Chapter 1: The Regulatory Environment Flashcards
When did the FSMA come into effect?
2001
What did the 2012 Financial Services Act Introduce?
FCA & PRA
What is the FSMA?
Financial Services and Markets Act
Who authorises and supervises most financial institutions?
FCA
What did the FSMA establish?
Replaced SROs (self-regulatory organisations)
Ombudsman service
FSCS
penalties for market abuse
UKLA - UK Listing Authority/FCA Primary Market Function
Who investigates insider dealing?
FCA
What is the twin peaks approach to regulation?
PRA focuses on prudential issues
FCA focuses on conduct and market issues
What is the punishment for contravention of prohibition?
2 years imprisonment, unlimited fine
What is the difference between an Authorised and an Approved person?
Authorised refers to firms that have been authorised by FCA/PRA to carry out regulated activities
Approved is individual who can carry out a certain role
How can a business perform regulated activities in the UK?
Applies to FCA/PRA, then if granted they become authorised person. Legally binding relationship with regulator.
What are some examples of exempt persons?
Investment exchanges/clearing houses
BoE
MTFs
Who is the PRA accountable to?
BoE
What is the FCA set up as?
A private company. Been given special privilege to not use Limited in its name.
What is the FCA responsible for?
Protecting consumers, keeping the industry stable, and promoting healthy competition between financial services providers.
What is the PRA responsible for?
Prudential regulation of banks, building societies, credit unions, insurers, and major investment firms, and promotes the safety and soundness of these firms.
How is the FCA/PRA funded?
Fees from regulated firms
Who is the FCA directly accountable to?
HM Treasury
What is HM Treasury responsible for?
Has overall responsibility for the UK’s financial system, including the institutional structure and the legislation that governs it.
What are the 3 methods by which HM Treasury is in charge of FCA?
HM Treasury can appoint board
FCA must submit report 1x a year
HM Treasury can review and inquire operations
What is the two core purposes of the BoE?
Monetary stability means stable prices and confidence in the currency.
Financial stability entails detecting and reducing threats to the stability of the financial system as a whole. PRA.
What is prudential supervision?
Making sure that the firms it supervises hold
adequate levels of capital.
What is the strategic objective of the FCA?
Ensuring the relevant markets function well
What are the 3 operational objectives of the FCA?
Consumer protection
Integrity (stable, crime, transparency)
Competition
What is the secondary objective of the FCA and PRA?
‘facilitate the international competitiveness of the UK economy and its medium to long-term growth
What is the main difference between FSA and FCA philosophy?
FSA only intervene if something goes wrong
FCA more proactive, therefore more intrusive
What are the two key features of outcomes-focused supervisory model (FCA)
Enhanced analysis and risk identification capacity - macro-prudential
Outcome testing - systems and controls
What three types of work is the FCAs supervisory model based on?
Proactive
Reactive
Thematic
What is FCA FTOC?
Fair Treatment of Customers
What should firms have regard for when reviewing their own risks?
FCA’s Annual Business Plan
Who does the FCA hold accountable for conduct risk failings?
Senior management
What was the retained MiFID called post Brexit?
MiFIR
What are TTP Temporary Transitional Powers?
Enabled EU firms with UK footprint to comply with EU legislation until 31 Dec 2022
Who oversees regulation across Europe?
European System of Financial Supervision (ESFS)
Which entity can make rules for both PRA and FCA authorised persons?
FCA
What are the aims of consumer duty?
Set a higher standard of consumer protection across financial services
How does consumer duty impact firms acting as an agent?
They will need to ascertain if retail customers are at the end of the chain and if they can determine or materially influence the outcomes for these retail customers.
Who is in scope for consumer duty?
Retail customers including prospective
What do cross-cutting rules require firms to do?
Act in good faith towards retail customers:
Avoid foreseeable harm to retail customers:
Enable and support retail customers to pursue their financial objectives
What rule did the FCA introduce for firms in scope of the Consumer Duty?
‘You must act to deliver good outcomes for retail customers’.
What was the accountability framework set up by the Parliamentary Commission for Banking Standards (PCBS) after 08?
Senior Managers & Certification Regime
What has the SM&CR been extended to?
From banks to now insurers and FCA solo-regulated firms
What is the SMR?
Oversight of individuals performing senior management functions
e.g. C-level, head of compliance, money laundering
Require regulatory approval
Subject to annual fitness and propriety assessments
What are the 3 sections of the SMR?
Prescribed Responsibilities
Management Responsibilities Map - document governance
Duty of Responsibility - remedy breaches
What does SYSC stand for?
Senior Management Arrangements, Systems and Controls Sourcebook
What two ways does the systems and controls requirements apply to firms?
For firms that are subject to the Capital Requirements Directive (CRD) and the Markets in Financial Instruments Directive (MiFID) the requirements are known as the “common platform” of systems. They are legally binding
For firms that are not subject to the CRD and MiFID, not common platform firms, some requirements are a rule but others are guidance - so not legally binding
What does the SYSC cover?
The overriding requirement is that a firm must take reasonable care to establish and maintain such systems and controls as are appropriate to its business.
What are the sections of SYSC relevant to an investment firm? (4)
- Sound governance
- Persons who direct the business
- Senior personnel
- Apportionment of responsibilities
What are the SYSC requirements for firms employees (4)? SYSC 5
Skills, knowledge and expertise
Segregation of duties
Awareness of procedures
Monitoring
How long must records for MiFID investment business last?
5 years, 2 more if requested
What are the Rule-Making Powers of the FCA and the PRA?
Only FCA can make rules for PRA and FCA, PRA only FCA
authorise firms
supervise authorised people
issue disciplinary actin
enforce regulatory framwork
Who is responsible for investments when they are delegated to a third party by a trustee?
Trustee always responsible
What is the CMA?
Competition and Markets Authority
Promotes competition for the benefit of consumers inside and outside the UK
Mergers, market studies, criminal proceedings, consumer law
What is the ICO?
The Information Commissioner’s Office
Independent official body for upholding information rights
Protecting personal data
Data Protection Act 2018, Freedom of Information Act 2000
What is the TPR?
The Pensions Regulator
UK regulator of work-based pension schemes
Protect the benefits of members of work-based pension schemes
What is the PPF?
The Pension Protection Fund
Protects people who belong to defined benefit schemes
If employers become insolvent they step in
Funded by recovered assets, levy on pension schemes
What is the The Upper Tribunal (Tax and Chancery Chamber)?
The Upper Tribunal (Tax and Chancery Chamber) is an agency of the Ministry of Justice. It aims to assist those who wish to appeal against decisions made by:
* first-tier Tribunal in tax or charity cases
* the financial services regulators (the FCA and the PRA), or
* the Pensions Regulator.
What is conduct risk?
The FCA has not provided a precise definition of ‘conduct risk’. There are, however, a number of different ways in which the term can be viewed. Broadly speaking, conduct risk is considered to describe the risks posed to customers and the wider integrity of the financial markets by the way in which authorised firms and their staff conduct themselves and the risks that firms behaviours may result in poor outcomes for the consumer.
What are the core consumer outcomes of FTOC?
ensuring consumers are confident they are dealing with firms that have a fair treatment culture
designing products that meet peoples needs
giving clear information
no unreasonable barriers to change product
What are cross-cutting rules?
Set of guidelines for firms to follow when dealing with retail customers
Where a firm is subject to the consumer duty, which principles will no longer apply to dealings with retail customers?
6 - Customers Interests & 7 - Communications with Clients
They are now covered by Principle 12 - A firm must act to deliver good outcomes for retail clients
