Chapter 2: The Regulatory Framework Flashcards
What are the main aims of regulation in global markets
- Maintain and promote fairness, efficiency, competitiveness, transparency and orderliness of the securities and futures industry
- Promote understanding by the public of, and trust in, the operaton and functioning of the securities and futures industry
- Provide protection for memebers of the public investing in, or holidng, financial products
- Minimise crime and misconduct in the securities and futures industry, and
- Assist in maintaining the markets financial stability
What is prudential regulation
It is concerned with the financial soundness of regulated financial services firms, making sure that they are not about to become bankrupt. The purpose of prudential regulaton is to prevent investors and the economy in general from suffering losses as a result of the failure of individuak firms or, at worst, multiple firms
What is business conduct regulation
It is concerned with the way in which business is done, particularly the way investment and savings products are marketed and sold.
How can somone become authorised to carry out regulated activities
They must apply for permission from the FSA
What are the 11 FSMA principles
- conduct its business with integrity
- conduct its business with due skill, care and diligence
- take reasonable care to organise and control its affairs responsibly and effectively, with adequate
risk management systems - maintain adequate financial resources
- observe proper standards of market conduct
- pay due regard to the interests of its customers and treat them fairly
- pay due regard to the information needs of its clients, and communicate information to them in
a way which is clear, fair and not misleading - manage conflicts of interest fairly, both between itself and its customers and between a customer
and another client - take reasonable care to ensure the suitability of its advice and discretionary decisions for any
customer who is entitled to rely upon its judgement - arrange adequate protection for clients’ assets when it is responsible for them, and
- deal with its regulators in an open, cooperative way, and must disclose to the regulator appropriately
anything relating to the firm of which the regulator would reasonably expect notice.
What are the 3 sets of rules used by the UK regulator
MiFID II, Capital Requirements Directive (CRD), European Market Infrastructure Regulation (EMIR)
What is the difference between Level 1 and Level 2 legislation
Level 1 legislation typucally refersto when the European Union legislates for the whole of the EU, where the legislation tends to be quite broad. Level 2 refers to legislation put in place by the member states e.g. UK and tends to be more specific
Which 3 regulatory bodies replaced the FSA
Financial Policy Commitee (FPC), Prudential Regulatory Authority, Financial Conduct Authority (FCA)
What is the purpose of the FPC
Responsible for macro-prudential regulation
What is the purpose of the PRA
Responsible for the prudential regulation and supervision of substantial individual firms
What is the purpose of the FCA
The FCA focuses on the regulation of all retail and wholesale firms. It also has the responsibility for frims that do not fall within PRA’s scope. Main objective is to ensure markets function well.
What is the purpose of ESMA
ESMA is a European-wide regulation and their mission is to protect investors and reinforce stable and well functioning markets in the EU.
What did MiFID II replace
The Investment Services Directive (1993)
What is the difference between MiFID and MiFIR
MiFID is a directive and thereofre has to be transposed into each countries laws individually, whereas MiIFR is a regulation governed by european Law and therefore automatically became a law in member states when enacted
What is a multi-lateral trading facility (MTF)
A system that brings together multiple parties that are interested in buying and selling financial instruments, and enables them to do so.
What is a systematic Internaliser
a firm that, on a frequent and systematic basis, delas on its own account by executing client orders outside of an MTF or regulated market
What is transaction reporting
Most firms employ a nominated Approved Reporting Mechanism (ARM) to report to the relevant regulator on their behalf. Although, some firms (typically large investment banks) will report to the regulator directly
What is trade publication
Needs to be reported to a nominated Approved Publication Arrangement (APA) on a near real-time basis (Less than 15 minutes depending on the asset class)
