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UK Financial Regulations > FSMA 2000 and FSA 2012 > Flashcards

FSMA 2000 and FSA 2012 Flashcards

1
Q

What constitutes a regulated activity (RA)?

A

2 things have to be present:
1. specified activities
2. specified investments
This is under the RAO 2001.

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2
Q

What does the General Prohibition say in S19 FSMA 2000?

A

No person (i.e. a firm) may carry on a regulated activity in the UK unless he is an authorised person or an exempt person.

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3
Q

What can happen if you go against the General Prohibition and receive criminal penalties?

A

It is a crime and so it will go to crown court and max punishment is: 2 years imprisonment, and/or an unlimited fine?

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4
Q

What happens if you go against the General Prohibition but receive a civil offence?

A

Essential means you are sued - civil law consequences.
1. Injunctions
2. Restitution orders (pay compensation)
3. Contracts are voidable at the discretion of the investor.

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5
Q

If we do not talk about max penalties and the crown court, which court are we talking about and what is the max penalty in this court?

A

Low-level offences go to magistrates court and max penalty is 6 months jail and £5,000 max fine

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6
Q

In terms of specific regulated investments list, name the 6 types of investments that are equivalent to MiFID investments?

A
  1. Shares/depositary receipts/warrants
  2. Debt instruments
  3. Units in a collective investment scheme
  4. Options on specified investments, currencies, precious metals
  5. Futures
  6. Contracts for difference (CFDs)
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7
Q

Other than the list that includes spec investments equivalent to MiFID investments, what other things qualify as specific regulated investments (9 pts)

A
  1. Lloyd’s syndicates, insurance contracts and funeral plan contracts
  2. Pensions
  3. Regulated mortgages and home finance
  4. Deposits and electronic money
  5. Rights to specified investments e.g. sale and repurchase agreements (repos)
  6. Loans and other forms of credit
  7. Credit reference or credit info svcs
  8. Emissions auction products
  9. Benchmarks
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8
Q

Name 3 excluded investments (I.e. not spec investments)?

A
  1. Tangible property incl land, antiques and commodities
  2. Currencies - physical currencies and dealing in currencies i.e. spot and forward contracts
  3. Premium bonds and other National Savings and Investment Bank products
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9
Q

In terms of specified activities, list the specific regulated activities that are equivalent to MiFID business? (5pts)

A
  1. Dealing in investments
  2. Arranging deals in investments
  3. Managing investments
  4. Advising on investments
  5. Operating a multilateral trading facility (MTF) or organised trading facility (OTF)
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10
Q

Other than the list that includes spec investments equivalent to MiFID activities, what other things qualify as specific regulated activities (9 pts)

A
  1. Safeguarding and administering investments like acting as a custodian
  2. Sending dematerialised instructions e.g. electronic money transfer
  3. Lloyd’s activities, insurance activities and providing funeral plan contracts
  4. Mortgage provision, administration, advising, arranging
  5. Managing dormant account funds
  6. Accepting deposits by way of business and issuing electronic money
  7. Providing credit reference or credit info svcs
  8. Establishing, operating or winding up a collective investment or pension scheme
  9. Agreeing to carry on most regulated activities
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11
Q

What are the excluded activities under FSMA 2000 that are not classified as specified activities? (6 pts)

A
  1. Newspaper and other media - however, NOT tip sheets which is regulated.
  2. Providing info (e.g. BBG/reuters)
  3. Unpaid trustees e.g. nominees, executors
  4. Employee share schemes
  5. Group or joint enterprises
  6. Absence of holding out: dealing as principal and end user where no service is offered to others, primary market sale/buyback, derivatives for risk mgmt eg commercial purposes/hedging
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12
Q

List 6 exempt persons (ie exempt from authorisation)?

A
  1. Appointed representatives e.g. tied agents
  2. Lloyd’s syndicate members
  3. Members of Designated Professional Bodies (DPBs) - lawyers, accountants, surveyors etc
  4. Recognised investment exchanges (RIEs - e.g. LSE)
  5. Recognised Clearing Houses (RCHs) e.g. Euroclear
  6. Other exempted bodies e.g. BoE, central banks, super nationals - World Bank IMF
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13
Q

What is the PERG (Perimeter Guidance Manual)?

A

This is basically guidance for authorisation - asking if need Part 4A permission.
Sets out guidance on when authorisation may be needed/exclusions available.
Not binding and reference to the relevant legislation is essential here.

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14
Q

What is Permission Notice (SUP)

A

FCA/PRA has power to grant permission and vary permission for authorisation - permission is not a blanket permission.

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15
Q

What are TCs - threshold conditions and when do they apply to what type of firms?

A

TCs are min standards expected of authorised persons being and remaining authorised.
Responsibility is distributed between the FCA and PRA.
Some FCA TCs will apply to all firms including dual-regulated firms.

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16
Q

What does the FCA assess for in terms of solo and dual regulated firms?

A

For dual-regulated firms, they will only assess for conduct issues and the PRA will be assessing the prudential issues.
For solo regulated firms, the FCA assesses the applicant for both conduct and prudential issues.

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17
Q

What are the 7 different threshold conditions?

A
  1. Legal status
  2. Location of offices (head & registered offices required to be in UK for authorisation)
  3. Prudent conduct - appropriate financial & non-fin resources e.g. capital, liquidity, and then also good risk monitoring etc
  4. Effective supervision
  5. Appropriate resources - nature/scale of firm business and risks to the continuity of svcs provided by firm.
  6. Suitability - firm needs to show it is fit and proper
  7. Business model - has to be suitable for regulated activities
18
Q

Which threshold conditions don’t apply to purely FCA firms (solo regulated)?

