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UK regs and profess integrity > 5. Reg infrastructure > Flashcards

5. Reg infrastructure Flashcards

1
Q

What is FSMA2000

A

Financial services and markets act

Act of parliament - established new regulatory regime, created single regulatory authority - FSA (financial services authority)

FSA abolished in 2012 by Financial services act 2012 post regulatory failure in 08 crash

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2
Q

FSA2012?

A

Financial services act 2012 - established current dual regulatory system

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3
Q

UK regulatory system

A

FCA - regulates conduct of all firms, market supervision, and prudential supervision of non-PRA (singularly regulated) firms

PRA - additional layer of regulation for deposit takers, insurers, and systemic firms

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4
Q

Relationship of PRA / FCA with government

A

HMT accountable to parliament

HMT responsible for financial services sector (PRA/FCA accountable to HMT)

PRA - Governmental body (part of Bank of E)

FCA - Non government, funded by firms it regulates - HMT appoints board + chairman
Requires annual report
Can subject FCA to independent reviews

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5
Q

FPC?

A

Financial policy committee - part of BofE

GOAL: Identify, monitor and take action to remove/reduce systemic risk

Responsible for stability of financial systems in UK

Meets 4x a year
Protects resilience of UK fin system
Issues biannual stability report
Issues actions to PRA and FCA

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6
Q

PRA statutory objectives

A

FSA2012

Promote safety and soundness (of PRA authorised firms)
Avoid instability
Minimise adverse effect of failure

Insurance obj: Securing appropriate degree of protection to policyholders (or potential PH)

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7
Q

FCA Stat objectives

A

Strategic:
Ensuring relevant markets function well

Operational:
Consumer protection
Integrity
Competition (effective)

op obj are consumer focused

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8
Q

Other roles of the FCA

A

Perform a primary markets function (UKLA)
Responsible for overseeing FCOS and (with PRA) FSCS
Challenge, amend and remove terms in consumer contracts (under CRA2015, UTCCR1999)
Can prosecute financial crime

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9
Q

FCA - 3 pillar approach

A

to risk based supervision
1 - Proactive firm supervision
2- Reactive supervision
3 - Thematic Supervision

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10
Q

FCA Proactive Firm Supervision

A

1st pillar of 3 pillars of risk based supervision
FSF - firm systematic framework - run these stress tests to asses probability of risks crystallising
- Business model analysis
- Assessment of fair customer treatment + integrity
- Deciding action required by firm
- Communicates action to firm and assessment

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11
Q

FCA Reactive supervision

A

Pillar 2/3 risk bases approach

Quick responsiveness to emerging risk/problems/loss

Reactionary to suspicions/complaints

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12
Q

Fixed/flexible portfolio firms

A

FCA divides firms into fixed (large) and flexible (smaller) portfolio firms

Flex portfolio firms only subject to pillars 2 and 3 of risk based reg but fixed portfolio firms subject to pillar 1 also

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13
Q

FCA thematic supervision

A

Pillar 3/3 risk based regulation
SRA (sector risk assessment) used to drive issue and produce work

Proactive in nature - looks at potential risk of a particular theme

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14
Q

FCA Policy Risk and Research Division

A

Gives part 4A permission to firms
Identifies and assesses risk to consumers, firms and markets

Info used to inform FCA decision making, make evidence based policy
All FCA rules must relate to their objectives

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15
Q

FCA prudential regulation

A

Singularly regulated firms - FCA = prudential regulator

Approach minimises harm to consumers, wholesale market participants and market stability

Categorises firms P1-4
1-3 = decreasing risk of damage to above
P4 = special circumstances where firms have bespoke arrangements

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16
Q

PRA risk framework

A

Forward looking, judgement based - risk based approach to supervision

3 key elements
- potential impact of firm on financial stability
- How external events + firms operational risks affect viability
- Mitigating factors (e.g. capital + liquidity resources, management and governance in company, internal risk management)

PRA - MINIMISING ADVERSE IMPACT OF FAILURE

17
Q

Rule based vs principal based regulation

A

Rule : giving old white man, crusty, rigid, inflexible, box ticking culture BUT clearly defined :)

Principle: Flexible, new age, focuses on purpose of regulation, higher level, not definitional, better for fin markets of 2day

18
Q

FISMA2000 FCA principles of good regulation

A

Set of regulatory principles FCA must observe

Efficiency and economy - effective use of resources
Proportionality - burden of regs proportional to benefits
Sustainable growth - encourage med-long term growth of UK econ
Responsibility of consumers - regulator can’t protect against all harms, provide sufficient info
Senior management - responsibilities for compliance within reg framework
Openness and disclosure - both by firms and regulators, number infographics, bis report and future objectives
Recognise difference between regulated firms - similar to proportionality
Transparency

19
Q

FCA PRIN (12)

A

Principles for businesses
1. Integrity
2. Skill, care diligence
3. Management + contro
4. Financial Prudence
5. Market conduct
6. Customer’s interest
7. Comms with clients
8. Conflicts of interest
9. Customers; relationship of trust
10. Client assets
11. Relationships with regs

legally binding on firms - breaches can lead to disciplinary action
‘spirit of the rule’

20
Q

FCA PRIN 3- MANAGEMENT

A

3 Management - A firm must take reasonable care to organise and and control control its affairs responsibly and effectively, with adequate risk management systems.

21
Q

FCA PRIN 4 - PRUDENCE

A

4 Financial prudence - A firm must maintain adequate financial resources.

22
Q

FCA PRIN 5 - MARKET CONDUCT

A

5 Market conduct A firm must observe proper standards of market
conduct.

23
Q

FCA PRIN 6 - CUSTOMERS INTERESTS

A

6 Customers’ interests; A firm must pay due regard to the interests of its customers and treat them fairly.

24
Q

FCA PRIN 7 - COMMS WITH CLIENTS

A

7 Communications with clients - A firm must pay due regard to the information needs of its clients, and communicate information to them
in a way which is clear, fair and not misleading.

25
Q

FCA PRIN 8 - CONFLICTS OF INTERST

A

8 Conflicts of interest - A firm must manage conflicts of interest fairly, both
between itself and its customers and between a customer and another client.

26
Q

FCA PRIN 9 - CUSTOMERS; RELATIONSHIPS OF TRUST

A

9 Customers: relaTionships of trust - A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any
customer who is entitled to rely upon its judgment.

27
Q

FCA PRIN1 - INTEGRITY

A

A firm must conduct its business with integrity

28
Q

FCA PRIN 2 - SKILL, CARE AND DILIGENCE

A

A firm must conduct its business with due skill, care and diligence

29
Q

FCA PRIN 10 - CLIENT ASSETS

A

A firm must arrange adequate protection for clients’ assets when it is responsible for them

30
Q

PRA fundamental rules (FR)

A
  1. Integrity
  2. Skill, care, diligence
  3. Prudence
  4. Adequate financial resources
    5.Effective risk management
  5. Organization and control
  6. Relationship with regulators
  7. Resolution procedures
31
Q

FCA PRIN 11 - RELATIONS WITH REGULATORS

A

A firm must deal with its regulators in an open and cooperative way, and must disclose to the FCA appropriately anything relating to the firm of which that regulator would reasonably expect notice

UK regs and profess integrity (6 decks)

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