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IMC IE Chapter 1 > IMC Chapter 1 - 1.4 - The FCA > Flashcards

IMC Chapter 1 - 1.4 - The FCA Flashcards

1
Q

How many operational objectives does the FCA have?

A

3

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2
Q

What are the 3 operational objectives of the FCA?

A

1) Securing an appropriate degree of protection for consumers.
2) Protecting and enhancing the integrity of the UK financial system.
3) Promoting effective competition in the interests of consumers.

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3
Q

What does the FCA focus on?

A

Conduct regulation of all firms.

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4
Q

What aspects of a firm does the FCA look at?

A

The FCA looks at a firms dealings with their retail customers and their activities in wholesale markets.

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5
Q

How many firms does the FCA regulate (Approximately)?

A

The FCA regulates about 33,000 firms in total

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6
Q

Does the FCA regulate firms prudentially supervised by the PRA?

A

Yes!

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7
Q

Is the FCA responsible for the prudential supervision of all firms?

A

No, the FCA is only responsible for the prudential supervision of all firms not prudentially supervised by the PRA.

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8
Q

What does the FCA supervise and monitor?

A

The FCA supervises trading infrastructure, investment exchanges and over-the-counter (OTC) markets and monitors firms’ compliance with the market abuse regime.

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9
Q

What criminal powers does the FCA have?

A

The FCA has the criminal powers to investigate and prosecute insider dealing.

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10
Q

Which authority is the FCA?

A

The FCA is the United Kingdom Listing Authority (UKLA).

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11
Q

Which 3 ‘Services’ is the FCA responsible for overseeing?

A
  1. The Financial Ombudsman Service (FOS)
  2. The Money Advice Service (MAS)
  3. And (jointly with the Prudential Regulation Authority) the Financial Services Compensation Scheme (FSCS)
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12
Q

What is the name of the section and legislation that grants the FCA a wide range of powers?

A

Section 138 of the Financial Services and Markets Act 2000 (FSMA 2000) grants the FCA the power to make general rules governing regulated firms and individuals.

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13
Q

The SARSE acronym is a useful way to remember the FCA’s powers. List what each letter stands for.

A

S - Supervision: Investigating authorised firms and approved individuals.
A - Authorisation: Authorising firms to undertake regulated activities, approving individuals to undertake controlled functions and recognising investment exchanges and clearing houses.
R - Rulemaking: Making general rules to govern authorised firms.
S - Sanctions and disciplinary action: Imposing disciplinary measures on authorised firms and approved Individuals.
E - Enforcement: Taking enforcement action against authorised firms and approved individuals.

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14
Q

What is the ONLY case where the FCA will make rules?

A

The FCA will only make rules and provisions if they are deemed to be ‘necessary or expedient’ to protect the users of services of authorised firms or of their appointed representatives carrying on regulated activities.

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15
Q

What is the name of the central source that holds the FCA rules?

A

The FCA Handbook

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16
Q

How many blocks is the FCA Handbook divided into?

A

The FCA Handbook has been divided into seven main blocks, each block dealing with different aspects of regulation.

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17
Q

What does each block of the FCA Handbook contain?

A

Each block contains a variety of sourcebooks (or manuals) that provide more detail on particular aspects of compliance.

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18
Q

What is the name of Block 1 in the FCA Handbook?

A

High-level standards

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19
Q

What block of the FCA Handbook is the High-level standards in and list the 7 elements in this block?

A

1) The rules on senior management arrangements (SYSC)
2) The statement of principles for businesses (PRIN)
3) The minimum standards for becoming and remaining authorised (COND)
4) Training and competence rules (TC)
5) The statements of principle and code of practice for approved persons (APER)
6) The code of conduct for staff (COCON)
7) The fit and proper criteria for approved persons (FIT)

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20
Q

What is the name of Block 2 in the FCA Handbook?

A

Prudential Standards

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21
Q

What block of the FCA Handbook is the prudential stands in and what are the Prudential standards?

A

The Prudential standards sets out the prudential requirements that will affect firms.

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22
Q

What is the name of Block 3 in the FCA Handbook?

