2) The Financial Services and Markets Act 2000 and Financial Services Act 2012 Flashcards
Chapter 2
How many parts is the FSMA divided into
30 parts
What is Part II of FSMA called
Regulated and Prohibited Activities
What is general prohibition
no one can carry on a regulated activity unless authorised (by the PRA
or FCA) or exempt from the requirement to be authorised
Where is general prohibition found in FSMA
Part II, Regulated and Prohibited Activities
What are the sanctions for not following general prohibition
up to two years’ imprisonment and an unlimited fine
effect of breaching general prohibition
agreements are unenforceable by the offending person against the other party
What does the transactional counterparty of someone failing general prohibition able to claim
The other party is entitled to recover any money or property transferred under the agreement and compensated for loss
How can you defend against general prohibition allegations
show that they took
all reasonable precautions and exercised all due diligence to avoid committing the offence
How to become authorized by FCA/PRA
apply for permission to perform particular
regulated activities; if that person satisfies the criteria, the regulator(s) will give permission
What is the name of the permission of authorization provided by FCA/PRA
Part 4A Permission
What does the term ‘person’ refer to
the trading entity/firm (often incorporated as a company), or an unincorporated entity (sole trader or partnership).
What is Section 39 FSMA and the FSMA Regulations 2001 for
appointed
representatives (ARs).
What is Section 285 FSMA for
recognised investment exchanges and clearing houses
What is Section 312A FSMA for
operators of multilateral trading systems
What is Section 316 FSMA for
members of the Society of Lloyd’s
What is the Part 20 FSMA for
professional firms
What is Section 71 of FSMA
a private person can sue a firm for damages if they suffer loss because the firm is found to be in breach of a statutory duty
What is the FSMA Exemption Order 2001 for
central banks, supranational bodies, local authorities, charities, industrial and provident societies
What does Section 56 of FSMA do
gives the regulators (FCA and PRA)
power to make a prohibition order
Whats a prohibition order
prohibiting an individual from performing a specified function
When may a regulator issue a prohibition order
if it considers the individual not fit and proper to perform the function
What may prohibition orders relate to
a particular regulated activity or regulated
activities generally
what if prohibition orders are breached
they are guilty of a criminal offence and liable to a fine
how to defend against allegations of breaching a prohibition order
show they took all reasonable care and exercised due diligence to avoid breaching the order
When may prohibition orders be made against exempt persons and also exempt professional firms
When they are acting in accordance with the Part 20 of FSMA that enables professional firms to undertake certain regulated activities under the supervision of their professional body rather than through direct authorisation from the FCA or the PRA
What are professional firms (3)
accountants, solicitors and actuaries
Part 20 FSMA
enables professional firms to undertake regulated activities under supervision of their professional body rather than through authorisation from FCA/PRA
What is Section 59 of FSMA
authorised person must take reasonable care to ensure that no person performs a role that required approval from the regulators
How to have a prohibition order varied or revoked
A person may apply to the FCA or the PRA
2 scenarios where Section 71 applies
- individual carries out a function breaching Section 56 prohibition order
- individual carries out a controlled function without prior approval (Section 59)
What does section 71 provide non private persons
ability to sue for damages as a consequence of negligence concerning prohibition orders
2 non private persons
businesses and trusts
Section 138D of the Financial Services Act 2012
circumstances a person who suffers as a result of a breach by an authorised person can claim for damages
how to claim for damages caused by an FCA rule breach
the person will only be required to show that the authorised person has breached a rule and that they have suffered a loss
what clarifies precisely what regulated activities
are
‘Financial Services and Markets Act 2000
AKA
Regulated Activities Order (RAO)
Two criteria that FSMA define regulated activities by
- A range of investments
- A range of activities which may be carried on in connection with those investments
what is required for those carrying out regulated activity
either authorisation or an exemption
what defines a regulated activity
the carrying on of a specified activity in relation to a specified investment which gives rise to regulated activity.
where are the activities and investments specified
secondary legislation issued under FSMA – principally the RAO
Is a listed activity acted on an unlisted investment counted as a regulated activity
No
how does RAO specify regulated activities
by reference first to the specified investments and then to the activities a firm may carry on in relation to those investments
Who mainly accepts deposits
banks and building societies
when dealing as principal, which investments are regulated activities
securities and contractually-based investments
examples of contractually based investments (4)
options, futures, CFDs, and life policies
home finance transactions (6)
regulated mortgage contract, a lifetime mortgage contract, a home reversion plan, a home purchase plan, and regulated sale and rent-back agreements
who operates MTF
investment firm or a market operator
what does MTF do
brings together multiple third party buying and selling interests in financial instruments
What can MTFs be assimilated to
alternative trading exchanges
Benefit of MTF
providing additional pools of liquidity to their members
Members of MTFs
banks, major mutual funds and large insurance companies
OTF
new type of regulated trading venue
What did OTFs follow
the implementation of the Markets in Financial Instruments Directive (MiFID II)
what do otfs permit the trading of
derivatives and other non-equity financial
instruments
what aren’t permitted to be traded on an OTF
Equity-like financial instruments
Where do you bid on emissions auctions
an auction platform
What is Non-discretionary management
when the firm does not make the final decision
Regulated activities in relation to debt
adjusting, counselling, debt counselling, debt collecting, debt administration
debt counselling
providing advice to a borrower about liquidation of a debt due under a credit agreement
what type of investment advice is regulated
advice on securities and relevant investments
what type of investment advice is not regulated
giving advice about deposits or generic advice (eg, ‘invest in the US, not in Europe’) OR giving information – facts
Example system for transferring dematerialized instructions
CREST
Who opens, closes and operates pension schemes
scheme trustees and/or scheme administrators
Where can A full list of the list of specified activities and specified investments be found
Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (Parts II & III).
