FCA: Objectives and High Level Standards

Question 1

FCA - Blocks of Handbook (HBRRSL)

Answer 1

3: Business Standards - firms day-day requirements

4: Regulatory Processes - regulators supervisory and disciplinary function
5: Redress - handling complaints and compensation
6: Specialist Sourcebooks - material relevant to specialist entities
7: Listing Prospectus and Disclosure - requirements for issuers on UKLA, along with Prospectives Rules (PR) and Disclosure Document Requirements (DTR)

Question 2

Principals for Business (PRIN) - Objectives and 11 principals (ISMFMCuCoCiCrCaR)

Answer 2

The funadamental obligations of firms.

Outlines the fit and proper standard test for firms in Threshold Condition 5 seeking Part 4a Authorisation.

1. Integrity
2. Skill, Care and Diligence
3. Management and Control
4. Financial Prudence
5. Market Conduct
6. Customers’ Interest
7. Communication with Clients
8. Conflicts of Interest
9. Customers - relationships of trust (ensure suitability of advice for customer relying on its judgement)
10. Clients’ Assets
11. Relations with Regulators

Question 3

Senior Management Arrangements, Systems and Controls (SYSC) - Objective

Answer 3

Encourages specific directors and senior managers to be vested with responsibility

(Amplifies PRIN 3 for firm to manage affairs responsibly with risk management)

Create a ’common platform’ of organisational, systems and controls requirements for firms

Question 4

SYSC - Number Outline

Answer 4

2-3 : organisational requirements for Insurers, Society of Lloyd’s, Managing Agents

4-10 : organisational requirements for Common Platform firms

11-17 : risk management and prudential requirements of banks and insurance companies

18 : Whistleblowing

19 : Remuneration of code staff

Question 5

SYSC 10: Conflicts of Interest

Answer 5

Only use Disclosure as a last resort

‘CoI Policy’ suitable to size of firm prevents / manages before hand.

Identifies services susceptible to CoI and procedures to follow.

Question 6

FCA Authorisation - Application, Impositions, CONDS

Answer 6

Must apply to FCA for Part 4A permission in respect of a ‘specific’ activity or investment (Dual regulated apply to PRA)

Permission is only granted once, so to add additional activities the firm must re-apply

Firm must pass threshold conditions (CONDS), distributed between the FCA and PRA.

FCA CONDS apply to all firms, PRA CONDS only apply to banks/insurance/PRA regulated firms

FCA can impose:

Limitations - specific rule in relation to a regulated activity (e.g. limit to certain type of client)
Requirements - imposed in relation to whole Part 4A permission (e.g. submit returns more frequently)

Question 7

FCA Authorisation - Exempt Persons

Answer 7

Authorised Representatives of an authorised person

Members of professions, where a person is represented by a professional body (e.g. solicitor or accountant) and is carrying out activities ‘similar to normal business of the profession’. When different, FCA authorisation must be obtained.

Member of Society of Lloyd’s

RIEs and RCHs

Question 8

Approved Persons and Controlled Functions (APER) - Definition, Eligible Persons, SMCR

Answer 8

Approved Person - individual approved by FCA or PRA to perform a ‘controlled function’ at an authorised UK firm

1. Those who deal with ’customers’ or their property
2. Those with ‘significant influence’ in a financial organisation

4 statements of principal apply to those in a customer role, whereas all 7 apply for persons in significant influence roles

The SMCR regime has replaced APER for PRA firms and will replace for all firms in 2019.

