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UK Regulation > FCA and PRA Authorisation of Firms and Individuals (12/80) > Flashcards

FCA and PRA Authorisation of Firms and Individuals (12/80) Flashcards

1
Q

What are the 11 Principles of Business?

A
  1. Integrity.
  2. Skill, care and diligence.
  3. Management and control.
  4. Financial prudence.
  5. Market conduct.
  6. Customers’ interests.
  7. Communication with clients.
  8. Conflicts of interest.
  9. Customers: relationships of trust.
  10. Clients’ assets.
  11. Relations with regulators.
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2
Q

Where would you find the FCA’s expectations on directors and senior managers?

A

These requirements are contained in the part of the Handbook called Senior Management Arrangements, Systems and Controls (SYSC).

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3
Q

What is the aim of the FCA’s expectations on senior managers?

A

To encourage firms’ directors and senior managers to take responsibility for their firm’s arrangements

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4
Q

How long must records be maintained of Senior Management arrangements?

A

5 years

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5
Q

What are the FCA’s requirements of a Compliance Function?

A

The compliance function should advise and assist the persons responsible for carrying out the firm’s
regulated activities to comply with the firm’s regulatory obligations and should have the necessary
authority, resources, expertise and access to all information that is relevant for the performance of
its role.

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6
Q

What are the FCA’s requirements regarding Financial Crime management?

A

Firms must appoint an individual as their money laundering reporting officer (MLRO) with responsibility
for oversight of its compliance with the FCA’s rules on systems and controls against ML. The MLRO
should have a level of authority and independence within the firm and have access to resources and
information sufficient to enable him to carry out that responsibility.

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7
Q

What reporting is required to the FCA?

A

• annual controller’s report
• annual close links report
• compliance reports – which include listings of all overseas regulators for each legal entity and an
organogram showing the authorised entities in the firm’s group
• persistency reports
• annual appointed representatives’ reports
• verification of standing data
• product sales data reporting
• integrated regulatory reporting
• reporting under the payment services regulation
• client money and asset return
• reporting under the electronic money regulations
• prudent valuation reporting
• remuneration reporting
• AIFMD reporting.

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8
Q

What are the Threshold Conditions required to maintain a Part4a permission?

A

• Location of offices – the head office and the place where the firm carries on business must be in
the UK.
• Effective Supervision – firms must be capable of being effectively supervised by the FCA having
regard to the nature, complexity and the way in which firms operate and the regulated activities
that they carry on/seek to carry on.
• Appropriate resources – must be adequate and appropriate in relation to the business activities
carried on/or to be carried on.
Suitability – the firm must satisfy the PRA/FCA that they are a fit and proper person having regard
to all the circumstances, including:
a. their connection with any person
b. the nature of any regulated activity that they carry on or seek to carry on, and
c. the need to ensure that their affairs are conducted soundly and prudently.
• Business Model – this is a new requirement. It is important that firms must be able to demonstrate
their ability to put forward an appropriate, viable and sustainable business model given the nature
and scale of business that they intend to carry out.

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9
Q

What additional Threshold Conditions are imposed by the PRA if a firm is dual-regulated by FCA & PRA?

A
  • Legal Status
  • Prudent Conduct - The business to be conducted in a prudent manner condition requires firms to hold appropriate financial and non-financial resources.
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10
Q

What is the General Prohibition of the FSMA?

A

No person can carry on a regulated activity in the UK, or purport to do so, unless they are either authorised or exempt

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11
Q

What is the penalty for breaching the General Prohibition?

A

The offence is punishable by a maximum sentence of two years in prison, and/or an unlimited fine.

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12
Q

What is a Prohibition Order?

A

An order prohibiting an individual from performing a specified function. The prohibition order may relate to a specified regulated activity, any regulated activity falling within a specified description, all regulated activities and authorised persons generally, or any person within a specified class of authorised person.

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13
Q

What happens to any contracts made in breach of the General Prohibition?

A

They are unenforceable.

This is also the case for agreements made as a result of the activities of someone who was contravening the general prohibition, even if that person is not a party to
the agreement. The other party is entitled to recover any money or property transferred under the
agreement, and to compensate for any loss suffered.

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14
Q

What are the Specified Investments which are covered by the FSMA?