insurance mediation activity
collective term for activities in connection with an insurance contract and assisting the admin/performance of an insurance contract
is Dealing in investments as principal regulated
Yes
what provisions are insurance mediation activities subject to
Insurance Mediation Directive.
who can deal in investments as principal
market makers, and those who solicit the public to induce them to deal
when is the use of contractually based inv. unregulated
risk management , as long as the company’s business is mainly unregulated activities and the sole purpose of the deals is to limit risks
Who is unregulated when dealing in investments as principal
individuals/companies not in the business of investments, and invest only for themselves in hope of profit -shares and bonds assigned under a life policy
When is there an exclusion for contractually based investments
unauthorized person deals with either an authorized person or an exempt person in the specific activity
unauthorised person enters transaction via non-UK office ) and deal with person based outside UK. which must be someone who, carries on any of the activities relating to securities or contractually based investments
What are members of groups/enterprises excluded from
Principal / Agent / arranging and Managing inv/ Safeguarding and admin / Sending dematerialized instructions / advising
when may a company be exempt from dealing as principal regulations
issuing its own shares, warrants or debentures, or purchasing its own shares in accordance with certain provisions of the Companies Act 1985
when are banks’ principal dealing not regulated
when the bank is providing finance to another person and accepting an instrument acknowledging the debt
Companies Act 1985
(Treasury shares) regulation
which principal transactions are excluded from principal dealing reg
*while acting as bare trustee(nominee in Scotland)
* selling goods or supplying services
* between members of a group or joint enterprise
* selling a body corporate
* employee share schemes
* overseas persons
* incoming e - commerce providers
What is newspaper, journal, magazine advice subject to
As it is not the principal purpose of the paper there is no need for authorisation
When may newspapers or magazines be subject to authorisation
If the principal purpose of a publication is the provision of investment advice, with a view to encouraging investors or prospective investors to undertake investment activity
What revokes a persons exclusion
the person is carrying on, dealing, arranging or advising activity in connection with a contract of insurance
When may a person have exclusion when carrying out a regulated activity
those who are:
* representatives of another party
* not holding themselves out as carrying on regulated activities,
* not receiving additional remuneration for providing these investment services.
Which overseas persons are excluded form reg
those not operating from a permanent place of business in the UK, transacting through an authorized or exempt uk person
Why are employee share schemes excluded from authorization
to encourage companies to set up schemes enabling their employees to hold shares in the company they work for
Four activities covered by employee share scheme exclusion
Principal / Agent / Arranging / safeguarding and admin
Appointed Representative
any type of person who entered into a contract with an authorised person to conduct regulated activity
How does regulation view appointed representatives regulated activity
is treated as being conducted by the principal Therefore principal must have relevant permissions for the activity requested by the appointed representative
What does an appointed representative become
an exempt person under FSMA for the conduct of permitted regulated activity
What does the authorised person become in regard to an appointed representative
authorised person becomes the principal, accepts legal responsibility for regulated activity conducted by the appointed representative
why do FCA and the PRA rules not apply to appointed representatives
they are not authorised persons
What did the FCA confirm as a result of the FCA Consumer Credit Regime
a firm can have limited permission (for certain regulated consumer credit activities), and can also be an appointed representative for other regulated non-consumer credit activities
who within an appointed representative firm may have to be approved for controlled functions
governors (directors, partners) and individuals performing customer functions
what are appointed representatives not permitted to do
deal as principal or manage investments
When did appointed representatives regime come into effect
8 December 2022
How did the FCA see to improve the appointed representative regime
reducing potential harm to consumers and markets
(2) main areas the FCA wanted to improve in the appointed representative regime
- Additional information on ARs and notification requirements for principals.
- expectations of principals.
FCA highlighted outcomes that it sought with its rules for ARs
-Principals responsibilities and oversight for ARs
-FCA will be able to challenge firms with ARs
-Principals address problems with their ARs
-Retail consumers can access better-quality information on principals and ARs
What rules did the FCA make regarding ARs? (2)
-Information and notification requirements
-Responsibilities of principals and FCA expectations
When are principals required to notify FCA of new ARs
30 days before the appointment takes effect
When must Principals provide information on ARs to the FCA
Within 60 days of the rules coming into force
What info must principals provide on ARs
Complaints and revenue data on ARs
What do FCA update the ‘register’ with
The regulated activities that principals permit their ARs to undertake
How do FCA intend to enhance oversight of the ARs
- adequate systems and controls
- sufficient resources
- monitoring growth
How has FCA implemented more effective responsibility for ARs
- assessing risk to consumers and market integrity
- overseeing to a comparable standard as if they were direct employees
What of ARs is reviewed annually
ARs’ activities, business and senior management
What must principals prepare annually for review
a self-assessment document
why are clearing systems connected to
formal exchanges
facilitate the settlement of the trades
Name of firms who operate clearing systems
clearing houses
What does FSMA give FCA the responsibility of doing
recognizing, regulating and supervising exchanges and clearing houses
what do exchanges and clearing houses need in order to be recognised by the FCA
They need to be fit and proper for their purpose
Terms for recognised exhanges and clearing houses
recognised investment exchanges
(RIEs), and recognised clearing houses (RCHs)
Benefit of being an RIE or RCH
They become exempt do not need FCA authorisation to carry out regulated
activities
What sets out the recognition and
notification requirements for RIEs
RIE and RCH Sourcebook in The FCA Handbook
Where are the current RIEs in the UK listed
the FCA’s Financial Services Register
What are UK supranational bodies not exempted from needing authorization for
contracts of insurance
UK supranational bodies examples 3
BoE, EIB, IMF
Who doesnt need authorization or exemption (can ignore FSMA)
members of Lloyd’s insurance market and certain designated professional bodies (DPBs)
Which activities carried on in connection with business at Lloyd’s are regulated
- advising syndicate participation
- being a managing agent for >1 syndicates
- arranging insurance contracts.
which members can carry out insurance contracts underwritten at Lloyd’s without the need for authorisation
members that ceased to be an
underwriting member at any time after 1996
Why do Lloyds members not need authorization
their activities are supervised and executed by the Society of Lloyd’s
What rules can be imposed on lloyds members
regulators have power to impose rules on
members of Lloyd’s if necessary
Part 20 of FSMA
five professions that can carry on particular
regulated activities without regulators authorisation
Who do Part 20 FSMA firms apply to for authorization
their relevant professional body
5 professions specified in part 20 fsma
accountants, solicitors, actuaries, chartered surveyors and licensed conveyancers.
