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Professional Banker Certificate > 2. Regulatory And Legal Environment > Flashcards

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

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1
Q

When did the PRA and FCA come into being?

A

April 2013

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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

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3
Q

What are the 4 objectives of the FSA with regard to the UK financial system?

A
  1. Market confidence
  2. Stability
  3. Consumer protection
  4. Reduce financial crime
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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

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5
Q

What four risks did the FSA outline in the paper “A new regulator for a new millennium”?

A
  1. Prudential - collapse due to poor management
  2. Bad faith - mis-selling, fraud, etc.
  3. Complexity or unsuitability - lack of understanding by consumers
  4. Performance risk - investments fall short of forecasts
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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

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7
Q

Name eight groups to whom the FSA is accountable.

A
  1. Governors
  2. Non-exec directors
  3. Parliament
  4. Public
  5. Courts
  6. Treasury
  7. Practitioners and consumers
  8. Complaints Commissioner
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8
Q

What is the MiFID?

A

Markets in Financial Instruments Directive

Conduct of business requirements

Major per of FSAP

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9
Q

Give a timeline of Basel directives.

A

Basel I - 1988

Basel II - 2007 to 2008

Basel III - 2013 to 2018

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10
Q

What is the CRD?

A

Capital Requirements Directive

EU implementation of the Basel rules

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11
Q

What is Pillar I?

A

Minimum capital requirements.

Standardised and IRB approaches

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12
Q

What is Pillar II?

A

Supervisory review.

Extra capital for risks not captured in Pillar I.

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13
Q

What is Pillar III?

A

Disclosure.

Firms required to publish certain risk and capital information.

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14
Q

When did the consumer credit directive (CCD) come into force?

A

February 2011

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15
Q

What are the seven key elements of the consumer credit directive (CCD)?

A
  1. Adequate explanations
  2. Check creditworthiness
  3. Credit reference data requirements
  4. 14 day grace period
  5. Inform customer of debt is sold
  6. Intermediaries disclose fees
  7. Right to partial early repayment
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16
Q

What are the three high level aims of the consumer credit act 2006 (CCA)?

A
  1. Empower consumers to challenge unfair lending
  2. Set minimum standards of information provided to consumers
  3. Extend protection to all types of consumer credit
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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

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18
Q

How does the Consumer Credit Act 2006 (CCA) define an individual?

A

Also includes partnerships of two or three partners

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19
Q

Name two exemptions from the Consumer Credit Act 2006 (CCA).

A
  1. Lending to a business over £25k. Customer must sign agreement!
  2. Lending to a certified high net worth individual. Over £150k income or over £500k assets excluding house.
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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

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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.

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22
Q

What is the PSD, and what are its five objectives?

A

Payment Services Directive

  1. Single EU payment market
  2. Regulatory framework
  3. Level playing field
  4. Consumer protection
  5. Promote efficiency
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23
Q

What is money laundering?

A

Process where proceeds of crime are made to look legitimate.

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24
Q

What are the three stages of money laundering?

A

Placement

Layering

Integration

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25
Q

Describe the ‘Placement’ phase of money laundering.

A

Cash proceeds enter the financial system.

E.g. Many small deposits into an account (perhaps by many individuals)

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26
Q

Describe the ‘Layering’ phase of money laundering.

A

Many transactions, to hide the origin of the dirty money.

E.g. Purchase of valuables or early repayment of loans

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27
Q

Describe the ‘Integration’ phase of money laundering.

A

Funds are withdrawn without suspicion.

E.g. Sale of valuables, large cash withdrawals

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28
Q

What four things are financial institutions required to do regarding money laundering?

A

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

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29
Q

What defines an individual’s identity?

A

Name

Address

Date of birth

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30
Q

Data protection act 1998 - define ‘data’.

A

Information recorded for processing on a computer

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31
Q

Data protection act 1998 - define ‘personal data’.

A

Relating to a living individual who can be identified.

Also includes sole traders, partners, directors, shareholders.

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32
Q

Data protection act 1998 - define ‘sensitive data’.

A

Race, religion, political issues, health, sex, criminal record

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33
Q

Data protection act 1998 - what are the eight data protection principles?

A

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

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34
Q

Name the four new offences created by the anti bribery act 2010.

