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R01: Financial Services, Regulation and Ethics > 5. Responsibilities and Approach to Regulation > Flashcards

5. Responsibilities and Approach to Regulation Flashcards

1
Q

Define the responsibilities of the Prudential Regulation Authority (PRA)

A

The PRA is responsible for the authorisation, prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms.

It is governed by the Prudential Regulation Committee (PRC)

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2
Q

What are the Prudential Regulation Authority’s two primary objectives?

A
  1. A general objective to promote safety and soundness of the firms it regulates
  2. An objective specific to insurance firms, to contribute to ensuring that PHs are adequately protected
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3
Q

What two tools does the Prudential Regulation Authority use to advance its objectives?

A
  • Regulation: It sets standards or policies that it expects firms to meet
  • Supervision: It assesses the risk that firms pose to PRA’s objectives and, where necessary, takes action to reduce them
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4
Q

What is the responsibility of the Financial Policy Committee (FPC)?

A

The FPC responsibility for macro-prudential supervision.

It is responsible for spotting the systemic risks ‘attributable to structural features of financial markets or to the distribution of risk within the financial sector’.

It is also responsible for identifying unsustainable levels of leverage, debt or credit growth.

The FPC has a statutory obligation to limit the impact of its policies on economic growth.

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5
Q

What is the Financial Conduct Authority’s aim?

A

The FCA aims to ensure that business across financial services and markets is conducted in a way that advances the interests of all consumers and market participants.

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6
Q

How did the government support the FCA in 2012?

A

To support the FCA in its more proactive, interventionist approach, the Government gave it a product intervention power in the Financial Services Act 2012.

The FSA 2012 enables the regulator to act quickly to either ban or impose restrictions on financial products.

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7
Q

What are the 8 regulatory principles of the FCA?

A
  1. Efficiency and economy
  2. Proportionality
  3. Sustainable growth
  4. Responsibility of consumers
  5. Senior management responsibility
  6. Recognising the differences in the businesses carried out by the different regulated persons
  7. Openness and disclosure
  8. Transparency
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8
Q

What are the operational objectives of the FCA?

A
  • Protect Consumers
  • Protect Financial Markets
  • Promote Competition
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9
Q

Through protecting financial markets the FCA is concerned with what aspects?

A
  • The soundness and resilience of the trading infrastructure
  • The integrity of the financial markets, including the reliability of their price formation process and sustainability of listing rules
  • Combating market abuse
  • Addressing the extent to which the UK financial system may be used for purposes of financial crime
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10
Q

Define the FCA’s competition objective

A
  • Firms must compete for business by offering better services, better value and types of products that customers want and need
  • Prices offered are in line with costs
  • Firms will innovate and develop new products over time

N.B. The FCA will draw a distinction between ‘good’ innovation that meets consumers’ genuine needs and other types that exploit consumers

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11
Q

What powers does the FCA have under the Competition Act 1998?

A

The power to enforce against and fine for breaches of domestic and EU competition law prohibitions on anti-competitive agreements and abuses of a dominant position

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12
Q

What powers does the the FCA have under the Consumer Rights Act 2015?

A

The power to make a market investigation reference to the Competition and Markets Authority?

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13
Q

Define the Part 4A Permission

A

Any business or individual wishing to carry on one or more regulated activities, by way of business, must apply to the relevant regulator for direct authorisation

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14
Q

What actions does the Financial Services and Markets Act 2000 (FSMA) allow the FCA to take

A
  • Withdraw a firm’s authorisation
  • Discipline authorised firms and people approved by the FCA to work in those firms
  • Require skilled persons reports on any aspects of regulatory compliance
  • Impose penalties for market abuse
  • Apply to the Court for injunction or restitution orders
  • Prosecute various offences
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15
Q

With reference to the FCA, define Civil Action

A

The FCA can issue civil proceedings in the High Court against firms and individuals, including those who are not members of the regulated community

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16
Q

With reference to the FCA, define Criminal Proceedings

A

The FCA has the power to prosecute to several specific offences relating to regulated activites

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17
Q

With reference to the FCA, define Market Abuse

A

Market abuse is improper conduct that undermines the UK financial markets or damages the interests of ordinary market participants.

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18
Q

What are the civil offences as defined in s. 118 of the Financial Services and Markets Act 2000?

