Chapter 4 Flashcards
GQ 4 - What are the 2 objectives of the Financial Policy Committee?
On 1 April 2013, an independent Financial Policy Committee (FPC) was established at the Bank of England.
The FPC is charged with a primary objective of identifying, monitoring and taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system.
The FPC has a secondary objective to support the economic policy of the Government.
GQ 4 - What is the Prudential Regulation Authority (PRA) responsible for, the 2 objectives and the governing body?
The Prudential Regulation Authority (PRA) is responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms.
Sits within the Bank of England.
The PRA has a primary objective: to promote the safety and soundness of these firms and, specifically for insurers, an objective to contribute to the securing of an appropriate degree of protection for policyholders.
There is also a secondary objective to facilitate effective competition.
The governing body of the PRA is the Prudential Regulation Committee (PRC).
GQ 4 - What is the Financial Conduct Authority (FCA) responsible for (4 bodies) and the overall objective? Where does it derive most of it’s powers from?
The Financial Conduct Authority (FCA) is an independent body that regulates most of the financial services industry in the UK. In total, the FCA regulates the conduct of around 50,000 financial firms and is the sole regulator of 48,000 firms.
It derives most of its powers from the Financial Services and Markets Act (FSMA) 2000.
It is responsible for the Financial Ombudsman Service (FOS), the Financial Services Compensation Scheme (FSCS) and claims management companies (CMCs), as well as operating the UK Listing Regime for companies wishing to issue shares or bonds for sale.
The FCA has an overarching strategic objective to ensure financial markets work well.
E Book 4 - What do you think was the main objective of the FSMA 2000?
a) To introduce statutory regulation of the financial services industry
b) To extend statutory regulation to the provision of mortgage services
c) To bring the regulation of all parts of the financial services industry under one regulatory system
c
The objectives of the FSMA were to bring together the regulation of all the different types of financial services under one regulatory system, and to establish one ombudsman (the FOS) and one compensation scheme (the FSCS).
The scope of the FSMA was much wider than previous Acts giving similar powers.
E Book 4 - Look at the financial products below. Which of these do you think are regulated by the FCA?
a) Deposit accounts
b) Unit trusts
c) Funeral plan contracts
d) Equity release schemes
All of them
All the products shown are regulated by the FCA.
The scope of the FSMA was much wider than previous Acts. In addition to the above it included: stocks and shares, gilts and local authority bonds, debentures, futures, open-ended investment companies (OEICs), mortgages, all contracts of insurance and SIPPs.
The FCA is also concerned with ‘regulated activities’ which include dealing in, arranging, managing or giving advice on any of the above.
E Book 4 - Time to meet some individuals and see if you can apply what we’ve just looked at.
Sue holds £10,000 of premiums bonds with NS&I.
Doug has taken out a payment protection policy in the last twelve months.
Hilda took out a home reversion plan three years ago.
Who has a product that is regulated by the FCA?
a) Sue
b) Doug
c) Hilda
b & c
NS&I products are not regulated by the FCA, but all products offer 100% security because NS&I is backed by HM Treasury.
GQ 4 - What are EU Directives and Regulations?
Directives are binding on Member States. However, national authorities are left to decide how they are to be incorporated into the domestic legal system. They set out a specific goal that all EU countries must achieve, but each country is free to decide how to transpose these goals into their own national laws. Allows for flexibility in adapting to national circumstances.
Regulations are another form of EU law, these apply uniformly across EU Member States. They automatically become law in all Member States on a specific date, without the need for national implementing legislation.
- E Book 4 - The purpose of which of the following EU directives is to make it easier for firms to trade across borders, strengthen policyholder protection and provide a level playing field?
a) Fifth Money Laundering Directive
b) Market Abuse Directive
c) Insurance Distribution Directive
d) Capital Requirements Directive
c
Key words: strengthen policyholder protection!
GQ 4 - What is the main duty of the Information Commissioner’s Office (ICO)?
The ICO’s main duty is to oversee the working of data protection regulations and legislation and enforce compliance with its principles.
Through UK GDPR (General Data Protection Regulation) and Data Processing Agreement (DPA) 2018.
GQ 4 - What is the main duty of the Information Competition and Markets Authority (CMA)? What are the 5 responsibilities?
The Competition and Markets Authority is an independent public body that works with the FCA and the Treasury to help ensure healthy competition between companies in the UK for the benefit of companies, customers and the economy.