What is a designated professional body DPB
The professional bodies that are able to grant permissions
3 examples of DPBs
ICAEW, law society, RICS
What can DPB members not do
Take deposits
Principal dealing
Home finance
CIS
Pensions
Managing lloyds
Insurance
Funeral plan contracts
By way of business
means holding oneself out as carrying on the activity on a commercial basis
how must regulated activities be carried out
by way of business
when is accepting deposits not considered to be carried out by way of business by a person
if they do not accept deposits on a day-to-day basis, and if the deposits they accept
are accepted only on particular occasions
what determines whether deposits are accepted only on particular occasions
frequency of the occasions, and any distinguishing characteristic
which only insurance mediation activities are regarded as by way of business
when they take up or pursue that activity for remuneration
factual analysis of whether a activity is carried on by way of business
the degree of continuity, the existence of a commercial element, the scale of the activity, the proportion the activity bears to other unregulated activities carried on by the same person, and The nature of the regulated activity
What does authorised person mean
those authorised by the FCA or PRA , overseas firms and the Society of Lloyd’s
What does Part 4A of FSMA mean
a firm becomes an authorised person, the firm can carry on its designated regulated activities without breaching the general prohibition
What does a firm become with 4A permission
an authorised person
What does 4A permission specify
which regulated activities the firm can carry on, the investments those activities may relate to, further requirements/special conditions attached to the permission
is the holding, or controlling, of client money regulated
No,
What decides who firms must send application packs to
the type of firm
Who may firms need to send application packs to
either the PRA and/or
the FCA (for FCA-only regulated firms)
dual-regulated firm
subject to both PRA and FCA supervision
Who do dual regulated firms apply to become authorised with
the firm will make a single application to the PRA as its lead regulator
Who decides whether dual regulated firms are authorised
the PRA makes the final decision ,only after the FCA has consented to the firm’s authorisation
Who provides application packs
Regulators
How are application packs tailored
towards the type of authorised activity to be applied for
What info is required from application packs
Core detail, controllers, bus. plan, significant events, approved eprsons form, checklist and declaration
Core details needed in an application pack
applicant’s legal form, summary details of ownership, accounting year end,
organisational structure and IT systems
who counts as an approved person within a business when filling out an application pack
Senior Management Function (SM&CR)
or a controlled function (APER) must send an individual form
FCA fee structure for application
’10 pricing categories’ depending on complexity of application - non refundable
after the PRA/FCA has received an application
allocated to a case officer to review, requesting further information if necessary
What does a case foficer do once it receives an aplpication
prepares a report for their line manager or team leader who will notionally approve the application
Who signs off case officer report
A committee
regulators statutory deadlines for determining cases
6 months for complete cases and up to 12 months for incomplete cases.
When may an authorised firm require re authorisation
firm that was previously unincorporated (eg, a sole trader, or partnership) decides
to incorporate (eg, become a limited company or a limited liability partnership (LLP))
How do previously authorised newly incoorporated firms apply differently
simplified application pack submitted (change of legal status), along with a reduced application fee
Why do regulators carefully consider companies that are changing structure and reauthorising
to ensure that the firm is not trying to escape its existing liabilities
through any structure change.
what are Threshold Conditions (TCs)
minimum standards expected of authorised persons being, and remaining, authorised
what did the The FSMA (Threshold Conditions) Order 2013 do
redistributed responsibility for TCs between the FCA and PRA. Some FCA TCs will apply to all firms, including dual-regulated firms
why do firms need to provide a comprehensive business plan for the regulator
to refer to in any subsequent changes to a firm’s regulatory permission changes as it sees rigorous business model analysis as the key to an effective supervisory regime
when were the latest Threshold conditions issued
August 2023
Who assesses dual regulated firms
FCA assesses only conduct issues, the PRA assesses prudential issues
Who assesses solo regulated firms
FCA will assess the applicant for both conduct and prudential issues
The last update to the TCs
The business model threshold condition, to demonstrate the importance of an appropriate business model
what has the FCA stated that it will recommend for a firm not meeting TCs
refusal at an early stage
What does FCA early refusal act as
a catchall provision in determining ongoing sustainability and a good fall-back position for a firm’s refusal to entry to the FCA if need be
Who do PRA-specific threshold
conditions apply to
banks, building societies, credit unions and designated investment firms
minimum standards in relation to being an authorised person (TCs) for 4A permission
Legal status, Office location, Prudent business, Supervision, Resources, suitability, business model, claims reps
what can individuals and partnerships not do
hold banking deposits or to complete insurance business
Where must companies have their head office to be authoirised
the UK
what does the appropriate resources test reflect
the importance of firms considering
the quality as well as quantity of resources available
what are The revised TCs two extra listed matters as relevant to appropriate resources
the nature and scale of the firm’s business; and the risks to the continuity of the services provided by the firm
How does FCA assess appropriateness of non-financial resources
considering the skills and experience of those who manage the firm’s affairs.
