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R01 Flashcards

1
Q

Regulation of financial services

What does FSMA stand for?

A

Financial Services and Markets Act 2000

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2
Q

Regulation of financial services

What did the FSMA create? (3)

A
  • Single Regulator: Financial Services Authority (FSA)
  • Single Ombudsman: Financial Ombudsman Service (FOS)
  • One compensation scheme: Financial Services Compensation Scheme (FSCS)
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3
Q

Regulation of financial services

What did the FSMA introduce?

A

General Rule of Prohibition

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4
Q

Regulation of financial services

What are regulated activities under the FSMA?

A

Dealing, Arranging, Managing and giving advice on the following:

  • Banking
  • Home Finance
  • Insurer
  • Scheme Operator
  • Investment Intermediary
  • Insurance Intermediary
  • Investment Manager
  • Credit-rated
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5
Q

Regulation of financial services

What did FSA 2012 do? (4)

A

Financial Services Act:

  • Twin Peaks Regulation (PRA and FCA)
  • Financial Policy Committee (FPC)
  • Created SCOFS
  • New supervision powers: ​​
    • banning products (up to 12 months)
    • withdrawal of misleading financial promotions
    • publication of enforcement action
    • market intelligence gathering and research
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6
Q

Regulation of financial services

What changes were introduced in the Financial Services (Banking Reform) Act 2013?

A

Rules of individual accountability

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7
Q

Regulation of financial services

BOEFSA

  • When was it introduced?
  • What does it stand for?
A
  • 2016
  • Bank of England and Financial Services Act 2016
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8
Q

Regulation of financial services

BOEFSA

What did it do? (4)

A
  • Created Prudential Regulation Committee (PRC)
  • Replaced PRA Board (Prudential Regulation Authority)
  • FPC made statutory committee - with MPC (Monetary Policy Committee) and PRC
  • BOE at heart of regulation
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9
Q

Regulation of financial services

What does the Treasury do? (5)

A
  • Investigates financial and economic policies for UK government
  • Fiscal policy
  • UK Budget
  • Overall oversight of financial regulation
  • Chairs SCOFS (Standing Committee of Financial Stability)
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10
Q

Regulation of financial services

What are the aims of the Treasury? (3)

A
  • Raise the rate of sustainable growth
  • Sustainable jobs
  • Achieve rising prosperity by creating economic opportunities
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11
Q

Regulation of financial services

What does the Bank of England do? (4)

A
  • UK central bank and lender of last resort
  • Responsible for overall financial stability of the system
  • Focused on reducing systemic risk (FPC and PRA)
  • Responsible for Monetary Policy through Monetary Policy Committee
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12
Q

Regulation of financial services

Financial Policy Committee (FPC)

When was it established?

What does the FPC do? (4)

A

Established in April 2013 - has macro responsibility

  • Operates and runs within the Bank of England
  • Protects and enhances the resilience of UK financial system by identifying action to remove or reduce systemic risk
  • Supports UK Government economic policy
  • Produces twice yearly Financial Stability Reports to the Treasury and European Regulators
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13
Q

Regulation of financial services

Who chairs the FPC and how many members are there?

A

Chaired by Governor of the Bank of England with 13 members

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14
Q

Responsibilities and approach to regulation

What are the FPC macro prudential tools and what do they do? (3)

A
  • Setting countercyclical capital buffers - ensure banks increase their capital in good times so they have protection for the bad
  • Variable risk weights - requiring banks to hold different levels for capital against assets depending on risk taken
  • Leverage limits - reduce amount that firms use their balance sheet in order to borrow to reinvest in the market
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15
Q

Financial services industry: an overview

What does the Monetary Policy Committee (MPC) do? (2)

A
  • Enacts monetary policy
  • Sets interests rates to meet inflation target set of the Chancellor of the Exchequer
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16
Q

Monetary Policy Committee (MPC)

How far ahead does the MPC look when setting interests rates?

How often does it meet?

What is their target?

A

18-24 months

8 times a year

Achieve 2% inflation (CPI) set by UK Government

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17
Q

Regulation of financial services

What does PRA stand for?

