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CISI: UK Regulation > Chapter 1: The Regulatory Environment > Flashcards

Chapter 1: The Regulatory Environment Flashcards

1
Q

When did the Financial Services and Markets Act (FSMA) come into effect?

A

2001

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2
Q

When was the FSMA ammended, and what did this introduce?

A

Financial Services Act 2012

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3
Q

Which regulatory bodies did the Financial Services Act 2012 introduce?

A

Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA)

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4
Q

Apart from the FCA and PRA, what other bodies make up the UK regulatory framework?

A

Financial Policy Committee and the BoE

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5
Q

What did the current 3 regulatory bodies in the UK replace?

Which authority?

A

Financial Services Authority

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6
Q

What did the FSMA establish?

There are 5

A
  1. Replaced all existing self regulatory organisations. FSA -> FCA / PRA
  2. Financial Ombudsman Service (FOS) to support resolution of customer disputes
  3. Financial Services Compensation Scheme (FSCS)
  4. Penalties for Market Abuse
  5. UK Listing regime became the UKLA replaced the LSE powers.
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7
Q

What date did the FCA and PRA replace the FSA?

A

1 April 2013

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8
Q

What is the UKLA now referred to as?

A

FCA Primary Markets Function

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9
Q

What is the FCA responsible for?

What is their role?

A
  • Authorisation and supervision of all financial institutions not regulated by the PRA.
  • Protecting consumers, keeping industry stable, promoting healthy competition among providers
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10
Q

Which of the FSAs powers did the FCA inherit?

To investigate and prosecute……

A

Insider dealing and market abuse, and has taken over as the listing authority for the UK.

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11
Q

What is the “Twin Peaks” approach to regulation?

A

Two different supervisors undertake the supervision of deposit takers, insurers and investment banks.

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12
Q

What is the criminal offense set out in Genral Prohibition of Section 19 of the FSMA? (Regulated?)

A

To conduct regulated activity by way of business in the UK unless a person is either authorised to do so, or is an exempt person.

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13
Q

What are the consequences for breaking Section 19 of the FSMA (General Prohibition)?

A

Up to 2 years in prison and/or unlimited fines

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14
Q

What is an “Authorised Person”?

A

Refers to firms that have been authorised by the PRA and FCA to carry out one or more regulated activities.

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15
Q

What is an “Approved Person”?

A

Is an individual that has been approved by the PRA and the FCA, to perform a role or carry out an activity, the nature of which requires regulatory approval.

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16
Q

What did the SM&CR replace (but still works alongside)?

A

Approved persons regime (APER)

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17
Q

What is the FCAs Strategic Objective?

The most basic.

A

Ensuring that relevant markets function well.

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18
Q

What are the 3 Operational Objectives of the FCA?

A
  1. Consumer Protection: Secure an appropriate degree of protection for consumers.
  2. Market Integrity: Protecting and Enhancing the integrity of the UK financial system.
  3. Competition: Promoting effective competition in the interest of consumers.
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19
Q

What is the Consumer Protection Objective of the FCA?

A

Securing an appropriate degree of protection fo consumers, considering factors such as risk, consumer expertise, and the principle of consumer responsibility.

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20
Q

What is the FCAs Integrity Objective?

A

Protecting effective competition in the interest of consumers in financial markets.

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21
Q

What is the General Objective of the PRA?

A

Promoting the saftey and soundness of PRA-authorised persons.

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22
Q

How does the PRA aim to advance its general objective?

A

By ensuring PRA-authorised firms avoid adverse effects on the stability of the UK financial system and minimising the impact of firm failures.

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23
Q

What is the PRAs insurance objective?

A

Securing an appropriate degree of protection for policyholders (or soon to be) in PRA regulated firms.

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24
Q

What is the secondary objective for both the FCA and PRA under the Financial Services and Markets Act 2023?

A

Facilitating the international competitiveness of the UK economy and its medium to long-term growth.

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25
Q

What is the FCAs approach to supervision?

A

A proactive, risk-based, outcome-focused approach that includes early intervention and assessing firms based on conduct and prudential risks.

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26
Q

What are the 3 types of FCA supervsiory work?

A
  • Proactive: Premptive identification of harm
  • Reactive: Dealing with emerging issues
  • Thematic: Adressing risks across firms
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27
Q

What are the FCAs key tools for enforcement?

There are 5 simple ones

A
  • Authorisation
  • Supervision
  • Enforcement
  • Sanctions
  • Disciplinary action
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28
Q

How do the PRA approach supervision?

A

Through judgement based, forward looking and risk focused supervsion. assessing firms for gross and net risks to the UK financial system.

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29
Q

What is “Conduct Risk” as seen by the FCA?