A
  • Deposits
  • eMoney
  • Rights under contracts for insurance
  • Shares
  • Instruments creating or acknowledging indebtedness
  • Government and public securities
  • Alternative finance investment bonds/alternative debentures
  • Instruments giving entitlements to investments
  • Certificates representing certain securities
  • Units in a CIS
  • Rights under a stakeholder pension scheme
  • Rights under a personal pension scheme
  • Options
  • Futures
  • Contracts for differences (CFDs)
  • Lloyd’s syndicate capacity and syndicate membership
  • Rights under a funeral plan contract
  • Rights under a regulated mortgage contract
  • Rights under a home reversion plan
  • Rights under a home purchase plan
  • Rights under a regulated sale and rent back agreement
  • Emissions auction products
  • Credit agreement
  • Consumer hire agreement
  • Rights to or interests in other specified investments
  • Deposits so far as they relate to structured deposits
  • Emission allowance
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15
Q

What are the Regulated Activities which are covered by the FSMA?

A
  • Accepting deposits
  • Issuing e-money
  • Effecting or carrying out contracts of insurance as principal
  • Dealing in investments as principal or agent
  • Arranging (bringing about) deals in investments
  • Making arrangements with a view to transacting in investments
  • Operating a multilateral trading facility (MTF)
  • Managing investments
  • Safeguarding and administering investments
  • Advising on investments
  • Bidding in emissions auctions.
  • Sending dematerialised instructions
  • Causing dematerialised instructions to be sent.
  • Establishing, operating and winding up a stakeholder pension scheme
  • Providing basic advice on stakeholder products
  • Establishing, operating or winding up a personal pension scheme
  • Insurance mediation activity
  • Lloyd’s market activities
  • Insurance business
  • Entering into a funeral plan contract
  • Arranging home finance transactions
  • Advising on home finance transactions
  • Entering into and administering home finance transactions
  • Activities of a dormant account fund operator
  • Agreeing to carry on a specified activity
  • Certain activities relating to entering forms of consumer credit as lender
  • Providing credit reference services
  • Providing credit information services
  • Certain other activities relating to consumer credit (credit agreement and/or consumer
    hire agreement)
  • The setting of benchmarks
  • Operating an organised trading facility (OTF)
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16
Q

What is considered the most common exclusion from Dealing as a Principle?

A

This regulated activity is restricted to those persons who are holding themselves out as and
acting as professional dealers (acting as market makers). The result is that a person buying shares solely for themselves does not need to be authorised or exempt, unless they are holding themselves out to be a professional dealer in the investments.

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17
Q

What additional activities are excluded from the classification of Dealing as Principle?

A
  1. A bank providing finance to another person and accepting an instrument acknowledging the debt.
  2. A company or other organisation issuing its own shares, warrants or debentures.
  3. Using options, futures and CFDs for risk-management purposes, as long as the company’s business
    is mainly unregulated activities and the sole or main purpose of the deals is to limit identifiable risks.
  4. Entering into transactions as principal for, or in connection with, the following:
    • the sale of goods or supply of services
    • the sale of a company
    • an employee share scheme and overseas persons (see sections 2.4.5 and 2.4.6)
    • taking place between group companies
    • while acting as a bare trustee (or, in Scotland, as nominee).
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18
Q

What exclusion applies to Newspapers?

A

There is a particular exclusion in relation to newspapers and other media from the regulated activity of advising on investments. If a newspaper includes investment advice, and that advice is not the principal purpose of the newspaper, then it is excluded from the regulated activity of advising on investments.

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19
Q

Exclusions for Trustees?

A

There is an exclusion from the need for authorisation if the person carrying on the regulated activity is:

  • acting as representative of another party
  • not generally holding himself out as carrying on regulated activities, and
  • not receiving additional remuneration for providing these investment services.
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20
Q

What exclusions apply when establishing an Employee Share Scheme?

A

The exclusion covers four types of activity:
• dealing in investments as principal
• dealing in investments as agent
• arranging deals in investments
• safeguarding and administering investments.

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21
Q

What exclusions apply to Overseas Persons?

A

There are a number of exclusions for overseas persons carrying on regulated activities, providing that they do not do so from a permanent place of business in the UK. These exclusions apply only if the business is done through an authorised, or exempt, UK person, or if they are the result of a legitimate approach, such as a UK client approaching an overseas person in an unsolicited manner. The exclusions cover mainly the following types of activity:

• dealing in investments as principal
• dealing in investments as agent
• arranging deals in investments
• advising on investments
• agreeing to carry on the regulated activities of managing investments, arranging deals in investments,
and safeguarding and administering investments or sending dematerialised instructions
• operating an MTF, and
• entering into, or administering, a home finance transaction.

