Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

IMC Unit 1 > Chapter 2 > Flashcards

Chapter 2 Flashcards

1
Q

Authorisation

A

UK: FMSA 2000 Part 4A with FCA
EEA: MiFID Passport with Local Regulator

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Passporting

A

EEA Firm authorised by the local regulator (i.e. authorisation of MiFID passport) is subsequently authorised and can carry out authorised activities across the EEA

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Post Brexit (UK Firm Approach)

A

UK Firms open an EEA Subsidiary which is separate to UK licensing and authorisation. The Subsidiary would then apply to local regulator to be authorised and MiFID passport to enter other EEA countries

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

All UK Firms - UK Authorisation

A

At application and for duration of license, if minimum standards not met then threshold has been breached and license can be removed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

FCA Firms - UK Authorisation

A

Min standards: office locations, effective supervision, appropriate resources, suitability, business model

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Dual Regulated Firms - UK Authorisation

A

Min standards: legal status (has to be a company), office locations, effective supervision, prudent condent, suitability, business model - all PRA
Effective supervision, appropriate non-financial resources, suitability, business model - all FCA
In situations of joint oversight, PRA has ultimate oversight

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

UK Regulator Outcomes

A

6-months to review: grant authorisations, grant with limitations, or reject application

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

EU Single Market

A

Consistent laws & regulations (harmonisation)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

EU Commission

A

Directives (instruction to EU governments to change national laws to fit a harmonised template)
Regulations are automatically law across EU

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

European Union (Withdrawal) Act 2018

A

EU Directives automatically became law
EU Regulations in existence at time of leaving, Britain onshored all of these for consistency so there was no legal vacuum on day of departure

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

UK MiFID

A

UK’s derived version of MiFID onshored following Brexit. Although currently identical, UK MiFID will continue to change independently of EU

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

EU MiFID

A

Analogous to Regulated Activities Order (UK)
Common market across financial services
Passporting
“MiFID Business” = Core Activity + MiFID Instrument

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Regulated Activity

A

= Specified Activities in Specified Investments
under FSMA 2000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

MiFID Core Activity

A

Core in MiFID are all Specified Activities under RAO
Many Regulated Activities which are not Core in MiFID

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

MiFID Instruments

A

Instruments are all Specified Investments under RAO
Many Specified Investments are not Instruments in MiFID
- Transferrable securities: shares, bonds, derivatives
- CIS
- Money Markets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

MiFID Business

A

Subject to MiFID regulations, such as data requirements, exchange requirements, i.e. the standardardised approach needed for the single market
Passported across EEA

17
Q

Home State Regulator

A

Regulator in the country where the firm is HQ’d and licensed
Most responsibilities sit with home state
- Authorisation
- Fitness & propriety
- Conduct of business, when conducting in home state
- Cross border services, when conducting business in host state from branch outside of that host state
- Prudential supervision
- Client asset rules

18
Q

Host State Regulator

A

Regulator oversees the country in which the client is present
- Conduct of business when performed from a branch office in that host state
- Home state domestic rules + regs

19
Q

MiFID Ancillary Services

A

Can be included alongside MiFID Core Activities
If with a core activity, then MiFID applies and passporting of services can occur
If without a core activity, MiFID does not apply to ancillary services in isolation and therefore is not passported

20
Q

Exempt Persons

A

Entity that can carry out activities without being authorised by FSMA 2000:
- Lloyd’s syndicated members (syndicate manager would need to be authorised)
- Appointed representatives / tied agents (e.g. IFAs, subcontractors)
- Designated professional bodies (e.g. tax advisor)
- Recognised investment exchanges (RIEs)
- Recognised clearing houses (RCHs)
- Other exempt bodies (e.g. Bank of England, HMT)

21
Q

RIE

A

Recognised Investment Exchanges are exempt and ‘recognised’ by the FCA:
- LSE
- ICE Futures
- London Metals Exchange
- Acquis Stock Exchange

22
Q

RCH

A

Recognised Clearing Houses are exempt and ‘recognised’ by the BofE:
- Euroclear UK & CREST Ireland
- LCH.Clearnet
- ICE Clear
- LME Clear

23
Q

PRIN

A

12x Principles (PRIN) for Business are binding under the FCA for firms to be authorised persons:
1. Integrity - do the right thing, comply with regs
2. Skill, care & diligence - highest quality delivery
3. Management & control - business risk
4. Financial prudence - adequate resources (solvency)
5. Market conduct - proper standards, no distortion
6. Customers’ interest - due regard to its customers [replaced by Consumer duty where it applies]
7. Communications with clients - information clear, fair, and not misleading [replaced by Consumer duty where it applies]
8. Conflicts of interest - between customers and vendors
9. Customers: relationship of trust - advice suitability
10. Clients’ assets - adequate protection if responsible
11. Relations with regulators - open & cooperative
12. Consumer duty - must act to deliver good outcomes for Retail customers

24
Q

Consumer Duty

A

PRIN 12: Consumer Duty applies when firm is conducting business with retail customers (or another firm in the value chain is serving a retail customer)
When it applies PRIN 6 & 7 can be disregarded and only PRIN 12 needs to be considered
When it doesn’t apply, PRIN 12 can be ignored and PRIN 6 & 7 are followed
Firms must act to deliver good outcomes for retail customers

25
Q

SYSC (pronounced “sisks”)

