerships of two or three partners
19
Q
Name two exemptions from the Consumer Credit Act 2006 (CCA).
A
- Lending to a business over £25k. Customer must sign agreement!
- Lending to a certified high net worth individual. Over £150k income or over £500k assets excluding house.
20
Q
What requirements does the Consumer Credit Act 2006 (CCA) have regarding APRs?
A
Advertised rate must be representative of the business generated
Quote highest APR expected to be faced by at least 66% of consumers
21
Q
What does the Consumer Credit Act 2006 (CCA) say regarding agreements?
A
If key information is missing from the agreement, court has discretion as to the effect.
22
Q
What is the PSD, and what are its five objectives?
A
Payment Services Directive
- Single EU payment market
- Regulatory framework
- Level playing field
- Consumer protection
- Promote efficiency
23
Q
What is money laundering?
A
Process where proceeds of crime are made to look legitimate.
24
What are the three stages of money laundering?
Placement
Layering
Integration
25
Describe the 'Placement' phase of money laundering.
Cash proceeds enter the financial system.
E.g. Many small deposits into an account (perhaps by many individuals)
26
Describe the 'Layering' phase of money laundering.
Many transactions, to hide the origin of the dirty money.
E.g. Purchase of valuables or early repayment of loans
27
Describe the 'Integration' phase of money laundering.
Funds are withdrawn without suspicion.
E.g. Sale of valuables, large cash withdrawals
28
What four things are financial institutions required to do regarding money laundering?
1) ask customers to prove identity
2) check source of transactions over £10k
3) keep records of client for 5 years
4) named police contact in organisation
29
What defines an individual's identity?
Name
Address
Date of birth
30
Data protection act 1998 - define 'data'.
Information recorded for processing on a computer
31
Data protection act 1998 - define 'personal data'.
Relating to a living individual who can be identified.
Also includes sole traders, partners, directors, shareholders.
32
Data protection act 1998 - define 'sensitive data'.
Race, religion, political issues, health, sex, criminal record
33
Data protection act 1998 - what are the eight data protection principles?
1) obtained and processed lawfully and fairly
2) for a specific purpose
3) adequate, relevant
4) accurate, up to date
5) kept no longer than necessary
6) respect rights of data subject
7) appropriate security measures
8) don't transfer to countries without corresponding legislation
34
Name the four new offences created by the anti bribery act 2010.
1) paying or receiving a bribe
2) bribing a foreign public official
3) corporate offence of failing to prevent bribery
4) facilitation payments (bribe by another name)
35
Name three things that treating customers fairly (TCF) does not aim for.
1) customer satisfaction
2) identical service by all banks
3) taking responsibility away the customer
36
What are the 6 TCF drivers identified by the FSA?
1) leadership
2) strategy
3) decision making and challenge
4) controls
5) performance management
6) reward
37
How should LEADERSHIP reflect TCF?
Provide direction
Ensure monitoring and controls in place
38
How should STRATEGY reflect TCF?
Include in mission statement
Any business change considers TCF
39
How should DECISION MAKING AND CHALLENGE reflect TCF?
Show TCF is part of all decisions
Encourage employees to challenge anything which isn't TCF
40
How should CONTROLS reflect TCF?
Monitor TCF behaviours
E.g. Surveys, mystery shopper, complaint numbers
Investigate and act on findings
Demonstrate compliance
41
How should PERFORMANCE MANAGEMENT reflect TCF?
All employees have TCF objectives
Include both what and how
42
How should REWARD reflect TCF?
Ensure incentives are compatible with and encourage TCF
43
What six customer outcomes must banks demonstrate to comply with TFC?
1) pervasive TCF atmosphere
2) TCF reflected in product design
3) customers informed
4) in a way that reflects their circumstances
5) deliver on promises to customers
6) customers can move or switch easily if they want to
44
In brief, what brought about the Banking Conduct of Business standards?
FSA didn't originally cover it, thinking simple and safe
Banking Code Standards Board introduced voluntary codes for retail and business banking
FSA decided to take ownership, principles based approach
45
What are the BCOBS requirements relating to Communication?
Treat fairly
Clear, fair, honest
46
What are the BCOBS requirements relating to Customer Information?