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22
Q

What is Part4a Authorisation?

A

Authorisation is provided under Part 4A of FSMA (as amended by the Financial Services Act 2012) and
is, therefore, referred to as Part 4A permission.

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23
Q

What is the Perimeter Guidance Manual (PERG)?

A

The purpose of the Perimeter Guidance Manual (PERG) is to give guidance about the circumstances
in which authorisation is required, or exempt person status is available, including guidance on the
activities which are regulated under the Act and the exclusions which are available.

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24
Q

Is the PERG binding?

A

Although the guidance does not bind the courts, it may be of persuasive effect for a court considering
whether it is just and equitable to allow a contract to be enforced.

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25
Q

What are the two types of Exemptions?

A

• those described as exempt persons under FSMA, such as RCHs and RIEs, and
• those not described as exempt persons, but who may nonetheless be exempt from the need to
apply to the FCA for authorisation – such as a member of a designated professional body (DPB),
carrying on the regulated activities in particular circumstances.

26
Q

Can a person be authorised for some activities and exempt for others?

A

No. If a firm is already authorised and wishes to perform additional regulated activities that might otherwise fall under the appointed representatives/miscellaneous persons exemptions, it cannot claim those exemptions

27
Q

What exemptions can Appoointed Persons operate under?

A

The Appointed Representative Regulations 2001 provide that exempt appointed representatives can
only carry on the following activities:
• arranging deals in investments
• advising on investments
• safeguarding and administering assets
• dealing in investments as agent in long-term insurance contracts meeting specified conditions
• advising on and arranging regulated mortgage contracts
• advising on and arranging regulated home revision and home purchase plans
• assisting in the administration and performance of a contract of insurance
• providing basic advice on stakeholder products.
In particular, appointed representatives are not permitted to deal in investments either as agent or
principal, or to manage investments.

28
Q

What exemptions apply to Recognised Investment Exchanges (RIEs) and Recognised Clearing Houses (RCHs)?

A

Once recognised, the exchanges are referred to as RIEs, and the clearing houses are referred to as RCHs.
RIEs and RCHs are exempt persons in that they do not need to seek authorisation from the FCA to carry
on regulated activities – they are, instead, recognised.

29
Q

Which specific organisations are exempt for all purposes?

A
  • the BoE
  • the central bank of an EEA state other than the UK
  • the European Central Bank (ECB)
  • the European Investment Bank (EIB)
  • the International Bank for Reconstruction and Development (IBRD)
  • the International Monetary Fund (IMF)
  • the European Bank for Reconstruction and Development (EBRD).
30
Q

Which 5 professions are permitted to carry on particular regulated activities without the need to apply to the FCA?

A

Accountants, solicitors, actuaries, Chartered surveyors and licensed conveyancers.

31
Q

What guidance shoulda fiorm abide by to ensure compliance with Acting in the Client’s Best Interest?

A

A firm should not, in any communication to a retail
client relating to designated investment business, seek to exclude or restrict, or rely on any exclusion or
restriction of, any duty or liability it may have to a client other than under the regulatory system, unless
it is honest, fair and professional for it to do so.

32
Q

For a multinational bank, who is responsible for assessing Fit and Proper test for management?

A

The Home Regulator

33
Q

What is the scope of the SMCR?

A

All PRA-regulated firms are now subject to the SMCR regime, as well as the majority of FCA-regulated
firms – with the exception of appointed representatives and other limited types of firms. There is no territorial limitation

34
Q

What is the definition of a Senior Manager under the SMCR?

A

The definition of a ‘senior manager’ is someone who is responsible for managing the firm on a dayto-
day basis. Individuals are classed as an ‘SMF’ because they are undertaking a senior management
function.

The regime is intended to capture the very senior individuals within banks who make the decisions and
determine the direction of the firm in the discharge of regulated activities.

35
Q

Who does the FCA requiore be included under the SMCR for Banks?

A

The FCA requires SMFs in the roles of executive directors, significant responsibility senior manager,
compliance oversight and money laundering reporting.

36
Q

Who does the PRA require be included under the SMCR for Banks?

A

The PRA requires that all banks must have at least one individual performing a chief executive officer
(CEO), chief financial officer (CFO) and chairman SMF, as well as a head of key business area and group
entity senior manager, and extended the SMR to all board members not already caught by the PRA
regime.

