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6 Flashcards

1
Q

What is the Bank of England’s (BoE) primary function? (3)

A
  1. Maintain monetary/financial stability
  2. Lender of last resort
  3. Custodian of UK gold reserves
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2
Q

What does the Bank of England (BoE) do in terms of regulation? (2)

A
  1. Oversees the FCA, PRA and FPC
  2. Implements changes in financial industry via FPC
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3
Q

Who are the nine members of the MPC?

A
  1. The Governor
  2. Three Deputy Governors
  3. BoE’s Chief Economist
  4. Four external members appointed directly by the Chancellor
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4
Q

What does the Monetary Policy Committee (MPC) do? (2)

A
  1. Set inflation target and interest rate
  2. Measured by CPI
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5
Q

Who is the Monetary Policy Committee (MPC) a committee of?

A

Official committee of the BoE

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6
Q

How many times does the Monetary Policy Committee (MPC) meet each year?

A

8

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7
Q

Who is the Financial Policy Committee (FPC) a committee of?

A

Official committee of the BoE

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8
Q

What does the Financial Policy Committee (MPC) do? (3)

A
  1. Fix macroeconomic and financial issues
  2. Enhance resilience of UK financial system
  3. Make recommendations to FCA and PRA
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9
Q

How many times does the Financial Policy Committee (FPC) meet each year?

A

4

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10
Q

Where does the Prudential Regulation Authority (PRA) sit?

A

Sits within the Bank of England

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11
Q

How does the PRA promote the safety and soundness of PRA-authorised firms? (3)

A
  1. Avoid instability
  2. Reduce potential adverse effects of firms on the financial system
  3. Ensures firms maintain sufficient capital
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12
Q

What is the link between the PRA and FPC? (2)

A
  1. PRA implements FPC recommendations ‘comply or explain’
  2. PRA assists FPC with macroprudential supervision
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13
Q

In terms of regulation, what does the ‘Twin Peaks’ model entail?

A

Banks, building societies, insurers and major investment firms are supervised by PRA & FCA

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14
Q

Who regulates firms that does not need dual authorisation?

A

those that do not are solely supervised by the FCA

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15
Q

What does the PRA and FCA do in the ‘Twin Peaks’ model? (2)

A
  1. The PRA - focusing on high-level controls
  2. The FCA - focusing on protecting consumers and markets
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16
Q

How is the FCA structured? (2)

A
  1. Private company limited by guarantee
  2. Financed by the financial services industry via a fee structure
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17
Q

What power does the treasury have over the FCA’s operations?

A

To commission inquiries into aspects of the FCA’s operations

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18
Q

What power does treasury have over the FCA’s members?

A

The power to appoint or dismiss the FCA’s Board and Chairman

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19
Q

How is the FCA accountable to the treasury? (2)

A
  1. Annual report
  2. AGM so the public can review its activities
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20
Q

What is the strategic objective of the FCA? (2)

A
  1. Ensure financial markets works well
  2. Customers get fair deal from financial firms
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21
Q

What are the operational objectives of the FCA? (3)

A
  1. Protection for consumers
  2. Enhance integrity of UK financial system
  3. Promote effective competition
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22
Q

What are the FCA broad outcomes? (3)

A
  1. Services and products meet consumer needs
  2. Firms compete effectively
  3. Markets are stable and resilient
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23
Q

What is involved in the protecting consumers objective of the FCA? (3)

A
  1. Base appropriateness on consumers’ circumstances
  2. Identify groups based on specific characteristics
  3. Understand they’re at more risk to particular products and services
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24
Q

To achieve its ‘enhancing market integrity’ objective, the FCA ensures: (4)

A
  1. Senior management are accountable
  2. Proactively manage COI
  3. Clients’ best interests at heart of business
  4. Firms mitigate harm transmitted to clients
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25
Q

How does the FCA want the firms they regulate to update their business plan to be more adaptive? (2)

A
  1. Constantly learning
  2. Adjust approach markets evolve
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26
Q

How does the FCA want the firms they regulate to update their business plan to be more assertive?

A

Engage with partners and test limits of its powers

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27
Q

How does the FCA want the firms they regulate to update their business plan to be more innovative?