Who is the only firm type to have claims representatives
Motor insurers
Who does PRA regulate
banks/depositor takers and insurance companies
The purpose of the regulators’ supervision arrangements
to mitigate and manage risks to the
regulators’ statutory objectives
What do FCA’s supervisory efforts focus on
conduct issues of both FCA and PRA-authorised firms, prudential regulation for authorised firms not authorised by the PRA
What is FCA strutcurrd approach designed to do
Identify main risks, MEasure importance of risk, mitigate risk, monitor progress of risks
Three types of work the FCAs approach to supervisory role is based on
Proactive, Reactive, Thematic
PRoactive firm supervision
pre-emptive identification of harm
reactive supervision
issues that have already materialsied
thematic supervision
when there is a wider risk to a number of firms
fixed protfolio firms
The firms who pose the greatest risk to the FCA’s statutory objectives and will receive particular attention
examples of fixed portfolio firms
largest banks, insurers and investment
firms
opposite of fixed portfolio firms
flexible portfolio
what are fixed portfolio firms subject to
programme of firm or group-specific supervision (Pillar 1)
What are flexible portfolios subject to
event-driven reactive supervision (Pillar 2) and thematic review or
product supervision (Pillar 3)
How has the FCA supervised flexible prtfolios
market-based thematic review work, communication, engagement and education activity aligned to the key risks
First point fo contact for firs under flexible portfolios
will not necessarily have a named supervisor and their first point of contact will be the FCA’s customer contact
centre
Fixed portfolio supervision
12 to 36 month cycle covering firm meetings, reviews of management information, an annual strategy meeting and other proactive firm work
what do deep dive assesments do
look at how a firm’s business operates in practice and can be
scheduled as part of the regulator’s supervisory strategy
what do o business model and strategy
analysis (BMSAs) do
identifying where FCA sees common indicators of heightened risk,
such as a firm’s particular strategies
what does the PRA use its Proactive Intervention Framework (PIF) for
to capture their assessment of the proximity of each of its authorised firms to failure.
what if a firm’s viability is assessed as deteriorating
the PRA supervisors will review their supervisory actions accordingly
why is the FCA supervisory approach focussed on managing failure when it happens rather than focusing on reducing the probability of failure
isolated failures of FCA-only firms will not present a risk to the
integrity of the financial system as a whole, since the PRA authorises all deposit takers, insurers and
significant investment firms. The focus of the FCA is on ensuring that client assets are protected and that
a firm can be run down without adversely affecting consumer
four supervisory tools available to regulators
Identify, Diagnose, Remedy, Evaluate
variety of methods for checking whether individual firms remain compliant used by regulators
desk-based reviews
* liaison with other agencies and regulators
* meetings with a firm’s management
* on-site inspections
* analysis of periodic returns and notifications
* reviews of past business
* transaction monitoring
* auditors’ reports
* skilled persons’ reports
Section 166 of FSMA
regulator can require a firm to appoint an
independent skilled person to conduct a report on an aspect of the firm’s business
whod defines the scope of review of a skilled person
regulator
who is the contract of an appointed skilled eprson between
the firm and skilled person
Form A
submitted to the regulator by the firm to allow approved person access to perform senior manegemtn functions
what does form a include
questions to establish a person’s employment history and fitness
and propriety
when may an abbreviated form of form A be submitted
if the person is already an
approved person executing a similar function
What must a firm get prior to form A
‘regulatory reference’ from a candidate’s current employer and anyone who has been a candidate’s employer for the past six years.
What is a statement of responsibilities as part of Form A
the firm’s affairs for which that person will be responsible for managing in performing the function. The regulators expect that each responsibility will be allocated to a single senior manager.
How long is the FSMA imposed statutory obligation on the FCA and PRA to reach a determination on a person’s fitness
and propriety
within 90 days of receiving a Form A.
what if If the regulators consider that they need further information from a firm in order to reach a fitness and
propriety determination
they may stop the statutory ‘clock’ until such time as the information requested is received
what If adverse information about the candidate comes to light during the determination process
the firm must notify the regulators
what if If a person does not wish to proceed with an application
the regulators must be formally notified using a separate form
what are Individuals performing SMFs within authorised firms required to have
approval by the regulator as fit
and proper before taking on that function
who is repsonsible with making the application to satisfy the regulator(s) that the candidate is fit and proper
the firm
most important factors looked at for fitness and proprierty of a person
- honesty, integrity and reputation
- competence and capability, and
- financial soundness.
how is honesty integrity and reputation measured by regulators
previous record, refused trade license, involvment in insolvent business, disqualified or dismissed as director/position of trust
how would a regulator measure the competence and capability of an applicant
- satisfies requirements in the Training and Competence Sourcebook
- demonstrated experience and training to fulfil the SMF
- has time to perform the function and meet responsibilities associated with it
How does a regulator monitor the financial soundness of an applicant
- debt or another award that remains outstanding that was not satisfied within a reasonable period
- has filed for bankruptcy, been adjudged bankrupt, had their assets sequestrated or made arrangements with their creditors.
