Chapter 5A Flashcards
What are the 3 characteristics of the PRA?
Judgement based - assess strength, policyholder protection and compliance with key conditions
Forward-looking - looking at current and potential future risks
Focused - looking at higher risk firms
What are the 2 types of regulation and who carries them out?
1 - Prudential
BoE - market infrastructure and payment systems
PRA - important firms
FCA - all other firms
2 - Conduct
FCA - all authorised individuals, firms and markets carrying out regulated activities
What does the term macro prudential mean?
Deal with ‘big picture’ stuff such as setting counter cyclical capital buffers, enforcing variable risk weights and setting leverage limits
Counter cyclical capital buffers - greater capital reserves
Variable risk weights - greater or lower capital depending on risks
Leverage limits - limit use of higher risk financial tools and debt
What tools does the PRA use to meet its objectives?
Regulation - set standards to meet
Supervisor - assess risks that firms pose and take action when required
PRA approach does not seek zero-failure just minimise the impact of any firm that fails
Give a summary of the UK Regulatory Authorities Objectives
Read page 199
Who is responsible for the FCA?
The Treasury
What are the 3 main FCA areas of responsibility?
1 - Authorisation
Granting, varying and cancelling authorisations
2 - Supervision
Devising rules for conduct of business
3 - Enforcement
Policing the industry and imposing penalties - civil and criminal
What is an authorised person?
An individual, from or market that is granted Part 4a permission - this means they can carry out regulated activities
Or an individual who will carry out a controlled function within the authorised person (now non-SM&CR firms)
What are the turn around times for FCA when granting Part 4a permission?
Up to 6 months for complete applicants for individuals, firms and markets
12-months for incomplete applications
How does the FCA assess the risk of a firm?
1 - Sector it operates
2 - Volume of transactions
3 - Type of products
4 - Type of customers
What was the FCA’s new strategy of supervision which replaced C1 - C4 categories?
1 - Fixed Portfolio Firms
Smaller amounts of firms
Higher risk firms
Supervised to Pillar 1
2 - Flexible Portfolio Firms
Most firms
Don’t carry significant risk to stability of UK
Supervised to Pillars 2 and 3
What are the 3 Pillars of Supervision?
Pillar 1
Proactive supervision
Assesses conduct risk
Uses forward looking judgement based approach
Looks at firms culture and model
Pillar 2
Event-driven
In response to emerging or occurred issues
Devotes resources to highest risk situations and firms
Pillar 3
Proactive thematic review
Looks at potential drivers of poor consumer outcomes
What are the 10 FCA supervision principles?
1 - Fair outcomes for consumer and markets
2 - Forward looking
3 - Focused on big issues
4 - Judgement based approach
5 - Ensure firms act correctly
6 - Examine business culture and models
7 - Individual Accountability Emphasis
8 - Being robust when things go wrong
9 - Open communication
10 - Joined up approach
How does the PRA supervise whether a firm is being run in a safe and sound manner?
Proactive Intervention Framework which involves five categories from low, moderate viability and imminent risk through to firm wind-up
This ensures the PRA identify and response to emerging risks early
What is the set process that offences are investigated by the FCA?
1 - Enforcement officers open an investigation
2 - Evidence is gathered to leading to recommendations
3 - The Regulatory Decisions Committee (RDC) decide on appropriate sanctions
Do enforcement have to tell an individual, firm or market that they are under investigation?
Yes apart from insider dealing
What is a civil and criminal offence with examples?
Civil Offence
Disputes between private parties
Continuing to use misleading financial promotions
Make misleading statement
Criminal Offence
Deliberate or reckless act that causes harm to another person or property
Insider dealing
Financial Crime
Carrying out regulatory activities unauthorised
How are firms and individuals prosecuted for civil and criminal offences?
Civil Offence
Stop future activity to repay profits made from illegal activities
Wind up firm
Lower burden of proof
Criminal Offence
Jail time and or unlimited fines
Prosecuted by Crown Court and Crown Prosecution Service
MAD introduced 2 types of market abuse. What are they and what are the maximum prison terms?
Market Abuse Directive introduced insider dealing and market manipulation
Failure to comply with money laundering regulations - 2 years
Failure to report suspicions - 5 years
Making misleading statements, conduct or insider dealing - 7 years
Proceeds of Criminal Act (POCA 2002) offences to do with criminal property - 14 years
How can compliance be dealt with by a firm?
Internally or externally
If compliance services are contracted out then this does not contract out the responsibility
What is the FSB and who are the UK representatives?
Financial Stability Board - achieve global financial stability
Governor of the BoE, CEO of FCA and a representative from HM Treasury
Why must a firm maintain adequate capital reserves?
To meet all liabilities as they fall
What is the FAR and who is concerned by it?
Free Asset Ratio - also known as solvency ratio
It shows financial strength of a life office or insurance company
Surplus Assets / Assets
An IFA considers FAR of providers
Who regulates credit agencies and how often to individuals firms need to submit a report regarding returns?
The FCA
The Retail Mediation Activities Report must be submitted at least twice a year
Who does an authorised firm who disagrees on a enforcement notice served by the FCA appeal to?
The Upper Tribunal