A

Taking advantage of technology to increase ability to act decisively in the interests of consumers

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28
Q

Why does the FCA promote effective competition? (2)

A
  1. So consumers can ‘shop around’ for best deal
  2. FTOC ensures customers receive a fair deal
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29
Q

What should be considered when applying cross-cutting rules?

A

The financial understanding of the target market

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30
Q

What are the principles for business?

ISMFM 5C RC

A
  1. Integrity
  2. Skill, care and diligence
  3. Management and control
  4. Financial prudence
  5. Market conduct
  6. Customers’ interests
  7. Communications with clients
  8. Conflicts of interest
  9. Customers: relationship of trust
  10. Clients’ assets
  11. Relations with regulators
  12. Consumer Duty
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31
Q

What is the aim and scope of consumer duty?

A

Good outcomes for RC when purchasing products or services

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32
Q

In consumer duty, what are the cross-cutting rules? (3)

A
  1. Act in good faith
  2. Avoid foreseeable harm
  3. Enable and support financial objectives
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33
Q

For cross cutting rules, what is acting in good faith?

A

Honest, fair and consistency in approach

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34
Q

For cross cutting rules, what is avoiding causing foreseeable harm to RC? (3)

A
  1. Disclose inherent risks
  2. Be proactive to avoid foreseeable harm
  3. Do not exploit vulnerabilities
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35
Q

For cross cutting rules, what is enable and support RC to pursue financial objectives?

A

Use information disclosed by client, be trusted and reliable

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36
Q

On which firms does the Senior Manager and Certification Regime (SM&CR) apply?

A

To dual-regulated and single regulated firms

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37
Q

What does the Senior Manager and Certification Regime (SM&CR) aim to do? (3)

A
  1. Raise the standards of governance
  2. Increase individual accountability
  3. Reinforce consumer confidence
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38
Q

The FCA will assess the success of a firm’s Consumer Duty against whch four outcomes?

A
  1. Products and services outcome
  2. Price and value outcome
  3. Consumer services outcome
  4. Customer understanding outcome
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39
Q

For consumer duty, what is the ‘Products and services’ outcome?

A

Are they fit for purpose

40
Q

For consumer duty, what is the ‘Price and value outcome’ outcome?

A

Are they fair value

41
Q

For consumer duty, what is the ‘Customer understanding outcome’ outcome?

A

Consumer understanding throughout the customer journey

42
Q

For consumer duty, what is the ‘Consumer services outcome’ outcome?

A

Customer support meets customer needs

43
Q

What are the features of the Senior Manager Regime (SMR)? (3)

A
  1. Focuses on senior individuals in firms
  2. Sets out areas they’re accountable for
  3. All senior managers must be approved by regulators
44
Q

In the Senior Manager and Certification Regime (SM&CR), who does the tier 1 conduct rules apply to?

A

Tier 1: All individuals (except ancillary staff)

45
Q

What are the features of the Certification Regime (SMR)? (3)

A
  1. Applies to ‘material risk-takers’
  2. Not senior managers but could cause significant harm
  3. e.g. staff who give investment advice
46
Q

In the Senior Manager and Certification Regime (SM&CR), who does the tier 2 conduct rules apply to?

A

Tier 2: Senior Manager Conduct Rules

47
Q

What are the tier 1 conduct rules? (5)

A
  1. Act with integrity
  2. Act with due skill, care and diligence
  3. Be co-operative with regulators
  4. Treat customers fairly
  5. Observe proper standards of market conduct
48
Q

What are the tier 2 conduct rules? (4)

A
  1. Ensure business is controlled effectively
  2. Ensure compliance with relevant requirements and standards
  3. Any delegation is to an appropriate person
  4. Disclose appropriate information to FCA/PRA
49
Q

What is the ‘fit and proper test’ of SM&CR and how does it work? (3)

A
  1. Ensure senior managers and certified staff are fit and proper to carry out their roles.
  2. ‘Approved Person’ status obtained before undertaking regulated activity
  3. FCA grant approval to persons it deems fit and proper
50
Q

What does the ‘fit and proper test’ of SM&CR test? (3)

A
  1. Honesty, integrity and reputation
  2. Competence and capability
  3. Financial soundness
51
Q

How does the ‘fit and proper test’ of SM&CR test ‘honesty, integrity and reputation’? (4)

A

Employment history
Criminal convictions
Breaches of FCA rules
Complaints

52
Q

How does the ‘fit and proper test’ of SM&CR test ‘competence and capability’? (2)

A

Exam success
Experience and training

53
Q

How does the ‘fit and proper test’ of SM&CR test ‘honesty, integrity and reputation’?

