9. Regulation and supervision of the offshore services sector Flashcards
Who was the FSA and who was it replaced by?
The Financial Services Authority had the role of regulation of the financial services in the UK.
In 2013, the FSA was replaced by the Prudential Regulation Authority and the Financial Conduct Authority.
What is the PRA?
A subsidiary of the Bank of England and is responsible for the regulating deposit taking businesses, insurers and investment banks.
What is the FCA?
Responsible for the regulation of conduct in retail and wholesale financial markets and the infrastructure that supports those markets.
What is offshore centres’ stance on financial regulation?
Many offshore centres have embraced policies and procedures set by the UK regulation in order to maintain investor confidence in the offshore jurisdiction. However, the need to balance their approach to regulation to ensure that they maintain the integrity of their jurisdiction while not negating the benefits that initially attracted investors to the centre.
What is the role of primary legislation in regulation?
Typically provides for the creation of a regulator (e.g. FCA), and for the prohibition against the provision of financial services without regulatory authorisation.
Who is granted authorisation to act?
Authorisation is usually granted to ‘fit and proper’ applicants, this determined by the fit and proper test, which includes the assessment of the following factors:
- Financial standing - Integrity - Resources available - Staff employed - Competence - Track record - Relevant and satisfactory - Structure of the organisation - i.e. systems and controls, transparency of ownership
(A fit and proper applicant must FIRSTS have these:)
What is the role of secondary legislation in regulation?
Supplements Primary Legislation and places additional requirements on authorised persons. Normally in the form of codes of practice and guidance notes.
What are guidance notes?
Outlines the requirements of the primary and secondary legislation.
What is the AIFMD and when was it created?
The Alternative Investment Funds Managers Directive.
Introduced in 2011 in response to the 2007 financial crash.
Requires all AIFMs (hedge, real estate and commodities funds) to apply to their regulator for authorisation to market alternative funds across the EU and manage AIFs domiciled in other EU countries.
What are the 3 characteristics of the PRA?
- Judgement based - are financial firms safe and sound? (do they provide appropriate protection?)
- Forward-looking approach - What are the future risks? (to enable early intervention)
- Focused Approach - which firms provide the greatest level of risk and use risk to dictate level of oversight
What is the PRA’s general objective and how does it do it?
To promote the safety and soundness of PRA authorised signatories
What is the primary legislation that gives FCA its powers?
the Financial Markets Act 2000, which was then amended by the Financial Markets Act 2012
FCA’s general duties
- Act in a way that is compatible with its objectives
- Advance on or more of its operational objectives
FCA’s objectives
- Consumer Protection Objective - Securing an appropriate degree of protection for consumers taking into consideration: (1) differing degrees of risk with investments, (2) differing degrees of expertise of consumers, (3) the general principle that consumers are to take responsibility for their own decision and (4) that regulated business should provide a level of care to its consumers.
- The integrity objective - protecting and enhancing the integrity of the UK financial system; integrity includes: (1) soundness, (2) stability, (3) not being used for financial crimes, (4) not being affected by market abuse and (5) transparency
- The competition objective - Promoting effective competition in the interest of consumers within the market of regulated financial services. Regard is given to the needs of different consumers, the ease in which consumers can access services (e.g. how easy is it for new consumers to enter the market and to include consumers affected by social and economic depression)
General functions of the FCA
- Making the rules
- Preparing and issuing codes of practice
- Giving general guidance
- Determining general policy and principles
FS Act 2012 provides that the following regulatory principles must be applied:
-Efficiency and economy
-Proportionality of rules to the benefits
-Sustainable growth - regulation allows for growth
-Consumer responsibility for investment decision
-Senior management responsibility to adherence of regulations
-Recognising the differences in business (no one size fits all)
-Openness and disclosure (changes in regulations should be communicated)
-Transparency (regulator to be as open as possible)
SPECTORS
What are the FCA’s 10 supervision principles?
- Fair Outcome for consumer and market
- Being forward looking and pre-emptive
- Focused on the big issues and problem causes
- Judgement-based approach
- Examine business models and understand how they make profit
- Joined-up approach consistency
- Communicating openly
- Robust when things go wrong
- Individual accountability
- Ensuring firms act in the right spirit
What are the FCA’s 11 principles for businesses?
- Integrity
- Skill, care and diligence
- Management and control
- Financial prudence (adequate resources)
- Market conduct meets standards
- Focused on customers’ interests
- Communication with clients - fair, open and clear
- Conflicts of interest are avoided or managed
- Customers: relationships of trust - act in there interest of their clients
- Clients’ assets - protect
- Relations with regulators must be open
