Chapter 10 part 1

Question 1

Statutory regulation takes what form?

Answer 1

Statue aka Laws

Question 2

Since 1 April 2013 the financial services regulation has been the responsibility of what to Authoritys?

Answer 2

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

Question 3

What is the e Prudential Regulation Authority (PRA) part of and what are the responsible for?

Answer 3

Part of the Bank of England

Responsible for the stability and resolvability important financial institutions

Question 4

Does the PRA seek to prevent all firm failures?

Answer 4

No but it will seek to ensure firms can fail without bringing down the entire financial system

Question 5

What does the PRA put an emphasis on a ‘judgment-based’ approach do?

Answer 5

focus on forward-looking analysis, including an assessment of how a firm would be resolved if it were to fail

Question 6

What is the FCA responsible for?

Answer 6

conduct of business and market issues

Question 7

Who is the FCA responsible for?

Answer 7

All firms including insurers, and prudential regulation of small firms (e.g. insurance brokers and financial advisory firms)

Question 8

What does the FCA focus on?

Answer 8

Taking action early in order to protect consumers

Question 9

What does the FCA use to identify potential problem areas like financial incentives?

Answer 9

thematic reviews and market-wide analysis

Question 10

What does the FCA review in order to ban product where necessary?

Answer 10

review the full product life cycle from design to distribution

Question 11

Which third body within the Bank of England, is responsible for monitoring emerging risks to the UK financial system as a whole and
providing overall strategic direction for the entire regulatory regime.

Answer 11

Financial Policy Committee (FPC)

Question 12

What does FPC stand for?

Answer 12

Financial Policy Committee (FPC)

Question 13

Which act put the Bank of England at the heart of UK financial stability by strengthening the Bank’s governance and ability to operate more effectively as ‘One Bank’

Answer 13

The Bank of England and Financial Services Act 2016

Question 14

Is the PRS part of the bank or a subsidiary?

Answer 14

Part of the Bank following the Bank of England and Financial Services Act 2016

Question 15

What does the PRC stand for?

Answer 15

Prudential Regulation Committee

Question 16

What three bank committees are there?

Answer 16

Prudential Regulation Committee (PRC)
Financial Policy Committee (FPC)
Monetary Policy Committee (MPC)

Question 17

What does the FPc, PRC and MPC stand for?

Answer 17

Prudential Regulation Committee (PRC)
Financial Policy Committee (FPC)
Monetary Policy Committee (MPC)

Question 18

What does the MRC do?

Answer 18

Setting of interest rates

Question 19

What does the PRC do?

Answer 19

Taking control of the PRA’s most important financial stability and supervision policy decisions

Question 20

What does the FPC do?

Answer 20

Identifying action to remove or reduce systemic risk.

Question 21

What does the FCA do?

Answer 21

Enhancing confidence in the UK financial system

securing an appropriate degree of consumer protection

protecting and enhancing the integrity of the UK financial system.

Question 22

What does the PRA do?

Answer 22

Enhancing financial stability by promoting the safety and soundness of PRA-authorised persons, including minimising the impact of their failure

Question 23

What firms are defined as “systemically important firms” that the PRA are responsible for?

Answer 23

firms that pose a risk to the financial system if they were to fail
responsible for the regulation of all institutions that accept deposits or which accept insurance contracts

Question 24

Who authorises and supervises all banks, building societies, credit unions, general insurers and life insurers.

Answer 24

PRA

Question 25

What are the PRA’s two primary objectives?

Answer 25

• To promote the safety and soundness of the firms it regulates.
• Specific to insurance firms, to contribute to ensuring that policyholders are appropriately protected.

Question 26

What is the PRA’s one secondary objective?

Answer 26

To facilitate effective competition in the markets for services provided by PRA-authorised firms.

Question 27

What is “The Threshold Conditions”?

Answer 27

The Threshold Conditions are the minimum requirements that firms must meet in order to be permitted to carry on regulated activities

Question 28

At a high level what are The Threshold Conditions that are required by the PRA?

Answer 28

• a firm’s head office is to be in the UK;

•the firm maintains appropriate financial and non-financial resources;

• the firm is to be appropriately staffed; and

• the firm is to be capable of being effectively supervised.

Question 29

What is the aim of judgment-led regulation by the PRA?

Answer 29

The aim is to ‘pre-empt risks before they crystallise’.
Central to the approach is a risk assessment framework.

Question 30

What 3 elements capture the risk assessment framework PRA require to protect policyholders as well as the financial system?

Answer 30

• The potential impact on policyholders/financial system of a firm coming under stress of failing.

• How the macroeconomic and business risk context in which a firm operates might affect the viability of its business model.

• Mitigating factors, including risk management, governance and financial position (e.g. solvency position and resolvability).

Question 31

Under the PRA all firms face at least a ‘baseline level of monitoring’. What does this involve?

Answer 31

• compliance with prudential standards;

• liquidity, asset valuation, provisioning and reserving;

• at least an annual review of the risks posed by firms

• examining individual firms when a risk crystallises; and

• assessing a firm’s planned recovery actions and how it might exit the market