FSMA 2000 and FSA 2012 Flashcards
General prohibition (s19 FSMA 2000)
No person may carry on a regulated activity in the UK unless he is an authorised person or an exempt person. Breach is a criminal offence
Regulated activities order
Specified activities; in relation to: specified investments
Specified investments Exclusions
- Tangible property (including land, antiques and commodities
- Currencies (physical currencies and dealing in currencies, i.e. spot and forward contracts)
- Premium bonds and other National Savings and Investment Bank products
Specified activities exclusions
Investment advice in newspapers
TV broadcasts
Provision of information (e.g Reuters and BBG)
Unpaid trustees, nominees and personal reps
Operating an employee share scheme
Absence of holding out - dealing as principal and end user
Authorised person
Part 4A permission for UK firms
Passport (MiFID) for EEA firms
Contravention of General Prohibition
Criminal offences -> Crown court -> Two years’ imprisonment and/or an unlimited fine
Civil consequences of General Prohibition breach
Purpose is to protect consumers from harm
Injunctions, restitution orders, Contracts are voidable at the discretion of the investor
Part 4A threshold conditions (To be fit proper)
FCA firms/(Dual-regulated firms
- Legal status: Required legal status of applicant (n.a./PRA)
- Location of offices: Head office and registered office situated in UK (FCA/PRA)
- Business to be conducted in a prudent manner
- Effective supervision: Controlling shareholders (20% or more of the voting capital (FCA/FCA and PRA)
- Appropriate resources(FCA/n.a.)
- Suitability: senior managers (FCA/FCA and PRA)
- Business model (FCA/FCA)
- Appointment of a claims representative (motor insurers only
Passporting
Alternative way to obtain authorisation in the UK via European Directive
Include:
-Markets and Financial Instruments
-The UCITS Directive
Exempt persons
- BoE
- Lloyd’s syndicate members
- Recognised Investment Exchange (RIEs)
- Recognised Clearing Houses (RCH)
- Appointed representatives
- Designated Professional Bodies (DPB)
SM&CR
Refers to the Senior Managers and Certificate Regime. This superseded the Approved Persons Regime from the end of 2019
Fit and Proper test
Regulator or firm will only grant approved person status if the individual is fit and proper to undertake controlled function Considerations: -Honesty, integrity and reputation -Competency and capability -Financial Soundness
Senior management functions
Includes directors, non-executive directors, and the heads of main business units or functional areas within firms
Prea-pproval by regulator, subject to fit and proper assessment and subject to conduct rules
Certified functions
Certification Regime requires firms to assess, both at the recruitment stage and on an annual basis afterwards, the fitness and propriety of certain employees within the firm who pose a risk of significant harm to the firm or customers. Such employees are material risk takers, those performing risk of significant harm functions, and anyone supervising certain functions
Training and competence
Firms that provide services to retail clients are obliged to arrange employees to attain, maintain and strengthen their competencies
For employees to be fit and proper, they must be competent and capable. This is achieved by:
-Passing an appropriate exam
-Passing an internal assessment
Once threshold competency is attained, employees can operate without supervision
There can be certain certain circumstances where a firm would need to follow examination requirements
Senior Management Prescribed Responsibility
- Given to the Senior Manager who is the most senior person responsible for that activity or area
- Set out in a Statement of Responsibility
Senior Managers will have a Duty of Responsibility
The regulators can take action against a Senior Manager where they can show that:
- There was misconduct by the Senior Manager’s firm
- The Senior Manager was responsible for the management of the firm’s related activities
- The Senior Manager did not take such steps to avoid the misconduct
The burden of proof lies with the FCA
Individual (‘First Tier) Conduct Rules (senior managers, certified functions, conduct rules staff)
- You must act with integrity
- You must act with due skill, care and diligence
- You must be open and co-operative with the FCA, the PRA and other regulators
- You must pay due regard to the interests of customers and treat them fairly
- You must observe proper standards of market conduct
CISI CoC - Client
- To act honestly and fairly at all times when dealing with clients, putting the interests of each client, customers and counterparty first
- To be alert to and to the best of your ability manage any relevant conflict of interest
CISI CoC - Client/colleagues Self
-To attain and actively maintain a level of professional competence appropriate to your responsibilities and to promote the development of others
CISI CoC- Firm/professional
-To act integrity in fulfilling the responsibilities of your appointment and seek to avoid any acts, omissions or business practices which damage the reputation of your firm or the financial services profession
CISI CoC - Regulator
- To observe applicable law, regulations and professional conduct standards when carrying out financial services activities
CISI CoC - Market Participants
- To observe the standards of market integrity, good practice, conduct and confidentiality required by, or expected of participants in that market when engaging in any form of market dealings
