High Level Standards - FIRMS & Individuals

Question 1

High Level Standards for Firms Summary

Answer 1

1 - Satisfy requirements of COND
5x threshold conditions

2 - Obtain authorisation from regulator

3 - Comply with PRIN (if FCA firm) FR (if PRA Firm)

Question 2

High Level Standards for Individuals Summary

Answer 2

1- Satisfy the requirements of FIT & Proper Test

2- Obtain approval from the regulator / certification from firm

3- Comply with COCON (Individual and senior manager conduct rules)

Question 3

Principles for Businesses (PRIN) FCA only

Answer 3

11 Principles

1) Integrity
2) Skill, Care and diligence
3) Management & Control
4) Financial Prudence
5) Market Conduct
6) Customer’s Interest
7) Communications with clients
8) Conflicts of interest
9) Customers: relationship of trust
10) Client’s assets
11) Relations with regulators

If Firm in breach liable to disciplinary sanctions as they are legally binding on firms (proven firm at fault)

Contained in FCA Handbook
Also apply to the PRA

Question 4

Fundamental Rules (FR) PRA only

Answer 4

8 Rules

1) Integrity
2) Skill, Care and diligence
3) Prudence
4) Adequate Financial Resources
5) Effective risk strategies and risk management
6) Organise and control affairs responsibly and effectively
7) Relations with regulators
8) Resolution procedures

If PRA Firm in breach liable to disciplinary sanctions as they are legally binding on firms (proven firm at fault)

PRIN + FR applied proportionality to size of firm and scope of activities

Question 5

SMCR

Answer 5

Senior Manager and Certification Regime

All PRA & most FCA now subject to SMCR regime

Senior Management Functions - pre approval by regulator

Certification Functions - Certificate issued by the firm
both subject to fit and proper test

Above + Conduct rule staff = subject to the conduct rules

Question 6

Fit & Proper Test

Answer 6

1) Honest, integrity & reputation 
Employment history (6 years)
No criminal convictions
Breaches of FCA/PRA rules
Complaints

2) Competence & Capability
Exam success
Experience & training

3) Financial Soundness
Bankruptcy

either a controlled function or a senior management function

Question 7

Senior Managers Functions

Answer 7

• Prescribing responsibility

allocated most senior individuals

set out statement of responsibilities
(signed by manager + filed with regulator)

During Covid pandemic - SMF absent from work for period greater than 12 weeks but expected to return - don’t have to inform

Gain approval from regulator for interim person

• Duty of responsibility
  prove reasonable steps - prescribed responsibilities, breaches

Management responsibilities Map (regulators as part of approval )

Question 8

Financial Services (Banking Reform) Act 2013 s36

Answer 8

Relates to reckless misconduct in management of financial institution
- subject to Senior Manager Regime

Penalty 7 years jail - unlimited fine

Question 9

Overlap Rule

Answer 9

Applying to SMF at PRA + FCA

Question 10

Senior Manager Functions Overview

Answer 10

1) Prescribing responsibility
2) Duties of responsibility
3) Management Responsibilities Map
4) Handover Procedures

Question 11

Senior Managers Functions (HP)

Answer 11

SMF employee has all info and materials to do job effectively

Documents;
practical and helpful doc
include assessment issues prioritied
judgement and opinion not just facts and figures

Firms have policy explains how it complies with requirement maintain adequate records of steps it has taken

Question 12

Certification Functions

Answer 12

Who pose risk of significant harm to customer the firm or the markets (conduct risk)

• CASS oversight
• Significant management
• Client Dealing functions

Firm assess fitness and propriety
annually on appointments

Question 13

Individual Conduct Rules

Answer 13

Apply equally to SMF, CF , OCRS

5

(COCON)

1) Act with Integrity - (deliberate action)
2) Act with due skill care and diligence (Incompetence)
3) co-op with any regulators
4) Pay due regard to interests of customers and treat them fairly
5) Observe proper standards of market conduct

4+ 5 FCA only

Exception of ancillary staff
Notify regulator of any breach

Question 14

Senior Manager Conduct Rules

Answer 14

SC1 - Ensure business of firm controlled effectively

SC2 - Complies with relevant requirements and standards of reg system

SC3 - Ensure delegation of responsibility is to appropriate person + effectively overseen

SC4 - Disclose appropriately any info which FCA or PRA would expect

Question 15

Classification of FCA SMCR Firms

Answer 15

Type 1 ; Limited Scope Firms

Type 2; Core Firms

Type 3; Enhanced Firms

Question 16

Type 1 ; Limited Scope Firms

Answer 16

Small FCA Firms

Sole traders, consumer credit firms

SUBJECT to Senior Mangers Regime , Certification Regime
Conduct Rules only

Question 17

Type 2 ; Core Firms

Answer 17

Firms not type 1 or 3 (most FCA firms)

Subject to core requirements

Senior Mangers Regime , Certification Regime
Conduct Rules & PRESCRIBED RESPONSIBILITIES

Question 18

Type 3: Enhanced Firms

Answer 18

Large FCA Firms

Larger investment firms and CASS large firms

Enhanced core requirements ;

Senior Mangers Regime , Certification Regime
Conduct Rules & Prescribed responsibilities & responsibility map

Question 19

Approved Persons Regime

Answer 19

Before March 2016

FCA set out controlled functions (SIF + CF)
all performing had to be approved by FCA

SMCR gradually replaced APER

Has been supersede by SMCR