Chapter Four: The Regulation of the Financial Services

Question 1

Following the implementation of the FSMA, what are the three key bodies that support the regulation of financial services?

Answer 1

Financial Conduct Authority
Financial Ombudsman Service
Financial Services Compensation Scheme

Question 2

Following the disbanding of the FSA, what three bodies have the responsibility for regulation?

Answer 2

Financial Conduct Authority
Financial Policy Committee
Prudential Regulation Authority

Question 3

What are the two core purposes of the Bank of England?

Answer 3

Monetary stability - stable prices and confidence in the economy.

Financial stability - detecting and reducing threats.

It also acts as a lender.

Question 4

1. What is the main objective of the PRA?

2. How does it do this?

Answer 4

1. To promote the safety and soundness of the firms it regulates
2. By making forward looking judgements on the risks posed by firms.

Question 5

What are the three key objectives of the FCA?

Answer 5

1. Consumer protection.
2. Integrity of the UK financial system.
3. Competition.

Question 6

What is the EU’s primary and secondary forms of legislative acts?

Answer 6

Treaties - Constitutional framework and principles.
Legislation - Made by EU institutions to carry out their responsibilities, both binding and non- binding instruments (recommendations).

Question 7

How are the Isle of Man and the Channel Islands different to mainland UK, being Crown dependencies?

Answer 7

The are not a EU member state and therefore directives do not apply.

Question 8

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

Answer 8

To ensure financial stability and to strengthen and enhance the EU supervisory framework.

Question 9

What is the MiFID (Markets in Financial Instruments Directives)?

Answer 9

EU legislation that regulates firms who provide services to clients linked to financial instruments (shares, bonds, units in collective investments, derivatives).

Question 10

What is passporting and how will the UK be affected post-Brexit

Answer 10

Passporting allows the head of an office in one member state to carry out an activity/sale of a product in another member state, as long as they fulfill the relevant directive.
Many institutions have already set up a subsidiary in an EU state.

Question 11

What areas for retail investment firms did MiFID change?

Answer 11

Disclosure of costs and charges
Product governance
Describing advice services
Structured deposits
Suitability
Recording conversations
Inducements

Question 12

What are the key provisions of the IDD (Insurance Distribution Directive)?

Answer 12

Professionalism
Commission Disclosure
Harmonisation
New product governance requirements
Ancillary Insurance Intermediaries
New duties to insurance companies selling products through non regulated firms
A requirement for all general insurance firms to provide a IPID (Insurance product Information document)

Question 13

What are the three pillars under the Basel Accord?

Answer 13

Pillar 1 - minimum capital requirements for firms for credit, market and operational risk.
Pillar 2 - Firms and supervisors decide on whether a firm should hold additional capital against risks not in Pillar 1.
Pillar 3 - Improve market discipline by requiring firms to publish risks, capital and risk management.

Question 14

What is the purpose of Fourth Money Laundering Directive?

Answer 14

To provide a basis for implementing the Financial Action Task Force (FATF).
Takes into account any new risks developed.

Question 15

Which firms does the AIFMD cover (Alternative Investment Fund Managers Directive)?

Answer 15

1. Hedge funds
2. Private Equity funds
3. Investment companies (non-UCITS)
4. Real Estate funds

Question 16

How did the MCD (Mortgage Credit Directive) change for second charge loan firms?

Answer 16

It moved them from the consumer credit regime to the mortgage regime and therefore firms had to hold the correct permissions

Question 17

What are the five strategic goals of the CMA (Competition and Markets Authority)?

Answer 17

1. Delivering enforcement action
2. Extending competition frontiers
3. Refocusing consumer protection
4. Achieving professional excellence
5. Developing integrated performance

Question 18

What are the objectives of The Pensions Regulator? (TPR)

Answer 18

Protect the benefits of members or occupational and personal pension schemes.
Ensure good administration of work based pensions.
Reduce risk that may require use of the PPF (Pension Protection Fund).
Maximise employer compliance and safeguards.
Minimise and adverse impact of the growth of an employer.

Question 19

What are the areas that should be considered by senior management to comply with the Senior Managers and Certification Regime (SM&CR)?

Answer 19

Provide leadership

Business decisions and priorities aligned with fair treatment of customers

Right controls in place and used

Overseeing recruitment, training and competence, reward structure ensures fair treatment of customers

Make full use of Management Information

Question 20

When using a compliance consultant, what framework must still exist within the company?

Answer 20

Assess and cover risks.
Meet regulatory requirements.
Check the firm continues to be compliant.