What is not asked for when measuring financial soundness of an SMF applicant
a statement of a person’s assets and liabilities
when did the FCA and the PRA published separate consultation papers on D+I
end of September 2023
What is the PRA proposing that all firms appoint
SMF) to be responsible
for the firms D&I development and implementation as a prescribed responsibility
How are FCA ammending their FIT sourcebook
firms should take into account ‘NonFinancial Misconduct’ in their assessment of an individual being deemed to be ‘fit and proper’
How long is the transition period for new changes from PRA and FCA D+I
12 months
COCON)
the Code of Conduct for Staff sourcebook - covers bullying, harassment towards employees, employees of group companies and contractors
how does cocon decide whether this ‘conduct’ should be treated as a private life matter
whether the conduct took
place on firm premises / using firm equipment / involved work colleagues / was intended to
benefit the firm
is conduct at a client/firm-organised social event in scope of cocon rules
yes it is in scope
Individual
Conduct Rule 1
integrity
Individual Conduct
Rule 2
due skill, care and diligence
who is tasked with responsibilities in relation to culture, developing
and implementing the firm’s D&I strategies
an SMF
What is FCA introducing to COCON guidance
factors that breach individual conduct rules 1 and 2 and how this should be referenced in regulation
where is there no requirement of a D&I SMF
UK BRanches
who becomes D&I SMF in UK Banks
o the Chair and CEO respectively
who do uk branches allocate to be SMF of D&I
HEad of branhc, as shown in statement of responsibilities
How does the FIT proposal differ to the COCON rules
‘Bullying’ violence and sexual misconduct within the workplace is relevant and that similar behaviour in a person’s personal life is also relevant
prescribed responsibility H
overseeing the adoption of the firm’s culture in the day-to-day management of the
firm
prescribed responsibility ‘i’
responsibility for leading the development of the firm’s culture by the governing body as a whole
are SMFs accountable for a failure to meet D&I target
no - they are expected to
understand and discuss with regulators why targets have been set at a particular level and, if not be met, reasons for this
who is expected to design and implement a “well developed and evidenced based” D&I strategy
the revelant SMF
what is FCA’s guidance to explain how ‘Non-Financial Misconduct’ part of
the Fit and Proper test for Employees and Senior Personnel (FIT) section of the FCA’s Handbook
who are SMFs in relation to
PRA, not FCA
limited scope firms
Firms that have fewer requirements than core firms. This covers all firms
that would have previously been subject to a limited application of the
APER
who carries out FIT proposals
FCA
who holds SMF roles 9-14 for UK banks
approved NEDs, rather than executives
‘EEA-passporting’ banks
Banks that were formerly passporting in to the UK, now referred to by the PRA and FCA as ‘third country firms’
Which risk dependsnt additional SMF may be required for third country firms
SMF4 Chief Risk Officer
Which SMFs are required for third country firms (3)
- SMF 16 – Compliance Oversight.
- SMF 17 – Money Laundering Reporting Function.
- SMF 21 – EEA Branch Senior Manager Function.
FCA examples of non-financial misconduct:
violence, sexual or racially motivated offences, dishonesty
fca solo regulated vs pra approach to smcr
a tailored and more appropriate approach for solo regulated firms, than what applies
to banks and deposit takers
who does SMF 15 apply to
insurance companies. It does not apply to UK banks
sm&cr fca 3 types of solo regulated firms
Limited Scope, Core and Enhanced Firm.
examples of limited scope firms
sole traders, oil market. service, energy, AIFs
enhanced firm
A small proportion of solo-regulated firms that will have to apply extra
rules
what SMFs do core and enhanced firms require
SMF1 – Chief executive
* SMF3 – Executive director
* SMF27 – Partner
* SMF9 – Chair
* SMF16 – Compliance oversight
* SMF17 – MLRO
what do pra and fca do if they both want to interview a smf candidate
coordinate a single joint interview with the applicant. Both organisations do, however, reserve the right to conduct solo interviews
core firm
Firms that will have a baseline of SM&CR requirements applied
whuch smf do Limited permission consumer credit firms need
SMF29 – Limited scope function
Under the SM&CR, how often are authorised firms are required to satisfy themselves that the ongoing fitness and propriety of those individuals for whom approval to perform an SMF has been
granted is sufficient
annually
whuch smf is only required for enhanced firms
- SMF18 – Other overall responsibility
what smfs do //Authorised professional firms whose only regulated activities are non-mainstream- regulated activities// oil/energy/service/landlords// apply for
SMF16 – Compliance oversight
SMF17 – MLRO
SMF29 – Limited scope function
who must be satisfied that an
individual is fit and proper to perform an SMF in order for the application to be approved
both PRA and FCA
what smf do Sole traders with no employees need
SMF16 – Compliance oversight
who assesses smf applications
the FCA (solo-regulated firm) or by the PRA and FCA (dual-regulated firms, such as a bank)
what smfs do insurance intermediaries apply for
SMF29
when may fca pra decide to interview smf applicants
most senior roles at the largest firms
The Directory/ Financial Services Register
public register for checking the details of key people working in the financial services
industry
The Principles for Businesses
require firms to take reasonable care to ‘organise and control their affairs
responsibly and effectively
who is responsible for ensuring that the information maintained in the directory, by the FCA, is accurate
the firm of the employee
aside from smfs where else is there an annual need to review fitness and propriety
annual fitness and
propriety determinations on those individuals captured by the Certification Regime.
how do firms comply with principles of business
the firm must, ensure that
employees involved in a regulated activity achievs and maintains the competence needed for this role
what is The Directory is designed to do
- customers can identify individuals selling financial advice to protect from scams
- firms can cross-check employee references, make their staff known to customers; and make it more difficult for unsuitable individuals to work in the industry,
- support the FCA, law, professional bodies and regulators to monitor the market, build intelligence and target interventions
Training and Competence (TC) Sourcebook
emphasises the outcomes
which should be achieved by firms through their internal training and competence arrangements, as opposed to prescribing how the arrangements should work
which activities fall within the scope of the TC Sourcebook, when they are conducted with or for retail clients
advice, dealing, brokering, pension transfer, managing inv., CIS
where are the principles of business expanded on
the section of the Handbook dealing with senior management
arrangements, systems and controls (SYSC).
what if an individual does not gain their qualification in 30 months
they have to cease the activity to which the qualification relates and they may not recommence the activity until they attain the full qualification
what is included in the sysc expansion of the principles
high-level competence requirement which
applies to all UK authorised firms, whereby firms must employ personnel with the skills, knowledge and
expertise necessary for the discharge of the responsibilities allocated to them
overriding rule for competence
an individual conducting a specified activity is not eligible to be assessed as
competent until they have attained their full qualification requirement
hOW ARE OVERSEER ROLES SEEN AS AN EXCEPTIPON TO TRAINING AND COMPETENCE
they dont need any qualifications , they can work under supervision
largely based overseas and who spend no more than 30 days in the UK under appropriate supervision are exempt from what
does not have to apply to be approved for a customer function
– and they would not normally be subject to the certification regime of the SM&CR
Exemption from qualification requirement is possible if (3)
- at least three years’ relevant experience from outside the UK
- not previously required to comply with the relevant examination requirements,
- passed the relevant module of an appropriate examination.