A

Bankruptcy

54
Q

For retail clients to be reclassified as elective professional clients, they must pass the following tests: (2)

A
  1. Qualitative test (all business)
  2. Quantitative test (MiFID business only)
55
Q

What is assessed in the qualitative test for professional clients? (2)

A
  1. Assess expertise, experience and knowledge
  2. To provide reassurance about capability and understanding
56
Q

Which activities are subject to the Conduct of Business Rules (COBS)? (3)

A
  1. Designated investment business
  2. Long-term insurance business in relation to life policies
  3. Activities relating to the above
57
Q

For retail clients to be reclassifed as elective professional clients, they must pass the COBS Quantitative test (MiFID business only) by meeting two of which three criteria:

A
  1. Avg trade frequency 10 per quarter over prev. 4 quarters
  2. Portfolio > £500K
  3. Works or worked in financial sector for one year in professional capacity
58
Q

What is the procedure for retail clients to be reclassifed as elective professional clients? (3)

A
  1. Written intent from client to be classified as professional
  2. Written warning to client explaining lost protection
  3. Client consent to lost protection
59
Q

What is COBS 3 and its purpose?

A
  1. Client classification
  2. Reclassification of retail clients as elective professional clients
60
Q

What is COBS 4 and its purpose?

A
  1. Communicating with clients
  2. Fair, clear and not misleading communication
61
Q

In COBS4, firms must ensure that: (6)

A
  1. The firm’s must name their regulator
  2. If not regulated by the FCA, they must say so
  3. Let clients know if their capital is at risk
  4. When quoting yields must give balanced view of short-term and long-term prospects
  5. Complex investments must be clearly explained
  6. Communications relating to packaged products clearly described
62
Q

In COBS4, what are the information requirements when managing investments? (5)

A
  1. Performance reporting
  2. Appropriate benchmarks
  3. Include important statements
  4. Provide risk warnings
  5. Help clients make informed investment decisions
63
Q

In COBS4 and the information requirements when managing investments, disclosures must include: (4)

A
  1. Method and frequency of the valuations
  2. Any delegation of discretionary portfolio
  3. Benchmarks
  4. Management objectives and level of risk incurred on client’s behalf
64
Q

In COBS4 where the firms are holding client money or investments, they must provide which additional details?

A

who may hold them on their behalf and what would happen if the third party became insolvent

65
Q

In COBS4, how must past performance data be communicated? (5)

A
  1. Must not be the most prominent feature
  2. Cover at least five years
  3. Show the effect of charges
  4. State this is not an indicator of future performance
  5. State if it is simulated and not a reliable indicator of future returns
66
Q

What is COBS9 and its aim? (2)

A
  1. Advising and Selling
  2. Suitability - make recommendations that are suitable for the client
67
Q

What are the features of suitability reports? (3)

A
  1. Provided to clients once suitability established
  2. Explains why product iss suitable to meet needs and objectives
  3. Must be fair, clear and not misleading
68
Q

What are the three elements of suitability? (3)

A
  1. Experience and knowledge
  2. Financial situation
  3. Objectives
69
Q

Suitability as a minimum, must do what? (3)

A
  1. Specify the clients’ demands and needs
  2. Explain why the recommendation is suitable
  3. Explain any possible disadvantages
70
Q

What are the other considerations should be made regarding suitability reports? (8)

A
  1. Tailored to the customer
  2. Highlights risks associated with recommendations
  3. Explain any costs & charges
  4. Shows attitude to risk and capacity for loss
  5. Provide a balanced view
  6. Highlight any objectives that have been omitted
  7. Emphasise how the client will be advantaged or disadvantaged
  8. Contain a statement about importance of review process and cost of advice
71
Q

In COBS9, what does ‘appropriateness’ apply to?