Ensure fully informed decision
Give timely notice of changes to Ts and Cs
Keep them informed once they're a customer
47
What are the BCOBS requirements relating to Statements of Account?
Make freely available through appropriate channel
48
What are the BCOBS requirements relating to Moving Accounts?
Prompt and efficient service
Close accounts
Transfer balances
Direct debits and standing orders
49
What are the BCOBS requirements relating to Dormant Accounts?
Make funds available to reinvest in community
Make it easy for customers to trace, even if they lack sufficient info or haven't used it for a long time
50
What are the BCOBS requirements relating to Unauthorised payments?
Onus on account provider
Customer liable up to £50 if lost or stolen card or PIN
Customer fully liable if fraudulent or grossly negligent in their behaviour
51
What are the BCOBS requirements relating to the Right to Cancel?
Customer right to cancel within 14 days without giving a reason
There are exceptions
52
What are the exceptions to the right to cancel under BCOBS requirements?
Interest payable on a deposit is fixed for a period
Price depends on market fluctuations
Cash deposit Child Trust Fund
53
Name four areas that corporate governance is concerned with?
1) operational effectiveness
2) reliable reporting
3) legal compliance
4) safeguarding assets
54
What is the FRC?
Financial Reporting Council
Promotes high standards of corporate governance in the UK
55
What is the BBA?
British Bankers' Association
56
What are the five key principles of the BBA disclosure code?
1) meaningful disclosures regarding performance and financial position
2) ongoing evaluation of disclosures
3) acknowledge relevant guidance
4) enhance comparability across banking sector
5) distinguish audited and unaudited info
57
When does the banker/customer relationship begin?
Account holder- as soon as bank opens it
Other service- as soon as the bank agrees to provide the service
58
How is the banker customer relationship best characterised?
Debtor/creditor
Governed by contract
RBS vs Skinner 1931
59
What are the banker's principal duties?
Honour Cheques/payments on demand, provided they are funded, legal and safe
Secrecy of customer's dealings
60
Name four circumstances when a banker's duty of confidentiality may be superseded?
1) legal compulsion
2) public duty
3) in the bank's interest
4) with customer's consent
Tournier vs national provincial and union Bank of England 1924
61
What are duties of a customer?
Write cheques that are harder to alter
Keep cards/PIN numbers/passwords safe
62
What is the purpose of a compliance department?
Ensure compliance with laws, codes of practice, and internal policies
63
Name seven areas the compliance department is concerned with?
1) money laundering
2) consumer credit (CCA)
3) security
4) Regulatory principles
5) data protection
6) HR management - diversity etc.
7) industry codes of practice
64
What is a contract?
An agreement enforceable by law
65
Name five essential features of a legally binding contract
1) complete agreement on terms
2) consent
3) capacity (e.g. Age, mental state)
4) conform to formalities where relevant
5) be legal and possible
66
What might undermine the validity of a contract?
Flaws due to:
Lack of capacity
Lack of formality
Misunderstanding
67
What is a void contract?
Flaws are material
As if contract never existed
Neither party bound by it
68
What is a voidable contract?
Flaw but not material
One party can ask the courts to set the contract aside
69
Three stages to a co tract being entered into
Offer
Counter offer(s)
Acceptance
70
What is the BBA?
British Bankers' Association
71
What are the five key principles of the BBA disclosure code?
1) meaningful disclosures regarding performance and financial position
2) ongoing evaluation of disclosures
3) acknowledge relevant guidance
4) enhance comparability across banking sector
5) distinguish audited and unaudited info
72
When does the banker/customer relationship begin?
Account holder- as soon as bank opens it
Other service- as soon as the bank agrees to provide the service
73
How is the banker customer relationship best characterised?
Debtor/creditor
Governed by contract
RBS vs Skinner 1931
74
What are the banker's principal duties?
Honour Cheques/payments on demand, provided they are funded, legal and safe
Secrecy of customer's dealings
75
Name four circumstances when a banker's duty of confidentiality may be superseded?
1) legal compulsion
2) public duty
3) in the bank's interest
4) with customer's consent
Tournier vs national provincial and union Bank of England 1924
76
What are duties of a customer?
Write cheques that are harder to alter
Keep cards/PIN numbers/passwords safe
77
What is the purpose of a compliance department?
Ensure compliance with laws, codes of practice, and internal policies
78
Name seven areas the compliance department is concerned with?