The CMA promotes competition within and outside the UK. It has several responsibilities.
Responsibilities:
“MACPC” – Mergers And Cartels, Protect Competition”
🔹 M – Mergers investigation (prevent reduced competition).
🔹 A – Analysing markets (to identify competition/consumer issues).
🔹 C – Cracking down on cartels & anti-competitive behaviour.
🔹 P – Protecting consumers (from unfair trading practices).
🔹 C – Collaborating with government & regulators to promote competition.
GQ 4 - What are the 3 main objectives of The Pensions Regulator (TPR)?
“PRP – Protect, Reduce, Promote”
🔹 P – Protect pension benefits for employees
🔹 R – Reduce the risk of compensation claims on the Pension Protection Fund
🔹 P – Promote good administration and understanding of work-based pension schemes
GQ 4 - When must a pension scheme provide evidence to TPR that they are taking climate change into consideration when making investment decisions?
When the pension scheme as assets of more than £1bn
*E book 4 - Which of these do you think fall within The Pensions Regulator’s powers?
a) Imposing an unlimited fine on pension scheme trustees for breach of the law
b) Winding up a pension scheme to protect its members
c) Prohibiting a person from being a trustee of a pension scheme
b & c
TPR can prohibit a person from being a trustee of a pension scheme if that person is in serious or persistent breach of duties. TPR can also appoint a trustee for a scheme if this is necessary to ensure the proper running of the scheme.
If necessary, it can wind up a scheme to protect its members, but the maximum amounts it can impose as fines for breach of the law are £5,000 for an individual and £50,000 for a company.
GQ 4 - What are the Bank of England’s two core purposes?
1) Monetary Stability i.e. stable prices and confidence in the currency - The Government’s inflation target is 2% CPI
2) Financial stability i.e. detecting and reducing threats to the financial system as a whole. Act as a lender of last resort
GQ 4 - What is the responsibility of HM Treasury? What’s the overall aim?
HM Treasury is responsible for formulating and putting into effect the UK Government’s financial and economic policy.
HM Treasury’s overall aim is to raise the rate of sustainable growth and achieve rising prosperity by creating economic and employment opportunities for all. Financial instability would adversely affect this aim.
The Treasury has representation on the FPC but it does not have operational responsibility for the FCA or the Bank of England.
The Treasury ensures that the financial authorities’ work links with the Government’s wider framework for building resilience and preparing for and managing unexpected events or emergencies
GQ 4 - What are the 3 operational objectives of the FCA?
- Protecting consumers
- Enhancing market integrity
- Promoting competition
*E Book 4 - Who are the four UK financial authorities?
- HM Treasury
- BOE’s Financial Policy Committee (FPC)
- BOE’s Prudential Regulation Authority (PRA)
- Financial Conduct Authority (FCA)
GQ 4 - What is Markets in Financial Instruments Directive (MIFID I)? Were are the 2 main aims?
MiFID I was the EU legislation that regulates firms which provide services to clients linked to ‘financial instruments’ (shares, bonds, units in collective investment schemes and derivatives), and the venues where those instruments are traded.
The aim was to set out basic high-level provisions governing organisational and conduct of business requirements that should apply to firms. It also aimed to harmonise certain conditions governing the operation of regulated markets.
GQ 4 - What is MIFID II and how did it come about?
It came in place in Jan 2018 to improve the functioning of financial markets in light of the financial crisis and to strengthen investor protection.
GQ 4 - When might investment firms not be subject to MiFID (5)?
- Firms Providing Services Only in Their Home Country – If a firm operates solely within one country and does not engage in cross-border financial services within the EU/EEA, it may be exempt from MiFID.
- Advisory-Only Firms – Firms that solely provide investment advice and do not execute trades or manage portfolios may not be subject to full MiFID regulation.
- Smaller Firms Under Domestic Regulation – Some smaller firms that do not deal with complex financial instruments may be regulated under local laws rather than MiFID.
- Insurance-Based Investment Firms – Firms dealing only with insurance-related investment products (e.g., certain annuities) might not be covered under MiFID but instead under the Insurance Distribution Directive (IDD).
- Exemptions for Certain Activities – MiFID provides exemptions for firms whose main business is not financial services, such as commodity trading firms or treasury operations of non-financial corporations.
GQ 4 - What was the Basel Accord (Basel I)?
Helped to strengthen the soundness and stability of the international banking system as a result of the higher capital ratios that it required.
GQ 4 - What is Basel II? How was it implemented in the EU? What are the 3 pillars? Who does it affect?