What does the PRA do? (2)

A

Prudential Regulation Authority

  • Sits within the Bank of England
  • Regulates 1700 most systemically important firms
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18
Q

Responsibilities and approach to regulation

List the PRA charactersitics (3)

A
  • Judgement based - uses own judgement to identify where most significant risk is
  • Forward-looking - future rather than current risk
  • Focused - looking at areas of highest systemic risk
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19
Q

Responsibilities and approach to regulation

What are the objectives of the PRA? (3)

A
  • Promote safety and soundness of firms
  • Facilitate effective competition (2016)
  • Secure an appropriate degree of consumer protection
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20
Q

Responsibilities and approach to regulation

What does FCA stand for?

What does the FCA do? (2)

A

Financial Conduct Authority

  • Independent limited company
  • Oversees most UK firms’ conduct and prudential supervision
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21
Q

Regulation of financial services

Who is the FCA responsible for? (3)

A
  • FOS
  • FSCS and CMCs
  • Money and Pensions Service (MaPS)
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22
Q

The FCA Handbook

Where does the FCA derive it’s power from?

A

FSMA 2000 and FSA 2012

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23
Q

Regulatory advice framework

What did the Treasury declare in March 2016, which established a new guidance body at start of 2019?

A

Combining - Money Advice Service, Pensions Advisory Service and Pension Wise to make Money and Pensions Service (MaPS)

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24
Q

Regulation of financial services

FCA has 1 strategic and 3 operational objectives - what are they?

A

Strategic - to ensure that the relevant markets function well

Operational -

  • Protect Consumers
  • Protect financial markets
  • Promote competition
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25
Q

Responsibilities and approach to regulation

RDC

What does it stand for?

Who chairs it?

A

Regulatory Decisions Committee

An employee of the FCA

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26
Q

Responsibilities and approach to regulation

RDC

What does it do? (2)

A
  • Decides on enforcement and supervisory actions
  • Issues warnings, decisions and supervisory notices
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27
Q

Regulation of financial services

SCOFS

What does it stand for?

Who chairs it?

A

The Standing Committee on Financial Stability

Treasury

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28
Q

Regulation of financial services

SCOFS

Composed of?

What does it do?

A

Treasury, Bank of England and FCA

Creates tripartite working practices relevant to financial stability

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29
Q

Regulation of financial services

What is passporting? (2)

A
  • Once licensed for an activity in an EEA state a firm is allowed to carry out that activity in the EU
  • Passporting rights arise under EU single market directive
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30
Q

Regulation of financial services

EU legislative acts can take different forms starting with treaties - what are treaties?

A

EU’s primary form of legislation

Require member state government approval

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31
Q

Regulation of financial services

EU legislative acts can take different forms - Secondary after treaties is legislation - what is legislation? (Binding and non-binding)

A

Binding legal instruments: Decisions, regulations and directives

Non binding legal instruments: recommendations and opinions (UK has some discretion)

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32
Q

Regulation of financial services

EU legislative acts can take different forms - what are regulations?

Take effect?

No what?

A
  • Usually concerned with day-to-day administration
  • Take effect immediately in all member states
  • No discretion as legally binding in their entirety
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33
Q

Regulation of financial services

EU legislative acts can take different forms - what are directives? (3)

A
  • Focus on desired results, binding on member states from a set date
  • Methods to achieve left to discretion of member state (eg MiFID)
  • Need to be transposed into national law therefore require ratification
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34
Q

Regulation of financial services

EU legislative acts can take different forms - who is affected mostly by Directives?

A

Mostly affects Financial Services Industry

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35
Q

Regulation of financial services

EU legislative acts can take different forms - what are decisions and who do they effect?

A

Individual measures addressed to an individual or member state

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36
Q

Regulation of financial services

EU legislative acts can take different forms - Decisions are enforceable when?

A

Fully binding, enforceable immediately

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37
Q

Financial services industry: an overview

What percentage of FCA policy making comes from EU initiatives?

A

70%

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38
Q

Financial services industry: an overview

What is FSAP and what is its primary objective?

A

Financial Services Action Plan

Primary objective to improve single market for Financial Services

(42 measures, including 24 directives)

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39
Q

Financial services industry: an overview

What are the FSAP objectives? (3)

A
  • Create a single EU wholesale market
  • Achieve open and secure retail markets
  • Create state of the art prudential rules and structure of supervision
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40
Q

Financial services industry: an overview

ESRB What does it stand for?

When was it established?