A

Business standards

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23
Q

What block of the FCA Handbook is the Business standards in and list the 3 elements in this block?

A

Buisness standards is in block 3 of the FCA Handbook.

The 3 elements of Buisness Standards are:

1) The conduct of business rules (COBS)
2) The code of market conduct (MAR) (to prevent market abuse)
3) Requirements relating to client assets and client money (CASS)

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24
Q

What is the name of Block 4 in the FCA Handbook?

A

Regulatory processes

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25
Q

What block of the FCA Handbook is the Regulatory Processes in and list the 2 elements in this block?

A

Regulatory Processes is in block 4 of the FCA Handbook

Regulatory processes include 2 key elements:

1) The rules relating to supervision (SUP)
2) Decision procedures and penalties (DEPP)

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26
Q

What is the name of Block 5 in the FCA Handbook?

A

Redress

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27
Q

What block of the FCA Handbook is the Redress in and list the 2 elements in this block?

A

Redress is in block 5 of the FCA Handbook.

The 2 elements of Redress are:

1) Dispute resolution (complaints procedures) (DISP)
2) The compensation scheme (COMP)

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28
Q

What is the name of Block 6 in the FCA Handbook?

A

Specialist sourcebooks

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29
Q

What block of the FCA Handbook are the specialist sourcebooks in and what do the specialist sourcebooks contain?

A

The Specialist sourcebooks are in block 6 of the FCA Handbook.

They contain information relating to Collective investment schemes (COLL).

30
Q

What is the name of Block 7 in the FCA Handbook?

A

Listing, prospectus and disclosure

31
Q

What block of the FCA Handbook are the Listing, Prospectus and Disclosure in and what does the Listing, Prospectus and Disclosure contain?

A

The Listing, Prospectus and Disclosure is in Block 7 of the FCA Handbook.

The Listing, Prospectus and Disclosure covers rules for listed companies written by the UK Listing Authority.

32
Q

What are the names of the 2 FCA guidance documents?

A

There are 2 FCA guidance documents:

1) The enforcement guide (EG)
2) Perimeter guidance manual (PERG) covering authorisation and exemption, and the financial crime guide

33
Q

What is the process of creating new rules for the FCA Handbook?

A

When creating new rules for the Handbook, the FCA needs to go through a lengthy process of discussion and consultation with all stakeholders before issuing a policy statement containing the new rules.

34
Q

What does TPIRs stand for?

A

Temporary Product Intervention Rules (TPIRs)

35
Q

Name the legislation that gives the FCA the power to implement temporary product intervention rules (TPIRs).

A

The Financial Services Act 2012

36
Q

In what cases are Temporary Product Intervention Rules (TPIRs) used?

A

Temporary Product Intervention Rules (TPIRs) are used where the delay involved in complying with the requirements for public consultation would prejudice the interests of consumers. TPIRs are used in cases where a product is in “serious danger” of being mis-sold.

37
Q

What do Temporary Product Intervention Rules (TPIRs) allow the FCA to do?

A

The temporary product intervention rules (TPIRs) allow the FCA to take action, including restricting the use of certain product features and requiring that a product not be promoted to some or all types of customers.

38
Q

What does the FCA use temporary product intervention rules for in most serious cases?

A

In the most serious cases, the FCA will be able to use the rules to prevent a product being sold all together, such as in instances where complex or niche products are being sold to the mass market.

39
Q

Are Temporary Product Intervention Rules (TPIRs) made before or after consultation with all stakeholders?

A

TPIRs are made BEFORE consultation with all stakeholders.

40
Q

What is the maximum amount of time a Temporary Product Intervention Rule can last for?

A

12 Months.

41
Q

What does the FCA do during the time a Temporary Product Intervention Rule is active?

A

During the time a Temporary Product Intervention Rule is active, the FCA will either consult on a permanent remedy or will work to find another way to resolve the problem.

42
Q

What are the other regulatory tools which sit alongside Temporary Product Intervention Rules (TPIRs)?

