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R01 2023 > 7 Core Regulatory Principles and Rules > Flashcards

7 Core Regulatory Principles and Rules Flashcards

1
Q

What is General Prohibition

A

Offence to carry out a regulated activity unless person is authorised or exempt

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2
Q

What is breach of s.19(FSMA) and severity of punishment

A

2 years imprisonment/or fine

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3
Q

Who does PRA authorise

A

Systemically important firms - banks and insurers

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4
Q

Who does FCA authorise

A

Smaller firms - financial and insurance intermediaries

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5
Q

Who do firms appeal to if rejected authorisation

A

Upper Tribunal (Tax and Chancery Chamber)

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6
Q

Who is responsible for registration of firms under Money laundering regulations

A

FCA

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7
Q

Who is exempt from authorisation?

A

If firm has contract with an authorised firms who accepted responsibilities of firms activities. Such firms are Appointed representatives (ARs)

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8
Q

What are exempt professional firms

A

Porfessional firms that are member of a designated professional body

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9
Q

What is a 4a permission as set out in FSMA

A

Any person wishing to carry out one or more regulated activities must apply to the appropriate regulator for direct permission

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10
Q

If an new insurance firm requires authorisation how does this occur

A

Apply to PRA - Assess from prudential perspective, decide if they meet threshold conditions.

Also FCA will assess from a conduct perspective

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11
Q

How long do regulators have to make decision

A

Statutory time limit - 6 months of receiving complete applications, 12 months receiving incomplete

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12
Q

Scope of Permission Notice? what is it

A

Part 4a permission once authorisation has been granted.

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13
Q

What Is SM&CR?

A

Senior Managers and Certification Regime - aims to reduce harm to consumers and strengthen markets by making individuals more accountable for their actions

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14
Q

What are key features of SM&CR rules

A

Senior Managers Regime - Senior individuals are vetted and are fit to work
Senir Managers are pre-approved by regulators
Statement of responsibilities - setting out what they are personally accountable for

Certification Regime:
Applies to “material risk-takers” - staff who pose a risk of signficant harm to firm (brokers, investment advice) or are subject to Remuneration code.
They must be fit and proper and issue a certificate to each employee

Conduct rate:
Set out in COCON

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15
Q

How is SM&CR applied to solo-regulated firms

A

Three Categories:

Limited Scope Firms - small
Core Firms - baseline regime
Enhanced Firms - 350 largest most risky firms subject to additional requirements

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16
Q

Additional requirements for Enhanced firms?

A

Additional senior management functions
Additional prescribed responsibilities
handover requirements

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17
Q

What are SMFS (senior management functions) divided into in a SM&CR (solo regulated firm)

A

Governing functions
Required functions
System and Control functions

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18
Q

How long will an individual continue to be accountable after ceasing to be an SMF

A

Regulator may not bring proceedings after 3 years from when it knew misconduct.

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19
Q

Core Firm - SMF (Governing function)

A

SMF1 - Chief Executive
SMF3 - Executive Director
SMF27 - Partner
SMF9 - Chair of the governing body

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20
Q

Core Firm - SMF (Required Function)

A

SMF16 - Compliance Oversight
SMF17 - Money laundering

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21
Q

What is the Statement of Responsibilities and what does it entail

A

Each senior member must have a SOR and preapproved by FCA. SOR must be concise and updated whenever “significant change”

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22
Q

Who is responsible for certifiaction regime?

A

The firms are (explicitally not regulators). Firms are responsible to check initial suitability to perform role and check annually.

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23
Q

Different Certified Functions

A

Significant management functions
Proprietary traders
CASS Operational Oversight Function
Functions Subject to qualification requirements …
Client dealing function etc

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24
Q

Who may not need to be certified in financial advisory

A

Paraplanners - FCA makes clear that it is firms decision to decide who is certified or not

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25
Q

What are Directory Persons

A

Firms are required to report names of individauls performing Certification Functions to be published as part of Financial Services Register

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26
Q

Certificate issuing requirements

A

Be issued by senior manager with responsibility for prescribed function

Refer to each of the certification functions that an employee carries out in firm

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27
Q

Conduct Rules - FCA powers, who do they not apply to

A

Ancillary staff - roles that could undertake similiar work in any business

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28
Q

Conduct Rules - who do they apply to

A

Senior managers
Certified functions
non-executive directors who are not senior managers
Other employees

29
Q

How long do firms have before reporting a breach in conduct rule to FCA of senior managers?

