5.3 Principles Of Good Regulation Flashcards
UKs FCA principles of good regulation (8)
- efficiency and economy (in the regulators limited resources are used)
- proportionality (in that any burden or restriction imposed on a firm or an activity must be proportionate to the expected benefits)
- Sustainable growth (of the UK economy must be taken into account)
- Consumer responsibility
- Senior management responsibility (for the firms activity and for ensuring compliance with regulatory requirements)
- Recognising the differences in the business is carried on by different regulated persons
- Openness and disclosure (of relevant information about regulated persons)
- transparency (in regulatory functions and providing info on regulatory decisions)
Fundamental obligations that regulated firms must comply with (FCA 2023) 12
- integrity (conducting business)
- Skill, care and diligence
- Management and control (a firm must take reasonable care to organise and control its affairs responsibly)
- Financial prudence ( firm must maintain adequate financial resources)
- Market conduct
- Customers interest (treat fairly)
- Communications with clients
- conflicts of interest
- Customers: relationships of trust
- Clients assets (affirm must arrange adequate protection)
- Relations with regulators
- Consume duty (a firm must act to deliver good outcome for retail customers)
Responsibility and accountability
Banks executives and senior managers make important and far- reaching decisions that affect the staff customers and other stakeholders.
Their actions and behaviour set the culture of the bank
Conduct regulation of senior managers and other employees
Working in a sector- you need to understand standards of behaviour that you are required to uphold that you will be responsible for your actions.
Better standards of responsibility and accountability motivate employees to behave responsibly.
- The US Federal reserve board has published its supervisory expectations for senior management.
In Australia , they aim to improve the standards of accountability amongst staff at financial institutions.
Hong Kong and Singapore have also implemented senior accountability regimes.
The UK senior managers and cert regimes (SM&CR) was one of the first standalone accountability regimes.
The UK senior manager and certification regime (SR&CR)
Aim to reduce harm to consumers, strengthen market integrity and improve the safety of the financial services sector.
It does this by making individuals more accountable for their conduct and competence.
Seeks to ensure that staff at all level take personal responsibility for the action and clearly understand where the responsibility lies.
Ensures that staff at all levels with relevant job functions are fit and proper.
Three element to the SM and CR
- The senior managers regimes
- The certification regimes
- The conduct rules
The senior managers regime
Is the top layer of the regime
It defines responsibility and assigns accountability to senior managers in banks and other financial services firms
Aims to ensure that individuals in senior roles are fit and proper to hold these roles.
There is an approval process which assesses senior people competence and capability and financial soundness
Refers to as fitness and properity.
Firms must develop a responsibility map which provides the regulator with an overview of how that firm is managed and governed
The certification regime
Ensures that stuff operating involves that are not specified as being SMFs but that can cause a lot of harm.
The technical term used to describe these functions and the people who do them are = ‘ significant harm functions’
and ‘ significant risks takers’
Do not require approval from the regulators to carry out their role.
To check that you are fit and proper for the job , you are judged based on their:
- Financial soundness
- Competence and capability
- honesty, integrity, and reputation
The conduct rules
Set out standards of good personal conduct to which the regulator can hold people to account. This helps in shaping firms culture, standards and policies.
This is done by promoting positive behaviours and awareness of conduct issues as they apply to a firms financial services activities.
If you don’t apply to the rules, the FCA can take disciplinary reaction which might include making a public statement about the misconduct .
Conduct rules for individuals
- act to deliver good outcomes for retail customers
- Act with integrity, act with due skill, care and diligence, be open and cooperative with the FCA and PRA and other regulators
Paid due regard to the interest of customers and treat them fairly
Observe proper standards of market conduct
Conduct rules for individuals
- act to deliver good outcomes for retail customers
- Act with integrity, act with due skill, care and diligence, be open and cooperative with the FCA and PRA and other regulators
Paid due regard to the interest of customers and treat them fairly
Observe proper standards of market conduct
Conduct rules for senior managers
They must disclose any information that the FCA or PRA would expect to be notified of.
Firms must communicate the conduct rules to all employees via key documents and they must deliver effective and regular training for all employees.
Four additional rules for those in senior management functions
- That the business of the firm is controlled effectively
- ensure that the business of their firm complies with their requirements and standards of the regulatory system
- ensure that if they delegate any responsibilities, they delegate to an appropriate person and make sure that the delegated responsibility is carried out effectively
