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