A

Execution only for complex products

72
Q

In COBS9, what are the two elements of ‘appropriateness’? (2)

A
  1. Experience and knowledge to understand risks of portfolio
  2. Ability to financially bear any related investment risk
73
Q

In COBS9, what should happen if appropriateness cannot be verified? (2)

A
  1. the firm must warn the client
  2. If still wishes to proceed, it’s up to the firm to decide whether to do so
74
Q

What is COBS2,9,11,12 and its purpose? (3)

A
  1. Dealing and Managing
  2. Conflicts of interest
  3. Firms must take reasonable steps to identify conflicts of interest
75
Q

In conflicts of interest (SYSC 10), what are firms obliged to do? (5)

A
  1. Prevent conflicts
  2. Disclose conflicts that can’t be managed away
  3. Maintain a conflicts policy
  4. Provide clients with description of policy
  5. Keep records of conflicts
76
Q

In conflicts of interest (SYSC 10), what are the rules regarding inducements and investment research? (3)

A
  1. A firm may produce independent research for clients or the public.
  2. Potential COI between individuals receiving the research and analyst
  3. Firm cant accept benefit from any party (other than its client) in connection with the provision of any IM service
77
Q

In conflicts of interest (SYSC 10), payments to 3rd parties are permitted if it satisfies which three tests? (3)

A
  1. Disclosure test
  2. Enhancement test
  3. Compliance test
78
Q

What is the ‘Disclosure test’ for payments to 3rd parties?

A

Payment clearly disclosed to clients prior to provision of service

79
Q

What is the ‘Enhancement test’ for payments to 3rd parties?

A

The payment is capable of enhancing quality of service

80
Q

What is the ‘Compliance test’ for payments to 3rd parties?

A

Payment not significant to compromise firm’s duty to act in client’s best interests

81
Q

In Dealing and Managing (COBS 2, 9, 11, 12), what are the rules on best execution? (2)

A
  1. Strive for best client outcomes
  2. Inform clients about order execution policies.
82
Q

In Dealing and Managing (COBS 2, 9, 11, 12), what are the execution factors?

A

Price, costs, speed, and likelihood of execution and settlement

83
Q

In Dealing and Managing (COBS 2, 9, 11, 12), what should execution price include?

A

venue, expenses, clearing, and settlement costs.

84
Q

In Dealing and Managing (COBS 2, 9, 11, 12) and best execution, careful consideration must given to: (4)

A
  1. Client category
  2. Client order
  3. Types of instrument being traded
  4. Characteristics of execution venues
85
Q

In Dealing and Managing (COBS 2, 9, 11, 12), what are the expectations on client order handling? (2)

A
  1. Fair execution
  2. Orders promptly recorded and carried out sequentially
86
Q

In dealing and managing, aggregation is permitted if: (3)

A
  1. Unlikely to disadvantage customers
  2. Disclose it may disadvantage customers ocassionally
  3. “Order allocation” and “order execution” policy are in place
87
Q

In best execution, how should allocation be done? (2)

A
  1. Timely allocation
  2. Fair allocation
88
Q

In best execution, what is timely allocation?

A

Prompt and follows order allocation policy

89
Q

In best execution, what is fair allocation?

A

Allocate to customers first, unless firm has reasonable grounds to allocate proportionally

90
Q

What is COBS16 and its aim? (2)

A
  1. Reporting to Clients
  2. Provide client essential information re execution of order in durable medium
91
Q

How does COBS16 want reporting to be done to retail clients? (4)

A
  1. Send immediately
  2. No later than next business day after execution
  3. No later than next business day after third-party confirmation
  4. Provide order status information upon request
92
Q

In COBS, investments held on behalf of clients must be registered in such a way to ensure: (2)

A
  1. Client assets segregated from the firms
  2. They are suitably safeguarded
93
Q

Can a firm use clients assets?

A

Not without written consent from the client

94
Q

In COBS, what are the disclosure requirements re client assets? (3)

A
  1. Whether assets held by 3rd party
  2. If held in an omnibus or designated account
  3. Summary of procedures to protect client assets
95
Q

In COBS, what do they want firms to do re custodians of client assets? (2)

A
  1. Perform due diligence on custodians holding client assets
  2. FCA requires written custody agreement
96
Q

In COBS, how should a client perform due diligence on custodian of client assets? (3)

A
  1. Assess custodian’s financial soundness
  2. Evaluate control environment for asset protection
  3. Record and retain custodian selection details for 5 years after use ends

last dance (8 decks)

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