A
  • Insider dealing
  • Improper disclosure
  • Misuse of information
  • Manipulating transactions
  • Manipulating devices
  • Dissemination
  • Distortion and misleading behaviour
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19
Q

Under the Fourth Money Laundering Directive (4MLD) supervisors have been required to have the power to impose effective, proportionate and dissuasive sanctions for non-compliance with the Regulations. Therefore, what is the FCA able to do?

A
  • Levy penalties on registered businesses that are in breach of the Money Laundering Regulations
  • Prosecute an officer of a registered business that is in breach of certain Money Laundering Regulations. (Conviction may result in imprisonment for up to 2 years, a fine, or both)
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20
Q

Define the FCA’s regulatory approach to Product Intervention and Governance

A

The FCA aims to be more proactive and ‘intervene earlier in the product’s life span and seek to address root causes of problems for consumers’.

Power include temporary intervention rules and product pre-approval.

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21
Q

Define the FCA’s regulatory approach to Super-complaints

A

The FCA is able to review and react to detailed submissions by consumer groups on behalf of a large number of customers in particular markets such as payment protection insurance (PPI) and extended warranties

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22
Q

Define the FCA’s regulatory approach to Competition Powers

A

The FCA’s competition objective is ‘to promote effective competition in the interests of consumers’

23
Q

With reference to the FCA, define Supervision

A

The day-to=day regulatory relationship with authorised firms; the process of monitoring and regulating firms to ensure they are complying with the regulatory requirements

N.B. The FCA adopts a ‘risk-based’ regulatory approach for authorised firms

24
Q

Define the design of the Supervisory system

A

Firms are encouraged ‘to base their businesses model, culture and how they run the business on a foundation of fair treatment of customers set out in the TCF initiative’.

The system ‘will act more quickly and decisively and be more preemptive in identifying and addressing issues before they cause harm, with senior staff involved in decisions at an early stage’.

25
Q

What are the three pillars within the FCA’s three-pillar supervision model?

A
  1. Proactive firm/group supervision
  2. Event-driven, reactive supervision
  3. Thematic approach - issues and products supervision
26
Q

Define the FCA pillar Proactive Firm/Group Supervisoin

A

This is designed to assess a firm’s conduct risk, asking the question: ‘are the interests of customers and market integrity at the heart of how the firm is run?’

27
Q

Define the FCA pillar Event-driven, reactive supervision

A

Supervisory activity in response to issues that are emerging or have recently happened

28
Q

Define the FCA pillar Thematic Approach - issues and products supervision

A

The FCA looks at risks and issues in each sector as a whole to analyse current events and investigate potential drives of poor outcomes for consumers and markets

29
Q

Define the FCA objective Efficiency and Economy

A

The need to use its resources in the most efficient and economical way.

30
Q

Define the FCA objective Proportionality

A

The principle that a burden or restriction imposed on a person or activity should be proportionate to the benefits which are expected to result.

31
Q

Define the FCA objective Sustainable Growth

A

To ensure that there is a desire for sustainable growth in the economy of the UK in the medium or long term

32
Q

Define the FCA objective Responsibility of Consumers

A

The general principle that consumers should be able to take responsibility for their decisions

33
Q

Define the FCA objective Senior Management Responsibility

A

A firm’s senior management is responsible for its activities and for ensuring that its business complies with regulatory requirements.

34
Q

Define the FCA objective Recognising the differences in the businesses carried out by different regulated persons

A

Where appropriate, to exercise its functions in a way that recognises differences in the nature of, and objectives of, businesses carried out by different persons subject to requirements imposed by or under FSMA

35
Q

Define the FCA objective Openness and Disclosure

A

Publishing information about regulated persons or requiring them to publish information, which underlines the importance of the FCA making market information available, with appropriate safeguards, to reinforce market discipline and the desirability of enhancing the understanding of members of the public in their financial matters

36
Q

Define the FCA objective Transparency

A

The FCA should exercise its functions as transparently as possible, which recognises the importance of ensuring that appropriate information is provided on regulatory decisions and also that the FCA should be open and accessible, both to the regulated community and the general public

37
Q

What are the FCA’s main roles and activities

A
  • Direct authorisation and regulation of the UK financial services system
  • Monitoring the activities of the various recognised bodies
  • Policing the financial services system
38
Q

Define the Financial Services Practitioner Panel (FSPP)

A

This provides a high-level body for consultation on policy made by the then regulator, the FSA, and now the FCA.

