PCIAM - Financial Advice Within a Regulated Environment Flashcards
What is the role of the Financial Conduct Authority?
- responsible for protecting consumers, ensuring the stability of the financial sector, and
- promoting healthy competition between firms across the entire spectrum of financial services.
- supervises firms and individuals to reduce potential harm to consumers and markets.
- ensures that firms assess the risks posed by its activities, and that these risks are adequately managed by senior managers, as well as employees.
What is the role of the Prudential Regulation Authority?
The PRA – established as an operationally independent subsidiary of the BoE who ensures firms maintain sufficient capital and have adequate risk controls in place.
What is the role of the financial policy committee?
The Financial Policy Committee (FPC) was established in the BoE and charged with the primary objective of identifying, monitoring and taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system.
The FPC has a secondary objective of supporting the economic policy of the government.
What is the order of the regulatory framework?
Parliament, FPC, FCA, PRA etc.
- Parliament
- Sets legislative framework and holds governemtn to account (for the regulatory framework)
- Holds regulatory bodies account (for performance of their functions)
- Chancellor of Exchequer and the Treasury
- Chancellor is responsible for the regulatory framework and for all decisions involving public funds
- BoE
- Protects and enhances stability of UK financial system
- PRA - subsiduary of the BoE - prudentially regulates banks, insurers and investment firms
- FCA
- Protects and enhances confidence in financial services markets, including by protecting consumers and promoting competition
Financial Policy Committee (FPC) - key points summary:
- Official committee of the BoE
- Focuses on macro and financial issues that may threaten stability of financial system and economic objectives
- Charged with identifying, monitoring and taking action to reduce risks with a view to protecting and enhancing UK financial system resilience
- Makes recommendations and gives direction to FCA and PRA on specific actions.
- PRA is responsible for implementing FPC recommendations on a ‘comply or explain’ basis, and for complying with the FPC’s directions in relation to the use of macroprudential tools, specified by HMT legislation
- The PRA provides firm-specific information to the FPC, to assist its macroprudential supervision.
Prudential Regulation Authority (PRA) - key points summary:
- PRA role is to contirbute to the promotion of stability of the UK financial system through microprudential regulation of firms.
- General objective is to promote safety and soundness of PRA-authorised firms.
- Will meet this objective by seeking to minimise adverse effcets of firm failure on UK financial system
- For insurance supervision, PRA has two complementary objectives:
- secure appropriate degree of policyholder protection
- minimise adverse impact that failure of insurer has on stability of system
- Currently supervises around 1,500 deposit takers, banks, building societies, insurers and major investment firms
Financial Conduct Authority (FCA) - key points summary:
- Supervises almost 60,000 firms.
- Key aim is to ensue financial markets work well so consumers get a fair deal.
- To complemet this strategic objective, FCA has three operational obectives:
- secure appropriate degree of consumer protection
- protect and enhance integrity of financial system
- promote effective competitioon in interests of consumers
- Objectives are intended to achieve three broad outcomes:
- Consumers get financial services and products that meet their needs from firms they can trust
- Effective competition between firms, with interest of consumers and intergrity of market a priority
- Markets and financial systems are sound, stable and resilient
What are the three main approaches (pillars) to supervision with the FCA?
- Pillar 1 - Proactive supervision for the biggest firms
- Pillar 2 - Event driven, reactive supervision of actual or emerging risk
- Pillar 3 - Thematic work that focuses on risks and issues affecting multiple firms or a sector
Fixed portfolio firms have a named supervisor and are pro-actively supervised through firm specific continuous assessment.
Flexible portfolio firmes are supervised through thematic and market-based work, along with programmes of communication, engagement and education.
What are the FCA’s three main priorities in delivering good market conduct?
- Renewed focus on wholesale conduct - in particular inherent conflicts of interest
- trust in the integrity of markets
- preventing market abuse
Under general prohibition of Section 19 of FSMA no person may carry on a regulated activity in the UK unless they are authorised or exempt. Those exemptions are:
(7)
- persons exempt as a result of exemption order, eg, BoE, central banks and IMF
- local authorities/ charities (deposits only)
- appointed representatives
- recognised investment exchanges (RIEs)
- recognised clearing houses (RCHs)
- professional persons (eg. accountants
- members of Lloyd’s
In terms of the Protecting Consumers objective outlined by the FCA, in summary the FCA aims to:
- Ensure customers are treated in a way that is appropriate for their level of financial knowledg and understanding
- be more outward looking, by engaging with consumers and understanding their concerns and behaviour
- set clear expectations to firms and be clear about what they can expect from the FCA
- intervene early to tackle potential risks before they occur
- maintain strategy of credible deterrence, including intervening earlier and holding senior indviduals to account
In terms of the Promoting Effective Competition objective outlined by the FCA, in summary the FCA aims to:
- When pursuing the consumer protection objective, the FCA also has a duty to promote effective competition in the interests of consumers. In doing so, the FCA normally chooses the most procompetitive measure available to them as a matter of policy, but only if it is compatible with their duties as a whole – this is, however, considered and applied on a case by case basis.
- The FCA will only make new rules and guidance should they think this is the most effective andproportionate way to deal with the problems they have identified, typically by carrying out cost benefitanalysis.
In terms of the Treating Customers Fairly objective, in summary the FCA aims to:
- The requirement on firms to treat customers fairly is central to the FCA’s work in ensuring that customers receive a fair deal, and is firmly rooted in their Principles for Businesses (PRIN 6). Under TCF, the FCA sets out six customer outcomes, which they use to guide policy and principles when making rules, preparing and issuing codes, and giving general guidance.
In terms of the Market Intergrity objective, in summary the FCA’s key aim is to:
The FCA’s ‘market integrity objective’ is to protect and enhance the integrity of the UK financial system. To achieve this, the FCA concerns itself with a number of factors, including:
- Soundness, stability and resilience of financial markets
- Transparency of price information process in those markets
- Ensuring conflicts of interest are identified and managed
- Combating market abuse
- Orderly operation of financial markets
- Reduced financial crime in UK financial system
- ensuring responsibility and accountability of senior management
In terms of the Promoting Effective Competition objective, in summary the FCA’s key aim is to:
The FCA has a ‘competition objective’ to promote effective competition in the interests of consumers in the markets it regulates. It also has a competition duty to promote effective competition when addressing the consumer protection or market integrity objectives.
The FCA has a number of powers to pursue its competition mandate. It can make rules in support of its objective to promote competition to benefit consumers or take action against firms that it regulates. Since April 2015, the FCA has also had concurrent powers with the Competition and Markets Authority (CMA) under the Competition Act 1998 and the Enterprise Act 2002.
