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CII R01 - Financial Services, Regulation & Ethics > Pt 6. Responsibilities and Approach to Regulation - The FCA Handbook > Flashcards

Pt 6. Responsibilities and Approach to Regulation - The FCA Handbook Flashcards

1
Q

What is the High Level Standards block in the FCA Handbook?

A

This contains the main regulatory obligations for firms and individuals, consisting of 9 source books and manuals.

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2
Q

What are the 9 sourcebooks and manuals for the High Level Standards block of FCA Handbook?

A
  1. PRIN - Principles for Business, a general statement of the main regulatory obligations of the firm.
  2. SYSC - Senior Management Arrangements, Systems and Controls
  3. COCON - Code of Conduct
  4. COND - Threshold Conditions, minimum standards the firm must satisfy to become and remain authorised by the FCA, to retain and be given its permission to conduct investment business in the UK.
  5. APER - Statements of Principle and Code of Practice for Approved Persons
  6. FIT - Fit and Proper Test for Employees and Senior Personnel, sets out criteria which the FCA uses to assess whether an individual is suitable to perform a senior management or certified function.
  7. FINMAR - Financial Stability and Market Confidence Sourcebook

8.TC - Training and Competence Sourcebook

  1. GEN - General Provisions, sets out some of the underlying legal framework to FCA regulation and requirements regarding statutory status disclosure.
  2. FEES - Fees Manual, sets out fee provisions for funding the FCA, FOS, and FSCS.
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3
Q

What happens when PRIN is breached?

A
  • A breach of PRIN makes a firm liable to disciplinary sanctions.
  • In the event of any conflict between FCA rules and PRIN, PRIN takes precedence.
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4
Q

What should FCA authorised investment firm disclose in a letter to a client?

A

Under GEN, authorised firms must disclose their ‘statutory status’ in every letter sent to a retail clients, with prescribing wording ‘Authorised and regulated by the Financial Conduct Authority’.

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5
Q

For UK firms, what are ‘The Threshold Conditions’ that apply set out under 5 main headings?

A
  1. Location of offices
  2. Effective supervision
  3. Appropriate resources
  4. Suitability
  5. Business model
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6
Q

What are the prudential standards of the FCA Handbook?

A
  1. GENPRU
  2. BIPRU
  3. MIPRU
  4. IPRU-INV
  5. INSPRU
  6. IPRU-INS
  7. IPRU-FSOC
  8. IFPRU
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7
Q

What is GENPRU?

A
  • General Prudential Sourcebook for Banks, Building Societies and Investment Firms.

GENPRU 1 - explains application to firms, and sets out rules to adequacy of financial resources and their valuation.

GENPRU 2.1 - contains rules and guidance on minimum amount of capital that a firm must hold, known as firm’s capital resources requirement (CRR).

GENPRU 2.2 - contains rules and guidance on types of eligible capital that makes up firm’s capital resources.

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8
Q

What is BIPRU?

A
  • Prudential Sourcebook for Banks, Building Societies and Investment Firms, contains detailed calculation rules for these types of firms.
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9
Q

What is MIPRU?

A
  • Prudential Sourcebook for Mortgage and Home Finance Firms, and Insurance Intermediaries.
  • Contains rules about financial safeguards the firms needs, e.g. capital requirements, professional indemnity insurance requirements.
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10
Q

What is IPRU-INV?

A
  • Interim Prudential Sourcebook for Investment Business
  • Contains the prudential and notification requirements for non-BIPRU investments firms.
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11
Q

What is INSPRU?

A
  • Prudential Sourcebook for Insurers
  • Contains the detailed calculation rules for these types of firms.
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12
Q

What is IPRU-INS?

A
  • Interim Prudential Sourcebook for Insurers
  • Contains all the residual prudential and notification requirements for insurers.
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13
Q

What is IPRU-FSOC?

A
  • Interim Prudential Sourcebook for Friendly Societies
  • Contains all the prudential and notifications requirements for friendly societies.
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14
Q

What is IFPRU?

A
  • Deal with firms subject to the Capital Requirements Directive IV.
  • Covers credit risk, operational risk, market risk, concentration risk, counterparty risk and liquidity.
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15
Q

What is the Business Standards for the FCA Handbook?