A

The risk to consumers and market intergity from poor conduct by firms or individuals, potentially leading to bad consumer outcomes.

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30
Q

What was the KEY CHANGE in the FCA supervisory philopsphy compared to the FCA to the FSA?

Light touch?

A

The FCA adopts a more intrusive and proactive approach, intervening early to prevent risks to objectives, unlike the FSAs light touch regulation.

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31
Q

What factors does the PRA consider when assessing the risks of a firm?

A

Business model risk, external context, potential firm impact on financial stability and mitigating actions taken by the firm.

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32
Q

What is the FCA “outcomes focused” supervisory model?

This is real life!

A

It emphasises testing real-world outcomes for consumers and markets, rather than merely ensuring that firms have proper systems and controls.

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33
Q

What does the Senior Management play in the FCA conduct risk framework?

A

Senior management is responsible and accountable for ensuring a firms conduct does not result in poor consumer outcomes or harm to market integrity.

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34
Q

What is the FCA stance on “TCF” (Treating customers fairly)?

A

Firms must treat customers fairly, design products that meet their needs, provide clear information and avoids creating barriers to switching or complaints.

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35
Q

What role does the PRAs “forward looking princple” play in supervision?

A

It assesses current and future risks, informed by horizon scanning, to anticipate and mitigate potential threats to financial stability.

36
Q

What powers does FSMA give the FCA and PRA in relation to authorisation?

A

They can grant, vary, or cancel authorisations, supervise firms, and take enforcement action to meet regulatory objectives.

37
Q

What are some of the FCAs rule making powers?

A

The FCA can make legally binding rules on authorized firms for both regulated and non-regulated activities to advance its operational objectives.

38
Q

How does the FCA competition objective relate to consumer outcomes?

A

The FCA considers promotes competition by considering consumers ability to switch services, ease of market entry and the role of competition at driving innovation.

39
Q

What does the PRA’s structured approach to supervision involve?

A

Using a risk framework to assess both the gross risk of firms and mitigating actions to determine net risk to financial stability.

40
Q

What is the FCA’s annual report, and why is it important?

A

It assesses how well the FCA has met its objectives and is scrutinised by parliamentary committees for accountability.

41
Q

What is the FCA’s focus in tackling conduct risk in wholesale markets?

A

Ensuring that wholesale market conduct supports market integrity and does not lead to poor outcomes for customers or financial instability.

42
Q

What factors does the FCA consider when making rules or taking action to promote international competitiveness?

Complaince with what?

A

Compliance with international standards, avoiding harm to the UK’s global financial reputation, and advancing operational objectives.

43
Q

What behaviors does the FCA seek to prevent in firms?

Priorirtising what over what?

A

Prioritising profits over ethics, a tick-box approach to compliance, and a purely legalistic interpretation of disclosure and rules.

44
Q

What is Section 19 of FSMA?

A

The General Prohibition

45
Q

Who must the FCA submit an annual report to each year?

A

HM Treasury and Parliament

46
Q

What is a Dual Regulated firm?

Who does this cover (what type of business)?

A

A firm regulated by both the FCA and the PRA as they are too big to fail, i.e deposit takers, insurers and large investment firms.

47
Q

What is a Solo Regulated firm?

Which regulator?

A

A smaller firm (investment firm etc) thats conduct and prudential regulation is regulated by just the FCA.

48
Q

What are the 3 main roles of the Financial Policy Committee at the BoE?

  1. Identify? 2. Meet how many times? 3. Responsible for producing what?
A
  • Identify, monitor and take action to remove or reduce systemic risk
  • Meets at least 4 times a year
  • Responsible for the banks bi annual financial stability report (FSR)
49
Q

What does the FSMA empower regulators to do?

There are 5

A
  • Make legally binding rules on authorised firms
  • Grant authorisation
  • Supervise authorised persons
  • Employ disciplinary measures and sanctions to punish or limit activities
  • Generally enforce the regulatory framework.
50
Q

What is the FCA Principle 1?

KSI?

A

Integrity

51
Q

What is the FCA Principle 2?

SKD

A

Skill, Care and Dilligence

52
Q

What is the FCA Principle 3?

What do I do at work?

A

**Managment and Control: **Organise control affairs responsbly and effectively wth adequate risk management systems.

53
Q

What is the FCA Principle 4?

PRA?

A

Financial Prudence: Adequate financial resources

54
Q

What is the FCA Principle 5?

A

Market conduct

55
Q

What is the FCA Principle 6?

TCF

A

Customer interests: Treating Customers Fairly

56
Q

What is the FCA Principle 7?

Clients?

A

Communication with clients: Clear far and not misleading

57
Q

What is the FCA Principle 8?

A

**Conflicts of interest: **Manage COIs fairly (Firm to customer or Customer to Customer)

58
Q

What is the FCA Principle 9?