It aims to convey the views and concerns of the regulated industries.

It comprises senior figures from a cross-section of the financial services industry.

The FSPP aims to provide early and effective practitioner input into the FCAs policy development.

39
Q

Define the Financial Services Consumer Panel (FSCP)

A

The FSCP represents the interest of consumers by adivising, commenting ad making recommendations on existing and developing FCA policy and practices as appropriate.

It speaks on behalf of consumers by reviewing, monitoring, and reporting to the FCA on the effectiveness of FCA policies and practises.

40
Q

Define the Smaller Businesses Practitioner Panel (SBPP)

A

The SBPP’s overall objective is to work to ensure that the regulatory environment enables smaller firms to be commercially viable and to flourish, so contributing to the wider economy and providing a broader choice of access for consumers.

The purpose of the SBPP is to represent the interests of the smaller financial services businesses through the provision of practitioner input into the FCA policy development.

41
Q

Define the Market Practitioner Panel (MPP)

A

The MPP represents the interests of practitioners who are likely to be affected by the exercise of the FCA’s functions relating to markets in relation to short selling powers and the regulation of recognised investment exchanges.

42
Q

Define Insider Dealing

A

When an insider deals, or tries to deal, on the basis of inside information

43
Q

Define Improper Disclosure

A

Where an insider improperly discloses inside information to another person

44
Q

Define Misuse of Information

A

Behaviour based on information that is not generally available but would affect an investor’s about the terms on which to deal

45
Q

Define Manipulating Transactions

A

Trading, or placing orders to trade, which employs fictitious devices or any other firm of deception or contrivance

46
Q

Define Dissemination

A

Giving out information that conveys a false or misleading impression about an investment or the issuer of an investment when the person doing this knows the information to be false or misleading

47
Q

Define Distortion or Misleading Behaviour

A

Behaviour that gives a false or misleading impression of either the supply of, or demand for, an investment; or behaviour that otherwise distorts the market in an investment

48
Q

Define the ten Supervision Principles of the FCA

A
  1. Ensure fair outcomes for consumers and markets
  2. Be forward-looking and preemptive
  3. Be focused on the big issues and causes of problems
  4. Take a judgement-based approach
  5. Ensure firms act in the right spirit
  6. Examine business models and culture
  7. An emphasis on individual accountability
  8. Be robust when things go wrong
  9. Communicate openly
  10. Have a joined-up approach
49
Q

What are the aims of the Prudential Regulation Authority (PRA)?

A

The PRA aims, through supervision, to develop a rounded, robust and comprehensive view of firms, to judge whether they are being run in a safe and sound manner, ad whether insurers are protecting the PHs appropriately.

50
Q

Define firms classed as P1 by the FCA

A

Firms whose failure would cause lasting and widespread financial an reputational damage to their customers, client assets and the marketplace beyond.

(Subjected to capital and liquidity assessment every 24 months)

51
Q

Define firms classed as P2 by the FCA

A

Firms whose disorderly failure would damage consumers and client assets but are more easily dealt with than the failure of a P1 firm.

(Subject to capital and liquidity assessment every 48 months)

52
Q

Define firms classed as P3 by the FCA

A

Firms whose failure, even if disorderly, would be unlikely to cause significant harm to consumers or market integrity.

(The FCA supervises these on a reactive basis)

53
Q

Define the Financial Stability Board (FSB)

A

The FSB promotes international financial stability by coordinating national financial authorities and international standard-setting bodies as they work toward developing strong regulatory, supervisory and other financial sector policies.

54
Q

What is the mandate of the FSB?

A
  • Assess vulnerabilities affecting the financial system and identify and oversee action needed to address them
  • Promote coordination and information exchange among authorities responsible for financial stability
  • Monitor and advise on market developments and their implications for regulatory policy
  • Advise on and monitor best practice in meeting regulatory standards
  • Undertake joint strategic reviews of the policy development work of the international standard setting bodies to ensure their work is timely, coordinated, focused on priorities and addressing gaps
  • Set guidelines for and support the establishment of supervisory colleges
  • Manage contingency planning for cross-border crisis management, particularly with respect to systemically important firms
  • Collaborate wit the IMF to conduct Early Warning Exercises
  • Promote member jurisdictions’ implementation of agreed commitments, standards and policy recommendations , through monitoring of implementation, peer review and disclosure

R01: Financial Services, Regulation and Ethics (9 decks)

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