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FCA Paper 3: UK Financial Regulation > Chapter 2 > Flashcards

Chapter 2 Flashcards

1
Q

Regulated activities - general prohibition (s19 FSMA 2000)

A

‘No person (firms) may carry on a regulated activity in the UK unless he is an authorised person or an exempt person’

Regulated activity = specified activity undertaken with a specified investment (covered under teh regulated activities order - RAO 2001)

Basically need a part 4a permission to be an authorised person

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2
Q

Criminal and civil penalties for contravening the General Prohibition

A

For criminal offences
* Addressed at crown court
* Max penalty is 2 years in prison and/or unlimited fine

For civil offences
* Injuctions
* restitution orders (pay compensation)
* contracts are voidbale at the discretion of the investor

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3
Q

Specified investments

A

MiFID business = mifid activitty + mifid investments

MiFID investments
* Shares/depository receipts/warrants
* debt instruments (bonds, gilts, debentures etc)
* UCITS
* Options and futures
* CFDs
* emissions allowences

Non-MiFID business
* Llyod’s syndicates, insurances contract and funeral plan contracts
* pensions
* regulated mortgages and home finance
* Deposits and electronic money
* rights to specified investments (repos)
* loans and other forms of vanilla credit
* benchmarks

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4
Q

Specified activities

A

MiFID specified activites
* Dealing in investments
* arranging deals in investments
* managing investments
* advising on inv.
* operating a MTF or Organised trading Facility (OTF)

Non-MIFID
* Safeguarding and administering inv. (custodians)
* sending dematerialised instructions (electronic money transfer)
* Lloyd’s activities, insurance activities and funernal plan contract providers
* providing, administering, advising and arranging mortgages
* home finance activities
* managing dormant account funds
* accepting deposits b way of business
* providing credit reference or credit information services
* establishing, operating or winding up a CIS/pension scheme
* agreeing to carry on most regulated activities

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5
Q

Excluded activities from part 4a

A

The following are exempt:
* News paper and other media (incidental advice only - not tip sheets)
* providing information (bloomberg etc)
* unpaid trusteees (nominees/executors)
* employee share schemes
* group or joint enterprises
* Absence of holding out:
1. Dealing as principal and end user - no svs offered to clients
2. primary market sale or buyback
3. derivatives for risk mgmt (commercial purpose/hedging)

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6
Q

Exempt persons from part 4a permissions

A
  • Appointed representatives (tied bodies)
  • Llyod’s syndicate members
  • Members of designated professional bodies (DPBs) - lawyers acccountants etc
  • Recognised investment exchanges (RIEs)
  • Recognised Clearning Houses (RCHs)
  • Other exempted bodies (central banks, supranationals)
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7
Q

Authorisation - what sets out when authorisation is needed

A
  • The Perimeter Guidance Manual (PERG) sets out guidance on when authorisation may be needed and any exclusions available. Only guidance so isn’t legally binding
  • The permission notice (SUP) - the FCA/PRA have the power to grant and vary permissions
  • Permissions are not blanket permissions
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8
Q

PArt 4a threshold conditions - see phone

A

See phone for table

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9
Q

EU authorisation

A

Firms in the EU must present their MiFID passport to their local regulatorr to obtain permission to practice in the EU

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10
Q

Senior manager and certification regime (SM&CR)

A
  • AKA individual accountability regime

Senior manager functions
* Must be pre-approved by the FCA/PRA and are subject to fit and proper assesssments
* Applies to all directors, heads of functions and the MLROs

Certified functions (significant harm functions)
* Certificate issued by the authorised firm and are subject to fit and proper assessments

Other conduct rules staff
* No need for fit and proper assessments

All of the above are subject to the Conduct Rules (COCON)

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11
Q

Senior Manager Functions

A

Prescribed responsibility
* Must be allocated to the must senior individuals
* set out in a signed statement of responsibilities (SoR)
* Records kept for 6 years from any change

Responsibilities map
* Enhance transparency on individual accountability and reporting lines

Senior managers will have duties of responsibility
* be able to prove they took reasonable steps to fulfil any prescribed responsibilities amd prevent, stop or remedy and breaches
* potential disciplinary action can be taken by the regulator if the SM doesn’t do their job properly

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12
Q

Fit and proper tests for the certified functions

A
  • Those who pose the risk of significant harm to teh customer, teh firm or the market such as material risk takers and supervisors of certificatoon functions
  • Firms assess fitness and propriety annually and on appointments (certificates issued by the firm)
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13
Q

The fit and proper test (FIT)

A

FIT made up of 3 parts
* Honesty, integrity and reputation
1. Employment history of 6 years
2. any criminal convictions?
3. Breahces of FCA/PRA rules
4. complaints

  • Competence and capability
    1. exam success (prrofessional and academic)
    2. experience and training

Financial soundness
1. ever been bankrupt?

