Chapter 2: The Regulatory Framework Flashcards

1
Q

What is the FSMA?

A

Financial Services and Markets Act 2000

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2
Q

What is the FSA? 2 meanings

A

Financial Services Authority
Financial Services Act (2012)

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3
Q

What is prudential regulation?

A

Regulates the financial stability of a firm, prevents bankruptcy.
Protects investors and economy

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4
Q

What is business conduct regulation?

A

Regulated the way business is done.
Specifically how investment products are marketed and sold.
Protects investors from bad business practices.

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5
Q

What is Part II of the FSMA?

A

No entity can carry out regulated activity in the UK without authorisation from the regulator

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6
Q

What does MiFID II stand for?

A

Markets in Financial Instruments Directive II

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7
Q

What does EMIR stand for?

A

European Market Infrastructure Regulation

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8
Q

What does CRD stand for?

A

Capital Requirements Directive

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9
Q

What is Level 1 and Level 2 legislation?

A

Level 1 is high level, set by governing bodies such as EU/Basel
Level 2 is the more detailed legislation, set by members states

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10
Q

What did the FSA turn into? (3)

A

The FPC (Financial Policy Committee)
The PRA (Prudential Regulation Authority)
The FCA (Financial Conduct Authority)

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11
Q

What does the FPC (Financial Policy Committee) do?

A

Set macro regulation to cover the financial system as a whole

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12
Q

What does the PRA (Prudential Regulation Authority) do?

A

Responsible for prudential regulation of individual firms/insurers, ensuring investor safety and stability.

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13
Q

What does the FCA (Financial Conduct Authority) do?

A

Focuses on regulation of all firms in retail and wholesale financial markets. Ensures these markets function well. “Business Conduct”

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14
Q

What is MiFID II?

A

A detailed and wide ranging financial instruments directive for EU states

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15
Q

What is the difference between regulation and directives?

A

Directives are to be transposed by member states individually
Regulations are put in place for all member states

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16
Q

What is a systematic internaliser?

A

A firm that deals on its own account by executing client trades outside of an MTF/Market

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17
Q

What are the two types of reporting firms need to do in MiFID?

A

Transaction reporting (T+1)
Trade publication (real-time)

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18
Q

What is an organised trading facility? (OTF)

A

system that is not an MTF or regulated market, where multiple third parties can interact to result in financial contracts

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19
Q

What was the UK TCA?

A

Trade and Cooperation Agreement (2020)
Allowed the UK to still do financial business with EU states

20
Q

What is the penalty for GDPR non-compliance?

A

20m EURO or 4% of global turnover, whichever is greatest

21
Q

What does GDPR give the user the right to?

A

“Data erasure” or the “right to be forgotten”

22
Q

How does technology link with changing regulations?

A

Firms need technology capability in order to keep up with regulations
e.g. instant trade reporting MiFID II

23
Q

What is COBS?

A

Conduct of Business Sourcebook
Ensure firms act honestly, fairly and professionally

24
Q

What is CASS?

A

Client Asset Sourcebook
Rules that define how client assets are managed.

25
What 2 things does CASS cover?
1. Ensure client assets are segregated 2. Regularly reconciled, and rectify shortfalls
26
What is the Senior Managers Regime?
Statement of responsibilities per manager Ensure there are no firmwide gaps Duty of responsibility - managers are liable for breaches
27
What are the 3 Basel Pillars?
1. Minimum Capital Requirement 2. Supervisory review 3. Market discipline
28
What is the Basel Minimum Capital Requirement calculation?
cap ratio = (capital requirement) / (credit + market + operational risk)
29
What are the 3 approaches to calculation Pillar 1 cap requirement?
Basic Indicator - 15% of income Standardised - Risk weighted % of income Advanced Measurement - VaR models
30
What are the seven operational risk events per Basel?
Internal fraud External fraud Employment practices Clients, product and business practice Damage to physical assets Business disruption and system failures Execution, delivery, and process management
31
What is FATCA?
Foreign Account and Tax Compliance Act Compels US citizens to file reports on foreign account holdings
32
What is an FFI?
Foreign Financial Institution non-US financial instituations
33
What do FFIs have to do to comply with FATCA?
Report any potential US-based clients to the US
34
What were the technological implications of FATCA?
specialist workflows had to be developed to ensure all documents are collected reports had to be written to provide the necessary regulatory information to HMRC
35
What is the Dodd-Frank act?
A large piece of legislation put in place after the 2008 crisis and Lehman Brothers collapse Main provisions; Consumer protection Ending large bailouts Regulatory enforcement
36
What were the technological implications of Dodd-Frank?
Increased transaction reporting, CP identified by LEI OTC Derivatives need to be cleared through a clearing house Singular trade repositories/databases
37
What is EMIR?
European Market Structure Regulation Similar to U.S. Dodd-Frank Improve transparency and reduce risks
38
What asset were EMIR and Dodd-Frank regulations mainly focused on?
Derivatives - need a central trade repository
39
What does CSDR stand for?
Central Securities Depositories Regulation
40
What are the 4 Key Phases of CSDR?
Phase 1 - Omnibus/Segregated Accounts Clients are offered the choice between omnibus segregation and individual client segregation Phase 2 - Internalized Settlement Reporting Must report what volume of transactions are settled internally. Phase 3 - Settlement Discipline Regime Fines on delayed settlement Phase 4 - Electronic Book Entry All stocks settling in the EU must be held in demat form.
41
What is internalised settlement?
Under the CSDR, an institution is considered to be a settlement internaliser if it settles transfer orders on behalf of clients on its own account rather than through a Central Securities Depository (CSD).
42
What are the technological implications of CSDR?
Seg - easy, already done Settlement Internaliser - report to aggregate and define internal settlement Settlement Fines - need to record settlement delays
43
What 3 things does MiFID require firms to classify their clients as?
eligible counterparty professional client (fund) retail client (person)
44
When must CDD (Client Due Diligence) be done?
established business relationship occasional transactions suspects money laundering or terrorist financing
45
Who requires EDD (Enhanced Due Diligence)? (2)
persons not present during CDD checks politically exposed persons
46
What is a 'recalcitrant account holder'?
Client that does not provide documentation to an FFI 30% withholding tax