A

Temporary Product Intervention Rules (TPIRs) sit alongside other regulatory tools, such as:

1) general rules (including non-temporary product intervention rules)
2) guidance
3) variations of permission and supervisory and enforcement action

43
Q

How does the FCA decide if it should implement Temporary Product Intervention Rules (TPIRs) or the other regulatory tools TPIRs sit alongside?

A

The choice of which approach is used in any particular situation will be made based on the facts of the case.

44
Q

Name the 5 scenarios under which temporary Product Intervention Rules (TPIRs) can be applied.

A

1) Products that would be acceptable but for the inclusion or exclusion of particular features.
2) Products where there is a significant incentive for inappropriate or indiscriminate targeting of consumers.
3) Markets where firms restrict their product range or access to their product range in ways designed to increase profitability by restricting consumer choice, reducing competition, or creating barriers to search, switching, or entry.
4) Products that may bring about significant detriment as a result of being inappropriately targeted.
5) In particularly serious cases, a product may be considered inherently flawed – for example, a product that has such disadvantageous features that the majority of consumers, or specified types of consumers, are unlikely to benefit.

45
Q

What principle is the FCA’s Treating Customers Fairly (TCF) initiative meant to reinforce?

A

The FCA’s Treating Customers Fairly (TCF) initiative is intended to reinforce Principle 6 (Customers’ interests).

46
Q

What are the six improved outcomes of the FCA’s Treating Customers Fairly (TCF) initiative?

A

Outcome 1: Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture.

Outcome 2: Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly.

Outcome 3: Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.

Outcome 4: Where consumers receive advice, the advice is suitable and takes account of their circumstances.

Outcome 5: Consumers are provided with products that perform as firms have led them to expect, and the associated service is both of an acceptable standard and as they have been led to expect.

Outcome 6: Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.
 

47
Q

What approach to supervision does the FCA take?

A

The FCA takes a risk-based approach to its supervisory role, targeting its resources in such a way as to give most supervisory effort to those activities that pose the greatest risk to the successful fulfilment of its statutory objectives.

48
Q

What are the FCA’s 3 pillars of supervision?

A

Pillar 1: Firm systematic framework - preventative in nature

Pillar 2: Event-driven work - reactive work

Pillar 3: Issues and products - a campaign focused on specific sectors or issues within a sector - e.g. market abuse in asset management

49
Q

What is the name of the Supervisory tool used by the FCA?

A

The name of the supervisory tool used by the FCA is the ‘Firm Systematic Framework’ (FSF).

50
Q

What is the ‘Firm Systematic Framework’ (FSF) targeted to?

A

The ‘Firm Systematic Framework’ (FSF) will use a common framework across all sectors, which is targeted to the type of firm.

51
Q

What are the common features of the Firm Systematic Framework (FSF)?

A
  • Governance and culture – assess the effectiveness of a firm’s process for identifying, managing and reducing conduct risks.
  • Product design – determine the processes a firm has in relation to determining whether products meet customer’s needs.
  • Sales or transaction processes – assess firm’s systems and controls.
  • Post-sales/services and transaction handling – how effective are firm’s processes to ensure customers are treated fairly after the point of sale service or transaction, and including complaints handling.
  • Business model and strategy analysis – to give a view on how sustainable the business would be in respect of conduct, and where the future risk might lie (linking with the Business Model Threshold condition check carried out at authorisation).
  • Assessment of how the firm embeds fair treatment of customers and ensures market integrity. The assessment has four modules.
  • Deciding what actions are required by the firm – addressing issues highlighted by the FCA.
  • Communication to the firm – setting out the assessment and actions required.
52
Q

Name the 2 categories the FCA gives to Firms.

A
  1. Fixed portfolio terms
  2. Flexible portfolio terms
53
Q

What are fixed portfolio terms?

A

Fixed portfolio terms are larger firms who pose greater risk to the FCA statutory objectives. They have a dedicated FCA supervisor and are supervised on an ongoing basis. They will be explicitly addressed in relation to Pillar 2 activities (event-driven work - reactive in nature) and may be called upon to assist Pillar 3 activities (issues and products).