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14
Q

Form A purpose

A

Form A is used to apply for approval on behalf of senior managers. Firms should be informed whether teh SM is approved within 90 days.

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15
Q

individual conduct rules - 6 rules, FCA principles applicable

A

Individual first teir conduct rules
1. Act with integrity (not deliberately do something off)
2. act with due skill, care and dilligence
3. be open and co-operatvie with the FCA/PRA and other regulators
4. pay due regard to teh interests of customers and treat them faily
5. Must observe standards of market conduct
6. must act to deliver good outcomes for retail clients

Where consumer duty applies, rule 6 replaces rule 4.

See phone for breaches list

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16
Q

Training requirements

A
  • SYSC 5 covers the overall requirements ensuring employees meet high level competancy requirements

General requirements of Training and Competence sourcebook
* All employees of firms carrying n activities with or fir retail customers must demonstrate competence (may be required to pass exams and the firm is responsible for assessing competence)
* firms mustn’t allow employees to carry out activities without appropriate supervision
* competence must be regularly revviewed to ensure the person remains competent

17
Q

Whistleblowing

A

Covered under the Public Interest Disclosure Act (PIDA) 1998.
It protects employees who make a protected disclosure.

Protected disclosures relate to:
* Criminal offences
* breach of legal requirements
* miscarriage of justice
* endangering health and safety
* damage to the environment
* concealment of the above

Firms should adaopt procedures of:
* How to make protected disclosures
* failures that are worthy of disclosure
* assurances of protected disclosures
* avenues of external disclosure (including the FCA)
* penalties for making false oor misleading disclosures
This is a senior manager responsibility under SYSC

18
Q

Information gathering by the FCA/PRA and their powers

A

Powers of enforcement officers (S165)
* Allowed to enter the premises of an authorised firm without notice
* demand documents, files, tapes, data, etc and take copies
* interview any employee

Supervision of firms - cooperation
The FCA/PRA have the power to demand info/docs
* If they do, the docs must be provided in a reasonable time period - S165
* direct the firm to appoint competent persons to provide teh FCA?PRA with any required info - S167
* Appoint a 3rd party to carry out and investigation if their is a suspected criminal offence - S168
* Failure to cooperate is a crime - S177
* Providing false or misleading evidence is a crime - S177

19
Q

The regultor’s enforcement process

A

The regulator will investigate the firm and consolidate it’s preliminary findings. it will then either:
* Issue a private warning or
* Hand the case to teh Regulatory Decisions Comittee to issue the following

regulatory decisions committee (RDC) process
1. issue a warning notice (with consent), supervisory notice of a notice of discontinuance.
2. The firm will then be able to respond
3. Issue a Decision notice after revieiwng the firm’s response or a supervisory notice or a notice of discontinuance.
4. The firm can appeal to the upper tribunal within 28 days
5. If nothing comes of the appeal, a final decision will be issued or a final supervisory notice or a notice of discountinuance.

Check phone

20
Q

Written notices

A
  • Private warning - regulator decides not to take formal disciplinary action but it remains on the firm’s/[person’s disciplinary record
  • Warning notice - can be published withe the consent of teh recipient. It alerts the firm that action is proposed and why
  • Supervisory notices - alternative to a warning notice and is designed to be more of a preventative measure than a disciplinary one. Action can be effective immediately after issuing a furthe decision notice.
  • Decision notice - Issed by the RDC when they have reviewed representations relating to warning notices from the firm.
  • Final notices - published into the public domain. issued to either make a decision or to make a supervisory notice final/operational. states the date from when action will take effect.
  • Notice of discontinuance - issued at any point in the investigation and confirms the regulator has cancelled the investigation
21
Q

Disciplinary measures the regulator can take

A
  • Withdrawal/variation of authorisation or approval
  • prohibition of individuals acting in an approved position
  • restitution order (pay compensation)
  • public censures, statements of misconduct
  • financial penalties
  • prosecution
    *
22
Q

Powers of intervention and enforcement

A
  • Under FSA 2012 and is a proactive measure

Powers of intervention over products and and fin promos inder FSA 2012
* FCA can ban products posing unacceptable risk to customers - products can be banned for up to 12 months without consultation
* FCA can ban fin promos deemed misleading - no need for a normal formal enforcement process as it is too slow

23
Q

done

A

FCA Paper 3: UK Financial Regulation (9 decks)

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