3.3 Financial services regulation

Question 1

Which is the sector with the largest amount of sectoral regulation and why?

Answer 1

Financial services (due to the major impact of financial institutions and high levels of information asymmetry).

Question 2

Risk management for financial institutions covers three main areas:

• s____________ of financial institutions
• financial m_______ s_______
• c_______ of institutions, their employees and intermediaries.

Answer 2

solvency
market stability
conduct

Question 3

What is the difference between “prudential” regulation and “conduct of business” regulation?

Answer 3

Prudential regulation concerns the financial solvency of institutions and the stability of markets, while conduct of business regulation is concerned with the conduct of institutions and their employees.

Question 4

Risk management of the financial services sector is regulated by which UK industries?

Answer 4

Prudential regulation authority
Financial conduct authority
Financial ombudsman

Question 5

Since organisations operating in the crown dependcies of Guernsey, Jersey and the Isle of Man are not regulated by the FCA and PRA, what restriction is placed on them?

Answer 5

These organisations may not provide financial services to UK or EU residents.

Question 6

Which UK regulator was established as part of the Financial Services Act 2012 and regulates around 1500 banks, building societies, insurers and credit unions?

Answer 6

The Prudential Regulation Authority

Question 7

The statutory objectives of the PRA are:

1 To promote the financial s_______ and soundness of the firms it regulates

2 for i________, securing an appropriate degree of protection for existing and potential future p__________.

3 facilitating effective c________

Answer 7

safety
insurers
policyholders
competition

Question 8

What is the source of regulation for PRA-regulated firms?

Answer 8

The PRA Rulebook

Question 9

How can the PRA supervise its regulated firms?

Answer 9

Financial and risk management reporting
Reviewing policies and other documents
Interviews with directors, senior managers and auditors
Enforcement actions including fines

Question 10

Which UK regulatory body was established in 2013 and regulates around 56000 financial and non financial organisations?

Answer 10

The Financial Conduct Authority

Question 11

The aim of the FCA is to ensure that financial markets operate h________ and f______ so that all stakeholders, especially c_______ get a fair deal.

Answer 11

honestly
fairly
consumers

Question 12

The three main objectives of the FCA are:
1 consumer p_______
2 protecting the integrity of financial markets from m________ (e.g. insider dealing)
3 promoting c______ to ensure customers get a fair deal

Answer 12

protection
misconduct
competition

Question 13

What are the similarities and differences between the objectives of the PRA and FCA?

Answer 13

Both seek to promote competition, market stability and consumer protection. The PRA focuses on insurers and institutions while the FCA works with financial and non-financial firms more generally.

Question 14

Which UK regulator helps resolve disputes between financial organisations and their customers?

Answer 14

The Financial Ombudsman

Question 15

The PRA sets policy on the following risk management activities:

financial resource requirements including c_______ b_____ to protect against losses

role of auditors and audit c_______

management of specific risks such as market, credit and o_______ risk

risk r_______ to stakeholders

Answer 15

capital buggers
committees
operational
reporting

Question 16

The FCA issues regulatory policy on the following risk management activities:

roles for risk management, especially in c_____ risk

management of financial c____ risk, including money laundering

c________ management

w___________

Answer 16

conduct
crime
compliance
whistleblowing

Question 17

The mis-selling of payment protection insurance has proved a major issue for UK financial institutions and led to greater regulation and changes to selling practices. What are the main facts of the PPI scandal?

Answer 17

Many add-on PPI policies were found to have been sold to customers taking our mortgagesand insurnace. Mis-selling occurred since the contractual provisions on policies made it very difficult to claim or hid information from customers, such as the claim limits. In many cases customers were not away they had purchased PPI.

In 2005, the Citizens Advice Bureau brought a super complaint, leading to institutions having to repay up to £36 billion in premiums.

Question 18

In Jersey and Guernsey, which organisations undertake financial services regulation?

Answer 18

The Jersey Financial Services Commission

The Guernsey Financial Services Commission

Question 19

Which organisation undertakes the regulation of systemically important financial institutions in the Republic of Ireland?

Answer 19

The European Central Bank