A

European Systemic Risk Board

Established in 201

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41
Q

Financial services industry: an overview

What does ESRB do? (3)

A
  • ​Oversees financial system of the EU
  • Monitors and assesses risks to stability of financial system as a whole
  • Issues warnings and recommendations
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42
Q

Regulation of financial services

ESA

What does it stand for?

A

European Supervisory Authorities

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43
Q

Regulation of financial services

ESAs

Who do they work with to achieve what?

A

Work with the ESRB to ensure financial stability and to strengthen and enhance EU supervisory framework. Improve coordination between national supervisory authorities, including FCA to reduce risk

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44
Q

Regulation of financial services

What are the three main European Supervisory Authorities?

A
  1. EBA - European Banking Authority
  2. ESMA- European Securities and Markets Authority
  3. EIOPA - European Insurance and Occupational Pensions Authority
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45
Q

Regulation of financial services

What is the ultimate aim of the ESA?

How is this achieved?

A

Create a single EU rulebook

Draft technical standards, issuing guidance and recommendations to member states

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46
Q

Regulation of financial services

What is the ESAs’ role with member states? (6)

A
  • Investigate to ensure compliance with EU law
  • Ban financial activities
  • Peer review to ensure consistency and share information
  • Improve consistency of EU supervision
  • Mediate disagreements
  • Gather and share data
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47
Q

Regulation of financial services

What does the ESMA have direct supervisory responsibility over?

A

Credit rating agencies

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48
Q

Regulation of financial services

What are the key European Directives? (6)

A
  • Markets in Financial Instrument Directive (MiFID)
  • Insurance Mediation Directive (IMD)
  • Capital Requirements Directive (CRD)
  • Fourth Money Laundering Directive (4MLD)
  • Alternative Investment Fund Managers (AIFMD)
  • Mortgage Credit Directive (MCD)
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49
Q

Regulation in financial services

MiFID

What does it stand for and when did it come into effect?

A

Markets in Financial Instruments Directive

1 November 2007

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50
Q

Regulation in financial services

MiFID

What was its aim

What did it do? (5)

A

Essentially a maximum harmonisation directive

  • More emphasis on senior management responsibility
  • Concerned with the conduct of business and internal structure of investment firms
  • Widen scope of core investment products
  • Easier to trade across the EU
  • Introduced capital requirements directive (CRD) - governing the reserves firms must hold
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51
Q

Regulation of financial services

MiFID II

When did it come into effect?

A

3 January 2018

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52
Q

Regulation of financial services

MiFID II

What did it do? (2)

A
  • Improve functioning of financial markets following financial crisis and strengthen investor protection
  • Greater transparency pre and post trading
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53
Q

Regulation of financial services

IMD

What does it stand for?

When did it come into effect?

A

Insurance Mediation Directive

January 2005

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54
Q

Regulation of financial services

IMD

What did it do? (2)

A
  • Moved unregulated insurance business into the regulated world
  • Set EU wide rules on introducing, concluding and assisting in insurance
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55
Q

Regulation of financial services

CRD

What does it stand for?

What is it also known as?

A

Capital Requirements Directive

Basel Accord

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56
Q

Regulation of financial services

CRD

Why was it introduced?

A

Help to strengthen the soundness and stability of the international banking system as a result of higher capital ratios

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57
Q

Regulation of financial services

CRD

What was the revised version and what did it do?

A

Basel II, further strengthened risk management practices of modern banking

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58
Q

Regulation of financial services

CRD

Introduced 3 Pillars of risk management and what are they?

A

Pillar 1: Minimum capital requirements for risk purposes

Pillar 2: View on whether additional capital above the minimum is required

Pillar 3: Requirement to publish firm’s risk management details and capital levels

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59
Q

Regulation of financial services

CRD IV

What does it stand for and when was it introduced?

A

Capital Requirements Directive IV

1 January 2014

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60
Q

Regulation of financial services

CRD IV

What is its aim?

A

To minimise the negative effects of firms failing by ensuring they hold enough financial resources to cover risks associated with their business

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61
Q

Regulation of financial services

MLDs

What does it stand for?

What does it focus on?

