Chapter 5 - The Regulatory Infrastructure of UK Financial Services

Question 1

Who is the FCA accountable too?

Answer 1

HM Treasury and Parliament

The FCA is not a government body. It is not funded by the government and its employees are not civil servants.

Question 2

What is the FCA’s statutory objective?

Answer 2

Ensuring relevant markets work well

Question 3

What is the FCA’s operational objective?

Answer 3

C.I.C
- Consumer protection

• Integrity (includes financial crime)
• Competition

Question 4

What is FSF?

Answer 4

Firm Systematic Framework
- will use a common framework across all sectors - targeted to the type of firm.

Business Model and Strategy analysis.

• Give a view on how sustainable the business would be in respect of conduct
• Identify where the future risk might lie

Question 5

What are the FSF’s four modules?

Answer 5

1 - Governance and culture

2 - Product design

3 - Sales or transactions processes

4 - Post-sales/services and transaction handling

(2-4 covers mis-selling)

Question 6

What is the FCA Policy, Risk and Research Division?

Answer 6

Newly created department by FCA

• Identify & Assess, risk to consumers
• Creates common view
• Use knowledge of risk

Question 7

What is PRA?

Answer 7

Prudential Regulation Authority

Question 8

What Firm does the PRA regulate?

Answer 8

• Deposit takers
• Insures
• Significant investment firms

Question 9

What are the PRA objectives?

Answer 9

General objective

• To promote the safety and soundness of PRA - authorized firms.
• Avoid instability
• Minimise adverse effect the failure of a PRA-authorised firm would have upon the stability of the UK financial system.

Insurance objective
- Contributing to the securing of an appropriate degree of protection for those who are or may become policyholders

Question 10

What are the responsibilities of the Bank of England?

Answer 10

• Responsibilities of Bank of England
• Setting interest rates, printing bank notes
• Maintaining stability in the financial system
• Financial Policy Committee and PRA
• Monetary Policy Committee (MPC) sets UK interest rates
  • Meets monthly
  • Sets rates to meet the Government’s inflation target (currently 2%)

Question 11

What role does Her Majesty’s Treasury (HMT) play?

Answer 11

Her Majesty’s Treasury (HMT)

• Appoints the FCA’s governing body
• Monitors reports from the FCA - annual report statutory

Question 12

What are The Competition and Markets Authority?

Answer 12

Powers
- To investigate and block takeovers or mergers if in the interests of competition and consumers

• Enforce consumer protection legislation
• The Privacy and Electronic Communications Regulations
• Cooperation and coordination in the financial sector
• Prosecute unlawful cartel members

Question 13

What role does the The Information Commissioner play?

Answer 13

• To uphold the information rights in the public interests
• To promote openness by public bodies
• To ensure data privacy for individuals

Question 14

What role does The Pensions Regulator play?

Answer 14

• To protect the members of work-based pension schemes

• Defined Benefit plans only - Final salary
  i. e. there are no regulations for Defined Contributions plans

Question 15

What is the The Upper Tribunal (Tax and Chancery Chamber)?

Answer 15

Hears appeals against FCA, PRA or pensions regulator decisions

Question 16

The Information Commissioner enforces and oversees:

Answer 16

• The Data Protection Act
• The Freedom of Information Act
• The Environmental Information Regulations
• The Privacy and Electronic Communications Regulations

Question 17

What are the five strategic goals of the Competition and Markets Authority? (formerly the Competition Commission and Officer of Fair Trade)

Answer 17

1  - Enforcement
2 - Competition
3 - Consumer protection
4 - Professional excellence
5 - Effective multi-disciplinary adviser

Question 18

The Financial Policy Committee

Answer 18

• Committee within the Bank of England
• Role to identify, monitor and take action to reduce systemic risk - protect & enhance the resilience of the UK financial system
• Can make recommendations to the regulators - Comply or explain why

Question 19

What is the role of the National Strategy for Financial Capability and Consumer Support?

Answer 19

• Better-informed, better-educated and more confident citizens, able to take greater responsibility for their financial affairs
• This is led by the Money Advice Service

(does not give specific advice)

Question 20

What are the General powers of the FCA (Part 9A FSMA 2000)?

Answer 20

1 - Grant, vary or withdraw Part 4A authorisation of firms, approval of individuals, recognition of other bodies - e.g. city codes, Mergers, JMLSG

2 - Rule-making for the above (if it relates to a statutory objective) - COBS

3 - Prosecutes for financial crime - Insider dealing

4 - Supervision, enforcement, sanctions and disciplinary action

Question 21

What are The Eight Regulatory Principles?

• Defined in FSA2012, apply to both FCA and PRA: 26,000 Firms.

How should good regulation work!

Answer 21

1 - Regulators to use resources efficiently and effectively

2 - Burden of regulation to be proportionate to benefits

3 - Desirability of medium- and long-term growth in UK economy - Improve

4 - Consumers to take responsibility for their decisions - MAS

5 - Senior management responsibilities for compliance with the Act - SYSC

6 - Regulators to recognise differences between regulated firms - IFA and Investment Banks

7 - Desirability of published information, either from regulator and/or from firms

8 - Regulators to exercise their functions as transparently as possible