Chapter 1 Flashcards
The Regulatory Environment
Purpose of Financial Markets
Exist to move capital from those that have to those that need access
Buy Side
Require capital to make investments (citizens, investors, lenders, institutions, asset manager)
Sell Side
Banks and Brokers providing access to Secondary Markets to exchange the securities previously issued from the primary market
Primary Market
Issuers of securities, such as governments and corporations, who need capital to grow
Third Party Vendors (in relation to Financial Markets)
Service and data providers, such as Bloomberg, Lawyers, Consultants, IT Vendors, etc.
Financial Services Act
2012
Define the relationships between HM Treasury, the Bank, the PRA and the FCA in the event of crisis in the financial system
FCA
Financial Conduct Authority
Independent regulator, accountable to HM Treasury
Conduct regulation on dual-regulated firms
Conduct regulation & prudential regulation on all other regulated firms
Oversees Financial Ombudsman Service, Financial Services Compensation Scheme, Regulatory Decisions Committee
RDC
Regulatory Decisions Committee investigates misconduct claims against firms on behalf of the FCA
PRA
Prudential Regulatory Authority
Not an independent regulator, authorised and operated by the BofE with legal authority from the Financial Services Act 2012
Checks on PRA regulated firms to ensure they keep sufficient liquidity reserves, risk taking assessments, e.g. Basel III regulations
PRA ensures appropriate oversight
Right of veto over the FCA (though rarely, if ever, used)
PRA firms: deposit takers, insurers, significant investment firms
Objective: promote safety and soundness of PRA-authorised firms
FPC
Financial Policy Committee, directed by BofE
Meets quarterly, responsible for systemic risk assessments and ensures UK financial system is stability
Can issue requests and demands to FCA and PRA
Dual Regulated
PRA authorised firms, e.g. Banks, insurance firms, etc.
“Authorised by the PRA, and regulated by the PRA and FCA”
PRA on prudential, FCA is conduct
Single Regulated
FCA does prudential and conduct regulation
MPC
Monetary Policy Committee, by the BofE
Tasked with hitting 2% CPI, meets monthly to determine interest rates and levels of QE
Fiscal Policy
Government action to influence the economy, mostly refers to tax policy
BofE
Bank of England
Overseeing financial markets infrastructure
Maintaining stability of financial system
Stress testing of banks and financial services providers
Appointing the chairman of the Takeover panel (ch. 6)
ESMA
European Securities & Markets Authority
Investor protection, orderly markets, financial stability across the EU
Promote national regulator convergence (similar actions on supervision across region), monitoring risks, single rulebook for EU financial markets, directly supervises financial entities such as credit rating firms
Financial Services Action Plan
EU Regulations
Mifid I, Mifid II, etc.
Create single EU wholesale market place, open and secure retail market, safe and secure supervision
GDPR
EU General Data Protection Regulation
Harmonises data privacy laws to protect European citizens from privacy and data breaches
Applies to all companies processing the personal data of subjects residing in the EU
6 data processing principles to be complied with
Penalities are the larger of up to 4% of annual turnover, or EUR 20m
Regulated Activities Order
Lists regulated activities in the UK
Links with General Prohibition (Section 19 FSMA 2000)
“No person may carry on a regulated activity in the UK unless he is an authorised person or an exempt person”
Legal person != Natural persons (an actual human being)
Authorised person is a Part 4A permission, or a European firm can be passported in via MiFID
Exempt persons include the BofE, for example
Specified Activities (Regulated Activities Order)
Dealing, arranging, managing, advising, safeguarding, administering investments
Multilateral trading facility (MTF)
Mortgages
Accepting deposits
Collective Investment Schemes
More…
Excluded Activities (Regulated Activities Order)
Newspapers
TV Broadcasting
Providing Information
Unpaid trustees, e.g. nominees, executors
Employee share schemes
Dealing as principal and end user, where there is no service offered to other
Specified Investments (Regulated Activities Order)
To be part of Specified Activities:
Shares, debt, options, CIS, futures, pensions, regulated mortgages (primary charge), deposits, loans, emissions auction products, benchmarks
Excluded Investments (Regulated Activities Order)
Property, tangible assets (e.g. commodities), currencies, premium bonds, national savings certificates
Breach of General Prohibition
Criminal offence, either in magistrates court or crown court
Most financial crime are in the crown court -> 2 years and/or unlimited fine
Magistrates court is 6 months and/or £5,000
Also a civil offence, leading to injunctions, restitution orders, contracts are voidable