CISI CoC - Client/self
To decline any engagement for which you are not competent unless you have access to such advice and assistance as will enable you to carry out the work competently
CISI CoC - Profession/self
To strive to uphold the highest professional and personal standards
The Public Interest Disclosure Act (PIDA) 1998
Protects the ability for an employee to make a protected disclosure
Firms should adopt appropriate procedures - proper way to disclosure, failures that are worthy of disclosure, assurances of protected disclosure, avenues of external disclosure, penalties for making false or misleading disclosure
Protected disclosures
- Criminal offences
- Breach of legal requirements
- Miscarriage of justice
- Endangering health and safety
- Damage to the environment
- Concealment of the above
Powers of enforcement (S165)
- Enter the premises of an authorised firm without notice
- Demand documents, file, tapes, data (Take away copies)
- Interview any employee
Supervision of firms co-operation
The FCA/PRA has the legal power to demand information/documentation:
- Must be provided within reasonable time (S165)
- Direct firm to appoint competent persons to provide FCA/PRA with any required information (S167)
- Failure to co-operate is a criminal offence (S177)
- Providing false or misleading evidence is a criminal offence (S177)
Regulatory Decision Committee
The RDC administers investigations launched by regulators. It is accountable to the board the FCA, but its member are independent. The only FCA employee is the chairman of the RDC
Summary of events
Investigation -> Preliminary findings -> Private warning/take further
Next stage either warning notice/supervisory notice/Notice of discontinuance -> Firm’s response
Next stage either decision notice/supervisory notice/notice of discontinuance -> Appeal to Upper Tribunal within 28 DAYS
Next stage either Final decision/Final supervisory/Notice of discontinuation -> Disciplinary measures
Warning notice
Provides details of the actions the RDC is intending to take
Supervisory notice
An alternative to a warning notice, a supervisory notice is intended to be preventative and protective rather than disciplinary. Provides details of the action the RDC has taken or proposes to take, normally with immediate effect
Decision notice
Issued when the RDC have reviewed representatives relating to warning notices
Final notices
- Issued to make a decision or supervisory notice final and operational
- States the date when action takes effect
Notice of discontinuation
- Issued at any point during the investigation process
- Confirms that the regulator will proceed no further with the investigation
- Requires person to be informed beforehand
Disciplinary processes and measures
- Withdrawal or variation of authorisation or approval
- Prohibition S56 order
- Restitution order
- Public censure, statements of misconduct and financial penalties
- Prosecution if a crime
Powers of intervention and enforcement FSA 2012
- FCA can ban products posing unacceptable risks to consumers
- FCA can ban financial promotions deemed to be misleading
What specified investments include
Tradable securities
For how long after the discovery of a problem can the FCA hold an individual eligible for disciplinary action
The FCA may not bring proceedings after three years from when it first knew of the misconduct. The legislation has taken effect since June 2010. The new section in FSMA is s. 66(4).
When the Regulator receives an application for a senior manager to become an approved person and finds some problems, they will return the application:
Applications for senior manager status involve the firm applying to the Regulator.
Which of the following is ALWAYS a certified function?
A financial planner is a significant harm function, as if they fail to perform their job correctly this causes conduct risk for the consumer using their services. As such, they are always a certified function. MLROs and heads of functional areas in firms (such as the Head of Internal Audit and the Financial Controller (i.e. chief accountant reporting into the Chief Financial Officer, a director)) are senior manager functions.
MiFID specified investments
Shares/depositary receipts/warrants Debt instruments Units in collective investment schemes Derivatives -Options on: specified investments, currencies, precious metals -Futures -Contracts for difference (CFDs)
Non-MiFID specified investments
Lloyd's syndicates, insurance contracts and funeral plan contracts Pensions Regulated mortgages and home finance Deposits and electronic money Rights to specified investments Loans and other forms of credit Emissions auction products Benchmarks
CIS
Regulated -Authorised UK -Recognised UCITS EEA Unregulated -E.g. hedge funds
MiFID activities
Dealing in investments Arranging deals in investments Managing investments Advising on investments Operating a multilateral trading facility (MTF) or organised trading facility (OTF)
Non-MiFID activities
Acting as a custodian
Sending dematerialised instructions
Lloyd’s activities, insurance activities and providing funeral plan contracts
Mortgages
Home finance activities
Managing dormant account funds
Accepting deposits by way of business and issuing electronic money
Providing credit reference or credit information services
Establishing, operating or winding up a collective investment scheme or pension scheme
Agreeing to carry on most regulated activities
