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ICAS - AFin > Module 18 > Flashcards

Module 18 Flashcards

1
Q

Financial services regulation in the UK

A

FSA (Financial services authority) was criticised for the lead up to the credit crunch in 2007 so was disbanded in 2013 and replaced by:

  • Financial Policy Committee (FPC)
  • Prudential Regulation Authority (PRA)
  • Financial Conduct Authority (FCA)
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2
Q

All firms in financial services industry fall under jurisdiction of either

A
  • PRA

- FCA

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3
Q

PRA regulates firms involved in (3)

A
  • Accepting deposits
  • Contracts of insurance
  • Managing the underwriting capacity of syndicate

If conducting other investment business, should apply to FCA

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4
Q

Prudential supervision =

A

Monitoring the adequacy of internal systems and controls as well as management and financial resources

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5
Q

Conducting business regulation

A

Involves overseeing firms’ dealings with investors eg checking all information provided is clear, fair and not misleading

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6
Q

PRA and FCA have both

A

Criminal and civil powers

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7
Q

PRA and FCA have the power to: (5)

A
  • Discipline approved individuals and firms
  • Impose fines for market abuse
  • Require return of money to compensate investors
  • Prosecute for offences
  • Withdraw firm’s authorisation
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8
Q

FPC features (4)

A
  • Modelled on MPC
  • Part of BoE
  • Chaired by Governor of BoE
  • Accountable to BoE, Parliament and HM Treasury
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9
Q

FPC key job

A

Job is to identify emerging problems in financial system and take action to protect wider economy

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10
Q

PRA responsible for

A

Prudential regulation of individual banks, building societies and insurance companies (note that FCA is also their conduct regulator therefore dual-regulated)

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11
Q

PRA applies

A

Measures used by FPC at a company level > greater discretion to tackle risks at source

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12
Q

PRA part of

A

BoE

Chairman and Chief Exec = Governor and Deputy Governor of BoE

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13
Q

FCA took on

A

Majority of FSA’s roles and functions

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14
Q

FCA areas of responsibility (3)

A
  • Business conduct of all firms
  • Sole regulator for independent financial advisors (IFAs)
  • Prudential regulation of firms not covered by PRA
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15
Q

FCA strategic objective

A

Ensure relevant markets function well

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16
Q

FCA operation objectives (3)

A
  • Secure appropriate degree of protection of consumers
  • Protect and enhance integrity of UK financial system
  • Promote effective competition in the interests of consumers
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17
Q

FCA accountable to who?

A
  • Independent of Government and BoE

- Accountable to Parliament and Treasury

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18
Q

FCA regulates.. (2)

A
  • Accountants and Lawyers who undertake investment businesses
  • Mortgage lenders and advisors (must be authorised by FCA and adhere to rules)
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19
Q

If incidental investment business, can undertake some of regulated activities under supervision by

A

Designated professional body eg ICAS, ICAEW, Law Society of England and Wales

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20
Q

FCA supervises

A

Six recognised investment exchanges (RIEs) eg LSE, NEX, ICE Futures Europe, London Metal Exchange

21
Q

FCA is UK authority for

A

Admission of securities to the Main Market of LSE.

Reviews and approves all listing particulars, prospectuses and other related documentation

22
Q

FCA responsibility

A

Educating consumers about financial services, and plays important role in fighting financial crime and reducing market abuse

23
Q

Regulation of financial services across Europe is overseen by European System of Financial Supervision (ESFS) (3)

A
  • European Banking Authority (EBA)
  • European Securities and Markets Authority (ESMA)
  • European Insurance and Occupational Pensions Authority (EIOPA)
24
Q

European Systematic Risk Board (ESRB)

A

Responsible for macro-prudential oversight of the EU financial system. BoE is voting member

