Chapter 1: Regulatory Environment

Question 1

who has overall responsibility of the financial services sector / financial system?

Answer 1

HM Treasury

Question 2

What impact does HM Treasury have on the FCA?

Answer 2

appoints board and chairman

requires report on effectiveness at least annually

can subject FCA to independent reviews

Question 3

Who funds the FCA

Answer 3

authorised firms

Question 4

Identify, monitor and take action to remove or reduce systemic risks
- With a view to protecting and enhancing the resilience of the UK financial system

This is the role of who?

Answer 4

Financial Policy Committee of the BoE

Question 5

how often does the FPC meet and how often does it produce reports?

Answer 5

meets four times a year, biannual report

Question 6

who regulates ISAs?

Answer 6

HMRC (think cos of tax relation)

Question 7

what are the three types of PRA firms?

Answer 7

deposit takers
insurance
significant investment firms

Question 8

what is the PRA’s general objective?

Answer 8

General objective – to promote the safety and soundness of PRA-authorised firms
- Avoid instability
- Minimise adverse effect the failure of a PRA-authorised firm would have upon the stability of the UK financial system

Question 9

what is the difference between statutory objectives, strategic objectives and operational objectives for FCA

Answer 9

statutory = all of them
strategic = only one (the main overall motive of the FCA)
operational = there are three

Question 10

strategic objective of the FCA

Answer 10

ensuring the relevant markets function well

Question 11

operational objectives of the FCA

Answer 11

• Consumer protection
• Securing an appropriate degree of protection for consumers
• Integrity
• Protecting and enhancing the integrity of the UK financial system
• Competition
• Promoting effective competition in the interests of consumers

Question 12

What do Consumer Rights Act 2015 and the Unfair
Terms in Consumer Contracts Regulation 1999 allow the FCA to do?

Answer 12

Challenge, amend and remove unfair terms in consumer contracts in the
financial services

Question 13

the FCAs risk based approach has how many types of work and what are they?

Answer 13

3

Proactive – pre-emptive (includes business model analysis and drivers of conduct)
* Reactive – emerging or actual harm
* Thematic – potential or actual harm

Question 14

what are the four FCA tools for supervision?

Answer 14

Identify: identify where harm or potential harm is present
- Diagnose: what is the cause, the extent and potential development of the harm
- Remedy: through a range of FCA actions that can be taken
- Evaluate: FCA assesses how effective these action were

Question 15

what types of firms are subject to proactive firm supervision

Answer 15

fixed portfolio firms

Question 16

what three areas does the FCAs strategy for conduct risk supervision focus on?

Answer 16

• Reducing and preventing serious harm
• Setting and testing higher standards
• Promoting competition and positive change

Question 17

4 general powers of the FCA

Answer 17

grant, vary or withdraw part 4A permission or approval of individuals/recognition of other bodies

rule making

prosecute financial crime

Supervision, enforcement, sanctions and disciplinary action

Question 18

is guidance binding?

Answer 18

no

Question 19

how is principles regulation best defined?

Answer 19

Use of high level objectives that are binding on the firm

Question 20

where consumer duty applies, which principles for business get replaced by it?

Answer 20

principle 6 (customers interests) and 7 (communication with clients)

Question 21

what are the 12 principles for business?

Answer 21

1. Integrity
2. Skill, care and diligence
3. Management and control
4. Financial prudence
5. Market conduct
6. Customers’ interests
7. Communications with clients
8. Conflicts of interest
9. Customers: relationship of trust
   10.Clients’ assets
   11.Relations with regulators
   12.Consumer Duty

Question 22

in summary, what activities are exempt from the consumer duty principle?

Answer 22

Anything described as non-retail or specifically directed to professional
clients or eligible counterparties

Commercial products and services

Group products, such as group life assurance products

Trickier is the definition of a non-retail investment, where a minimum
denomination or investment is £50,000

Question 23

what is the aim of consumer duty?

Answer 23

To ensure retail customers receive good outcomes when they purchase products or services

Question 24

what is in the score of consumer duty?

Answer 24

Any product or service that is or can be distributed to retail clients

Question 25

for firms out of scope of the consumer duty, what applies to them? and how many are there?

Answer 25

fair treatment of customer outcomes apply (FTOC Outcomes)

6 outcomes

Question 26

what is the purpose of the Senior management arrangements, systems and controls (SYSC)?

Answer 26

Encourage directors to take responsibility for the firm’s arrangements on
regulatory matters

Amplify Principle for Businesses 3 to organise and control its affairs responsibly and effectively

Vest responsibility for effective and responsible organisation in specific director and senior managers

Create a common platform of organisational systems and controls

Question 27

purpose of pension protection fund?

Answer 27

Protects the benefits of defined benefit pension schemes

To compensate members of insolvent final salary pension schemes

Question 28

principles for business only apply to FCA authorised firms, true or false?

Answer 28

false, also PRA

Question 29

what are the certification functions?

Answer 29

CASS oversight, proprietary trader, significant management, functions requiring qualifications, managers of certification functions, material risk takers and client dealing.

Question 30

Which statement is the correct aim of the FCA’s Consumer Duty?

Answer 30

To ensure that retail customers receive good outcomes when they purchase products or services

Question 31

To whom do the PRA’s rule-making powers extend?

Answer 31

Only PRA-authorised persons

Question 32

According to the provisions under Senior Management Arrangements, Systems and Controls in the Regulator’s Handbook, the responsibilities of directors must be:

Answer 32

Clearly and appropriately apportioned