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CISI UK Financial Regulation 2023/24 > 2. The Financial Services Markets Act 2000 and Financial Services Act 2012 > Flashcards

2. The Financial Services Markets Act 2000 and Financial Services Act 2012 Flashcards

1
Q

What is the effect of acting in contravention of General Prohibition?

A

Any agreements made are unenforceable by the offending person against the other party.

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2
Q

What is a defence of General Prohibition?

A

To show that a person took all reasonable precautions

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3
Q

What is Section 56 of FSMA?

A

This gives the regulators the power to make a prohibition order which prevents an individual from performing a specified function

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4
Q

What happens if a person breaches Section 56?

A

Liable to a fine

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5
Q

What is Section 59 of FSMA?

A

An authorised person must take reasonable care to ensure that no person performs a role that requires approval

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6
Q

What is Section 71 of FSMA?

A

A private person can sue a firm for damages if they suffer a loss because the firm is found to be in breach of a duty

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7
Q

What is Section 138D of Financial Services Act 2012?

A

A person who suffers losses due to the breach of a rule has the right to claim for damages

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8
Q

What clarifies what a regulated activity is?

A

Financial Services and Markets Act 2000 - Regulated Activities Order (RAO)

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9
Q

How are regulated activities defined?

A
  1. A range of investments - shares, bonds, deposits, contracts of insurance
  2. A range of activities - Dealing, managing, advising on investments, accepting deposits, effecting contracts of insurance
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10
Q

What is meant by “exclusion”?

A

Those carrying out regulated activities who can conduct the activity without having to apply for authorisation

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11
Q

What is the Absence of Holding Out?

A

Individuals or companies who are not in the business of dealing in investments, and invest only for themselves, are excluded from authorisation as they are not “holding themselves out” as market makers

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12
Q

What does the Absence of Holding Out exclusion relate to?

A

Securities (shares and bonds) and life policies that are entered into by an unauthorised person

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13
Q

What is the exclusion relating to contractually based investments?

A

Applicable if the transaction is entered into by an unauthorised person or an exempt person who is acting in the course of a business or enters into a transaction through a non-UK office

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14
Q

What are examples of contractually based investments?

A

Futures, options, CFDs (contract for differences)

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15
Q

What is the exclusion from Article 53?

A

Exclusions for advice in newspapers, providing it is not given the kind of advice in article 53, leading people to buy/sell securities

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16
Q

When is authorisation required for advice in newspapers?

A

If the principal purpose of a publication is to give investment advice to encourage investors or prospective investors

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17
Q

Do employee share schemes require authorisation?

A

No

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18
Q

Do overseas persons require authorisation in general?

A

No, providing that they are not done from a. permanent place of business in the UK and are done through an authorised/or exempt UK person

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19
Q

What is an Appointed Representative?

A

A person who enters into a contract with an authorised person (the principal) for the purpose of conducting regulated activity

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20
Q

When conducting an authorised activity as an Appointed Representative, who accepts legal responsibility?

A

The principal

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21
Q

What are Appointed Representatives not permitted to do?

A

Deal in investments as principal or manage investments

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22
Q

What did the FCA identify as two main areas of change in their APR policy statement (8 Dec 2022)

A
  1. Additional information on ARs and notification requirements for principals
  2. Clarifying and strengthening the responsibilities and expectations of principals
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23
Q

When are principals required to notify the FCA of new Appointed Representatives?

A

30 days before the appointment takes effect

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24
Q

Who has the responsibility of recognising, regulating and supervising exchanges and clearing houses?

A

The FCA

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25
Q

What is a RIE?

A

Recognised Investment Exchanges that are recognised as fit and proper for their purpose by the FCA

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26
Q

What is a RCH?

A

Clearing houses that are recognised as fit and proper for their purpose by the FCA

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27
Q

Do RCHs and RIEs require authorisation?

A

No, they are exempt persons

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28
Q

Where are RIEs in the UK listed?

A

FCA’s Financial Services Register

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29
Q

What are DPBs?

A

Designated Professional Bodies who are able too grant permissions to individual professions

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30
Q

What are the individual professions under Part 20 of FSMA?

A

Accountants, solicitors, actuaries, chartered surveyors, and licensed conveyancers

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31
Q

What is the FSMA Exemption Order 2001?

A

The Treasury established certain exemptions from the need to be authorised

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32
Q

What activities do Members of Lloyd’s have to be authorised to do?

A
  • Advising on syndicate participation
  • Acting as a managing agent for syndicates
  • Arranging deals in insurance contracts
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33
Q

What activity do Members of Lloyd’s not have to be authorised for?

A

Contracts of insurance written at Lloyd’s

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34
Q

If a firm is likely to be dual-regulated, who will they make their application for authorisation to?

A

The PRA as lead regulator

35
Q

What is the authorisation application fees?

A

£1,500 for straightforward cases and £5,000

36
Q

What are the regulators statutory deadlines for granting or denying authorisation?

A

6 months for complete cases and 12 months for incomplete cases

37
Q

What are the Threshold Conditions?

A

The minimum standards expected of authorised persons being, and remaining, authorised

38
Q

When did the revised Threshold Conditions become effective?

A

2013

39
Q

What is the Business Model TC?

A

FCA expects firms to demonstrate contingency planning in their business model, and how it meets the needs of clients

40
Q

Who do the PRA-specific threshold conditions apply to?

A

Banks, building societies, credit unions and designated investment firms

41
Q

What are the TCs?