A

This block contains detailed requirements relating to firms day-to-day business conduct, it consists of sourcebooks or manuals:

  1. COBS - Conduct of Business, applying to investment firms.
  2. ICOBS - Insurance: Conduct of Business, if firm carries out insurance mediation activities, these are requirements relating to how it must deal with customers.
  3. MCOB - Mortgages and Home Finance: Conduct of Business, these are requirements relating to how they must deal with customers.
  4. BCOBS - Banking Conduct of Business, if firms does banking business, its requirements relating to how it must deal with customers.
  5. CASS - Client Assets, relates to FCA requirements relating to holding client assets and money.
  6. MAR - Market Conduct, what is acceptable market conduct and what is market abuse.
  7. PROD - Product Intervention and Product Governance, the purpose is to improve firms products oversight and governance processes, and to set out FCA statement of policy on making temporary product intervention rules.
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16
Q

What scenarios are acceptable under COBS?

A

Acceptable:

  • Life office A supplies a single bottle of supermarket wine to an independent financial adviser (IFA) as a prize for the intermediary having won a promotional competition run in connection with a new product launch.
  • Life office B offers to pay reasonable travel expenses to an IFA in return for it (as the intermediary) taking part in a market research exercise.
  • Life office C provides free training on and assists an IFA to promote C’s products, so that the quality of service to the intermediary’s clients is enhanced.

Not acceptable:

  • Life office D offers a comprehensive adviser training programme and some computer software free of charge to a handful of very large firms of IFAs in the hope of generating increased sales of its products from those firms, but it does make the same benefit available to smaller firms.
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17
Q

What scenarios are acceptable under MCOB?

A

Under MCOB, the borrower must be an individual or trustee, and the borrowers obligation to repay must be secured by way of legal mortgage on land in the UK, with at least 40% used or intended to be used as dwelling by borrower.

Unacceptable under MCOB criteria if:

  • Loan to directors of a business, if its being taken out by a business.
  • A regulated mortgage contract means property must be occupied by borrower themselves/relation, than tenants.
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18
Q

What are the rules on handling client money under CASS?

A

If an IFA is authorised to hold client money it must hold it separately from its own money in a designated client bank account.

19
Q

What is the Regulatory Process in the FCA Handbook?

A

This block contains manuals describing the operation of the FCA’s supervisory and disciplinary functions.

Includes:

  • SUP
  • DEPP
20
Q

What is SUP?

A

SUP = Supervision

  • This manual sets out what the FCA does to ensure firms are complying with their requirements, including requirements of what information you need to report to the FCA.
21
Q

What is DEPP?

A

DEPP = Decision Procedure and Penalties Manual.

This contains a description of FCA’s procedures for taking statutory notice decisions, and FCA’s policy on imposition and amount of penalties, and on conduct of interviews.

22
Q

What is the main purpose of the Upper Tribunal (Tax and Chancery Chamber), to which functions of Financial Services and Markets Tribunal was transferred in April 2010?

A

To hear appeals from those aggrieved by decisions of the FCA, whether as:

  • victims of crime
  • consumers in debt
  • individuals asserting their employment rights
  • challenging decisions of Government bodies (such as the FCA)
23
Q

What decisions by the FCA might be subject to an appeal?

A
  • Refusal or withdrawal of authorisation
  • Prohibiting an individual
  • Taking disciplinary action against an authorised firm
24
Q

What is the Redress in the FCA Handbook?

A
  • This contains the processes for handling complaints and dealing with compensation.

Includes:

  • DISP
  • COMP
25
Q

What is DISP?

A

DSP = Dispute Resolution: Complaints

  • Contains the procedures a firm will need to have in place to handle any complaints made by its customers and the rules that apply to firms subject to FOS.
26
Q

What is COMP?

A

COMP = Compensation

  • It contains information on the FSCS, a scheme to compensate customers if the firm responsible for their loss is not able to pay the claim.
27
Q

Who is responsible for the FSCS (Financial Services Compensation Scheme)?

A

FCA and PRA jointly

28
Q

What are the other FCA Handbook material?