A

7 days of concluding any disciplinary action (written warning, suspension..)

30
Q

How long do firms have with other roles of a breach in conduct rule to FCA

A

Every year to FCA on report, regardless of any breaches or not.

31
Q

AR (Appointed representatives)
How does it affect firms?

A

Appointment does not prevent firm from satisfying threshold conditions

Person is solvent has no close links which would likely to prevent effective supervision of person

Firm has adequate controls over persons regulated activities

32
Q

How long do principal have to notify FCA of AR taking place and termination of AR

A

No later than 10 days for both

33
Q

FCA new AR supervision

A

2022

34
Q

2022 FCA supervision how long do principal firms have to notify FCA of AR appointment

A

30 days advance for new AR appointments

35
Q

Difference between approved person and authorised persons

A

Approved person -The approved person is the individual who has been approved to carry out a controlled function within the business.

Authorised person - individual who has been approved to carry out one or more of the controlled functions within business.

36
Q

Five main groups of FCA-controlled functions

A

4 are significant functions (can only be performed by approved persons):

Governing functions
Significant management functions

37
Q

Record Keeping - COBs Rules

A

Indefinitely - Pension transfers, pension opt-outs and free standing additional voluntary contributions (FSAVCs).

Five years - Life policies and pension contracts, most other items.

Six years - Financial promotions for the above products.

Three years - Non-MiFID firms in some circumstances.

38
Q

Reporting- Items reported to FCA

A

Details of shareholdings (>10%) of limited companies

Details of organisation with close links inc people (>20% subsidaries or sister companies

Financial resoureces

Complaints received by firms

Also

Amounts held in client bank accounts and value of client discretionary fund assets;

Types of business undertaken;
Staff undertaking certain roles.

39
Q

How often do firms submit complaints into FCA? And what should they submit?

A

Twice a year submit statstics of complaints.

Firms must report the number of complaints:
closed within three days of receipt

Closed after three days but wthin eight weeks of receipt

Closed more than eight weeks after receipt

Total number closed

Total number upheld

40
Q

What does FCA principles require firms to be when reporting?
If they are not this, then what is punishment?

A

In addition the FCA principals require firms to be open and cooperative with FCA, so other non-specified items should be reported at the discretion of the firm.

Fines can be imposed for late returns, but enforcement or removal of authorisation can occur for failure to report.

41
Q

Training and Competance Rules

who does it apply to

A

Only apply to retail business (MiFID and non MiFID)

42
Q

Who specifically does Training and Competence apply to

A

Employees - those who provide advice
Those who supervise them
Overseers

43
Q

Who specifically does Training and Competence not apply to

A

Senior management and other staff - subject to SM&CR

44
Q

Competence - record keeping of training

A

From termination of appointment:

3 years - non-MiFID firms.

5 years - MiFID firms.

Indefinitely - pension transfer specialists.

45
Q

How many hours does Insurance Distribution Directive require CPD

A

15 hours

46
Q

Money Laundering - Three stage process

A

Placement - through banks and life assurance policies such as unit trusts. Turn ilicit cash into payments from financial institutions.

Layering - conceal origins of ilicit money with false names.

Integration - finally converted into proceeds of legitimate business

47
Q

Who is responsible for targeting money laundering

A

Financial Action Task Force

48
Q

If money laundering is discovered who must this be disclosed to

A

National Crime Agency (NCA)

49
Q

In regulated firms, who should money laundering be reported to

A

Money laundering reporting officer (MLRO) should report to NCA not person who raised suspicion

50
Q

Identification procedures - moeny laundering

A

For individuals, first obtain basic information such as name, address, DOB. Then verify this information through the use of reliable independent documents or information.

For firms, obtain information relevant to the entity (such as company registration number) and evidence that individuals have the authority to act for the business. Information must be from reliable independent sources.

51
Q

Money Laundering

Record Keeping requirement

Reporting requirement

A

Records must be kept for 5 years after the end of the customer relationship, or 5 years from when the transaction was completed.

