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CISI Corporate Finance Regs > Chapter 1 - The Regulatory Environment in the UK > Flashcards

Chapter 1 - The Regulatory Environment in the UK Flashcards

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1
Q

What is ESMA?

A

European Securities and Markets Authority

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2
Q

What does ESMA do?

A

Safeguards stability of EU financial systems
•Works on securities legislation
•Supports ‘The Lamfalussy Process’ which aims to improve quality and effectiveness of EU FS law

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3
Q

What is FSAP and what does it do?

A

Financial Services Action Plan - Measures to support integration of EU financial markets

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4
Q

What is the ESFS

A

European System of Financial Supervision

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5
Q

What is the ESRB and what does it do

A

European Systemic Risk Board - Promotes EU financial stability in conjunction with ESAs

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6
Q

What are ESAs and what do they do?

A

European Supervisory Authorities (ESAs)
•The European Securities and Markets Authority (ESMA): financial markets
•European Banking Authority (EBA): banks
•European Insurance and Occupational Pensions Authority (EIOPA) : insurance and employer provided pensions

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7
Q

Lamafalussy Process - Level 1

A

Level 1 – legislative acts

•Framework legislation from EU Commission

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8
Q

Lamafalussy Process - Level 2

A

Level 2 – implementing measures
Secondary legislation drafted by Commission, in discussion with the four Level 2 committees:
•European Banking Committee (EBC)
•European Securities Committee (ESC)
•European Insurance and Occupational Pensions Committee (EIOPC)
•European Financial Conglomerates Committee (EFCC)

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9
Q

Lamafalussy Process - Level 3

A

Level 3 – facilitating convergence of regulatory practice

•The ESAs (EBA, ESMA and EIOPA) consult with the industry and advise the Commission

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10
Q

Lamafalussy Process - Level 4

A

Level 4 – enforcement

•Commission ensures directives are transposed into local law

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11
Q

FSMA 2000 and who is it written by

A

Financial Services & Markets Act - written by HMT

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12
Q

Secondary legislation (e.g Regulated Activities Order, Financial Promotions Order)

A

Written by HMT

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13
Q

Financial Services Authority replaces the FSA (Financial Services Authority) What is the new regulatory structure?

A

The Financial Services Act 2012 replaced the FSA with a new regulatory structure:
•Financial Conduct Authority (FCA) – to regulate the conduct of firms
•Prudential Regulation Authority (PRA) – responsible for the financial soundness of significant firms (prudential regulation)

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14
Q

What is a twin peaks approach

A

The division between conduct and prudential regulation is referred to as a ‘twin-peaks’ approach

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15
Q

What is the role of the FCA

A

Responsible for ensuring relevant markets function well
•Conduct supervision of all firms and for prudential supervision of non-PRA firms, eg asset managers
•Authorises firms and approves individuals
•Makes rules and supervises and enforces compliance
•Investigates rule breaches, undertakes disciplinary action and sanctions, and enforcement action
•The ‘competent authority’ for listing and prospectuses is referred to as the UK Listing Authority (UKLA) and writes and enforces the listing rules (part of the FCA handbook)
Role of the FCA

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16
Q

What are the FCA’s intervention Powers ( The Financial Services Act 2012 (FSA 2012) gave the FCA specific intervention powers in addition to existing powers)

A

(a) Product intervention
(i) The FCA has power to prohibit or ban a product for up to 12 months if it judges it will cause consumer detriment
(b) Financial promotions
(ii) The FCA is able to ban misleading financial promotions. This will have immediate effect as opposed to going through the full enforcement process

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17
Q

What are the FCA’s regulatory objectives

A

FSMA gives the FCA specific objectives:
(a) FCA
(i)Strategic objective: to ensure the relevant markets are working well
(ii)Operational objectives:
•Secure an appropriate degree of protection for consumers
•Protect and enhance the integrity of the financial system
•Promote effective competition in the interests of consumers

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18
Q

Is the FCA private or public

A

Private

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19
Q

True or false - HMT can appoint and dismiss the FCA board and the chairman

A

True

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20
Q

FCA Accountability

A

FCA submits an annual report of discharge of functions to HMT
•The FCA must carry out an investigation and report to HMT if there has been a significant regulatory failure
•HMT may initiate:
•Reviews about the economy, efficiency and effectiveness of the FCA; and
•Inquiries about specific exceptional events.

21
Q

Role of the PRA (Prudential Regulation Authority)

A

The Bank of England is accountable to parliament and has two main objectives – monetary stability (MPC) and financial stability (PRA & FPC)
•As part of the bank’s role to promote financial stability, the PRA is responsible for prudential supervision
•Prudential supervision is concerned with the safety and soundness of banks, building societies, insurers and ‘systemically important’ investment firms
•The PRA exercises its role through the Prudential Regulation Committee (PRC) and works closely with the Financial Policy Committee (FPC) which is responsible for reducing risks to the financial system as a whole and makes recommendations and directions to PRA and FCA

22
Q

PRA - regulatory objectives

A

General objective: promoting the safety and soundness of regulated firms
•Insurance objective: contributing to the securing of an appropriate degree of protection for policyholders
•Secondary objective to facilitate effective competition

23
Q

How does the PRA advance their regulatory objectives?

A

The PRA advances these objectives through an approach which is:
•Judgement based
•Forward looking
•Focused

24
Q

How does the PRA work with the BoE

A

PRA works with BoE’s Special Resolution Unit (SRU) under the Special Resolution Regime (SRR) to manage failing UK banks

25
Q

What is FSMA S 19

A

THE GENERAL PROHIBITION

A firm must not conduct a regulated activity unless authorised or exempt.

