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R01 Study > Chapter Five: Responsibilities and Approach to Regulation > Flashcards

Chapter Five: Responsibilities and Approach to Regulation Flashcards

1
Q

What is the three characteristics of the way in which the PRA operates?

A

Judgement based
Forward looking
Focused

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2
Q

What is the purpose of the FPC?

A

To scan emerging risks across the financial system and provide strategic direction for the entire regulatory regime

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3
Q

What are the two PRA’s key objectives?

What is its secondary objective?

A

Promote safety and soundness of firms it regulates
securing an appropriate degree of protection for those who are or become policy holders (insurance providers).
Facilitate effective competition

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4
Q

What are the two ways in which the PRA advances its objectives?

A

Regulation - sets standards and policies

Supervision - it assesses the risk that firms pose to the PRA’s objectives

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5
Q

What is the role of the European Systematic Risk Board (ESRB)?

A

Macro prudential oversight of the EU financial system

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6
Q

What are the macro prudential tools the FPC can use?

A

Setting countercyclical capital buffers - banks increase buffers in the good times, to protect in the bad

Variable risk weights - enforcing higher capital requirements on specific sectors or asset classes

Leverage limits - limiting excessive build up of on and off balance sheet leverage
(policies must not limit economic growth)

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7
Q

Is the FPC allowed to disagree with recommendations from the HM Treasury?

A

Yes, it can reject recommendations

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8
Q

What must the FPC publish?

A

Financial Stability report twice per year

Record of meetings within 6 weeks

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9
Q

What are the PRC’s main contribution to economic policy?

A

Promote safety and the soundness of firms, support strong and stable economic growth

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10
Q

What things does the PRC need to consider in their assessment of costs, burdens and benefits of rules or policies?

A 
Competition
Growth
Competitiveness
Innovation
Trade
Better outcomes for customers
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11
Q

What are the eight regulatory principles of the FCA?

A 
Efficiency and economy
Proportionality
Sustainable Growth
Responsibility of consumers
Senior management responsibility
Recognising the differences in the businesses carried out by different regulated persons
Openness and disclosure
Transparency
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12
Q

What are the the FCA’s principle related objectives?

A

Provide political and public accountability
Govern the way the FCA carries out its general function
Assist in providing legal accountability

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13
Q

What are the FCA operational objectives?

A

Protecting customers
Protecting financial markets
Promoting competition

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14
Q

What are the objectives for the FCA in relation to financial markets?

A

Soundness and resilience of trading infrastructure
Integrity of the financial markets
Combating market abuse
Address the extent to which the UK could be used for financial crime

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15
Q

What are the objectives for the FCA in relation to promoting competition?

A

Firms must compete for business
Prices offered are in line with costs
New & innovative products are good innovation, not exploitative

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16
Q

What does the competition element of the FCA allow them to do?

A

Enforce against and fine breaches - such as anti competitive agreements, cartels, breaches of domestic or EU law
Make a market investigation reference to the CMA (Competition Markets Authority)

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17
Q

What is the authorisation to carry out one or more regulated activity called?

A

Part 4A permission

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18
Q

What is the difference between the authorisations issued by the PRA and the FCA?

A

PRA - accepting deposits or insurance contracts

FCA - advise on or sell investments, home finance activities, general insurance

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19
Q

What are the three core activities within the scope of the FCA?

A 
Enforcement matters (policing the financial services system)
Supervision matters (monitoring the activities of the various recognised bodies)
Authorisation matters (direct authorisation and regulation of the UK financial services system)
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20
Q

What other panels is the FCA required to maintain?

A

Financial Services Practitioner Panel
Consumer Panel
Smaller Business Panel Markets Panel

21
Q

What is the purpose of the FSPP (Financial Services Practitioner Panel)?

A

Convey the views of the regulated industries on policy from the FCA.
Provide early and effective input to policy development
Focus on those areas with the greatest impact on consumers and financial service firms

22
Q

What enforcement actions could the FCA take?

A 
Withdrawing authorisation
Disciplining firms and approved persons
Imposing penalties for market abuse
Applying for injunction and restitution orders
Prosecuting offences
23
Q

What is the name of the FCA committee who consider cases put forward for enforcement action?

A

Regulatory Decisions Committee (RDC)

24
Q

Who handles appeals on RDC decisions?

A

Upper Tribunal (Tax and Chancery Chamber)

25
Q

What are the civil court actions the FCA can take?