General G

A

**Customer relationships of trust: **Take reasonable care to ensure suitability of advice and discretionary decisions.

59
Q

What is the FCA Principle 10?

CASS?

A

Client assets

60
Q

What is the FCA Principle 11?

Reg?

A

**Relations with regulators: **Deal with regulators in an open and co operative way

61
Q

What was the 12th introduced FCA Principle?

A

A firm must act to delver good outcomes for retail customers
* Firms need to consider the characteristics and objectives of their customers
* as well as acting to deilver good customer outcomes, firms will need to understand and identify if those arent being met.

62
Q

What 2 Principles caesed to apply to firms subject to FCA consumer duty rules as of July 2023, when No.12 was introduced?

A

Principle 6 and 7

63
Q

What is the FTOC?

Who does this apply to?

A

The fair treatment of customers (applies to frms out of scope from the consumer duty requirements.)

64
Q

What does the FTOC set out?

What is its law / rule?

A

A firm must act honeslty, fairly and professionally in accordance with the best interest of its clients. The clients best interest rule.

65
Q

What are the 6 consumer outcomes?

A
  • Product and services marketed meet the needs of identified consumer groups.
  • Where consumers receive advice, the advice is suitable
  • Consumer are provided with clear information and kept informed
  • Products perform as the firm led consumers to expect
  • Consumers face no unreasonable post trade barriers
  • FTOC is central to corporate culture
66
Q

What is the Purpose of the Senior Management Arrangements, Systems and Controls (SYSC)?

What are they responsible for and what principle do they amplify?

A
  • Encourage directors and senior managers to take responsibility for their firms arrangements
  • Amplify principle 3 (Management and control)
  • Create a common platform of organisational systems and controls
67
Q

What are the general requirements for the SYSC4?

There are 3 main ones (obvious)?

A
  • Sound Governance - Clear organisational structure
  • Senior personnel - Must recieve frequent (AT LEAST ANNUAL) reports on internal audit and compliance
  • Apportionment of Responsibilities - clear apportionment
68
Q

What regime was introduced form March 2016 for “Approved persons”?

A

The Senior Management Certification Regime

69
Q

What is the APER?

A

The Approved Persons Regime

70
Q

Who does the APER apply to?

A

Continues to apply a limited number of individuals such as Appointed representatives (tied agents)

71
Q

What does the FSMA give the FCA and PRA in relation to approved persons?

A

Certain powers and obligations over approved persons, who are performing controlled functions.

72
Q

What are the “Controlled Functions” under the APER?

Significant? Customer?

A
  • Significant influence functions: Individuals that exercise influence on the conduct of another firms affairs (directors / CEOs).
  • Customer dealing functions: Customer facing individuals.
73
Q

What is the Senior Manager Regime (SMR)?

A

Senior management regime is for individuals performing the senior management functions
* Effectively replacing significant influence functions
* Pre-approved by regulators and certified as fit and proper by the firm and subject to the conduct rules

74
Q

What is the Certification Regime as part of the SMCR?

What are the 2 conditions of this? Markets? F&P?

A

The certification regime for roles that pose significant risks of harm to the firm and its customers.
* Extends to individuals in customer facing roles subject to qualification requirements (Us)
* Certified as fit and proper by the firm annually, subjet to cobduct RULES

75
Q

How many conduct rules are there?

A

6

76
Q

What is Conduct Rule 1?

A

You must act with integrity

77
Q

What is Conduct Rule 2?

A

You must act with due skill, care and dilligence

78
Q

What is Conduct Rule 3?

Be open with who?

A

You must be open and cooperative with the FCA, PRA and other regulators

79
Q

What is Conduct Rule 4?

TCF

A

You must pay due regard to the interests of customers and treat them fairly.

80
Q

What is Conduct Rule 5?

A

You must observe proper standards of market conduct.

81
Q

What is Conduct Rule 6?

Effective 31 July 2023

A

You must act to deliver good outcomes for retail customers.

82
Q

What Additional 4 conduct rules (so 10) do senior management functions (SMFs) have to follow?

A
83
Q

What are the 8 CISI Conduct Rules?

A
  1. Personal Accountability
  2. Client Focus
  3. Conflicts of Interest
  4. Respect for Market Partners
  5. Continue to Learn
  6. Aware of capabilities
  7. Respect other and the environment
  8. Speak up and listen up
84
Q

What would one do in circumstances that may cause a CISI member to act in a manner contrary to their principles?

A
  • Discuss concerns with the line manager
  • Seek advice from compliance
  • Approach firms non-executive directors or audit committee
  • Having exhausted these contact the CISI
85
Q
A

CISI: UK Regulation (8 decks)

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