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R01 2023 > 5 - Understand the financial regulator's responsibilities and approach to regulations > Flashcards

5 - Understand the financial regulator's responsibilities and approach to regulations Flashcards

1
Q

PRA

What are they responsible for

A

Prudential Regulation Authority: Responsible for promoting safety of systematically important firms (e.g. banks, building societies)

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2
Q

FPC

What are they responsible for

A

Financial Policy Committee: Prevent systemic risk using macro-prudential tools.

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3
Q

FCA

What are they responsible for

A

Financial conduct Authority:
* Protect Consumers
* Protect Financial Markets
* Promote Competition

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4
Q

PRA governed by?

A

Prudential Regulation Committee

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5
Q

PRA objectives (2)

A
  • Promote Safety and soundness to firms it regulates
  • To ensure policy holders are adequately protected in insurance firms
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6
Q

PRA How do they approach the regulation (3)

A
  1. Judgement based approach - use judgement to determine if firms are safe (“forward looking”)
  2. Outcome based approach (Assess firms against current and future risk, intervene early)
  3. Focused approach (Focus on issues that impose great harm to UK financial system)
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7
Q

Who is most supervisory decisions taken by regarding PRA, who are they accountable to

A
  1. PRC (including governor of BOE)
  2. They are accountable to parliament
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8
Q

Who is PRA involved with globally? (4)

A
  1. Financial stability board
  2. Basel committee (banking supervision)
  3. International association of insurance supervisors
  4. Joint forum
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9
Q

What method of communication do PRA use to advance its safety?

A

Forums

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10
Q

How are policy standards implemented in Europe

A
  1. Directives
  2. Directly applicable regulations
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11
Q

FPC: What are some macroprudential tools

A
  1. Setting countercyclical capital buffers
  2. Variable Risk weights
  3. Leverage limits
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12
Q

FPC: What are there members

A
  • 13 members
  • Chaired by governor of the BOE
  • Four deputy governors for monetary policy, financial stability, prudential regulations and markets and banking
  • Chief executive of FCA sit on FPC
  • Five independent external members appointed by chancellor of Exchequer
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13
Q

FPC: Who oversees them

A

The FPC is subject to oversight from the Treasury Select Committee of the House of Commons

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14
Q

FPC: How often do they have to publish financial stability report

A

Twice a year

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15
Q

Financial Conduct Authority: What powers do they have on financial products

A

Ban or impose restrictions on them

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16
Q

Prudential Regulation Committee (PRC): What does BOE act 1998 regard treasury to do?

A

Meeting in parliament once a year to make recomendations to PRC about aspects of economic policy to advance objectives of PRA when considering principles set out in FSMA 2000

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17
Q

Who should PRC work with

A

FPC, MPC and PRA

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18
Q

How many principles does FCA have?

What are they

A
  1. Efficeincy and Economy
  2. Proportionality
  3. Sustainable Growth
  4. Consumer responsibility
  5. Senior management responsibility
  6. Recognising the differences in business carried out by different regulated persons
  7. Openness and Disclosure
  8. Transparency
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19
Q

FCA new consumer duty

A
    • New consumer principle providing an overarching standard of conduct
  • -Cross-cutting rules and outcomes to support consumer principle
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20
Q

Who is responsibile for Financial stability

A

BOE, FPC and PRA

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21
Q

Who is FPC subject to reccomendations by?

A

FPC

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22
Q

What powers do FCA have regarding competition?

Who has concurrent powers and who Is a concurrent regulator [CMA an FCA]

A

Competition Act 1998 - enforece against and fine for breaches of domestic and EU competiion law.
Consumer Act 2015 - make a market investigation reference to CMA

FCA and CMA have concurrent powers
FCA is concurrent regulator

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23
Q

What is 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 set out by FSMA

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24
Q

FCA powers over individuals and firms carrying out regulated activities:

A

Enforcement matters:
* Penalties
* Carry out investigations

Supervision matters
* Make rules for COB, client money, finanancial promotions and money laundering
* Required authorised person to provide info
* Regulate changes of contorl of authorised person

Authorisation matters

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25
Q

FCA who do they mointor that is recognised?

A
  1. Recognised investment exchanges (LSE)
  2. Overseas investment exchanges (NASDAQ)
  3. Clearing houses (CREST)
    4.
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26
Q

Who specifically does FCA report to in parliament?

A
  1. Upper Tribunal (Tax and Chancery Chamber)
  2. CMA
  3. Complaints commissioner
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27
Q

What panels FCA have to maintain to ensure interests of all groups

(4)

A
  1. Practitioner
  2. Consumer
  3. Smaller businesses
  4. Market Panels
28
Q

FCA practitioner panel

A

Represent interest of practitioners in larger firms to provide input to FCA to help meet its objectives

“Critical friend of FCA” - They believe

29
Q

FCA smaller business practitioner panel

(Also how is coordination of view helped)

A

Represents interests of practitioners in small or medium size firms. - similiar objectives to practioner panels - on a smaller scale

Chariman of FCA smaller business practitioner is also a member of FCA practitioner panel which helps coordinated view

30
Q

FCA Markets Practitioner Panel

A

Represents interests of practitioners who are likely to be affected by exercise of FCA functions relted to markets. (Short-selling powers and regulation of recognised investment exchanges)

31
Q

Financial Services Consumer Panel (FSCP)

How are members recruited

A

Independent statutory body - representing interests of consumers in development of policy for regulation of financial services. It helps by advising and making reccomendations on existing FCA policy.