A

Legal status and prudent conduct.

19
Q

For dual regulated firms, what TC’s does the FCA check and what does the PRA check and what do both?

A

PRA looks at the legal status, location of offices and prudent conduct by itself.
FCA will look at appropriate resources and business model by itself.
Both FCA and PRA will look at the effective supervision and suitability together.

20
Q

What is SHF?

A

Significant harm reduction - i.e. conduct risk - to clients, firms and market integrity

21
Q

Senior Manager and Certification Regime (SM&CR) - what is another name for it and what are the 4 different functions it details?

A

Also called individual accountability regime.
1. Senior management functions (all directors, all heads of functions, MLRO)
2. Certification functions (aka significant harm functions)
3. Other conduct rules staff (OCRS)
4. Ancillary staff (e.g. cleaner, security guard)

22
Q

(SM&CR) - SMF, CF and OCRS - what are they all subject to and what differs?

A
  1. All subject to conduct rules (COCON).
  2. SMF and CF subject to fit and proper assessment
  3. CF have certificate issued by the firm (firm FIT)
  4. SMF subject to pre-approval by regulator (aka FCA/PRA)
23
Q

How long are records related to the prescribed responsibility kept for SMFs and where are they set out?

A

6 years from any change.
Set out in Statement of Responsibilities (SoR) - signed)

24
Q

What are considered certification functions (CF)? (2 examples)

A

Significant harm functions - posing signif harm to customer, firm or the market.
- material risk takers
- supervisors of certification functions

25
Q

Explain the 3 parts of the Fit and Proper test (FIT)?

A
  1. Honesty, integrity and reputation - employment history (6 years), criminal conviction (no time limit), breaches of FCA/PRA rules, complaints
  2. Competence and capability - exam success, experience/training
  3. Financial soundness - bankruptcy
26
Q

What is Form A in the Fit and Proper test?

A

Firms use Form A to apply for approval on behalf of senior managers and Firms should be informed within 90 days.

27
Q

What are the 5/6(depending on CD applying) individual conduct rules (COCON)?

A
  1. Act with integrity - breach would be deliberately mislead by act/omission
  2. Act with due skill, care and diligence - about incompetence, would be a breach
  3. Open and cooperative with FCA and the PRA and other regulators
  4. Must pay due regard to the interests of customers and treat fairly (IF CD doesn’t apply)
  5. Observe Code of Market Conduct
  6. Act to deliver good outcomes for retail clients (this is when CD applies, replaces rule 4)
28
Q

What the Public Interest Disclosure Act (PIDA) 1998 entail and what are 6 different types of protected disclosures?

A

Protects ability for an employee to make protected disclosure.
1. Criminal offences
2. Breach of legal requirements
3. Miscarriage of justice
4. Endangering health and safety
5. Damage to the environment
6. Concealment of the above

29
Q

Who is responsible for firms adopting procedures to allow employees to make protected disclosures?

A

SYSC says that senior manager responsible for oversight of these areas

30
Q

What do the powers of enforcement officers (S165) in FSMA 2000 entail regarding info gathering? (3pts)

A
  1. Enter premises of an authorised firm with no notice.
  2. Demand documents, file, tapes, data
  3. Interview any employee
31
Q

What are conditions that FCA/PRA has wrt legal power to demand information/documentation (5 conditions)?

A
  1. Info must be provided within a reasonable time period
  2. Can direct the firm to appoint competent persons to provide FCA/PRA with any required info
  3. Appoint a third party to carry out investigation
  4. Failure to cooperate with them is a criminal offence
  5. Providing false/misleading evidence is criminal offence
32
Q

What is the timeline of an enforcement process

A
  1. Investigation occurs
  2. Preliminary findings (can then either be a private warning or then moves to RDC)
  3. RDC can issue warning notice, supervisory notice, notice of discontinuance
  4. Then the firm responds
  5. Then RDC can issue decision notice, supervisory notice or notice of discontinuance
  6. If it’s the case of a decision notice or supervisory notice, the firm can appeal to Upper Tribunal within 28 days
  7. Then RDC issues final decision or final supervisory notice or notice of discontinuance
  8. Then disciplinary measures
33
Q

What is a private warning?

A

Priv warnings - no disciplinary actions taken but remains on firms and individuals disciplinary record

34
Q

What is a warning notice and consent with this?

A

Warning notice - pubbed with recipient consent and alerts recipient that action is proposed and why.

35
Q

What is a supervisory notice (3pts)?

A

Alternative to waring notice
Aim is preventative rather than disciplinary
Action can be effective immediately

36
Q

What is a decision notice?

A

Issued when RDC reviewed representations regarding warning notice

37
Q

What are final notices?

A

These are published.
Issued to make a decision or supervisory notice final and operational.
States the date that the action takes effect

38
Q

What is a notice of discontinuance?

A

Issued at any point in investigation
Confirms that the regulator will proceed no further with the investigation

39
Q

What are the 5 different disciplinary measures that regulator can do?

A
  1. Prosecution (if a crime)
  2. Withdrawal or variation of authorisation or approval.
  3. Prohibition order (this is for individuals)
  4. Restitution order
  5. Public censure, statements of misconduct and financial penalties
40
Q

Powers of Intervention and Enforcement (FSA 2012), what does this entail - two things FCA can ban?

A
  1. Can ban products posing unacceptable risks to consumers.
  2. Can ban financial promotions deemed to be misleading and no need to go through normal enforcement processes - too slow
41
Q

How long can FCA ban products without consultation under the Powers of Intervention and Enforcement FSA 2012?

A

12 months

42
Q
A

UK Financial Regulations (6 decks)

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