Public Interest Disclosure Act (PIDA) 1998
legislation to protect individuals from
retaliation, if they inform the regulatory authorities of concerns at work
time limit for attaining a qualification to prove competence
30 months – apart from theoverseer roles, where this is a suggested time limit
who defines precise job roles and standards of competence and conducts
a proper assessment of competence
the firm
what events are Firms required to notify the FCA of, regarding advisers
- a previously competent adviser no longer considered competent
- an adviser failed to attain appropriate qualification within prescribed time limits
- an adviser failed to comply with a Statement of Principle in carrying out their controlled function
- an adviser performed specified activities before being assessed as competent without appropriate supervision.
when are employee training needs assessed
at the outset, and again at regular intervals (including
if their role changes).
why is There is an exemption from the qualification requirements in certain circumstances
to help individuals
who have been based overseas who spend no more than 30 days in the UK under appropriate supervision
what caused provisions to also apply to individuals advising on retail investment products
implementation of the Retail Distribution Review (RDR) / AKA the adviser charging
rules
supervisory rules
Firms must not allow an employee to carry on any of those specified activities without appropriate supervision. - appropriately supervised at all times
when may intensity of supervision be greater
in the period before a firm has assessed its
employee as competent
What must firms ensure of supervisors
They have the necessary coaching and assessment skills, as well as the
technical knowledge associated with the activity - it is appropriate to require the supervisor to have attained an
appropriate qualification
what are firms required to consider at all stages
the level of relevant experience which an employee has in determining the level of supervision required
when are supervisors required to have qualifications
supervisors who oversee those individuals
who advise on retail investment products and who have not yet been assessed as competent
who formalised their whistleblowing procedures
FCA 2015, package of rules to encourage a culture where individuals feel able to raise concerns
what is taken into account when maintaining the competence of employees
*the individual’s technical knowledge and its application in the role
* their skills and expertise,
* changes in the market and to products, legislation and regulation.
How is training itself assessed
quality and effectiveness
In 2013, what did the Parliamentary Commission on Banking Standards (PCBS) recommended that banks put in place
additional mechanisms to allow their employees to raise concerns internally and appoint a senior person to take responsibility for the effectiveness of these
arrangements.
whistleblowing
informing the regulatory authorities of concerns that might come to their attention at their place of work
what will the regulator take into account the following to determine if the firm has complied with the whistleblowing measures
- the firm’s written procedures state that there may be other appropriate routes for some issues, for example, through employee grievances or consumer complaints; however, internal arrangements
as set out in SYSC 18.3.1R(2) can also be used to blow the whistle after alternative courses of action have been exhausted - firms can take action against those who have made false and/or malicious disclosures.
who becomes the whistelblowing champion
non-executive director, or a senior manager if a firm does not have a non-executive director, expects insurers to apportion the role to a director or senior manager
When did FCa and PRA rules of whistleblowing come into effect
2016
who do whistelblowing rules apply to
deposit takers (banks, building societies, credit unions) with over £250 million in assets, and insurers subject
to the Solvency II Directive
who should whistleblowing arrangements include appropriate training for
- UK employees
- managers of UK employees
- employees operating the firm’s internal arrangements
what are the key rules of whisteblowing for a firm
- appoint a whisteblowing champion
- internal arrangements
- inform uk employees
what should The whistleblowers’ champion have
authority and independence within the firm, access to appropriate resources (independent legal advice and
training) and sufficient information
what criteria does the whistleblowing champion have to meet
does not need a day-to-day operational role, be based anywhere – and meet the criteria of the Senior Managers arrangements within the Accountability Regime
How did the FCA improve whistleblowing in 2023
improving the use of information provided by whistleblowers, improving
how FCA captures information from whistleblowers, sharing further information
with whistleblowers on how it’s acted on their information
Where are The criteria and procedures for making decisions concerning disciplinary matters set out
the Regulatory Handbook called Decisions, Procedures and Penalties Manual (DEPP)
what does the Regulatory Handbook called Decisions, Procedures and Penalties Manual (DEPP) cover
- statutory notices the FCA or PRA may issue
- the Regulatory Decisions Committee (RDC)
- settlements, penalties and the power to impose suspension or restrictions
- the FCA’s and PRA’s policy on assisting overseas regulators.
What is found in the same block as the DEPP manual
the Enforcement Guide (EG)
What does the enforcement guide set out
regulators’ approach to its enforcement powers under FSMA and Unfair Contract Terms Regulations, and how regulators operate through its Enforcement Divisions
what was the FSA’s structured framework for market misconduct based on
- Removing profits made from misconduct.
- Setting a figure to reflect the seriousness of the breach.
- Considering aggravating/mitigating factors.
- Achieving the appropriate deterrent effect.
- Applying any settlement discount.
What is The settlement discount designed to provide for
earlier redress, protection to consumers and cost savings for the regulator and the firm by allowing the firm to negotiate the
financial penalty and other conditions imposed by the regulator
How much can the settlement discount be
up to 30%
What did The FCA receive new powers from
the Financial Services Act 2012 - It is allowed to announce publicly that it has begun disciplinary action against a firm or individual
What details can The FCA publish to announce disciplinary action
details of a warranty notice proposing disciplinary action- regulator must consult with the recipient concerned before publishing such a notice
who makes the decisions which are implemented in the statutory notices
Regulatory Decisions Committee (RDC)
How does the RDC meet
either in its entirety, or as a panel, depending on the issue under review
who must be present at RDC meetings
the chairperson or their deputy
Why is the RDC not advised by the same legal team that advises the regulator’s enforcement team
The RDC also has its own legal function
what does the RDC have responsibility for
statutory decisions
what if If a decision on a statutory notice is not made by the RDC
decision would be made under the FCA’s
executive procedures. which enable the FCA to use statutory powers when individual guidance or voluntary agreement is not appropriate
when would a decision on a statutory notice be made by FCA instead of RDC
if the FCA has concerns about the firm and, the regulator requires a firm to report on trading results, customer complaints or management accounts
The Enforcement Decision Making Committee (EDMC
Bank of England new committee it had set up to hear and consider enforcement cases
purpose of the EDMC
to strengthen the BoE’s enforcement processes by ensuring a functional separation between the Bank’s investigation teams and its decision makers
3 EDMC regimes
- Prudential Regulation.