37
Q

What difference does the FCA apply when looking at insurance companies?

A

The FCA decided against introducing requirements for firms to have a money laundering reporting
officer (MLRO), rather firms only need to have an MLRO if the Money Laundering Regulations (MLRs)
apply to them. However, they still need to have the appropriate systems and controls to prevent
financial crime.

38
Q

What are the SMCR requirements for a Core Firm under the FCA?

A
  • SMF1 – Chief executive
  • SMF3 – Executive director
  • SMF27 – Partner
  • SMF9 – Chair
  • SMF16 – Compliance oversight
  • SMF17 – MLRO
  • SMF 18 – Other overall responsibility (enhanced firms only).
39
Q

What are Individual Responsibility maps?

A

The maps identify what parts of the firm’s business/activities they are personally responsible for – these will be used by the regulators when there has been a breach of rules/regulations.

40
Q

How can a Senior Manager be held liable in the event of a breach?

A

Where a breach occurs, the individual (ie, the SMF) would no longer have to prove that they took reasonable steps to prevent that contravention to avoid being found guilty of misconduct. Therefore, under the duty of responsibility, the PRA and the FCA are now required to prove a contravention of a regulatory requirement by the firm and that the senior manager was responsible for the management of any activities in their firm in relation to which the firm’s contravention occurred.

41
Q

What does the Certification Regime include?

A

There are different approaches by the PRA/FCA due to their statutory objectives, the PRA approach limits
the scope to ‘material risk takers’ as defined in the CRR (individuals who are subject to the Remuneration
Code – Code staff)

The FCA approach includes individuals performing their function from within
the UK or dealing with a client in the UK who:

• would previously have been performing a significant influence function role but who now fall
outside the SMR (eg, CASS oversight, benchmark submitter/administrators, proprietary traders and
previous CF29 significant manager function-holders)
• are performing a significant harm function – including engaged in wholesale activities on the basis
of dealing on the basis of principal or as agent (traders, including algorithmic traders) and bring
about deals in investments (sales staff)
• are in customer-facing roles which are subject to qualification requirements
• supervise or manage a certified person, where they are not an SMF
• the individual is employed by the UK banks, and/or the UK branch of a non-EEA bank
• for non-EEA banks, the individual is carrying out ‘branch activity’ as defined by the FCA.

42
Q

Does the Certification Regime apply overseas?

A

The Certification Regime does have an impact on overseas employees of UK firms, it will apply in two
instances. Firstly, to any individuals who is deemed to be ‘material risk takers’ for the firm due to their
role, no matter where they are located. And secondly, where an individual overseas is dealing with, has
contact with, UK clients.

43
Q

What is the difference in approach between the FCA and PRA in reagrds to Conduct Rules?

A

The FCA approach will mean that the Conduct Rules will apply to all UK employees – except staff
carrying out purely ancillary functions (ie, cleaners or catering staff).

The PRA, on the other hand, will apply the Conduct Rules to just senior managers and individuals who
fall within the PRA Certification Regime (material risk takers).

44
Q

What are the additionalSenior Manager Conduct Rules?

A

SM1: You must take reasonable steps to ensure that the business of the firm for which you are
responsible is controlled effectively.
SM2: You must take reasonable steps to ensure that the business of the firm for which you are
responsible complies with relevant requirements and standards of the regulatory system.
SM3: You must take reasonable steps to ensure that any delegation of your responsibilities is to an
appropriate person and that you oversee the discharge of the delegated responsibility effectively.
SM4: You must disclose appropriately any information of which the FCA or PRA would reasonably
expect notice.

45
Q

What are the Individual Conduct Rules?

A

Rule 1: You must act with integrity.
Rule 2: You must act with due skill, care and diligence.
Rule 3: You must be open and co-operative with the FCA, the PRA and other regulators.

Additional (FCA only):
Rule 4: You must pay due regard to the interests of customers and treat them fairly.
Rule 5: You must observe proper standards of market conduct.

46
Q

What is the intent of the “Directory”

A

It will provide a single central location for information
on Directory persons and senior managers at all FSMA firms across multiple sectors regulated by the
FCA. Customers, firms and other stakeholders will be able to freely access the information

47
Q

What are the start dates for launching the Directory?

