chapter 1 Flashcards
Regulatory framework of the UK fin system
- HM Treasury and UK Govt
- Bank of England
- Financial Policy Comittee
- PRA/FCA jointly (created under FSA 2012)
Bank of Englad role in regulation
Purpose
1. monetary stability - stable prices and confidence in teh currenncy
2. financial stabilty - reduce systemic risk, to promote stability of the UK fin system
Role of the Financial Policy Comittee (FPC) in UK regulation
Purpose:
* Identify, monitor and take action to rremove or reduce systemic risks with teh view to protect and enhance teh resilience (ability to cope with shocks) of teh UK fin system
- Meet 4 times a year
- Issues bi-annual financial stability report
- Issue directions to teh PRA and FCA
PRA and it’s statuotory objectives
PRA firms are:
* Deposit takers - banks building societies etc
* Insurers
* significant investment firms (MIFID Businesses)
General objective - promote saftey and soundness of PRA authorised firms
* Aims to avoid instability
* Minimise adverse effect the failure of a PRA authorised firm would have on the stability of the UK financial
- Insurance objective - contributing to the securing of an appropriate degree of protection for those who are or may be policy holders
The FCA and it’s statuatory objectives
- Came in under Fin svs act 2012
Strategic objective - ensure teh relevant markets function well
Operational objectives
* Consumer protection - securing and appropriate degree of protection for consumers (reduce conduct risk)
* Integrity of the fin system - protecting enhancing the integrity of the UK fin system (culture, reduce fin crime, improve mkts/systems
* Competition - promote effective ccompetition in the the interest of consumers
FCA’s risk based approach to supervision
- Risk based assessment of firms based on potential impact to the FCA’s Objectives (fixed {large} vs flexilbe {small} protfolio firms)
3 pillar model
1. Proactive - pre-emptive (ncludes business model analysis and drivers of conduct
2. Reactive - emerging or actual harm
3. Thematic - potential actual harm (sectoral based thematic review)
Tools of supervision
* Idnetify - identify where harm/potential harm is present
* Diagnose - what is the cause, exetent and potential development of the harm
* Remedy - using a range of FCA actions that can be taken
* Evalute - FCA assesses how effective these actions were
FCA’s approach to conduct risk super vision
Focusses on 3 areas:
1. Reducing and preventing serious harm - dealing with problem firms and improving redress process
2. Setting and testing higehr standards - putting consumer needs and have a stratergy for positive change (ESG)
3. Promoting competeion and positive change - preparing fin svs for the future and shaping digital markets
General powers of the FCA
- Authorised under Part 9a of FSMA 2000 (gives them the power to act)
- Grant, vary or withdraw part 4a authorisation of firms, individuals and recognising other bodies (exemptt persons)
- Rule making when necessary for operational objectives
- supervision, enforcement, sanctions and siciplinary action
- Prosecutes for financial crime
Application of EU legislation and regulation post Brexit
Eu directives and regulations
* create a ccommon mkt with harmonised rules in the fin industry
* facilitates frictionless cross border trading with the EEA (passporting()
EU withdrawal act 2018
* Drafts all EU regulations into UK Law (onshoring)
* preserves existing UK laws that impkement EU obigations
* powers to amend current UK legislation to ensure rules and laws continue to function
* EU MiFID becomes UK MiFID (applies to other regs MIFID, EMIR, etc)
UK firms currently have no passporting rights in the EU
The FCA Handbook
Binding = mandatory , Non-binding = guidance
The handbooks are the central store of all FCA regulations
- S138 FSMA 2000 gives legal effect to the rules and guidance of the regulators set out in the handbooks
Provisions of the handbooks
* (R) rules - rules are binding on authorised persons (firms)
* (E) evidential provisions - non-biinding but show evidence required to demonstrate compliance with the rule
* (G) Guidance - non-binding - recommends means of compliance or courses of action to take
* (D) Directions - binding on those to whom they relate - these dictate the behavior to be taken
* (P) statements of principle - binding upon approved persons
* (C) Conduct - behaviour that does not amount to market abuse
* (UK) text UK law - the FCA provides links to relevat laws, rather than copy and past of large chunks of text.