A

Money Laundering Directives

Fighting financial crime & terrorist financing

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62
Q

Regulation of financial services

What does 4MLD do? (4)

A
  • Bring guidance up to date
  • Provided a common EU basis for implementing the Financial Action Task Force (FATF) recommendations
  • Factors in new risks and practices developed since previous directives
  • Making industry best practices into mandatory requirements
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63
Q

Regulation of financial services

How was 4MLD introduced in the UK

A

The Money Laundering Regulations 2017 implemented the 4MLD directive in the UK

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64
Q

Regulation of financial services

4MLD

What did it change?

A

Introduced new concepts allowing firms to be more risk-based in their approach of Simplified & Enhanced due diligence

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65
Q

Regulation of financial services

When did 5MLD become effective in the UK?

A

24 July 2020

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66
Q

Regulation of financial services

5MLD

Amendments to include what providers? (2)

A
  • crypto asset exchange
  • custodian wallet
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67
Q

Regulation of financial services

AIFMD

What does it stand for?

A

Alternative Investment Fund Managers Directive

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68
Q

Regulation of financial services

AIFMD

What does it do? (2)

A
  • Concerned with management, administration and marketing of alternative investment funds (AIFs)
  • Regulates the alternative investment fund manager (AIFM)
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69
Q

Regulation of financial services

MCD

What does it do?

When was it implemented?

A

Mortgage Credit Directive is an EU Framework of conduct rules for mortgage firms

21 March 2016

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70
Q

Regulation of financial services

PRIIPs

What does it stand for?

When was it implemented?

A

Packaged Retail and Insurance-based Investment Products Regulation

1 January 2018

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71
Q

Regulation of financial services

PRIIPs

What does it do?

A

Help investors to better understand and compare the key features, rewards and costs of different PRIIPs, through the Key Information Document (KID)

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72
Q

Regulation of financial services

PRIIPs

When should a KID be provided to the consumer?

A

In good time before a transaction is concluded

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73
Q

Regulation of financial services

TPR

What does it stand for?

What year was it introduced?

A

The Pensions Regulator

2005

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74
Q

Regulation of financial services

TPR

What are its objectives? (6)

A
  • Protect the benefits of members of occupational pension schemes
  • Protect the benefits of members of personal pension schemes where there is a direct payment arrangement
  • Promoting smooth operation of work based pension from an admin perspective
  • Reduce the risk on the pensions protection fund
  • Enforcing auto-enrolment for employer compliance with work based pensions
  • Minimise any adverse impact on the sustainable growth of an employer
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75
Q

Regulation of financial services

TPR remit extends to? (5)

A
  • Employers
  • Trustees
  • Managers
  • Administrators
  • Anyone else running work based pension schemes
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76
Q

Regulation of financial services

What is the Occupational Pensions Registry (OPR)?

A

Helps individuals trace old company schemes

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77
Q

Regulation of financial services

OPR

What else does the OPR keep a register on?

A

Anyone who is prohibited in acting as a scheme trustee

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78
Q

Regulation of financial services

TPR

Has the power to do what? (3)

A
  • Remove, suspend and appoint new trustees
  • Fine individuals up to £5,000 and fine companies, employers and trustees up to £50,000
  • Wind up schemes if best for members
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79
Q

Regulation of financial services

TPR

Appeals against decisions of the TPR are made to whom?

A

Pensions Regulator Tribunal

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80
Q

Regulation of financial services

Information Commissioner’s Office (ICO)

What is its main duty?

A

Independent public body who oversees and enforces compliance with the General Data Protection Regulation (GDPR) and Data Protection Act 2018

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81
Q

Regulation of financial services

Information Commissioner’s Office (ICO)

Breaches are…..?

A

Breaches are punishable in a court of law

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82
Q

Financial Services industry: an overview

Payments Systems Regulator (PSR)

When did it become operational?

A

April 2015

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83
Q

Financial Services industry: an overview

Payments Systems Regulator (PSR)

What are its strategic objectives? (3)

A
  • Promotes interests of businesses and consumers
  • Promote competition
  • Promote development and innovation
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84
Q

Financial Services industry: an overview

Payments Systems Regulator (PSR)

What is its purpose?

A

Make payment systems work well in retail market

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85
Q

Financial Services industry: an overview

Payments Systems Regulator (PSR)

What is it a subsidiary of?

A

Subsidiary of the FCA, independent with own Director and Board

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86
Q

Financial Services industry: an overview

Payments Systems Regulator (PSR)

How is it funded?

