Chapter 2 Flashcards

Question

SYSC (pronounced "sisks")

Answer 1

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)

Answer 2

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

Answer 3

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.]

Answer 4

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

Answer 5

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)

Answer 6

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

Answer 7

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

Answer 8

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

Answer 9

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

Answer 10

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

Answer 11

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

Answer 12

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

Answer 13

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