A

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)

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35
Q

Name three things that treating customers fairly (TCF) does not aim for.

A

1) customer satisfaction
2) identical service by all banks
3) taking responsibility away the customer

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36
Q

What are the 6 TCF drivers identified by the FSA?

A

1) leadership
2) strategy
3) decision making and challenge
4) controls
5) performance management
6) reward

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37
Q

How should LEADERSHIP reflect TCF?

A

Provide direction

Ensure monitoring and controls in place

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38
Q

How should STRATEGY reflect TCF?

A

Include in mission statement

Any business change considers TCF

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39
Q

How should DECISION MAKING AND CHALLENGE reflect TCF?

A

Show TCF is part of all decisions

Encourage employees to challenge anything which isn’t TCF

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40
Q

How should CONTROLS reflect TCF?

A

Monitor TCF behaviours

E.g. Surveys, mystery shopper, complaint numbers

Investigate and act on findings

Demonstrate compliance

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41
Q

How should PERFORMANCE MANAGEMENT reflect TCF?

A

All employees have TCF objectives

Include both what and how

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42
Q

How should REWARD reflect TCF?

A

Ensure incentives are compatible with and encourage TCF

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43
Q

What six customer outcomes must banks demonstrate to comply with TFC?

A

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

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44
Q

In brief, what brought about the Banking Conduct of Business standards?

A

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
Q

What are the BCOBS requirements relating to Communication?

A

Treat fairly

Clear, fair, honest

46
Q

What are the BCOBS requirements relating to Customer Information?

A

Ensure fully informed decision

Give timely notice of changes to Ts and Cs

Keep them informed once they’re a customer

47
Q

What are the BCOBS requirements relating to Statements of Account?

A

Make freely available through appropriate channel

48
Q

What are the BCOBS requirements relating to Moving Accounts?

A

Prompt and efficient service

Close accounts

Transfer balances

Direct debits and standing orders

49
Q

What are the BCOBS requirements relating to Dormant Accounts?

A

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
Q

What are the BCOBS requirements relating to Unauthorised payments?

A

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
Q

What are the BCOBS requirements relating to the Right to Cancel?

A

Customer right to cancel within 14 days without giving a reason

There are exceptions

52
Q

What are the exceptions to the right to cancel under BCOBS requirements?

A

Interest payable on a deposit is fixed for a period

Price depends on market fluctuations

Cash deposit Child Trust Fund

53
Q

Name four areas that corporate governance is concerned with?

A

1) operational effectiveness
2) reliable reporting
3) legal compliance
4) safeguarding assets

54
Q

What is the FRC?

A

Financial Reporting Council

Promotes high standards of corporate governance in the UK

55
Q

What is the BBA?

A

British Bankers’ Association

56
Q

What are the five key principles of the BBA disclosure code?

A

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
Q

When does the banker/customer relationship begin?

A

Account holder- as soon as bank opens it

Other service- as soon as the bank agrees to provide the service

58
Q

How is the banker customer relationship best characterised?

A

Debtor/creditor

Governed by contract

RBS vs Skinner 1931

59
Q

What are the banker’s principal duties?

A

Honour Cheques/payments on demand, provided they are funded, legal and safe

Secrecy of customer’s dealings

60
Q

Name four circumstances when a banker’s duty of confidentiality may be superseded?

A

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
Q

What are duties of a customer?

A

Write cheques that are harder to alter

Keep cards/PIN numbers/passwords safe

62
Q

What is the purpose of a compliance department?

A

Ensure compliance with laws, codes of practice, and internal policies

63
Q

Name seven areas the compliance department is concerned with?

A

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
Q

What is a contract?

A

An agreement enforceable by law

65
Q

Name five essential features of a legally binding contract

A

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
Q

What might undermine the validity of a contract?

A

Flaws due to:

Lack of capacity

Lack of formality

Misunderstanding

67
Q

What is a void contract?

A

Flaws are material

As if contract never existed

Neither party bound by it

68
Q

What is a voidable contract?

A

Flaw but not material

One party can ask the courts to set the contract aside

69
Q

Three stages to a co tract being entered into

A

Offer

Counter offer(s)

Acceptance

70
Q

What is the BBA?

A

British Bankers’ Association

71
Q

What are the five key principles of the BBA disclosure code?