A

By industry

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87
Q

Financial Services industry: an overview

Payments Systems Regulator (PSR)

Who is it accountable to?

A

Parliament

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88
Q

Regulation of financial services

The Competition and Markets Authority (CMA)

What does it do?

A

Ensures fair competition between UK companies to benefit consumers, businesses and UK economy

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89
Q

Regulation of financial services

The Competition and Markets Authority (CMA)

Who does it work closely with?

A

Treasury and FCA

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90
Q

Regulation of financial services

The Competition and Markets Authority (CMA)

What are its key responsibilities? (6)

A
  • Investigating mergers and effect on competition
  • Conduct market studies and investigating markets e.g. whether sufficient competition and consumers
  • Investigating anti-competitive behaviour
  • Enforcing consumer protection legislation aimed at removing market market practices and conditions which result in less choice for consumers
  • Criminal prosecution of cartel offences
  • Co-operating with other regulators
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91
Q

Responsibilities and approach to regulation

FCA

What are the 8 regulatory principles?

A
  • Efficiency and economy
  • Proportionality - burdens on firms proportional to outcomes
  • Sustainable growth
  • Senior management responsibility
  • Recognition of business differences
  • Openness and disclosure
  • Transparency
  • Consumer responsibility
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92
Q

Responsibilities and approach to regulation

FCA

List the Supervision principles? (10)

A
  • Ensure fair outcomes for consumers
  • Forward looking and pre-emptive
  • Focus on the big issues
  • Judgement based approach
  • Ensure firms act in the right spirit
  • Examine business models and culture
  • Individual accountability
  • Be robust when things go wrong
  • Communicate openly
  • Joined up approach
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93
Q

Responsibilities and approach to regulation

FCA

Ultimately accountable to whom?

A

Treasury

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94
Q

Responsibilities and approach to regulation

FCA

Practitioner Group Panels provide feedback to the FCA - who are they? (4)

A
  • FSPP - Financial Services Practitioner Panel
  • FSCP - Financial Services Consumer Panel
  • SBPP - Smaller Business Practitioner Panel
  • MPP - Markets Practitioner Panel
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95
Q

Responsibilities and approach to regulation

FCA

The FCA has to…….but don’t have to……?

A

FCA has to LISTEN but not ACT

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96
Q

Responsibilities and approach to regulation

FCA

Subject to several additional bodies? (3)

A
  • Upper Tribunal
  • Complaints Commission
  • Competition and Markets Authority
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97
Q

The FCA Handbook

General Rule of Prohibition

What is it?

A

To conduct a regulated activity a firm must be either authorised or exempt

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98
Q

The FCA Handbook

General Rule of Prohibition

What happens if this is breached?

A

This is a criminal offence, punishable by up to 2 years in prison and an unlimited fine

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99
Q

The FCA Handbook

General Rule of Prohibition

What is an authorised person?

A

The firm

100
Q

The FCA Handbook

General Rule of Prohibition

What is an exempt person?

A

Appointed Representative (AR)

AR - firm or individual gains regulation from authorised person rather than FCA

101
Q

Responsibilities and approach to regulation

FCA

What are its three divisions and what do they do?

A
  • Enforcement - investigates breaches of FCA rules using a risk based approach and reports findings to Regulatory Decisions Committee (RDC)
  • Authorisation - Grant, vary, cancel authorisation and permitted activity
  • Supervision - day to day relationship with firms, devise rules, refer to enforcement division
102
Q

Responsibilities and aproach to regulation

FCA

Enforcement Division has the option of civil or criminal proceedings - explain the difference?

A

Civil law - defines the rights of parties in a transaction. Restitution is normally in the form of damages/ compensation to the innocent party

Criminal Law - defines the rights of the public and their safety. Punishment is usually fines and imprisonment. Criminal proceedings take longer and are more costly

103
Q

Responsibilities and approach to regulation

FCA

Normal sanctions for civil action? (3)

A
  • Injunctions to stop future activity
  • Restitution payments
  • Granting insolvency orders - ordered to wind up firm
104
Q

Responsibilities and approach to regulation

FCA

Normal sanctions for criminal proceedings?