Firms must undertake an annual review of their MLR systems by obtaining a report from the MLRO.

52
Q

Wht is the act that helps retrieve moeny back from money launders

A

The Proceeds of Crime Act established the Assets Recover Agency (ARA) which can confiscate the proceeds from criminals.

53
Q

GDPR - who does it apply to

A

Applies to ‘relevant filing systems’, so not only computers but also manual or paper records.

Firms are required to register with the Public Register of Data Controllers (maintained by the Information Commissioner’s Office ICO). Processors using only manual records are exempt.

54
Q

Six lawful bases for GDPR to access personal data

A
  1. Consent
  2. Contract
  3. Legal Obligations
  4. Vital Interests
  5. Public Task
  6. Legitimate Interests
55
Q

Rights for GDPR

A

Rights to be informed
Right of Access
Right to rectification
Right to Erasure
Right to object… etc

56
Q

Data Protection Act 2018 - aims

A

Too ensure sensitive health, social care and education can continue to be processed

Restricting rights to acess and delete data

57
Q

FCA rules - who do firms have to nominate to deal with complaints

A

FCA rules - Firms are required to nominate a senior individual so they have degree of influence in firm to sort complaint

58
Q

Rapid Resolution Complaints - how long do firms have to resolve?

A

Period for dealing is 3 business days.

59
Q

How long can firms appeal to FOS

What is FCA resolution time?
What happens if they cannot meet this resolution time

A

Can appeal within 6 months to FOS

FCA expects 8 week resolution time. If it isn’t possible the firm must send a written response indicating why and that they can at that point refer to FOS for the next 6 months.

Also required to acknowledge receipt of the complaint on a timely basis and regularly update them on the status.

60
Q

How long are complaints kept on record?

A

Records kept for 5 years for MiFID, 3 years for non-MiFID.

Firm must supply complaints data to the FCA twice per year via the GABRIEL online reporting system.

61
Q

Financial Ombudsman Service (FOS) - what are they

A

The Financial Ombudsman Service (FOS) is a free, independent and impartial service that deals with unresolved disputes. Membership is compulsory for all authorised firms, including intermediaries.

62
Q

FOS eligibility

A

Consumer
Micro-enterprise (<10 employees AND turnover or annual balance sheet < Eur2m)
Charity (<£6.5m annual income)
Trust (<£5m NAV)

63
Q

FOS Time Limit

A

six months of the date on the firm’s letter advising the claimant of its final decision regarding the complaint;

six years after the event complained about; or

three years after the complainant knew, or should have known, that they had cause for complaint.

64
Q

FOS - Redress how much can FOS charge firms who have been found guilty

A

Money award to consumer to cover any losses as a result of problem complained about

£415,000 for complaints referred to FOS after 1/04/2023 about acts on firms after 1/04/2019

£190,000 for complains referred to FOS after 1/04/2023 about acts on firms before 1/04/2019

FOS can also charge interest due on firms of 8% per year

65
Q

Financial Services compensation scheme - what is it

A

Purpose is to compensate claimants where authorised persons (or ARs) are unable to satisfy claims against them.

66
Q

Financial Services compensation scheme - what must claim be related to

A

Must relate to a protected deposit, protected insurance contract or protected investment business.

67
Q

FSCS - Amount payable

Deposit
Investment
Long term Insurance
General Insurance
Home Finance
Pension

A

Deposits: Up to £85,000 per authorised firm.
There is also a target of a seven-day payout for the majority of claimants and the remainder within 20 days.

Certain temporary high balances of up to £1 million for 6 months from the date of deposit.

Investment: Up to £85,000

Long term insurance - 100% of claim
Intemediaries - 90% of claim

General Insurance: 100% of valid claims
Non-compulsory insurance - 90% of claim

Home finance: Up to £85,000

Pensions:
Insured personal pension, 100% of claim
SiPP operator - 100% of claim

68
Q

Pension Ombudsman

A

This is an independent organisation set up by law to investigate complaints about pension administration

69
Q

Pension Protection Fund (PPF)

A

To provide compensation to members of eligible defined benefit pension schemes, when there is a qualifying insolvency event in relation to the employer, and where there are insufficient assets in the pension scheme to cover the PPF level of compensation.

R01 2023 (11 decks)

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