Question 9

APER - Categories of Controlled Functions (GRSSC)

Answer 9

1. Governing - C-level and directors
2. Required - money laundering reporting etc
3. Systems and Control - person responsible for reporting to governing body financial affairs, risk control, internal systems etc
4. Significant Management - large firms where SMF is allocated to senior manager
5. Customer Dealing - giving advice, arranging deal, managing investments for clients

1-4 are classes as Significant Influence Functions (SIFs) with stricter regulation

Question 10

APER - 7 Statement of Principle (ISMDOMR)

Answer 10

1. Integrity
2. Skill, care, due diligence - in carrying out controlled function
3. Market conduct
4. Dealing with Regulators
5. Organised - business which approved person is responsible for is organised
6. Managing - scd in managing the business of firm they are responsible for
7. Regulatory - business they are responsible for complies with regulatory processes

Question 11

APER - Applying to FCA and PRA, Powers of either regulator

Answer 11

When an individual is applying for both FCA and PRA SIFSs, only applies to the PRA

However FCA must give consent

Either regulator can withdraw approval / discipline (no matter who approved) after consulting each other

Question 12

APER - Fit and Proper Test (FIT)

Answer 12

1. Integrity and Reputation (e.g. no criminal record)
2. Competence (e.g. relevant training)
3. Financial Soundness (e.g. not bankrupt)

Question 13

Senior Managers and Certification Regime (SMCR) - Objective and Key Changes

Answer 13

Replaced APER for banks, building societies, credit unions and PRA-designated investment firms, with accountability based on the individual

1. Senior Managers Regime (SMR) - requires firms to allocate range of responsibilities to individuals and regularly vet them
2. Certification Regime - requires firms to assess fitness and of certain employees who could pose harm to firm or clients
3. Conduct Rules (COCON)

Question 14

SMCR: Senior Managers Regime (SMR) - 3 Levels of Responsibility

Answer 14

1. Senior Management Functions (SMFs) - replace the old SIFs and may involve risk of serious consequence
2. Prescribed Responsibility - which are important functions other than SMFs and must be allocated to one of existing SMFs. Therefore responsibility is closely associated, but not significant responsibility of SMF
3. Key Functions - important functions other than 1 and 2, which if applicable, must be allocated to a ‘significantly responsible SMF’

Question 15

SMCR: Application for SMF

Answer 15

The SMF itself determines which regulator the application should be made to

Require separate approval from regulators for each SMF, however can combine in a single application

A new applicant or an applicant with a change in responsibilities will need to apply with:

1. Statement of Responsibility
2. Responsibilities Map
3. Other Information (CV’s, job description, development plans)

Question 16

SMCR: Certification Regime

Answer 16

Level of regulation below SMR, however there is no overlap (e.g. covered by one or other)

Covers ‘significant harm functions’ where regulated activities may cause harm to firm or customers

Individuals are not subject to regulatory approval like SMFs, instead the firm certifies they are fit and proper and renew this annually

Question 17

SMCR: Certification Regime Persons Affected

Answer 17

1. Previous SIFs on APER, which do not fall under SMR
2. Customer facing roles (subject to qualification requirements)
3. Anyone (who is not an SMF) who manages / supervises a Certified Person

When performing multiple CR functions, they must be fit and proper for each function, however they may be covered by a single certificate

Question 18

Training and Competence (TC): Competence and Supervision

Answer 18

All staff at an authorised investment firm must be competent

However, staff performing activities which affect retail customers must be:

• assessed as competent in that activity
• supervised

If pre-competent employee is advising retail customers on packaged products under supervision

• supervisor must have passed appropriate exam
• employee have adequate level of knowledge

Question 18

TC - Supervised Activities which require employee Qualification

Answer 18

• advising on investments, dealing with or for clients in securities / derivatives
• advising on syndicate participation at Lloyd’s
• broker fund adviser
• pension transfer specialist

Question 19

TC: Professional Requirements for Retail Investment Advisers and Informing FCA

Answer 19

1. Code of Ethics
2. Appropriate qualification, or gap fill qual
3. 35 hours of CPD a year (21 structured, seminars etc)
4. Hold statement of professional standing (SPS) from accredited body

Firms must submit data to FCA about individual advisers, such as occurrence of 3 complaints in a year

Accredited bodies must inform FCA of advisors not meeting standards to obtain SPS

Question 21

TC: Accredited Bodies Responsibilties

Answer 21

Checks adviser complies with APER SoP to subscribe to code of ethics

Check advisers have appropriate qualification, including 100% of gap fill when required

Carrying out 10% minimum CPD sample check for hours and validity of CPD providers

The FCA approve the adviser, the accredited body approves the SPS