Chapter 6 - Principles & Rules Set Out In The Regulatory Framework Flashcards

Question

Appointed Reps - Multi Principals - investment business, mortgage & Insurance (agreement & complaints). Termination - notification and permission

Answer 1

Investment business = only one principal firm. Mortgages - may have different principal for different classes of business (e.g standard vs equity release). Insurance - can have number of principals. If have multiple, must get multi principal agreement from each principal. Must be one lead principal will be responsible for handling complaints irrespective of where it comes from. Termination - if contract terminated, principal will notify AR in writing and AR will no longer be permitted to conduct regulated business. FCA notified within ten working days.

Answer 2

Indefinitely - pension transfers, opt outs and FSACV. 5 Years - Life policies and pension contracts - promotions 6 years 5 Years for everything else accept non MiFID firms 3 years. FCA requires regular returns including - details or shareholding and control (at least 10%) of limited companies - information about people and firms that they have close links with such as subsidiary and sister companies. - financial resources - complaints Reporting rules are important as they allow regulators to build picture of activity in regulated firms and monitor. Reports can cover any of the following; - annual accounts and financial statements - amount held in client bank accounts - value of client assets in a discretionary portfolio managers possession. - number of staff roles in the firm - types of business being undertaken - complaints and persistency statistics.

Answer 3

Persistency - percentage of insurance companies already written policies remaining in force without lapsing or being replaced by another. Rules apply to both single and regular premium life contracts. Product provider must report persistency figures over the first four years of contracts annually then FCA take aggregate. Complaints - must twice a year submit stats to do with complaints received broken down according to category of product. The must reports number of complaints closed within 4 weeks or less, eight weeks or less and total number outstanding. Allows FCA to keep close eye on number of complaints and alerts them to problems and firms should monitor as an indication of conduct levels. Firms failure to submit returns could have enforcement, authorisation removed and fines if simply given late.

Answer 4

Principle 11 - firm must deal with regulators in open and cooperative way and disclose information that the regulator would expect to notice. Certain rules and guidance on what FCA expect; - told immediately if matter could have significant regulatory impact, serious fraud or crime, major rule breach or insolvency. - Core info changes such as name, address & legal status should be provided in good time. - If accidentally given incorrect info to FCA, must notify immediately.

Answer 5

TC rules are designed to ensure employees are competent and properly supervised. Must be regularly reviewed. Recruitment - must take into account knowledge, skills, current role and previous activities and training including qualifications. Must identify training needs. Training must take into account changes in market, products, legislation and regulation. Competence - cannot deal with retail clients unless passed regulatory module of approved examination and have adequate level of knowledge and skills. Records of training must be kept for; - 3 years for non MiFID firms or 5 years for MiFID - indefinitely for pension transfer specialists. Includes AR’s & self-employed.

Answer 6

App exams - Must take further exams for specialist areas such as discretionary management, occupational schemes and equity release. Investment advisers have 2 years to complete level 4 exams (threshold requirement for advising on investment products) and firms can limit attempts. Mortgage advisers must obtain level 3 qualification. Reporting - firms are responsible for notifying FCA for any of the following; - adviser no longer considered competent. - Adviser failed to attain appropriate qualification in time limit. - Adviser failed to comply with Statement of Principle for their controlled function. - Adviser performed regulated activity before competent and without supervision.

Answer 7

Placement - illicit cash turned into payments from respectable financial institutions through bank deposits, life policies and packaged investments. Layering - involves series on transactions intended to conceal origins of dirty money. Using false names and fake transactions, cash moves through bank account into an insurance policy or investment surrendered early to associates who then engage in currency transactions and purchase of bearer bonds which provides security for legitimate loans. Integration - process in which laundered money is finally converted into legitimate business or investment portfolio. FS businesses are most likely to be used for first two stages - e.g bank account opened in false name then withdraw proceeds to buy investment bond which is surrendered early and then transferred to another account overseas.

Answer 8

Operate using individual and company names, can do many small single premiums or regular contributions and can use pension contributions. Proceeds of Crime Act (2002) - initial UK statute fighting against money laundering and creates a number of offences; - conceal, disguise, convert or transfer criminal property or remove it from UK. - to be in an arrangement to help acquisition, retention, use or control of criminal property. - acquire, use or possess criminal property. Also offence to fail to disclose known or suspected cases in regulated sector, reg sector includes; - deposit taking - money changing - dealing, arranging, advising on or managing investments. - arranging and advising on home finance and general insurance - contracts of long term insurance Disclosure must be to NCA and it is an offence to tip off money laundering suspect.

Answer 9

JMLSG - provides guidance on interpretation of regulation and made up of leading trading associations under chairmanship of BoE. MLR 2017 emphasises a risk based approach to firms in carrying out their regulated activities. This means that firms must form a view on risk presented by clients and situations and assess compliance work they need to carry out.