54
Q

What are Flexible portfolio terms?

A

Flexible portfolio terms are smaller firms and are mainly supervised through thematic work under Pillar 3.

55
Q

Which individuals within a firm are responsible for ensuring the firm complies with the FCA’s regulatory requirements?

A

Management

56
Q

How is direct supervision by the FCA carried out?

A

Direct supervision by the FCA is carried out via supervision visits by FCA enforcement officers.

57
Q

What are the rules surrounding the noticing firms about supervision visits?

A

The FCA normally expects to give reasonable notice of a visit. However, a firm must permit representatives of the FCA to have access with or without notice during normal business hours.

58
Q

What is the name of the legislation that grants the FCA certain statutory powers to assist it in its ability to investigate and gather information?

A

Financial Services and Markets Act 2000 (FSMA 2000)

59
Q

What can FCA surveillance officers do?

A

FCA surveillance officers can:

1) Demand the production of documents, tapes, files, computer data or any other information required by the FCA (copies of which may be removed).
2) Demand that any employees make themselves available for interview.

60
Q

Where can FCA meetings take place?

A

The FCA can demand that meetings take place at the FCA or the firm’s premises

61
Q

What does the FCA expect senior management to do?

A

The FCA expects senior management to take steps to remedy any shortfall by the firm (or individuals working for it) in relation to the regulatory requirements.

62
Q

What does the FCA seek to do when consumers suffer loss due to a shortfall by a firm?

A

Where consumers suffer loss as a result of a shortfall by a firm, the FCA seeks to ensure redress is provided.

63
Q

What legal powers does the FCA have?

A

The FCA has the legal power to require an authorised firm, RIE or RCH to produce information and/ or documentation. It is also a criminal offence not to cooperate with the FCA during an investigation or to provide false or misleading information.

64
Q

Does a firm (or individual) have to stop trading if they are under investigation by the FCA?

A

No! They can continue trading whilst they are under investigation.

65
Q

What is the name of the Committee the FCA refers more significant decisions to?

A

Although the FCA does have executive powers to make decisions regarding the disciplinary process, it will usually refer more significant matters to the Regulatory Decisions Committee (RDC).

66
Q

Who is the Regulatory Decisions Committee (RDC) accountable to?

A

The Regulatory Decisions Committee (RDC) is accountable to the board of the FCA.

67
Q

Is The Regulatory Decisions Committee (RDC) operationally dependent or independent of the FCA?

A

The Regulatory Decisions Committee (RDC) is operationally independent of the FCA.

68
Q

What do Regulatory Decisions Committee (RDC) members represent?

A

Regulatory Decisions Committee (RDC) members represent the public interest.

69
Q

What group of people make up the Regulatory Decisions Committee (RDC)?

A

Regulatory Decisions Committee (RDC) are drawn from financial services practitioners and non-practitioners. The only FCA employee is the Chair of the Regulatory Decisions Committee (RDC).

70
Q

List the 4 statutory notices the Regulatory Decisions Committee (RDC) can issue to inform a person or firm they are under investigation.

A

1) Warning notice: This provides details of the disciplinary actions or formal procedures the regulator proposes to take.
2) Decision notice: This provides details of the disciplinary actions or formal procedures the regulator has decided to take after representations. The action may differ from that set out in the warning notice.
3) Further decision notice: This is an amendment to a decision notice and can only be issued with the recipient’s consent.
4) Supervisory notice: This is preventative and protective rather than disciplinary. The notice will normally have an immediate effect.

71
Q

List the 3 other notices the Regulatory Decisions Committee (RDC) can issue to inform a person or firm they are under investigation.

A

1) Final notice: This sets out the terms of final action that the regulator has decided to take once formal procedures have been completed. It states the date from which this action takes effect.
2) Notice of discontinuance: This is issued where the investigation is being discontinued. This can be issued at any stage in the investigation.
3) Private warning: This is issued when, despite having concerns regarding the behaviour of a firm or individual, the FCA may decide that it is not appropriate to bring formal disciplinary action.

IMC IE Chapter 1 (4 decks)

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