A

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
Q

When does the banker/customer relationship begin?

A

Account holder- as soon as bank opens it

Other service- as soon as the bank agrees to provide the service

73
Q

How is the banker customer relationship best characterised?

A

Debtor/creditor

Governed by contract

RBS vs Skinner 1931

74
Q

What are the banker’s principal duties?

A

Honour Cheques/payments on demand, provided they are funded, legal and safe

Secrecy of customer’s dealings

75
Q

Name four circumstances when a banker’s duty of confidentiality may be superseded?

A

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
Q

What are duties of a customer?

A

Write cheques that are harder to alter

Keep cards/PIN numbers/passwords safe

77
Q

What is the purpose of a compliance department?

A

Ensure compliance with laws, codes of practice, and internal policies

78
Q

Name seven areas the compliance department is concerned with?

A

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
Q

What is a contract?

A

An agreement enforceable by law

80
Q

Name five essential features of a legally binding contract

A

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
Q

What is the BBA?

A

British Bankers’ Association

82
Q

What are the five key principles of the BBA disclosure code?

A

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
Q

When does the banker/customer relationship begin?

A

Account holder- as soon as bank opens it

Other service- as soon as the bank agrees to provide the service

84
Q

How is the banker customer relationship best characterised?

A

Debtor/creditor

Governed by contract

RBS vs Skinner 1931

85
Q

What are the banker’s principal duties?

A

Honour Cheques/payments on demand, provided they are funded, legal and safe

Secrecy of customer’s dealings

86
Q

Name four circumstances when a banker’s duty of confidentiality may be superseded?

A

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
Q

What are duties of a customer?

A

Write cheques that are harder to alter

Keep cards/PIN numbers/passwords safe

88
Q

What is the purpose of a compliance department?

A

Ensure compliance with laws, codes of practice, and internal policies

89
Q

Name seven areas the compliance department is concerned with?

A

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
Q

What is a contract?

A

An agreement enforceable by law

91
Q

Name five essential features of a legally binding contract

A

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
Q

Define agency.

A

An Agent is empowered to act and make binding decisions on behalf of the principal

93
Q

Define ‘express consent’ withy regard to Agency.

A

Verbal or written contract

E.g. Power of attorney

94
Q

Define ‘implied consent’ withy regard to Agency.

A

Not written or verbal

By inference from conduct of the parties involved

95
Q

Define ‘holding out’ withy regard to Agency.

A

Principals bound to the agreement made by he agent with a third party

96
Q

Define ‘ratification’ withy regard to Agency.

A

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
Q

Define ‘necessity’ withy regard to Agency.

A

Agent acts on behalf of the principal in an emergency

98
Q

What is a negotiable instrument?

A

Transferable

Signed document

Promise to pay bearer at future date or on demand

99
Q

What is a bill of exchange?

A

Demand for payment

100
Q

What is a cheque?

A

Type of bill of Bill of exchange

Demand for for payment

Drawn upon a bank

101
Q

What’s is a promissory note?

A

Promise to pay the bearer on demand

102
Q

Sole trader

A

Unlimited liability including personal assets

Business account

Inform HMRC

103
Q

Partnership

A

Identified by ‘company’ or ‘co’

‘Firm’ and ‘partnership’ are synonymous

Start by drawing up an agreement

104
Q

What is joint and several liability?

A

All parties to an agreement are liable for the full amount of the debt

105
Q

What is an LLP?

A

Limited Liability Partnership

Act 2000

Organisational flexibility and tax benefits of a partnership

Limited liability

106
Q

What is the main legislation affecting the formation of limited companies?

A

Companies act 2006

Companies act 1985 (esp. Charge over Scottish assets)

107
Q

Name eight aspects of limited companies

A

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
Q

Two types of limited company?

A

1) quoted/Plc/dealt in exchange

2) privately held

109
Q

What is a statement of capital and initial shareholding?

A

Number

Class (ordinary or preference)

Nominal value, proportion paid up

Of shares at formation

Plc: min 50k capital, 12.5k paid up

110
Q

What two clauses are required in a memorandum of association?

A

Statement that company has been formed

Statement that subscribers/founders have taken at least one share of specified value

111
Q

What are articles of association?

A

Contract between shareholders and company

Model articles published by government

Professional Banker Certificate (7 decks)

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