Answer 10

1 - policies and procedures must be put in place to minimise risk of money laundering or terrorist financing. Must be risk based and should take into account due diligence, reporting, record keeping, internal control risk assessment and compliance monitoring. Money laundering reporting officer needs to be appointed and is central contact for suspicious activity - must be based in UK, LOA and access to resources and information within firm. 2 - this involves verifying identity of client and getting info on nature and purpose of business. CDD checks must be carried out when; - regulated firm establishes business relationship. - carries out an occasional transaction. - suspects money laundering - if there are doubts of integrity of previously obtained info Further CDD requirements if client is not present such as additional ID docs - also case for PEP. SDD can be used if business determines relationship or transaction present a low risk.

Answer 11

Ongoing monitoring - must monitor ongoing relationships and scrutinise transactions to ensure they match knowledge of client and risk profile. ID procedures - two stage - name, address & DOB and verifying through independent docs. Acceptable docs are; - Gov issued doc with photo such as passport or driving licence - if no photo, then second doc such as utility bill or bank statement required. - for firms, must obtain docs that are relevant e.g. company registration number Any transactions difficulties should be reported to MLRO. 3 - staff must be aware of relevant legislation and regulation. Must receive training on ID verification and how to deal with suspected money laundering. Retraining must be carried out at relevant intervals. 4 - powers include right to enter premises and take copies of docs. Authorities may give civil penalties - partners and directors are personally responsible they may be fined or imprisoned for two years.

Answer 12

SAR - firms appoint MLRO who make reports to NCA. Examples include - client using inters to protect or hide their identities or involvement - sudden significant improvement in a clients finances but unable to explain why. - money paid to third party that appears to have no connection with client. Firm annual reporting - self explan Record-keeping - must keep record of ID verification for 5 years after end of client relationship or 5 years from when transaction completed. Should also keep records of reports and decisions regarding suspicious activity. Reg - must register with appropriate money laundering supervisory agency and authority can refuse registration. Protection measures - must protect whistle blower. NCA needs to know who they are to get further info in future investigations. Outside investigation, names concealed and not called upon to give evidence. Civil recovery - ASA confiscates proceeds from criminal activity and has powers to obtain information in relation to life policies and investments. Can tax profits or gains from criminal proceeds.

Answer 13

GDPR - harmonised data protection laws across EU and increased penalties for non compliance. Applies to controllers and processors with significant legal obligations on the latter. It applies to a wide range of personal data to reflect changes in technology and way firms collect information. Principles - sets out main responsibilities for firms and data should be; - processed lawfully, fairly and transparently. - collected for specific and legitimate purposes. - adequate, relevant and limited to what’s necessary. - accurate and up to date. - kept for no longer than necessary - ensure appropriate security Lawful processing - Firms must determine lawful basis of processing data. Lawful basis has effect on their rights. Consent - must be a freely given, specific, informed and unambiguous indication of wishes and verifiable. Must be some form of positive opt in and cannot be taken in form of silence, preticked boxes or inactivity. Need to provide simple ways to withdraw consent.

Answer 14

Provides the following rights; - right to... be informed, access, rectification, erasure, restrict processing, data portability, object and rights in relation to automated decisions and profiling. 2- enhanced accountability and governance through mandatory practice tools such privacy impact assessment and privacy by design measures. These measures should minimise risk of breaches. May cause an increase in policies and procedures for some firms to meet good governance. 3- Must report any breaches of data to clients and ICO. Breaches more than just losing personal data and includes - destruction, alteration, unauthorised disclosure and access to ICO should only be notified if breach can result in risk to rights and freedoms and if left unaddressed could lead to; - discrimination, damage to reputation, financial loss and loss of confidentiality. 4- GDPR imposes restriction of transfer of personal data to outside the EU in order to ensure level of protection.

Answer 15

A compliant is expression of dissatisfaction at either financial loss, material distress or material inconvenience. A firm must supply complaints procedures at or immediately after point of sale. FCA rules require firm to investigate whether complaint should be upheld and what action or redress may be appropriate. If other firm responsible, they can refer complaint to them and inform the complainant. Must send complainant written notice of acknowledgment and must keep them informed throughout the process - should be final response after 8 weeks. Final response should include FOS referral and any redress payable - if disagree, can refer this to FOS. Firms need to have senior individual in charge of complaints as FCA believes this will lead to significant influence in firm and help drive changes where failures are leading to complaints. Must keep record of analysis and decisions made by senior personnel in relation to complaints. Firms need to establish root cause. Records kept for 5 years for MiFID firms and 3 years for non. Must supply complaints statistics twice a year.