Basel II is a revision of the existing framework, which aims to make the framework more risk sensitive and representative of modern banks’ risk management practices.
It has been implemented in the EU via the Capital Requirements Directive (CRD) and Capital Requirements Regulation (CRR).
It affects banks and building societies and certain types of investment firms.
- Pillar 1 of the new standards sets out the minimum capital requirements firms will be required to meet for credit, market and operational risk.
- Under Pillar 2, firms and supervisors have to take a view on whether a firm should hold additional capital against risks not covered in Pillar 1 and act accordingly.
- The aim of Pillar 3 is to improve market discipline by requiring firms to publish certain details of their risks, capital and risk management.
GQ 4 - What does the The Joint Money Laundering Steering Group (JMLSG) do?
Produces guidance to assist those in the financial industry comply with their obligations in terms of UK anti-money laundering and counter terrorist financing legislation.
GQ 4 - What does The Financial Action Task Force (FATF) do?
An international organisation that sets standards in the fight against money laundering and terrorist financing.
The EU translates these standards into EU law through money laundering directives which provide a common legal basis for the implementation of the FATF’s Recommendations on Money Laundering.
GQ 4 - What is the scope of the Alternative Investment Fund Managers Directive (AIFMD)?
The scope of the AIFMD is broad and, with a few exceptions, covers the management, administration and marketing of alternative investment funds (AIFs).
Its focus is on regulating the alternative investment fund manager (AIFM), rather than the AIF.
GQ 4 - What is the aim of Packaged Retail and Insurance-based Investment Products Regulation (PRIIPs)?
The aim of PRIIPs was to encourage efficient EU markets by helping investors to better understand and compare the key features, risk, rewards and costs of different PRIIPs, through access to a short and consumer-friendly Key Information Document (KID).
E-book 4 - Which body produces guidance to help those in the financial services industry comply with anti-money laundering obligations?
The Joint Money Laundering Steering Group (JMLSG).
E book 4 - Which regulator is responsible for preventing the misuse of the assets of an occupational pension scheme?
The Pensions Regulator (TPR)
E book 4 - Why might the senior managers of a firm collect and monitor management information?
Management Information may be collected to meet regulatory reporting requirements, to help managers understand trends in sales, revenue, costs and complaints and to help improve business practices.
GQ 4 - Who is ultimately responsible for regulation in the UK?
The Chancellor of the Exchequer
GQ 4 - What did The Fourth Money Laundering Directive (4MLD) do? What does the The Fifth Money Laundering Directive (5MLD) do?
Aimed to enhance the beneficial ownership (Individual(s) who ultimately own or control a company, trust, or other legal entity) measures put in place by the Fourth Money Laundering Directive (4MLD) which provided a common EU basis for implementing the revised Financial Action Task Force (FATF) recommendations on money laundering.
KC 4 - Why is the Competition and Markets Authority most likely to investigate a proposed merger of Alpha Asset Management and Beta Insurance?
Select one:
a.
Alpha and Beta operate in related business sectors.
b.
Both Alpha and Beta are public limited companies.
c.
The enlarged group would capture 18% of market share.
d.
There is a possibility that the merger will restrict competition.
d
KC 4 - Which financial authority is responsible for formulating and putting into effect the UK Government’s financial and economic policy?
Select one:
a.
The Financial Policy Committee.
b.
HM Treasury.
c.
The Monetary Policy Committee.
d.
The PRA.
b
KC 4 - The Peak Building Society has just been advised by the PRA that it has failed to meet the Pillar 1 requirements of the Capital Requirements Directive that have been incorporated into UK law. This means that it has:
Select one:
a.
failed to meet Basel II reporting standards.
b.
insufficient capital to meet its liquidity risks.
c.
insufficient capital to meet its current credit, market and operational risks.
d.
failed to publish details of its risks, capital and risk management.
c
*KC 4 - The main objective of the Competition and Markets Authority can be described as ensuring:
Select one:
a.
competition between companies in the UK remains fair for the benefit of business, consumers and the economy as a whole.
b.
purchasers of non-regulated products are treated fairly.
c.
competition between banks in the UK remains fair for the benefit of consumers, investors and the economy as a whole.
d.
purchasers of regulated investment products and consumer credit have the same protection as those in EU countries.
a
Companies as a whole - not just banks
KC 4 - When making rules, carrying out investigations and using its enforcement powers to meet its operational objectives, the FCA must also pay due regard to the:
Select one:
a.
consumer duty cross-cutting rules.
b.