- Financial Market Infrastructure.
- Resolution
What is The EDMC composition independent of
the Bank and neither do its executives sit on any other committee, panel or board of the Bank
what does the EDMC consist of
up to nine members appointed by the Court, of which
typically three should be legally qualified
What are two of the legally qualified EDMC members given the title of
chair of the EDMC and a deputy chair.
what are statutory notices
a variety of notices to authorised firms and/or approved persons
who can issue statutory notices
FSMA gave this power to the FCA
why are statutory notices published
‘inform the public, maximise the
deterrent effect of enforcement action and make sure our decisions are transparent’,
4 types of statutory notices
Warning, Decision, Supervisory, Final notices
What are warning notices
providing the recipient with details about the action the FCA proposes to take and
why it proposes to do so
What right does The regulator give the recipient to reply to warning notices
the right to make representations as
to why the FCA should not take the action proposed
What are decision notices
providing details of the action which the FCA has decided to take, allowing the
recipient the opportunity to appeal
When may a further decision notice follow the first issue of a decision notice
when the FCA has agreed with the recipient to take a different course of
action - only issued with the consent of the recipient
What do supervisory notices do
providing the recipient details regarding the action the FCA has taken or
proposes to take
immediate effect of a supervisory notice
a firm’s Part 4A permission would be limited (and hence it would seem reasonable for the FCA to alert the public to the fact that the firm is no longer permitted to carry out certain activities
what are final notices
set out the terms of the final action which the FCA has decided to take and the date
from which it will take effect
what is different about final notices as opposed to warning and decision notes
they are published by the FCA, on its website. The FCA must get approval from the recipient to publish a warning notice.
Further two notices the FCA can publish
requirement notices and cancellation notices.
when did the FCA publish a policy statement and rules relating to issuing statutory notices
2021
How did the FCA streamline their decision
making and governance to respond more quickly
specific decisions would
be moved from the Regulatory Decisions Committee (RDC) to the FCA’s Authorisations, Supervision and
Enforcement Divisions
three possible forms of formal disciplinary sanction
- public statements of misconduct (to approved persons, ie, individuals)
- public censures (authorised persons, firms)
- financial penalties
what assists the regulators in meeting their statutory objectives
The imposition of regulatory enforcement measures (such as fines and public statements/censures
how can the FCA can take a lower-key approach if it feels this is more
appropriate
- issue a private warning
- take supervisory action, such as:
- varying or cancelling firm’s Part
4A/removing its authorisation
- withdrawing regulatory approval
provided to a person performing a
SMF
- prohibiting an individual from
performing a role in relation to a
regulated activity.
When may the FCA utilize their lower-key approach
if its necessary to take protective/remedial
action rather than disciplinary, if a firm’s ability to meet its threshold conditions
, or if an individual’s fitness and propriety, are called into question
When the regulator is considering formal disciplinary against an authorised firm and/or an approved
individual, what does the FSMA require
it is required by FSMA to issue one or more notices
two broad categories of statutory notices
warnings and decisions.
are Warnings in themselves disciplinary events
Warnings are not in themselves disciplinary events
why are warnings not seen as disciplinary
because for an action to be regarded as disciplinary, a decision must have been made
Other alternatives to a warning being final
- discontinued by the issue of a notice of discontinuance
- varied with agreement in a further decision notice
- confirmed in a final decision notice.
In determining whether to take regulatory enforcement measures what will the regulator consider circumstances relevant to the case
- The nature and seriousness.
- The conduct of the firm after.
- The previous regulatory record of the firm/approved person.
when are private warnings issued
by the regulator when concerned about the firms/individuals behaviour but decides it is not appropriate to bring formal disciplinary.
It may include cases of potential (but unproven) market abuse,
or where the FCA considered making a
prohibition order but decided not to
what does the regulator do when issuing a private warning
the regulator believes it is helpful to let the recipient know that they came
close to disciplinary action and the private warning serves this purpose
The benefit of a private warning
it avoids the reputational damage which could follow on from more public sanctions, such as a fine or public censure
What does a private warning state
the regulator had concern but, does not
intend to take disciplinary action.
It will also state that the private warning will form part of the firm’s compliance history and will require the recipient to acknowledge receipt of the warning notice and invite a response
what if an individual accepts a private warning concerning fitness and propriety
the individual should consider to any impact may have on that person’s ability to perform a Senior Management Function role in future. This is increasingly being used as a less resource intensive regulatory approach by the FCA
Variation of permission
the Part 4A permission granted to the firm can be varied/cancelled on the relevant
regulator’s own initiative
when may regulator will consider varying a firm’s Part 4A permission
- under Section 55L of the Act, the firm
appears to be failing, or likely to fail
*under Section 55L, it appears the interests
of consumers are at risk as the firm appears to breached any Principles 6 - 10 of the FCA Principles of Businesses
Section 55L and 55M of the Act
sets out further grounds on which the regulator may cancel the permission of authorised persons which are investment firms
Tax and Chancery Chamber of the Upper Tribunal (Upper Tribunal)
The regulator’s decision to withdraw approval
when may the regulator not publicise the final decision notice in relation to the withdrawal of approval
unless this would prejudice the interests of consumers.