If there is a breach there are either civil liabilities or criminal offences

26
Q

FSMA S 19 breached - Civil Law

A

Contracts unenforceable
•Damages
•Compensation/ restitution orders

The FCA may seek injunctions

27
Q

FSMA S 19 Breached - Criminal Law

A

Crown Court

Two years in prison, and/or unlimited statutory fine

28
Q

DIB

A

Designated Investment Business (DIB): Investment business excluding commercial banking, lending and general insurance

29
Q

Regulated activities of a designated investment business

A

Dealing in investments as principal or agent (only if you hold yourself out to the market)
Arranging deals in investments
Advising on specified investments, stakeholder pensions and transfer of pensions
Managing investments
Operating a multilateral trading facility (MTF) or an organised trading facility (OTF)
Establishing/operating a CIS, personal or stakeholder pension scheme/stakeholder product
Safeguarding and administering investments
Sending dematerialised instructions
Operating electronic lending system (peer to peer lending – P2P) or advising on P2P deals
Agreeing to carry out a regulated activity

30
Q

What is a specified investment?

A

Securities:
Shares – in any company
Tradable debt, eg bonds/loan stock (corporate, government, public authority, etc), Treasury bills, Certificate of Deposit (CD), Commercial Paper (CP), Permanent Interest Bearing Shares (PIBS), sukuk
Warrants
Certificate representing a right, eg American Depository Receipts (ADRs) and Global Depository Receipts (GDRs)
Units in CIS, eg unit trust, OEIC
Rights under a stakeholder pension, personal pension or life insurance policy
Peer to peer agreements (P2P)

31
Q

Specified investments: Derviatives

A

Options on investments and on currencies, gold, silver, platinum, palladium
Futures for investment (not commercial) purposes
Contracts for differences, eg swaps, FRAs and spread betting (financial and non-financial)

32
Q

Not specified investments

A

Premium bonds and National Savings Certificates
Property and commodities (bought directly)
Options on commodities (with exception of precious metals)
Bills of exchange, trade bills, letters of credit, bankers drafts, cheques
Loans
Spot FX
Fixed odds betting

33
Q

Excluded Activities

A

Dealing as principal Where not holding out as a ‘market maker’ or certain other activities as principal
Employee share schemes
Media tip sheets and programmes… …if primary purpose not investment advice, but not tip sheets issued by authorised firms
Overseas person (only if unsolicited)
Unremunerated Trustees, nominEes and personal representatives

34
Q

Exemptions

A

Exempt Persons:
Appointed representatives
Institutions
Recognised exchanges ad clearing houses

35
Q

Exempt from general prohibition

A

Professionals (members of DPBs)

Members of Lloyds

36
Q

What are the 2 routes to authorisation

A

Part 4a Permission - FCA

MiFID Passport

37
Q

What does Mifid stand for

A

Market in Financial Instruments Directive

38
Q

Mifid - Harmonisation of market rules in the EEA

A

Market transparency standards
•Harmonisation of Conduct of Business rules, consistency of investor protection
•Regulation of Multilateral Trading Facilities (interbank systems outside RIE status

European firms can open branches and cross-border sell throughout EEA without need for licensing in each separate jurisdiction

39
Q

What countries are included in the EEA

A

EU+Norway, Iceland and Lichenstein and UK

40
Q

MiFID financial instruments and services

A

Transferable securities
Units in CIS
Money market instruments
Financial, commodity, credit and climate derivatives and contracts for difference
Forward rate agreements and swaps (currency, equity, rates)
Options over any of the above

41
Q

Non-MiFID financial instruments and services

A

Bank accounts

Spot FX

42
Q

MiFID activities/services are broadly consistent with DIB with the additions and exclusions of what

A

with the addition of underwriting and placing, but excluding safeguarding/custody* (Under MiFID II, safeguarding/custody becomes an investment service) and de-materialised instructions. Corporate finance advice (eg capital structure or M&A advice) and investment research/analysis is also excluded

43
Q

Article 2 MiFID

A

Article 2 MiFID exemptions include insurance undertakings, collective investment undertakings and treasury activities

44
Q

Article 3 MiFID

A

Article 3 exemptions are available for firms that only provide advice or transmit orders, but do not hold client funds

45
Q

Home state responsibilites for MiFID

A

Home
•Organisational matters eg authorisation, capital adequacy, fitness and propriety, client assets
•Rules on investment research and personal account dealing
•Conduct of business in home state and cross border business from the home state
•Provision of passport

46
Q

Host state responsibilites for MiFID

A

Host

•Operational matters Conduct of business from the branch of a firm in a host state (‘non-organisational matters’)

47
Q

MiFID II when was it implements

A

3/1/2018

48
Q

MiFID II

A

Many new measures
•Extending MiFID to investment firms and credit firms
•Tougher conduct and prudential requirements
•Extending powers to broader trading venues, eg MTFs
•Increasing power of ESMA, eg may ban products
•Passporting for third country investment firms
•Introduction of an Organised Trading Facility (OTF)
•Tighter conflict of interest rules
•Regulated market resilience, eg circuit breakers
•Custody (safekeeping and admin) to become a MiFID activity

49
Q

11 Principles for Businesses: Firms

A

1) Integrity
(2) Skill, care and diligence
(3) Management control
(4) Financial prudence
(5) Market conduct
(6) Customers’ interests (Treating Customers Fairly, s 2.2.1, p40)
(7) Communications with clients
(8) Conflicts of interest
(9) Customers: relationships of trust
(10) Clients’ assets
(11) Relations with regulators

To note Clients are not the same as customers

CISI Corporate Finance Regs (1 decks)

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