A
  • Specialist Sourcebooks
  • This contains the requirements applying to some individual business sectors, e.g. CREDS contains requirements applying to credit unions.
  • Listing, Prospectus, and Disclosure
  • Contains UK Listing Authority rules.
  • Handbook Guides
  • Guides aimed at giving a basic overview of certain topic and point firms in the direction of material in Handbook applicable to them.
  • Regulatory Guides
  • Guides to regulatory topics including enforcement, financial crime, perimeter, guidance, the fair treatment of customers, wind-down planning, and MiFID 2.
29
Q

What is the complaints process?

A
  1. Prompt - e.g. within 5 working days (reasonable amount of time), send copy of complaints procedure, assign someone to handle complaint, provide contact details of referral.
  2. ‘Keep the client informed’ - e.g. within 4 weeks, send summary of complaint, investigation summary, details of offer, and its time limit and details of FOS, or send a holding response.
  3. Within 8 weeks - e.g. send a final response as at 4 weeks, explaining when firms will be able to resolve the complaint and customers right to the FOS within next 6 months.
30
Q

What are the FOS liability?

A
  • FOS consists of a chief ombudsman and panel of ombudsmen; they are not liable for their actions unless there is bad faith or breach of Human Rights Act 1998.
31
Q

What are the timescales an eligible complainant refers matter to FOS?

A
  • 6 months after the firm’s final response
  • 6 years after the event complained about or if later
  • 3 years after the complainant knew or should have known that they had cause for complaint.
  • FOS can consider complaints outside these limits in exceptional circumstances, or certain cases involving pensions.
32
Q

What is FOS jurisdiction?

A
  • Compulsory for authorised firms
  • Takes in all regulated activities plus mortgages, and unsecured lending, paying money by plastic card, ancillary banking services and consumer credit; also dealing with NS&I complaints.
  • Voluntary for firms not needing authorisation
33
Q

How are FOS mainly funded?

A

By a levy on participating firms.

34
Q

What is the role of the Pensions Ombudsman?

A
  • Deals with complaints concerning the circumstances of the sale.
  • Handles any problems concerning the management or administration of the scheme.
35
Q

What is the Financial Services Compensation Scheme (FSCS)?

A

A compensation fund of last resort for customers of authorised financial services firms.

If a firm insolvent or ceases trading, the FSCS may be able to pay compensation.

36
Q

Who are eligible for FSCS compensation?

A
  • Private individuals
  • Smaller businesses
  • Most persons and organisations are eligible in respect of LT and compulsory insurance.
37
Q

What does it mean when a firm is in default?

A
  • Firm is unable to satisfy protected claims against it (i.e. protected deposit, protected insurance contract, protected investment business).
38
Q

What must a claim to FSCS related to?

A
  • Protected deposit
  • Protected insurance contract
  • Protected investment business
39
Q

What are the FSCS limits for compensation?

A
  • Deposits - 100% of the first £85,000 (per person per authorised firm).
  • Investments - 100% of the first £85,000 (per person per authorised firm).
  • Long-term insurance business - no upper limit on amount on protection; product providers = 100% of claim, Intermediaries = 90%.
  • Pensions - pension provider = 100% of claim, SIPP operator = 100% of the claim up to £85,000.
  • General insurance - 90% of claim with no upper limit for non-compulsory insurance, 100% of claim or unexpired premiums with no upper limit for compulsory insurance (e.g. employers’ liability insurance).
  • Home finance (e.g. mortgage advice and arranging) - 100% of the first £85,000 (per person per authorised firm).
40
Q

How does the FSCS funding work?

A
  • Each industry sector has 2 sub classes, divided along provider and distributor lines; having a sub-class limit could be required to compensation claims each year.
  • If member of group defaults, the other members have to pay a levy to fund the compensation.
41
Q

How can the FSCS reduce compensation?

A
  • Evidence of contributory negligence by the claimant.
  • Paying the full amount would provide a greater benefit than claimant might reasonably have expected.
  • Payment would provided greater benefit than that available on similar investments with other firms.
42
Q

Where can FSCS do to avoid breaching tax law?

A
  • Make payments direct to a pension scheme than an individual where its necessary.
43
Q

What are the FSCS duties?

A
  1. To try to make arrangements to secure continuity of insurance for LT insurance policyholders by transferring the business to another insurer.
  2. Try to safeguard the policyholders of insurance companies in financial difficulties.

CII R01 - Financial Services, Regulation & Ethics (23 decks)

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