under what section of the FSMA does the regulator have the right to make a
prohibition order against an individual
Section 56
how many statutory objectives do regulators have
4
with withdrawal of approval and prohibition of individuals what is the regulator is required to
first issue a warning notice to the
individual and their firm, and secondly issue a decision notice. Again, the regulator’s decision can be referred to the Tax and Chancery Chamber of the Upper Tribunal.
does the regulator publicize the final decision notice in relation to the prohibition of the individual
Yes
What are regulators empowered under FSMA to issue firms and individuals respectively if it considers them to have contravened a requirement
public censure on firms
a public statement of misconduct for individuals
what leads to a firm receiving a public censure
breaching the Act
what leads to an individual receiving a public statement of misconduct
Breaching Conduct Rules, Senior Conduct Rules, involved in a firm’s contravention of r the Act.
what are regulators are able to in regard to misconduct
- issue a warning notice
- follow with a decision notice,
- then provide the firm with the right to appeal to the Upper Tribunal
alternative to public censures/statements of misconduct
financial penalties on firms
who provides guidance to the criteria used to decide to issue public censures/statements (and no fine), rather than impose a financial penalty
the regulator
when may a financial penalty be more likely that a public censure
- If the firm avoided a loss or made a profit from their breach
- If the breach or misconduct is more serious in nature or by degree
- A poor disciplinary record or compliance history
what could lessen the likelihood of financial penalty
Admission of guilt, full immediate cooperation, ensuring consumers are fully compensated
How are financial penalties issued
warning notice, decision notice, final decision notice , final decision made public through a press release.
when may a regulator choose not to issue a press release for a financial fine
in circumstances where it would be unfair on the person, or prejudicial to the
interests of consumers
what does a regulator publish alongside a notice of financial penalty on its website
the rationale for the decision and the specific rules and/or Principles for Businesses that have been breached
why should firms monitor publicized breaches
stay informed of the regulator’s approach and to help them mitigate against similar failings in their own firms
what right does a person who receives a decision notice have
the right to refer the regulator’s decision to the Upper Tribunal in 28 days
What does a recipient of a decision notice have 28 days to do
to decide whether to refer the decision, the regulator cant take the proposed action for this period .
who appoints the The Upper Tribunal
the Government’s Ministry of
Justice
who is the The Upper Tribunal independent of
regulator
what was the Government’s Ministry of
Justice previously called
the Department of Constitutional Affairs
what does The Upper Tribunal involve
a full rehearing of the case and will determine on the basis of all available evidence whether the regulator’s decision was appropriate
what may the upper tribunal include as evidence
evidence which was not available at the time the original notice was issued.
who is The Upper Tribunal’s decision binding on
the regulator
is It possible for a firm or individual to appeal a decision of the Upper Tribunal
only on a point of law: for this, permission is needed either from the Upper Tribunal itself or from the Court of Appeal
what additional enforcement powers did The Financial Services Act 2012 provide the FCA with
short-selling disclosure rule-making and power to impose fines on those who breach short-selling rules
* the power to suspend
* the power to impose fines on individuals who carried out controlled functions without approval,
* financial stability info-gathering power.
what is allowed for cases where there is a need for prompt intervention in regard to consumer protection
Temporary product intervention rules - products can be banned (for up to 12 months) without the need for consultation.
which financial promotions are the FCA able to ban
where they are deemed to be misleading, remove promotions from the market immediately, without the
need to go through the normal enforcement process.
how can FCA respond to a firm replying to their promotion being banned
FCA will decide whether to confirm,
amend or revoke the direction
how are Upheld directions published
along with a copy of the promotion
and the reasons behind the decision
can Firms appeal against the decision to the Upper Tribunal.
Yes
how does The power to ban financial promotions help the FCA
in its goal to raise standards in particular areas - may harm consumers financially , but also where promotions affect consumers’ ability to make informed choices and secure the best deal
Under Section 165 of FSMA
FCA and the PRA are given powers to require info from authorised firms.
Who do the powers of Section 165 FSMA extend to
authorised persons, persons connected with authorised persons, RIEs and RCHs
How do regulators request
information from authorised firms
provide a written notice to an authorised person
who can request documents and/or information without delay
the regulator’s staff
(for example, regulatory supervisors
what does Section 166 of FSMA give the FCA power to obtain
a view from a third party ( ‘skilled person’) about a firm’s activities if the FCA is concerned
Two types of skilled person reviews commissioned by the FCA
- S166 reports by skilled persons
- S166A – the skilled person is appointed to collect and update information.
How is a skilled person chosen
the regulated firm can put forward its preferred choice of skilled person, for the FCA’s approval.
the FCA will contract directly with a skilled person firm
Section 167 of FSMA
gives the regulators further information-gathering powers
What does section 167 require of firms
To appoint one or more competent persons to provide a report on any matter the regulator has required or could
Who is considered a competent person under section 167
solicitors or accountants
what is The purpose of the appointment
by the regulator of a competent person
to carry out general investigations in relation to identifying the nature, conduct or state of the business of an authorised person or an appointed representative
Section 168 of FSMA
permits either regulator to appoint competent persons (one or more) to carry out investigations on its behalf
When may a regulator appoint a competent person to investigate on its behalf
- Sections 177/191 (offences) or 398(1) (misleading the
regulator) - Section 24(1) (false claim to be authorised or exempt); misleading statements and practices,
- a breach of general prohibition of regulated activities, market abuse
and there may have been a contravention of Sections 21 or 238 of the Act
(Restrictions on Financial Promotions).
when may a regulator undertake the appointment of a person to carry out investigations
- carrying out authorised activities when they are not authorised to do so (Section 20 of FSMA)
- money laundering
- contravened a rule made by the regulator
- not fit and proper to perform regulated activity
- performed a function in breach of a prohibition order
Section 20 of FSMA
carrying out authorised activities when they are not authorised to do so
Section 56(6)
failed to comply with a prohibition order
approval under Section 59
approval for particular
arrangements
Section 66
disciplinary powers