A

An unlimited fine and/ or a prison sentence up to a maximum of 7 years

105
Q

Responsibilities and approach to regulation

FCA

What are criminal misconduct offences? (4)

A
  • Falsely claiming to be FCA-authorised
  • Carrying on a regulated activity without authorisation
  • Making misleading statements to induce investments
  • Failing to co-operate with FCA investigations
106
Q

Responsibilities and aproach to regulation

FCA

What are the maximum prison sentences for the following?

  • Money Laundering
  • Failure to report suspicion
  • Misleading conduct or insider dealing
  • Proceeds of Crime Act 2002 offences
  • Tipping off
A
  • 2 years
  • 5 years
  • 7 years
  • 14 years
  • 6 months
107
Q

Responsibilities and approach to regulation

FCA

What does the Upper Tribunal do?

A

Independent judicial body that handles appeals for those who do not agree with the Regulatory Decisions Committee (RDC)

108
Q

Responsibilities and approach to regulation

FCA

Who controls the Upper Tribunal?

A

Lord Chancellor, part of the court of appeal on point of law only

109
Q

Responsibilities and approach to regulation

FCA

What are the 3 Pillars of Supervision?

A
  • Firm systemic framework - pro-active firm supervision, forward looking
  • Event driven reactive supervision - issues emerging and already emerged
  • Thematic approach - Issues and product supervision - reviews drivers of poor consumer and market outcomes as they take place
110
Q

Responsibilities and approach to regulation

FCA

What are the two categories of firm & how does the FCA supervise them?

A
  • Fixed Portfolio firms - small numbers of large higher risk firms. Pillar 1: Proactively supervised with a named supervisor. Continual assessment approach.
  • Flexible Portfolio firms - most firms in the UK do not carry significant risk to financial stability. Contact FCA via contact centre. Pillar 2 and 3 supervision
111
Q

Responsibilities and approach to regulation

FSB

What is it?

When was it set up?

A

Financial Stability Board - International Board

April 2009

112
Q

Responsibilities and approach to regulation

FSB

What does it do? (2)

A
  • Monitors and makes recommendations on global financial systems
  • Promotes international financial stability by coordinating financial authorities
113
Q

Responsibilities and approach to regulation

FAR

What does it stand for?

What does it do?

A

Free Asset Ratio

Measures the financial stability of organisations

114
Q

Responsibilities and approach to regulation

FAR

Calculate FAR?

Company has assets of £30 million and liabilities of £12 million

A

Current Surplus Assets/ Current assets x 100

30-12 = 18/30 x 100 = 60% FAR

115
Q

The FCA Handbook

What are the first 5 blocks of the FCA handbook?

A
  • High level Standards
  • Prudential Standards
  • Business Standards
  • Regulatory Process
  • Re-dress
116
Q

The FCA Handbook

In Block 1 what is:

PRIN?

A

Principles for Business - General statements about a firm’s regulatory obligations

117
Q

The FCA Handbook

In Block 1 what is:

SYSC?

A

Senior Management Arrangements, Systems and Controls - Rules and guidance on these and how Senior Management should approach them

118
Q

The FCA Handbook

In Block 1 what is:

COND?

A

Threshold Conditions - Minimum standards a firm must satisfy and maintain for FCA authorisation

119
Q

The FCA Handbook

In Block 1 what is:

FIT?

A

Fit and Proper Testing - Criteria for Approved Person’s suitability

120
Q

The FCA Handbook

In Block 1 what is:

FINMAR?

A

FINMAR: Financial Stability and Market Confidence Rules - Rules for stability, confidence and short selling

121
Q

The FCA Handbook

In Block 1 what is:

TC?

A

Training and Competence - the commitments and requirements concerning staff competence

122
Q

The FCA Handbook

In Block 1 what is:

GEN?

A

General Provisions - legal framework for status disclosure

123
Q

The FCA Handbook

In Block 1 what is:

FEES?

A

Fees Manual - Framework for funding the FCA, FOS and FSCS

124
Q

The FCA Handbook

In Block 1 what is:

COCON?

A

Code of Conduct - rules about the conduct of approved persons

125
Q

The FCA Handbook

FCA

What are the 11 Principles for Business?

A
  • Conduct business with integrity
  • Due skill, care and diligence
  • Management systems and controls
  • Financial prudence (adequate financial resources)
  • Proper standards of market conduct
  • Consumers’ interest
  • Clear communication, fair and not misleading
  • Must manage conflict of interest
  • Suitability of advice
  • Protection of client assets
  • Open and co-operative with regulator
126
Q

The FCA Handbook

SYSC - Systems and Controls applies to?