A

High court injunctions
Ordering the payment of restitution
Grant insolvency orders

26
Q

What type of offences might result in criminal proceedings?

A

Falsely claiming to be FCA authorised
Carrying out regulated activity without authorisation
Making misleading statements to induce investments
Failing to cooperate with FCA investigations

27
Q

Name 3 types of market abuse that would the FCA prosecute?

A 
Insider dealing
Improper disclosure
Misuse of information
Manipulating transactions
Manipulating devices
Dissemination
Distortion or misleading behaviour
28
Q

What are the potential penalties for market abuse?

A

Seven years in prison
Unlimited fine
Public statement about the behaviour

29
Q

If someone was prosecuted for concealment under the Proceeds of Crime Act (POCA), what would be the maximum penalty

A

14 years in prison and an unlimited fine

30
Q

If a person failed to report suspicions of money laundering, what would be the maximum penalty?

A

5 years in prison and or a fine

31
Q

What describes the FCA’s approach to risk based supervision?

A

Product intervention and governance
Super-complaints
Competition powers

32
Q

How does the FCA prioritise potential risks?

A

Impact and probability analysis

33
Q

What are the three pillars of the FCA’s supervision model?

A

Proactive firm/group supervision
Event driven, reactive supervision
Thematic approach - issues and products supervision

34
Q

If you worked in a Fixed Portfolio firm as categorised by the FCA, what supervision would you be subject to?

A

You would require the highest level of supervision and would have a named supervisor to conduct continuous assessment

35
Q

The first 5 FCA supervision principles are;

Ensuring fair outcomes
Forward looking and pre-emptive
Focused on big issues and causes
Judgement based approach
Firms act in the right spirit

What are the remaining 5?

A 
Business models and culture
Individual accountability
Robust when things go wrong
Communicating openly
Joined up approach
36
Q

What type of examples demonstrate the FCA’s intervention to prevent detriment & address root cause?

A

Banning products
Withdrawing misleading financial promotions
Publication of enforcement action
Market intelligence gathering and research

37
Q

What are the three groups that the FCA uses to categorise firms it solely regulates?

A

P1 - firms whose failure would cause lasting damage
P2 - firms whose failure would cause damage but are more easily dealt with
P3 - firms failure would be unlikely to cause significant harm to consumers

38
Q

If you worked in a P2 firm for FCA prudential testing, how often would you expect them to assess the firm?

A

Every 48 months

39
Q

During an FCA visit by an enforcement officer, what areas would they typically check?

A

Business operations
Personnel matters
Customer matters

40
Q

In what sense is the FCA a reactive regulator?

A

It receives regular reports from authorised firms, any information that is of concern within the report may result in action by the FCA

41
Q

What is a life offices’ FAR (free asset ratio) and why would this be of interest to an adviser?

A

The surplus assets held by a life office over the value of its liability as a %. Could be used as a measure of a firms financial strength

42
Q

What UK regulatory bodies have specific responsibility for financial stability?

A

The Bank of England (Including FPC)
PRA
FCA

43
Q

Name the 3 supervisory bodies that compromise the European System of Financial Supervision (ESFS)?

A
  1. The European Banking Authority (EBA)
  2. The European Securities & Markets Authority (ESMA)
  3. The European Insurance and Occupational Pensions Authority (EIOPA)
44
Q 
Insider Dealing,
Improper Disclosure,
Misuse of Information,
Manipulating Transactions,
Manipulating Devices,
Dissemination,
Distortion and Misleading Behaviour,

Are all examples of?

A

Market Abuse.

45
Q

What is the punishment for failing to report any knowledge or suspicion of Money Laundering under the Proceeds of Crime Act 2002 (POCA)?

A

Up to five years imprisonment and / or a fine.

46
Q

Under the Fourth Money Laundering Directive (4MLD), what penalties can the FCA levy?

A
  1. Penalties on the registered business.
  2. Prosecution of the officer of a registered business which if convicted, can result in a two year prison sentence and / or a fine.
47
Q

What is a fixed portfolio firm?

A

They are determined that due to size, market presence or customer footprint require higher levels of supervision. They are pro-actively supervised and have an INDIVIDUAL SUPERVISOR assigned to them. (Pillar 1)

48
Q

What is a flexible portfolio firm?

A

These make up the majority of firms and are pro-actively supervised by a mixture of EVENT DRIVEN REACTION (Pillar 2) or a THEMATIC APPROACH (Pillar 3) and use the FCA CONTACT CENTRE as their point of contact with the FCA.

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