The FCA and PRA encourage fin industry to develop it’s own best practicce - confirmed industry guidace has same legal statys as regulator guidance
Principle/outcome based regulation
Moves away from reliance on detailed prescriptive rules and relies on high level principles:
* Allows for flexibility
* puts the focus on the purpose of regulation (the ‘spirit of regs limits loopholes)
* better suits today’s fin mkts (but relies on integrity from firms)
Rule based regulation
Traditional form of regulation (COBS)
* clearly defined rules
* can be inflexible due to one size fits all rules (room for loopholes
* can lead to box tickingg culture
FCA principles for business
Check phone
Consumer duty
Aim
* Ensure retail customers receive good outcomes when they purchase productsor services
Scope
* Any product or service that is or can be distributed to retail clients - whether intentionally or not (eg distribution under third party arrangements)
Impact on principles for business for in scope firms
* Principle 12 consumer duty: A firm must act to deliver good outcomes for retail customers
* When principle 12 is in place (client is retail) prin. 6&7 are removed
consumer duty - cross cuttting
Cross cutting rules
* Act in good faith towards retail clients - honesy fair and open dealings that are consistent between clients
* Avoid causing forseeable harm to retail clients - dicslose risks, proactively avoid forseeable harm and do not exploit vulnerabilities
* Enable and support retail client to pursue fin objectives - use info disclosed and be trusted/reliabe
the financial understanding of the target mkt must always be considered when applying these rules
Measuring a firm’s success in meeting consumer duty
Measures against 4 outcomes:
1. Products and svs are fit for purpose
2. price and value of the outcome is fair
3. consumer service outcome - customer suport meeting client needs
4. customer understanding throughout their relationship with the firm
Senior manager arrangements, systems and controls (SYSC)
Purpose
1. Encourage idrectors to take responsibility for the firm’s arrangements on reg. matters
2. amplify principles for businesss 3to organise and control it’s affairs responsiby and effectively (controls)
3. vest responsibility for effective and responsible organisation in speciffic directors / senior managers
4. Create a common platform (firms are usually MiFID firms or CRD) of organisational systems and controls
Senior manager arrangements, systems and controls (SYSC) - relevant sections
SYSC 4 - general requirements
Covers corp. governance and board of directors
* Sound governance
* experiecned management
* receive written reports on compliance and internal audit annually
* apportionment of responsibilities must be clear and appropriate
SYSC 5 - employees, agents and other relevant people
* Skills, knowledge and expertise
* segregation of duties
* awareness of procedures
* monitoring
SYSC 6 - compliance, audit and fin crime
CISI professional code of conduct
Check phone
Competition and markets authority (CMA)
Powers
* Investigate and block takeovers or mergers if in the interests of competiton and consumers
* enforce consumer pretection and legislation - cooperation/coordination in the fin sector
* prosecute unlawful cartel members
The Information Commissioners Office (ICO)
- Uphold information rights in the public interest
- Ensure data privacy for individuals (Data Protection Act 2018)
- Promote openness by public bodies - freedom of info. act 2000
The pension regulator
- Regulates work-based pension schemes
- Protects members benefits
- promotes good administration
- maximises employer compliance with obligations
Pension Protection Fund (PPF)
- Protects the benefits of the defined benefit pension schemes (eg final salary)
- funded byDB schemes
- accountable to the secretary of state for work and pensions
HMRC
- Primary tax revenue raising agency for the UK govt.
- shares information with fin. regulators to better assess teh impact of tax changes on fin. svs firms
- set tax benefits and investment restrictions on ISAs
Upper triubunal (tax and chancery chamber)
- hears appeals against the FCA, PRA and Pension Regulator for:
- Mkt abuse
- regulatory discipline
- listing activies
part of the ministry off justice
Done