Members are recruited through open competition

32
Q

FCA enforcement: General prohibition

A

People who carry out regulated activities without authorisation. Giving investment, mortgage or insurance advice

33
Q

What is the process for breach of rules in individual decisions regarding FCA

A

Enforcement staff prepare and reccomend actions. Then they are considered by separate committee of FCA (Regulatory Decisions Committee)

34
Q

How is settlement handled in FCA?

A

Made by two senior members of FCA staff. Then independent Upper Tribunal (Tax and Chancery Chamber handle it)

35
Q

FCA civil actions

A
  • Granting injunctions (with permission of high court)
  • Ordering payment of restitution
  • Granting insolvency orders
36
Q

FCA criminal proceedings (examples)

A
  • Falsely claiming to be FCA authorised
  • Carrying on regulated activity without authorisation
37
Q

FSMA s.188 - civil penalties for market abuse

(Examples)

A
  1. Insider dealing
  2. Unlawful disclosure
  3. Manipulating devices
  4. Manipulating transactions
  5. Dissemination - giving false information about investments
  6. Misleading behaviour
38
Q

Money laundering penalties

A

14 years for acquisition, possession, use, transfer or removal of criminal property
5 years for failure to report such person

39
Q

FCA approach to regulation (3)

A
  1. Product intervention and governance
  2. Super-complaints
  3. Competition powers
40
Q

FCA approach to supervision

A

FCA has adopted a “risk-based” regulatory approach for authorised firms
Firms individually assessed and higher risk firms are more regulated

41
Q

FCA supervision: How many pillars are there and what are the names of them

A

3 pillars
1. Pillar 1: Proactive firm/group supervision
2. Pillar 2: Event-driven, reactive supervision
3. Thematic Approach

42
Q

FCA supervision: Pillar 1 definition

A

Assess a firm’s conduct risk, asking if the interests of customers and market integrity at the heart of how firm is run. A forward looking approach and judgement to address issues

43
Q

FCA supervision: Pillar 2 definition

A

It is the flexible element of how FCA will allocate its supervisory staff so that resources are devoted to situations and firms of heightened risk to consumers.

44
Q

FCA supervision: Pillar 3 definition

A

FCA look at risks and issues in each sector as a whole to analyse current events and investigate potential drivers of poor customers for consumers and markets.

45
Q

FCA Fixed portfolio firms

Definition

A

Fixed portfolio firms are a small population of firms (Out of the total number regulated by FCA) based on factors such as size, market presence and customer footprint, require the highest level of supervisory attention.

These firms are allocated a named individual supervisor and are actively supervised.

46
Q

FCA Flexible portfolio firms

Definition

A

Firms are actively supervised through a combination of market-based thematic work.

Firms use the FCA customer contact care as first point of contact with FCA as they are not allocated an individual supervisor.

47
Q

Where does fixed portoflio firms fit into pillars?

A

Pillar 1

48
Q

Where does flexible portoflio firms fit into pillars?

A

[o;;ar 2

49
Q

FCA supervision principles

(8)

A
  1. Forward looking
  2. Strategy
  3. Culture and governance
  4. Individual and firm accountability
  5. Proportionate and risk based
  6. Two-way communication
  7. Coordinated
  8. Put right systematic harm
50
Q

What does FCA have that helps combine research into what is happening in market and to consumers to analyse risks and where they appear

A

Risk and Compliance Oversight division

51
Q

FCA themes of debt management

(3)

A
  1. Culture
  2. Quality of Advice
  3. Administering debt management plans
52
Q

How many firms is FCA responsible for prudential regulation

A

18,000

53
Q

How many categories are there on FCA analysing firms risk

A

P1-P3

54
Q

FCA: What is P1

What are they subject to?

A

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

The FCA subjects them to periodic capital and if applicable liquidy assessment. Prudential specialists conducts these every 24 months.

55
Q

FCA: What is P2

What are they subject to?

A

Firms whose disorderly failure would damage consumers and client assets but are more easily dealt with than P1.
FCA subjects them to periodic capital and if applicable liquidity assessment. Every 48 months

56
Q

FCA: What is P3

A

Firms whose failure even if disorderly, would be unlikely to cause significant harm to consumers or market integrity.
The FCA supervises these firms on a reactive basis.

57
Q

What should every authorised firm have to ensure they reduce accidental rule breaches with FCA inspection?

A

Compliance monitoring Procedures
Senior manager hold “compliance oversight” senior management function (SMF16)

58
Q

PRA: How many categories do they divide firms in that they supervise?

A

Five of “potential impact”

59
Q

How does the PRA capture a firms proximity to failure?

A

Proactive Intervention framework (PRAS)

60
Q

Financial Stability Board (FSB)

Definition

A

Strengthen financial systems and increase stability of international financial markets

61
Q

What do members of FSB commit to pursue? (3)

A
  1. Maintenence of financial stability
  2. Maintain openness
  3. Transparency of financial sector
62
Q

What is BOE statutory objective

How do they do this

A

“protect and enhance the stability of financial system of the United Kingdom”.

Through PRA and risk assessment and risk reduction work

63
Q

Banking Act 2009: What did it do

A

Increased responsibility to CB. Creation of Special Resolution Regime gave bank statuory financial stability objective and created FPC to advise on and monitor nature of Bank Financial stability strategy

64
Q

Where is Bank financial stability role set out

A

Memorandum of Understanding between Bank and FCA

65
Q

What is SYC

A

Senior Management Arrangements, system and controls. Set out general rules and guidance on establishment and maintenence of system and controls.

66
Q

What is free asset ratio?

A

((Total Assets - Liabilities)/ Total Assets ) * 100

FAR is surplus assets held by a life office over value of its liabilities expressed as a percentage of its total assets

R01 2023 (11 decks)

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