Chapter 8: Financial Services Regulation & Professional Integrity Flashcards
What’s Self-Regulation?
When a stock exchange, as well as providing a secondary market for shares, sets rules for its members and police their implementation.
What’s the main purposes and aims of regulation in global markets?
- Maintain and promote fairness, efficiency, competitiveness, transparency and orderliness of markets.
- Promote understanding by the public of operations of the financial sector.
- Provide protection for members of the public investing in or holding financial products.
- Minimise financial crime and misconduct.
- Reduce systemic risks.
- Assist in maintaining the market’s financial stability.
What came into force on December 1st 2001?
Financial Services and Markets Act 2000 (FSMA)
What’s FSMA?
Legislation which provides the framework for regulating the financial sector.
What are the 3 key parties involved in financial regulation?
- Financial Policy Committee (FPC)
- Prudential Regulation Authority (PRA)
- Financial Conduct Authority (FCA)
Who established the FPC?
Bank of England (BoE).
What’s the responsibility of the FPC?
‘Macro-prudential’ regulation (regulation of stability and resilience of the financial system).
What’s the role of the FPC?
Contribute to the banks objective to protect and enhance financial stability, through identifying and taking action to remove/reduce systemic risks, with a view to protecting and enhancing the resilience of the UK financial system.
What power does the FPC have?
Power to make recommendations on a comply-or-explain basis to the FCA and PRA.
What’s meant by ‘comply-or-explain’?
FCA and PRA have to comply with recommendation as soon as practicable, or explain to the FPC, in writing and in public, why they haven’t done so.
Who is the PRA part of?
BoE
What is the PRA responsible for?
- Prudential regulation of all deposit-taking institutions, insurers and other investment firms.
- Supervision of central counterparties and securities settlement systems
What’s meant by ‘prudential regulation’?
Require financial firms to hold sufficient capital and have adequate risk controls in place.
What’s the PRA’s primary objective?
- Enhancing financial stability by promoting safety and soundness of PRA-authorised firms.
- Take intrusive approach to regulation and supervision.
Who supervises PRA-authorised firms day-to-day conduct?
FCA, therefore these firms are dual-regulated firms.
What is the FCA responsible for?
- Regulating standards of conduct in retail and wholesale markets.
- Supervising trading infrastructures that support those markets.
- Prudential supervision of firms that are not PRA-regulated.
- The functions of the UK Listing Authority (UKLA).
What’s the 3 statutory objectives of the FCA?
- Protect consumers.
- Enhance the integrity of the UK financial system.
- Help maintain competitive markets and promote effective competition in the interests of consumers.
Who oversees how the FCA conducts its operations?
HM treasury, thus FCA is held accountable by treasury ministers, and through them to Parliament.
What regulatory framework exists at the EU level?
European Supervisory Agencies (ESAs)
What does the ESA include?
- European Banking Authority (EBA)
- European Securities and Markets Authority (ESMA)
What is ESMA?
EU authority responsible for drafting the legislation and guiding it through EU implementation, overseeing national implementation and enforcement.
What approach does EU regulation take?
Lamfalussy Process
What’s the 1st stage of the Lamfalussy Process?
EC and Euro Parliament adopt a piece of legislation - framework directive - which establishes the core elements of regulation ad sets guidelines for its implementation.
What’s the 2nd stage of the Lamfalussy Process?
- Laws progress to where sector-specific committees and regulators advise on the technical detail. The EC, based on this advice, issues rules at a detailed level.
- These rules are only binding if they’re regulation - instead directives have to be implemented nationally.