A

• 9 March 2020 for banking firms, insurers and their appointed representatives
• 9 December 2020 for all other firms authorised to provide financial services under FSMA (ie, FCA
solo-regulated firms and sole traders).

48
Q

What is the Approved Persons regime? (APER)?

A

The approach taken by the FCA in authorising firms recognises that a firm is typically a collection of
individuals. Some of these individuals are considered to occupy roles which are important to the control
or operation of the firm, and to its capacity to meet the requirements of authorisation. These people
must be approved by the FCA before they can undertake their roles; hence they are known as approved
persons (APER).

49
Q

Which types of roles are typically covered under APER?

A

• Significant influence functions (SIFs) – functions that are governing or managerial. They include
the directors of the firm and other key personnel.
• Customer functions – functions involving interaction with the customers of the firm, such as an
investment adviser, trader or investment manager.

50
Q

In assessing an Approved Person’s Honesty/Integrity/Reputation, the FCA will look at:

A
  • convicted of a criminal offence; particular consideration will be given to offences of fraud, dishonesty
    and financial crime
    • the subject of an adverse finding or settlement in a civil case, again with particular consideration
    given to cases involving financial businesses and fraud
    • the subject of previous investigation or disciplinary proceedings by the FCA, the PRA or another
    regulatory authority
    • the subject of a justified complaint in relation to regulated activities
    • refused a licence to trade, or had a licence or registration revoked
    • involved in an insolvent business
    • disqualified as a director, or dismissed from a position of trust, or
    • able to demonstrate a readiness and willingness to comply with the requirements and standards of
    the regulatory system.
51
Q

In assessing an applicant’s financial soundness, the FCA and the PRA will have particular regard to
whether the person has:

A

• been subject to any judgement to repay a debt or pay another award that remains outstanding, or
was not satisfied within a reasonable period
• filed for bankruptcy, been adjudged bankrupt, had his assets sequestrated or made arrangements
with his creditors.

52
Q

Whare the 5 types of Controlled Function?

A

1) Governing functions
2) Required Functions
3) Systems and Control Functions
4) Significant Management Functions
5) Customer Functions

53
Q

What are the specific Controlled Functions?

A 
1 Director function
2 Non-executive director function
3 Chief executive function
4 Partner function
5 Director of unincorporated association function
6 Small friendly society function
8 Apportionment and oversight function
10 Compliance oversight function
10A CASS operational oversight function
11 Money laundering reporting function
40 Benchmark submission function
50 Benchmark administration function

28 Systems and controls function
29 Significant management function

30 Customer function
31 Mortgage customer function

54
Q

Do Directors of a Holding Copmpany have to be authorised as Controlled Functions?

A

The role of the extended controlled functions now
includes individuals such as directors, NEDs and senior managers employed by a parent undertaking
or holding company whose decisions, opinions or actions are regularly taken into account by the
governing body of the authorised firm and are therefore likely to have a significant influence on the
conduct of an authorised firm.

55
Q

Where can a firm find out the standrads for Training and Competence?

A

The Training and Competence (T&C) Sourcebook. The T&C Sourcebook is more focused on the outcomes achieved by firms through their internal training and competence arrangements.

56
Q

What specific roles require qualifications?

A
  • certain advising and dealing activities
  • acting as a broker fund adviser
  • advising on syndicate participation at Lloyd’s
  • acting as a pension transfer specialist.
57
Q

What conidtions can exempt an individual from the qualification requirements?

A

The conditions are that the firm must be satisfied that the employee:
• has at least three years’ up-to-date relevant experience in the activity, which they gained while
employed outside the UK
• has not previously been required to comply fully with the relevant examination requirements, and
• has passed the relevant module of an appropriate examination.

58
Q

To which activities do the Training rules apply?

A

Designated investment business carried out for a retail client:

  • advising
  • dealing
  • managing
  • overseeing on a day-to-day basis.

Regulated mortgage activity and reversion activity carried on for a customer:

  • advising
  • designing scripted questions for non-advised sales
  • overseeing non-advised sales on a day-to-day basis.

Non-investment insurance business carried on for a consumer:

• advising.

59
Q

How long must firms keep records relating to MIFID business?

A

5 years

60
Q

How long must firms keep records relating to non-MIFID business?

A

3 years

61
Q

What is the general approach for retention periods?

A

The general principle is that records should be retained for as long as is relevant for the purposes for which they are made.

UK Regulation (10 decks)

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