PRA rules, which override the FCA rules in the event of a conflict.
c.
findings from the Financial Ombudsman Service.
d.
eight regulatory principles.
d
KC 4 - Which UK organisation is tasked with identifying, monitoring and taking action to remove or reduce systemic risks, with a view to protecting and enhancing the resilience of the UK financial system?
Select one:
a.
The PRA.
b.
The FCA.
c.
The Financial Action Task Force.
d.
The Financial Policy Committee.
d
KC 4 - Within the EU, which type of regulated firms are subject to the Capital Requirements Directive?
Select one:
a.
Banks.
b.
General insurers.
c.
Financial adviser firms.
d.
Life assurance companies.
a
KC 4 - Which UK organisation is responsible for ensuring that mergers between large financial services firms is in the best interests of business, consumers and the economy as a whole?
Select one:
a.
The Competition and Markets Authority.
b.
The PRA.
c.
The Competition Commission.
d.
The Financial Action Task Force.
a
KC 4 - Which body has the overall aim of raising the rate of sustainable growth in the economy and the achievement of rising prosperity?
Question 9Select one:
a.
The Monetary Policy Committee.
b.
The Financial Policy Committee.
c.
HM Treasury.
d.
The Bank of England.
c
*KC 4 - What was one of the Insurance Distribution Directive’s [IDD] primary aims?
Select one:
a.
To deregulate the insurance market.
b.
To increase competition between smaller firms.
c.
To make the insurance profession more accessible for customers.
d.
To make it easier for firms to trade across borders.
d
KC 4 - UK banks have to maintain minimum levels of capital reserves to protect them from future potential uncertainty. This is as a result of regulations arising from:
Select one:
a.
an instruction from the FCA.
b.
the Capital Requirements Directive.
c.
the Solvency Directive.
d.
an instruction from the UK Government.
b
KC 4 - The FCA has three operational objectives, which are concerned with:
Select one:
a.
consumer protection, integrity of the UK financial system and competition.
b.
responsibility of consumers, consumer protection and transparency.
c.
integrity of the UK financial system, competition and transparency.
d.
competition, transparency and proportionality.
a
*KC 4 - Castle Holdings Ltd has an occupational pension scheme and has been fined £18,000 by The Pensions Regulator. If it had received the maximum fine, how much extra would it have been fined?
Select one:
a.
£12,000.
b.
£22,000.
c.
£2,000.
d.
£32,000.
d
Maximum fine of TPR is £50k
KC 4 - Hae-Won has worked for several different companies over many years. In order to trace her preserved rights in these occupational pension schemes, she should refer to:
Select one:
a.
the Registrar of Companies.
b.
The Pensions Regulator register.
c.
the FCA register.
d.
the Occupational Pensions Registry.
b
*KC 4 - The Prudential Regulation Committee consists of all the following members, EXCEPT:
Select one:
a.
the Chief Executive of the FCA.
b.
the Governor of the Bank of England.
c.
the Chancellor of the Exchequer.
d.
the Deputy Governor for prudential regulation.
c
I originally thought it was a because the FCA is an independent body, but it’s c because the PRC has to stay independent of political views
*KC 4 - The Bank of England has two core purposes; monetary stability and financial stability. An example of how the Bank provides financial stability would be to:
Select one:
a.
detect and reduce threats to the UK financial system.
b.
maximise confidence in the UK currency.
c.
explain the decisions made by the Monetary Policy Committee.
d.
ensure stable prices in the UK market.
a
READ THE QUESTION!
1) Monetary Stability = stable prices and confidence in the currency - The Government’s inflation target is 2% CPI
2) Financial stability = detecting and reducing threats to the financial system as a whole. Act as a lender of last resort
*KC 4 - Hawkins & Co holds client money accounts, but is NOT required to have a separate client money audit and report carried out. This is because:
Select one:
a.
it has premium income of less than £500,000 per annum, for which there is an exemption.
b.
it is a partnership whose annual partnership accounts are not audited anyway.
c.
it is a general insurance intermediary that has been given an exception, because it only holds a small balance.
d.
all premiums are handed over to the insurers within 30 days of receipt from the insured.
c
Under the Companies Act legislation, incorporated entities (i.e. limited liability companies or limited liability partnerships) are required to appoint a statutory auditor who performs an annual external audit on the firm’s accounts.