A
  1. Legal status (PRA)
  2. Location of offices (FCA/PRA)
  3. Business conducted in a prudent manner (PRA)
  4. Effective supervision (FCA/PRA)
    5.Appropriate resources (FCA/Dual)
  5. Suitability (FCA/PRA)
  6. Business Model (FCA)
  7. Appointment of claims representatives (Relevant to motor insurers)
42
Q

What is the purpose of the regulators’ supervision arrangements?

A

Mitigate and manage risks to the regulators’ statutory objectives

43
Q

What is the structure of the supervision approach?

A
  1. Identify risks as they arise
  2. Measure importance of the risk
  3. Mitigate the risk
  4. Monitor the risk
44
Q

What are the three supervisory types of work?

A
  1. Proactive
  2. Reactive
  3. Thematic
45
Q

What are firms that pose the greatest risk to the FCA’s objectives known as?

A

Fixed Portfolio Firms

46
Q

What are all other firms known as?

A

Flexible Portfolio Firms

47
Q

How long is the FCA supervision cycle for Fixed Portfolio firms?

A

12 to 36 months

48
Q

What is the supervisory approach adopted by the PRA?

A

Proactive Intervention Framework

49
Q

What are the regulators tools of supervision?

A
  1. Identify
  2. Diagnose
  3. Remedy
  4. Evaluate
50
Q

What form is completed under the SM&CR regime?

A

Form A

51
Q

How many years of referees from a candidates employees are required under the SM&CR regime?

A

Six years

52
Q

What do firms need to provide as part of the application process under the SM&CR regime?

A

A statement of responsibilities

53
Q

What are the factors of the Fit and Proper test under the SM&CR regime?

A
  • Honesty, integrity and reputation
  • Competence and capability
  • Financial soundness
54
Q

Banks that were formally pass-porting in to the UK (third country firms) are required to have which 3 SMFs?

A

16 - Compliance Oversight
17 - Money Laundering Reporting Function
21 - EEA Branch Senior Manager Function

55
Q

Once approved for a SMF how often are people required to complete Fit and Proper tests?

A

At least annually

56
Q

What is the directory and when did it come into effect?

A

Public register for checking the details of key people in the financial services industry, December 2020

57
Q

What is the overriding rule of assessing competence?

A

An individual conducting an activity is not eligible to be assessed as competent until they have attained their full qualification requirement

58
Q

What is the time limit for attaining a full qualification?

A

30 months

59
Q

What is the RDR

A

Retail Distribution Review

60
Q

What legislation was introduced to protect individuals from retaliation from whistleblowing?

A

Public Interest Disclosure Act (PIDA) 1998

61
Q

What is the PCBS and what did they recommend?

A

Parliamentary Commission on Banking Standards who recommended banks put in place measures to allow their employees to raise concerns

62
Q

Who should appoint a whistleblowing champion un a firm?

A

A non-executive director or a senior manager if a firm does not have one

63
Q

What should a firm do if it loses an employment tribunal with a whistleblower?

A

Inform the FCA

64
Q

Where are the criteria and procedures for making decisions concerning disciplinary matters set out?

A

Regulatory Handbook: Decisions, Procedures and Penalties Manual (DEPP)

65
Q

What does the DEPP Manual cover?

A

Statutory notices, the Regulatory Decisions Committee, settlements, penalties, suspensions and restrictions

66
Q

What is the settlement discount and why was it introduced?

A

It allows the firm to negotiate a financial penalty in return for a discount of up to 30%, designed for earlier redress, protection to consumers and cost savings

67
Q

What is the Regulator Decisions Committee?

A

A committee of the FCA’s board make decisions about statutory decisions

68
Q

What is the PRA’s Enforcement Decision Making Committee (EDMC)?

A

A committee of the BoE, to strengthen the BoE’s enforcement processes

69
Q

How many members are in the EDMC?

A

9

70
Q

How many members of the EDMC should be legally qualified?

A

3

71
Q

Statutory Notices - What is a Warning Notice?

A

Providing a recipient with details about the action the FCA proposes to take and why it proposes to do so

Regulator gives the recipient the right to make representations

72
Q

Statutory Notices - What is a Decision Notice?

A

Provides details of the action the FCA has decided to take and gives the recipient the opportunity to appeal

73
Q

Statutory Notices - What is a Supervisory Notice?

A

A typical supervisory notice may limit a firm’s Part 4A permission with immediate effect

74
Q

Statutory Notices - What is a Final Notice?

A

Sets out the terms of final action and the date from which it will take effect, these are published on the FCA website and FCA must get approval from the recipient to do so

75
Q

What are the three possible forms of formal disciplinary sanction?

A
  1. Public statements of misconduct (individuals)
  2. Public censures (firms)
  3. Financial penalties
76
Q

What lower key, supervisory action can the FCA take?

A
  1. Varying/cancelling Part 4A permissions
  2. Withdrawing any regulatory approval
  3. Prohibiting an individual from a role
77
Q

How long does an individual/firm have to refer the regulators decision to the Upper Tribunal?

A

28 days

78
Q

What is the intention of the suspension power?

A

To only use it if it will be more effective and persuasive than a financial penalty alone

79
Q

Under the Financial Services Act 2012, how long can products be banned by the FCA without the need for consultation?

A

Up to 12 months

80
Q

What does Section 165 of FSMA empower the regulators to do?

A

Require and request information from authorised firms

81
Q

What does Section 166 of FSMA empower the FCA to do?

A

Obtain a view from a third party (skilled person)

82
Q

What does Section 167 of FSMA empower the regulators to do?

A

Appoint one or more competent persons to provide a report

83
Q

What does Section 168 of FSMA require the regulators to do?

A

Permit a competent person to carry out investigations on its behalf

CISI UK Financial Regulation 2023/24 (6 decks)

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