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930 advanced broking > 930 - chap 5 - regulation > Flashcards

930 - chap 5 - regulation Flashcards

1
Q

3 areas of change

A
  1. FCA’s objectives
  2. FCA’s approach to risk assessment
  3. ARROW visits replaced by the firm systematic framework
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2
Q

FCA and the PRA

A
  1. FCA - a seperate independent regulator - responsible for conduct of business and market issues for all firms and prudential regulation for of those not supervised by the FCA eg brokers.
    FCA focuses on action early. shift towards thematic reviews. will review the product lifecycle and will ban products.
  2. PRA, sits in the BoE- promotes safety and soundness of firms, securing protection for PH’s, judgement based approach
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3
Q

FCA objectives

A
  1. consumer protection. 2integrity. 3 competition

efficient and economic use of resources. proportionality, consumer responsibilities, transparency

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4
Q

FCA’s approach to supervision - 2 stages

A 
Business model and strategy analysis
stage 1
are the interests of customers and integrity at the heart of the firm?
stage 2
1. governess and culture
2. sales processes
3. product design
4. post sales services/transaction handling
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5
Q

FCA’s Approach to Supervision

A
  1. forward looking and interventialist
  2. focussed on judgement, not process
  3. consumer centric
  4. focus on big issues not causes problems
  5. interface with exec management /boards
  6. robust when things go wrong
  7. focussed on business model and culture
  8. viewing poor behaviour in all markets through lens of customers
  9. orientated towards firms doing right thing
  10. externally focussed
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6
Q

FCA supervision of small firms - 4 diff categories depending on retail or wholesale

A
  1. C4 firms will experience least intrusion
  2. however involves a touchpoint assessment yearly
  3. identifying the level of risks- the company will submit reports assessments via GABRIEL
  4. firms identified as high risk will have face to face interviews
    5, firms high risk will be subject to a follow up visit
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7
Q

Route to authorisation*

A
  1. deciding on scope of authorisation
  2. understand the principles of business and how the firm would apply them
  3. prepare business plan that addresses 7, 3 and 4 of the threshold conditions
  4. decide which people will be approved persons
  5. decide the processes, systems and controls that will meet Fca requirements
  6. calculate the minimum capital requirements
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8
Q

PRA scope

A
  1. regulates firms that if they fail they would damange financial system. judgement based approach. they regulate banks insurers etc but not intermediaries
  2. insurance objective * securing protection for those who are or are about to become ph’s
  3. threshold conditions = min requirements
  4. judgement led approach with a risk framework objective
  5. firms will get baseline monitoring: compliance with capital standards, liquid assets provisioning and reserving, annual review of risks, recovery / action plan if exits market
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9
Q

proactive intervention framework (pif) - judgement about proximity to FAILURE
(firms must promote a joined up model to their risks)

A
  1. involves risks by the firm and their ability to manage them
  2. risks will be judged instead of box ticking
  3. if the firm moves up the PIF they will face greater regulator intervention
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10
Q

firms culture and prudential supervision

A
  1. must have sufficient controls to minimise excessive risk taking
  2. insurers and individs open and co-operative
  3. board must take responsibility for culture
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11
Q

PRA veto power and the FCA- key aspects / rules of regulation

A
  1. principles v rules and principles for business (drive towards thematic reviews instead of application driven, problems dealt with when arise- in the old days the reg did not stop the enron disaster, fca may be extremely stringent which is a concern)
  2. threshold conditions
  3. systems of senior mngmt arrangements and controls
  4. approved persons and fit and proper tests
  5. prudential standards
  6. business standards
  7. client assests (cass)
  8. discipline & enforcement
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12
Q

principles for business *

foundation on which the regulation is built

A
  1. integrity
  2. skill, due care and dilligence
  3. management and control
  4. financial prudence
  5. market conduct
  6. customers interests
  7. comm with clients
  8. conflicts of interest
  9. customers relationship - trust (suitability of advice)
    10 client assets
  10. r.ships with regulators
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13
Q

principles for business revision tool &

A 
C - communicate effectively
U - utmost care
S - skill care and dilligence
T - trust in customer r.ships
O - observe market codes of conduct
M - maintain sufficient financial resources
E - ensure fair client dealing
R - r.ship with regulators
C - conflicts of interest- avoid - manage
A - assets - protect client assets
R - reasonable organisation standards
E - efficient risk management
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14
Q

threshold conditions

A
  1. legal status (acceptable)
  2. location of offices (head office must be uk)
  3. close links (foreign parent- fca has to be satisfied it controls the uk firm properly)
  4. adequate resources (sufficient capital and cash following demise of lehman bros)
  5. suitability (conduct of firm and integrityof management- suitable AP?)
  6. business model- firms put customers at heart of model in prudent manner
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15
Q

responsibilities of directors and senior management

A
  1. organisation
  2. compliance
  3. risk assessment
  4. management info
  5. employees and agents
  6. audit committee
  7. internal audit
  8. business strategy
  9. remumeration policy
  10. business continuity
  11. records
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16
Q

responsibilities of an approved person

unreasonable = pretty much the opposite

A
  1. act with integrity
  2. act with due skill, care, dilligence
  3. observe proper standards of market conduct
  4. deal with fca open and co-operative
  5. take reasonable steps to ensure firm organised effectively
  6. due care, skill and dilligence in managing the firm
  7. reasonable steps to ensure firm complies with regulation
17
Q

has an AP complied with sop 5 - 7?

A
  1. reasonable care exerted over info given to them?
  2. reached a reasonable conclusion and acted on it?
  3. nature, scale and complexity of firms business?
  4. persons role and responsibility as ap - signif fuction?
  5. reg concerns if any when business is under their control?
18
Q

fit and proper test

A
  1. honesty, integrity, reputation
  2. competency and capabilities
  3. financial soundness
19
Q

prudential standards (key rules of insurance mediation activities)

A
  1. MIPRU 2.3.1- knowledge and good repute
  2. repute (not convicted of serious offence or bankrupt)
  3. PI Insurance
  4. PI terms
  5. Pi limits- single claim 1.12m, 1.6 in agg
  6. PI excess - does not hold client assets 2.5k min, does hold client money - 5k min
  7. min capital - does not hold client money - 5k, does hold client money - 10k
20
Q

business standards relevant to brokers

ICOBS and CASS

A
  1. icobs - communications, info and broker and services, info about broker remuneration, identifying client needs, providing product info, cancellation, claims
  2. cass
  3. improve client risk identification
  4. increase firm compliance with cass
  5. enhance fca ability to react to failure
    common concerns- inappropriate controls, ineffective risk transfer doc, application of the pooling rules, infrequent client moneycalculations, client money held by 3rd parties, client money held as designated investments
21
Q

client money segregation

A
  1. either a statutory trust or non statutory trust

2. must be held in conventional deposit or trust account

22
Q

penalties on firm or approved person - 5 steps to assess size of penalty

A
  1. disgoregement
  2. serious of breach
  3. mitigating and aggravating factors
  4. adjustment for deterrence
  5. early paymentdiscount

930 advanced broking (6 decks)

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