Pt 4. The Regulation of Financial Services - Financial Services Act 2012

Question 1

What are the 3 current financial services regulaory systems?

Answer 1

1. Financial Services and Markets Act 2000 (FSMA)
2. Financial Services Act 2012
3. Bank of England and FINANCIAL Services Act 2016

Question 2

What are regulated activities?

Answer 2

This includes dealing in, arranging, managing or giving advice on any of the listd activities, including using a computer-based system for giving investment instructions.

Question 3

Wht has FSMA place all regulated financial services and activities under?

Answer 3

• One regulator - the Financial Services Authority (FSA)
• One Ombudsman Service (FOS), responsible for independent review of complaints to firms who remain unsatisfied with outcome.
• One compenstaion scheme (FSCS), responsible for compensation to customer wher regulate entity is not able to meet liabilities.

Question 4

What are the 3 bodies formed by the Financial Services Act 2012?

Answer 4

1. Financial Policy Committee (FPC) - within BoE, resposnble for watching emerging risks to the financial system as a whole, and providing strategic direction.
2. Prudential Regulation Authority (PRA) - within BofE working alongside FCA, responsible for stability and resolvabilty of systematically important financial institutions by ensuring firms can fail without bringing down the entire FS.
3. Financial Conduct Authority (FCA) - a separate independent regulator responsible for conduct of business market issues, and product life cycle for all firms, and prudential regulation of smaller firms.

Question 5

What is the BofE and Financial Services Act 2016?

Answer 5

The modified version of 2012 Act, placing BofE at heart of UK financial stability, by strengthening Bank’s governance, and ability to operate as ‘One Bank.’

March 2017 - PRA became part of Bank, now PRC established as a governing body, oerating alongside FPC and MPC.

Question 6

Who are the UK Financial Authorities?

Answer 6

• HM Treasury
• Bank of England (encompassing PRA and FPC)
• Financial Conduct Authority (FCA)

Question 7

What financial contingencies are relevant to the HM Treasury?

Answer 7

• The economic disruption that would arise from financial stability.
• The cost, risk and benefit of financial support operation involving provision of public capital or liquidity (lender of last resort).
• Consideration of whether change inlaw or institutional structures may be appropriate.
• Links with wider government policy.

Question 8

What is the BofE responsiblity?

Answer 8

• Settling of payments
• Functioning of UK markets
• Regulation of UK banks and larger financial firms
• Provision of routine and emergency liquidity of banking system.

Question 9

What is the FPC?

Answer 9

They are charged with objectives of:

• Identifying, monitoring, and taking action to remove or reduce systematic risks with view to protect and enhance the resilience of the financial system.
• To support the economic policy of government, members consist of representatives from HM Treasury, BofE, PRA and FCA.

Question 10

What is the PRA?

Answer 10

They are charged with objectives of:

1. To promote the safety and soundness of these firms, specifically for insurers, with objective to contribute to securing appropriate degree of protection for policyholders.
2. To faciliate effective competition.
3. Focus of forward-looking judgements on risks posed by firms to its statutory objectives posing greatest risk to the stability of FS.

Question 11

What is the PRC?

Answer 11

• Replaced the PRA, placed in same legal footing as MPC and FPC.

Consists of:

• the Governor of BofE
• the Deputy Governor for prudential regulation
• the Deputy Governor for financial stability
• the Deputy Governor for markets and banking
• one member appointed by Governor of Bank approved by Chancellor of Exchequer.
• Chief Executive of FCA
• at least 6 external members appointed by Chancellor of Exchequer.

Question 12

What is the FCA?

Answer 12

3 operational objectives are:

• Consumer protection
• Integrity of UK financial system
• Competition

7 regulatory principles are:

• efficiency and economy
• proportionality
• sustainable growth
• consumer responsiblity
• senior management responsibility
• recognising differences in businesses carried out by different regulated persons
• openness and disclosure
• transparency