25
UK involvement in EU bodies
- PRA involved in ESFS - PRA = UK representative on EBA and EIOPA - FCA represents UK at ESMA
26
Markets in Financial Instruments Directive (MiFiD)
EU legislation that regulates firms who provide services to clients linked to 'financial instruments' and the venues where the instruments are traded
27
European Market Infrastructure Regulation (EMIR)
European legislation concerning the reporting of derivatives and ensuring adequate risk management is in place and operating (direct response to financial crash in 2007)
28
During 2017, three new codes of conduct released in the UK:
- FC Global code > set of principles of good practice in FX market - UK Money Markets Code > voluntary written code for standards and best practice in deposit, repo and securities lending markets in UK - Global Precious Metals code > regulates wholesale precious metals market by defining best practice
29
Dodd-Frank Wall Street Reform and Consumer Protection Act 2010
US financial legislation introduced as a response to recession of 2007/8
30
Basel III (Third Basel Accord) (4)
- Voluntary framework to reduce risk in financial markets - Provides suggested models to stress test banks - Intended to strengthen bank capital requirements by increasing bank liquidity and decreasing leverage - Focuses primarily on risk of a run on the bank
31
Four types of market manipulation
- Artificial transactions - Price manipulation (purpose of dealing to distort market price) - Abusive squeezes - Spreading of misleading information
32
Insider dealing
Criminal offence of using privileged information not generally known by the market to deal in securities (Directors often privy to such information)
33
Companies Act (2016) stipulated that directors' share dealing must
Be disclosed in company's annual report
34
Insider dealing legislation
Very few prosecutions and effectiveness is questionable. Regulations are difficult to implement
35
Fraud
Wrongful or criminal deception intended to result in financial or personal gain. Involves dishonesty, misrepresentation and legally recognised harm
36
Serious Fraud Office created to deal with
Financial fraud, however investigations can span a number of different regulatory bodies therefore difficult
37
Financial Services and Markets Act 2000
Makes it a serious criminal offence for anyone to make misleading statements, forecasts or promises to induce someone to enter investment agreement.
38
Money laundering
Process by which large amounts of illegally obtained money is given the appearance of having originated from a legitimate source
39
Criminal Justice Act 1988
Introduced legislation to allow investigation of large amounts of cash generated by criminal activities. Authorities can confiscate funds. Financial intermediaries responsible for informing authorities about any suspicious transactions (whistleblowing)
40
Drug Trafficking Act 1994
Reinforces powers to confiscate proceeds of the sales of illicit drugs
41
Proceeds of Crime Act 2002
Definition of money laundering extended to include processing/ dealing with or concealing proceeds of any crime. New powers awarded to police forces, must prove funds are NOT proceeds of crime, not other way around
42
Money Laundering, Terrorist Financing and Transfer of Funds regulations 2017
Implement EU Fourth Anti-Money laundering directive in the UK. Crucial safeguard against organised crime and terrorists
43
All relevant business must (money laundering) (2)
- Conduct money laundering and terrorist financing written risk assessment - Have appropriate anti-money laundering and terrorist financing systems in place
44
Controls and procedures against money laundering (6)
- New customer due diligence - Enhanced due diligence on transactions or persons in 'high risk country' or involving 'politically exposed persons' - Monitoring customers' business activities - Keeping right records - Reporting suspicious activity to National Crime Agency - Ensuring appropriate internal management controls
45
Bribery Act 2010 > four different offences
- Paying bribes - Receiving bribes - Bribery of foreign public officials - Failure of commercial organisations to prevent bribery
46
Companies must ensure anti-corruption procedures are sufficiently robust to
Stop employees, agents or third parties acting on a company's behalf from committing bribery
47
Offences may be prosecuted under the Bribery Act if (3)
- Offences committed by British National or UK resident - Offences committed within the UK - Commercial organisation has UK business presence
48
Punishments from Bribery Act (2)
- Max jail term extended from 7 to 10 years | - Unlimited fine for company
49
Current issues (3)
- Bitcoin - Mortgage Lending on interest only basis - Credit Card Lending

ICAS - AFin (21 decks)

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