Firms are not required to appoint a statutory auditor who performs an annual external audit on the firm’s accounts if they:
1) meet the Companies Act criteria for the small companies audit exemption; and
2) do not undertake any activity within the scope of the Markets in Financial Instruments Directive II (MiFID II), Undertakings for Collective Investment in Transferable Securities (UCITS) Directive, Banking Consolidation Directive or the Insurance Distribution Directive (IDD) and are not an e-money issuer.
Unincorporated entities (i.e. sole traders or a partnership) that do not have permission to hold client assets, have no need to have annual accounts audited. So b is not correct.
KC 4 - Maneet and Shanti plan to set up their own firm of advisers. Before they can begin processing client data, to comply with the General Data Protection Regulation, they must first:
Select one:
a.
ensure they have fire-proof storage facilities for all client files.
b.
ensure that their professional indemnity insurance protection is adequate.
c.
apply to the FCA Authority for handling client data to be included in their Part 4A permission.
d.
notify the Information Commissioner’s Office.
d
GQ 4 - What are the 3 primary aims for the Insurance Distribution Directive (IDD)?
1) Make it easier for firms to trade across borders
2) Strength policyholder protection
3) Provide a level playing field
KRO 4 - The corporate structure and reporting responsibilities of the Financial Conduct Authority (FCA) are such that it is
a) a limited liability partnership, controlled by appointed partners, reporting to HM Treasury
b) set up under trust, run by appointed trustees, reporting to the Treasury Select Committee
c) a limited company, governed by a board of directors, reporting to HM Treasury
d) a governmental department, led by a government minister, reporting to the Prime Minister
c
The FCA is run like a company and is an independent body, but it answers to the government.
KRO 4 - Which organisation regulates credit rating agencies operating in the UK?
a) Financial Conduct Authority (FCA)
b) Prudential Regulation Authority (PRA)
c) Prudential Regulation Committee (PRC)
d) European Securities and Markets Authority (FCA)
a
KRO 4 - An individual trustee of a registered pension scheme has been determined by The Pensions Regulator (TPR) to have misused scheme funds, an issue covered by their High Fines Policy. The maximum fine under the Pension Schemes Act 2021 that can be applied by TPR following a successful civil action is
a) £430,000
b) £1,000,000
c) £20,000,000
d) unlimited
b
Note that the ‘standard’ (not under the High Fines Policy) max fine amount is £5,000 for an individual and £50,000 for a company.
KRO 4 - KnowRO Plc are applying for a consumer credit licence. When considering the involvement of the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), KnowRO Plc’s application will be made to the
a) FCA, to whom knowRO plc must show a detailed business plan only
b) FCA, to whom knowRO plc must demonstrate they are fit and proper
c) PRA, to whom knowRO plc must show they have sufficient financial resources
d) PRA, to whom knowRO plc must prove they abide by the Consumer Credit Directive
b
FCA has to authorise all firms wishing to conduct regulated credit agreements
*KRO 4 - A UK financial advice firm has suffered a minor breach of data protection, with a small number of client email addresses made available to other clients of the firm. This is the firm’s first breach. The most likely consequence is that
a) a fine will be issued by the Information Commissioner’s Office
b) the firm will receive a caution from the Information Commissioner’s Office
c) the firm will be temporarily suspended by the Financial Conduct Authority
d) the firm’s levy to the Financial Services Compensation Scheme will be increasedQ
b
For these types of low impact data breaches, the most likely initial response will be a caution from the ICO.
If it becomes a pattern then the disciplinary action may increase.
KRO 4 - The Pensions Regulator (TPR) has ordered a registered pension scheme to be wound up. This is most likely to be because
a) it is a Self-Invested Personal Pension that has invested in commercial property
b) it is a defined benefit scheme that has announced a scheme deficit in its latest accounts
c) they feel the scheme members are not being properly protected
d) the scheme is run under a master trust arrangement
c
KRO 4 - Kenny & Co Ltd is a financial advice firm that is not subject to the rules set out in the Markets in Financial Instruments Directives (MiFID). This is most likely to be because it
a) it is based in the UK, which is no longer an EU member state
b) it has opted-out of the directive
c) it deals many in collective investment schemes as opposed to direct equities
d) deals only UK-based customers and does not hold or control clients’ money
d
‘Exempt investment’ firms:
- Only advise and arrange investments for UK-based customers
- do not hold or control clients money or securities
- do not provide more specialist investment services e.g. executing deals or providing discretionary management service