Answer 16

Free, independent and impartial service and only deals with eligible complainants how are; - consumer - micro-enterprise with fewer than ten employees and turnover of no more than £2m - charity with annual income of £6.5m - trustee of trust with value less than £5m - consumer buy to let - small business with an annual turnover of less than £6.5m - guarantor Before taking complaint to FOS, they should have exhausted the firms internal complaints procedure and still be dissatisfied with the outcome. Any legal proceedings must be withdrawn prior to referral as FOS do not get embroiled with legal proceedings. They can refer their complaint in the earliest of; - six months of the date of firms final decision letter. - six years after the event complained about. - three years after complainant knew that they had cause to complain.

Answer 17

Once the referral dates have expired, firm can object to FOS taking action due to time-barred but can review if firm agrees to it. However, they can consider outside timeframe complaints in exceptional circumstances (pension transfers & opt out). FOS can require parties to give information and all authorised firms must cooperate. They have 90 days to respond to the complainant and handled by caseworker or adjudicator. Both parties have right to appeal decision at which point it is referred to the panel of ombudsmen who make final decision. They will reach decision based on what is fair and reasonable, taking into account law, FCA rules and good industry practice. Not bound to law and evaluate each case on its merits - this is to ensure clients are treated fairly and law is not used to avoid paying fair claims.

Answer 18

Redress awarded in two ways; Money reward - instructing firm to pay client for any financial losses they have suffered due to problem. Max reward; - £350k + interest, costs & interest on costs for complaints about actions or omissions that occurred on or after 04/19 - £160k + as above that occurred before 04/19 but referred after this date. - £150k + as above for before 04/19. Can recommend higher figure if appropriate but not binding for firm. Directions Award - telling firm what actions it needs to take to put things right for client and could include; - paying an insurance claim that was previously rejected. - calculate and pay redress according to approach set by regulator. - apologies personally to client. The decisions along with reasons must be notified in writing to both parties and must be responded to within specified timeframe. If accepted, it is binding, if not vice versa and can take to court. If ignored, taken as rejected. FOS is funded by levy paid by all firms and case fee payable by firm to which complainant relates.

Answer 19

Established under FSMA to compensate claimants when authorised persons cannot. Must be made by an eligible claimant for protected deposits, protected insurance contract and protected investment business. Deposits - deposits at UK branches. Insurance contracts - issued in UK, EEA State, Channel Islands or Isle of Man. Investment business is; - any investment business . - activities of manager or trustee of unit trust. - activities of authorised corp director or depository of an OEIC (if UK office).

Answer 20

In order to get compensation, claimant must be eligible. An eligible claimant is any person who is not; - overseas financial services institutions - pension and retirement funds - supranational, government and central admin auth - provincial, local, regional and municipal authorities - large companies, partnerships and mutual associations - alternative investment funds FSCS must determine if firm in default and unable to satisfy protected claims against it. Does this by requiring firm to produce information demonstrating this and power extends to insolvency practitioner. If it judges that they are in default, FSCS must pay compensation to all claimants affected by default but there are limits; - Deposits - 100% of first £85k per person per auth firm. Target of 7 day payout for majority and rest within 20 days. - Investments - 100% of £85k - Long term insurance - product providers - 100% of claim with no upper limit. - intermediaries - 90% with no upper limit. - General Insurance - compulsory insurance 100% & 90% for non - Home finance mediation - 100% of £85k

Answer 21

Deposits with high balance are temp covered up to £1m for six months to ensure depositors are protected when they deposit funds until they have had time to spread risk between institutions to appropriately protect funds. FSCS is funded by levy on authorised firms split into 5 broad classes - deposits, investment, life and pensions, general insurance and home finance. Two sub classes in each broad class which is divided provider and distributor lines. Each sub class has a limit and once reached, other classes required to contribute. They also have duty to secure continuity of insurance for long term insurance policyholders by transferring to another provider. Claims must be paid asap after calculation. Payment can be made to pension scheme in pensions cases to avoid tax law being broken. They can reduce compensation if there was negligence by claimant or paying full amount would provide larger benefit than they would have expected. Any bonus on with profits is not part of claim unless declared prior to liquidation. If they believe benefits under long term insurance are excessive, then they must refer contract to independent actuary who, if agree, FSCS can reduce their claim.

Answer 22

Same as FOS but for pensions. Independent organisation set up to investigate complaints about pension administration and actions and decisions of Pension Protection Fund. Free service that looks at facts and has legal powers to make decisions that are final, binding and enforceable. Funded by grant-in-aid paid by DWP and is largely recovered from levy on pension schemes administered by Pensions Regulator.

Answer 23

Exists to provide compensation to members of eligible DB pensions due to insolvency or lack of assets to cover payments. Purpose is to ensure employee of company that has ceased trading will still receive pension payments. To help fund, annual levies are charged on eligible schemes. Also responsible for fraud compensation fund which provides compensation to occupational pension schemes that have suffered a loss due to dishonesty.