A

Senior management arrangements, systems, and controls covering internal controls and corporate governance, detailed in FCA handbook, 28 rules, top-4:
4. General organisational requirements - corporate governance, directors, snr managers, responsibilities
5. Employees, agents, and other relevant persons - skills & knowledge for those beneath directors are suitable appointments [LGIM Job Descriptions]
6. Compliance, internal audit, and financial crime - proper AML, reasonable care, risk controls across organisation
18. Whistleblowing - reminds firms of their responsibilities under Public Interest Disclosure Act 1998 (PIDA 1998)

26
Q

SMCR

A

Senior Management and Certification Regime, all levels of organisation have responsibilities within one of the 4 categories:
1. Senior manager functions (SMFs), e.g. all directors, heads of functions, Money Laundering Reporting Officer (MLRO). Pre-approval by regulator (fit & proper test subject to conduct rules
2. Certification functions (CFs), e.g. not SMFs, are “significant harm functions” (SHF) with potential impact on client, firm, or market integrity. Certificate issued by firm (fit & proper test), subject to conduct rules
3. Other conduct rules staff (OCRS), e.g. not SMFs or CFs. Subject to conduct rules (COCON)
4. Ancillary staff, e.g. happen to work for financial firm but no finance-related responsibilities, i.e. cleaners

27
Q

COCON

A

Conduct Rules in the FCA handbook, there are 10 rules in total, 6 of which are individual for all but ancillary staff, but 4 are only for SMFs:
1. Act with integrity - deliberate
2. Due skill, care, and diligence - incompetence/negligence
3. Open & cooperative with regulator (FCA, PRA)
4. Pay due regard to interests of customers [where Consumer Duty applies, 6. replaces 4.]
5. Observe proper standards of market conduct - market abuse
6. Deliver good outcomes for retail customers [where Consumer Duty applies, 6. replaces 4.]

28
Q

Fit & Proper

A

Test/assessment, also known as FIT, for individuals in SMRs (FCA or PRA assessed) or CFs (firm assessed):
- Honesty, integrity & reputation, i.e. employment history, criminal convinctions, regulatory breaches, complaints
- Competence & capability, i.e. exam success (desirable & mandatory), experience & training
- Financial soundness, i.e. bankruptcy

29
Q

Cross-cutting Rules

A

3x rules that are superimposed upon all other existing FCA regulations (e.g. Conduct of Business Rules) when serving (or involved in service of) retail consumers (RC):
- Act in good faith towards RC
- Avoid forseeable harm to RC
- Enable and support RC to pursue financial objectives
Financial understanding of target market must be considered when applying rules (think vulnerability training)

30
Q

Good Outcomes

A

4x outcomes under Consumer Duty by FCA:
- Products & services outcome
- Price & value outcome, i.e. fair value, value for money
- Consumer services outcome, customer support meets customer’s needs
- Customer understanding outcome, through the customer journey

31
Q

SMFs

A

Senior management functions:
- Most senior person with prescribed responsibilities for their area and must be reported under Statement of Responsibilities (SoR) - sent to FCA
- Duty of Responsibility where FCA can take action against an SMF where there was misconduct at a firm level that affected the SMFs area of responsibility and they did not take steps to avoid misconduct

32
Q

CFs

A

Certification Functions, or Significant Harm Functions (SHFs), up to firm to identify people in these roles and certify with 12-month certificate

33
Q

TC

A

Training & Competency regulations in FCA Handbook, with sourcebook focusing on employees of firms carrying out activities for retail clients
SYSC 3 covers high-level competency requirements
Must be a demonstrated competence based on assessment, supervision, review frequency, examination success

34
Q

RDR

A

Retail Distribution Review carried out by regulator on retail investment products leading to new regulations around conduct risk:
1. Statement of Professional Standing (SPS) for retail investment advisors from an accredited body (e.g. CFA)
2. SPS confirms retail investor has:
- Gained approved qualification listed in FCA Handbook
- Completed >35 hours CPD (>21 structured)
- Annual declaration in accordance with FCA Conduct Rules & adherence to code of ethics
3. Firms making personal recommendations must be either independent (think IFA) or restricted (think SJP)
- Disclose status to the client
- Adviser charges agreed in advance, with customer choice on in advance or deducted from investments
- No commissions from the product provider permitted to remove adviser conflict of interest where they receive different fees for different products, for example

35
Q

Consequences of Unethical Behaviours

A

Industry - higher taxes, increased regulation, activity restrictions
Firms - reputational damage, loss of business, time wasted
Consumers - increased investment risks, vulnerable clients
Advisors - fiduciary duty breach, charges of mis-selling

36
Q

CFA Code of Ethics

A

Bound by code as a member of CFA, supported by manual:
- Integrity, competence, diligence, respect, behave ethically
- Integrity of profession and client interests above own
- Reasonable care
- Integrity of capital markets
- Maintain professional competence

37
Q

CFA Standards of Professional Conduct

A

Sit within CFA Code of Ethics:
- Professionalism, knowlege of law, indepedence, objectivity, misrepresentation, misconduct
- Integrity of capital markets, no use of non-public information, market manipulation
- Duties to clients, loyalty, prudence, care, fair dealing, suitabiliity, performance presentations, preserve confidentiality
- Duties to employer, loyalty, compensation arrangements, supervisors
- Investment analysis, recommendations, diligence, reasonable, communications (clear, fair, not misleading), record retention
- Conflicts of interest, disclosures, transaction priority, referral fees
- Responsibilities as a CFA Institute Member, follow Code of Conduct, references are correct and non-misrepresented

IMC Unit 1 (10 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions