Chapter 9 (7 exam questions) FCA Principles And Outcome Based Regulation Flashcards
The FCA Principles for Business are expressed as 12 ‘general statements’. They outline the regulatory obligations of authorised individuals, firms, and markets
They are (see image)
In an event where there is a conflict between a FCA rule and an FCA principle, for example, a rule leading to the interests not being prioritised, what takes precedent. The rule or the principle?
The principles always take precedence over the FCA rules so in my example the firm would have to break the rule in order to satisfy the principle
It would be almost impossible to create a rulebook that covered every situation encountered by every business, firm, or individual. Instead, the FCA created the 12 principles which encourage the general types of behaviour required from its regulated individuals, firms, and markets
EXAMS
You must know these Principles for your R01 exam, and be able to recognise which is Principle 1, 2 etc.
A common style of R01 question is scenario based and asks you which Principle the actions involved might demonstrate.
Give an example of each principle in action
What happens if any of these principles are breached?
If a firm knows or suspects that there have been any breaches of these Principles by an individual or the firm itself, the compliance officer must inform the FCA.
A breach of principles is deemed so serious that it is one of the examples where immediate regulator notification must take place (and big fines are likely to follow!)
If a firm, individual or market is non-compliant with their Principles it may lead to a breach of Threshold Condition 5
What does this mean?
The individual, firm, or market will be assessed as to whether they should remain fit and proper. A breach of the FCA principles is an extremely serious regulatory situation and could lead to the removal of Part 4a permission.
What is Outcomes-based regulation (OBR)?
What is principle based regulation?
Where the FCA judges what might happen in the future, rather than acting solely on tangible evidence.
Principle based regulation is what the FSA focused on heavily and was therefore scrutinised following the crash because it made them reactive and many firms wanted more clarity on what they can/cannot do as principles do not cover specific situations. The FCA now as an Outcomes-based regulation where more rules were introduced but they do also have 12 principles that authorised persons must adhere to. The FSA basically had principles only
QUESTION
What was the most recently introduced FCA principle?
How does the 12th and Recently Introduced FCA principle work?
The Consumer Principle aims to set a higher standard of conduct for firms in relation to their retail market activities.
Consumer Duty basics
Reminder:
The Consumer Duty is new 12th principle and is made up of an overarching principle and rules firms will have to follow.
These rules include:
Consumers should receive communications they can understand.
Products and services should meet their needs and offer fair value.
Consumers get the customer support they need, when they need it
Therefore, how should Leonard and Wendy be treated?
NOTE: The Consumer Duty is a well-publicised and relatively new initiative from the FCA. It is definitely one for your pre-exam revision list.
Effect on consumers: At every stage in each interaction Leonard and Wendy:
Will not be subject to excessive charges and fees.
Can easily switch or cancel products like it was to take them out in the first place.
Will receive customer support that is helpful and accessible, giving them answers they need in a timely fashion.
Will have timely and clear information on products and services, allowing them to make good financial decisions.
Will not have Key information buried in lengthy terms and
conditions.
Will have products and services right for them.
Firms will focus on the real and diverse needs of their customers, including those in vulnerable circumstances and this is no different for Leonard and Wendy
Summary of 9.1
What is culture in a regulatory environment?
For example, someone may say TSB have a brilliant culture
How easy is changing culture?
Culture is defined as the typical, habitual behaviours and mindsets that characterise a particular organisation.
The behaviours are the ‘way things get done around here’; they are the way that we act, speak and make decisions, without thinking consciously about it.
Changing culture is very difficult and takes time, mainly because culture comes from the past. CEOs, boards, programmes, systems and controls come and go regularly. Mindsets are developed and reinforced over years and once reinforced it is hard to change
The FCA feel there are six key cultural drivers to any organisation. ie the factors that dictate the culture or an organisation. What are they?
The key cultural drivers are: SEE IMAGE
Give me the positive indicators and Contra Indicators for the first 4 indicators. In other words tell me what would be observed that shows the firm is succeeding in achieving that particular indicator and what shows that it is not
The key cultural drivers are: SEE IMAGE
Give me the positive indicators and Contra Indicators for the last 2 indicators. In other words tell me what would be observed that shows the firm is succeeding in achieving that particular indicator and what shows that it is not
What is ‘tone at the top’?
Setting the tone at the top is about creating a culture where everyone has ownership and responsibility for doing the right thing, because it is the right thing to do.
It is about setting values and translating them into behaviours.
This can only be established by the CEO and other members of a senior management team, who need to set out the key company values, and personally demonstrate they mean them, through their actions.
QUESTION
Summary of 9.2
What is APER?
No matter how driven a firm is to the Fair Treatment of Customers, the actions of individuals can undermine it.
Therefore, individuals can be held to account for breaching the Statements of Principle for Approved Persons (APER)
APER ONLY applies to a person performing a controlled function for which approval is sought and granted.
The individual would be breaching the Statements of Principle for Approved Persons (APER) as well as the firms rules
QUESTION
Similar to the 12 FCA principles for its authorised firms, markets and individuals, there are 7 principles that apply specifically to approved persons
What are they?
Fit and proper tests for approved persons, senior managers and certified individuals have to be passed
Tell me about these tests in more detail. What would been some factors that would potentially prevent someone being classed as fit and proper?
these are assessed when the individual joins the authorised person and then annually.
There are three key elements which can bring an approved person’s/SM&CR individual’s status ‘into doubt’ and result in them not being permitted as fit and proper
If a firm believes that a person is no longer fit and proper once appointed, then they must inform the FCA immediately.
QUESTION
Code of Conduct (COCON)
The FCA have outlined high-level behavioural standards that apply to employees who are customer-facing, and those who have oversight responsibilities for employees.
The aim is to improve individual accountability and awareness of issues relating to conduct, so behaviours.
What are the individual rules?
What are they and give examples of HOW NOT to satisfy them
FLASH CARD 1/3
Code of Conduct (COCON)
The FCA have outlined high-level behavioural standards that apply to employees who are customer-facing, and those who have oversight responsibilities for employees.
The aim is to improve individual accountability and awareness of issues relating to conduct, so behaviours.
There are six rules for individual’s conduct and four for senior managers.
What are the individual rules. Give examples of HOW NOT to satisfy them
FLASH CARD 2/3
What is the definition of a conflict of interest?
There are many definitions. See image to see what i should remember. Its not just necessarily about remuneration
Summary of 9.3