1) money laundering
2) consumer credit (CCA)
3) security
4) Regulatory principles
5) data protection
6) HR management - diversity etc.
7) industry codes of practice
79
What is a contract?
An agreement enforceable by law
80
Name five essential features of a legally binding contract
1) complete agreement on terms
2) consent
3) capacity (e.g. Age, mental state)
4) conform to formalities where relevant
5) be legal and possible
81
What is the BBA?
British Bankers' Association
82
What are the five key principles of the BBA disclosure code?
1) meaningful disclosures regarding performance and financial position
2) ongoing evaluation of disclosures
3) acknowledge relevant guidance
4) enhance comparability across banking sector
5) distinguish audited and unaudited info
83
When does the banker/customer relationship begin?
Account holder- as soon as bank opens it
Other service- as soon as the bank agrees to provide the service
84
How is the banker customer relationship best characterised?
Debtor/creditor
Governed by contract
RBS vs Skinner 1931
85
What are the banker's principal duties?
Honour Cheques/payments on demand, provided they are funded, legal and safe
Secrecy of customer's dealings
86
Name four circumstances when a banker's duty of confidentiality may be superseded?
1) legal compulsion
2) public duty
3) in the bank's interest
4) with customer's consent
Tournier vs national provincial and union Bank of England 1924
87
What are duties of a customer?
Write cheques that are harder to alter
Keep cards/PIN numbers/passwords safe
88
What is the purpose of a compliance department?
Ensure compliance with laws, codes of practice, and internal policies
89
Name seven areas the compliance department is concerned with?
1) money laundering
2) consumer credit (CCA)
3) security
4) Regulatory principles
5) data protection
6) HR management - diversity etc.
7) industry codes of practice
90
What is a contract?
An agreement enforceable by law
91
Name five essential features of a legally binding contract
1) complete agreement on terms
2) consent
3) capacity (e.g. Age, mental state)
4) conform to formalities where relevant
5) be legal and possible
92
Define agency.
An Agent is empowered to act and make binding decisions on behalf of the principal
93
Define 'express consent' withy regard to Agency.
Verbal or written contract
E.g. Power of attorney
94
Define 'implied consent' withy regard to Agency.
Not written or verbal
By inference from conduct of the parties involved
95
Define 'holding out' withy regard to Agency.
Principals bound to the agreement made by he agent with a third party
96
Define 'ratification' withy regard to Agency.
Principal endorses the contract agreed by the agent
When e.g. Agent overstepped their authority or didn't have time to consult the principal
97
Define 'necessity' withy regard to Agency.
Agent acts on behalf of the principal in an emergency
98
What is a negotiable instrument?
Transferable
Signed document
Promise to pay bearer at future date or on demand
99
What is a bill of exchange?
Demand for payment
100
What is a cheque?
Type of bill of Bill of exchange
Demand for for payment
Drawn upon a bank
101
What's is a promissory note?
Promise to pay the bearer on demand
102
Sole trader
Unlimited liability including personal assets
Business account
Inform HMRC
103
Partnership
Identified by 'company' or 'co'
'Firm' and 'partnership' are synonymous
Start by drawing up an agreement
104
What is joint and several liability?
All parties to an agreement are liable for the full amount of the debt
105
What is an LLP?
Limited Liability Partnership
Act 2000
Organisational flexibility and tax benefits of a partnership
Limited liability
106
What is the main legislation affecting the formation of limited companies?
Companies act 2006
Companies act 1985 (esp. Charge over Scottish assets)
107
Name eight aspects of limited companies
Separate legal entity from shareholders
Perpetual succession
Limited liability to amount unpaid on shares
Managed by directors
One shareholder and one director (2 for Plc)
File annual accounts
Can issue a floating charge over all assets
108
Two types of limited company?
1) quoted/Plc/dealt in exchange
| 2) privately held
109
What is a statement of capital and initial shareholding?
Number
Class (ordinary or preference)
Nominal value, proportion paid up
Of shares at formation
Plc: min 50k capital, 12.5k paid up
110
What two clauses are required in a memorandum of association?
Statement that company has been formed
Statement that subscribers/founders have taken at least one share of specified value
111
What are articles of association?
Contract between shareholders and company
Model articles published by government