A

Applies to senior management of an authorised person

127
Q

The FCA Handbook

SYSC

SYSC 2?

A

Senior Management Arrangements - appoint individuals and apportion and record significant responsibilities among Directors and Senior Managers

128
Q

The FCA Handbook

SYSC

SYSC 3?

A

Systems and Controls - appropriate and regularly reviewed

129
Q

The FCA Handbook

SYSC

SYSC 4?

A

General Organisational Structure - clear structure for risk, governance

130
Q

The FCA Handbook

SYSC

SYSC 5?

A

Employees, agents and other relevant persons - staff must be skilled, knowledgeable and experienced

131
Q

The FCA Handbook

SYSC

SYSC 6?

A

Compliance, internal audit and financial crime - maintain procedures for regulatory requirements

132
Q

The FCA Handbook

SYSC

SYSC 7?

A

Risk Control - establish and maintain risk management policies

133
Q

The FCA Handbook

SYSC

SYSC 8?

A

Outsourcing - manage operational risk arising through outsourcing

134
Q

The FCA Handbook

SYSC

SYSC 10?

A

Conflicts of Interest - systems to identify and manage this

135
Q

The FCA Handbook

SYSC

SYSC 9?

A

Record Keeping - must be maintained and anti-money laundering

136
Q

The FCA Handbook

SYSC

SYSC 10A?

A

Recording telephone calls and electronic communications - that relate to financial instruments

137
Q

The FCA Handbook

SYSC

SYSC 18?

A

Whistle Blowing - must be protected and inform employees of procedures

138
Q

The FCA Handbook

SYSC

SYSC 19?

A

Remuneration Code - remuneration policies consistent and promote effective risk management. E.g. Avoid performance related pay

139
Q

The FCA Handbook

SYSC

SYSC 11-17?

A

Specific to different types of regulated firms

140
Q

The FCA Handbook

SYSC

SYSC 24?

A

Prescribed responsibilities - given to a senior manager

141
Q

The FCA Handbook

COND

List Threshold Conditions? (5)

A
  • Location of offices - Head office and registered office must be in the UK
  • Effective supervision - FCA must be satisfied it can supervise
  • Appropriate resources
  • Suitability - must have Fit and Proper persons
  • Business model - must be in interests of consumers and UK financial system
142
Q

FCA

FIT

Fit and proper test? (6)

A
  • Honesty
  • Integrity
  • Regulation
  • Competence
  • Capability
  • Financial soundness
143
Q

The FCA Handbook

SPS

What does it stand for?

Certified by?

A

Statement of Professional Standing

Certified by the Personal Finance Society (PFS)

144
Q

The FCA Handbook

SPS

What must you do to be certified? (3)

A
  • Level 4 qualified
  • 35 hours of CPD - 21 structured and 14 unstructured hours. (including 15 hours IDD)
  • Subscribe to Code of Ethics
145
Q

The FCA Handbook

Block 2: Prudential Standards (PRU)

What does it set out?

A

Sets outs prudential framework for banks, building societies, insurers and investment firms

146
Q

The FCA Handbook

Block 2: Prudential Standards

GENPRU?

A

Prudential sourcebook for banks, building societies, insurers and investment firms sets out adequacy for financial resources, minimum capital requirements and types of eligible capital

147
Q

The FCA Handbook

Block 2: Prudential Standards

BIPRU?

A

BIPRU - Calculation factors - e.g. Capital Requirements Directive (CRD)

148
Q

The FCA Handbook

Block 2: Prudential Standards

MIPRU?

A

Sourcebook for mortgage and home finance firms and intermediaries

149
Q

The FCA Handbook

Block 2: Prudential Standards

IPRU-INV?

A

IPRU-INV - Sourcebook for investment businesses

150
Q

The FCA Handbook

Block 2: Prudential Standards

INSPRU?

A

Insurers and UCITS firms

151
Q

The FCA Handbook

Block 2: Prudential Standards

IPRU-FSOC?

A

Sourcebook for friendly societies

152
Q

The FCA Handbook

Block 2: Prudential Standards

IPRU-INS?

A

Sourcebook for insurers

153
Q

The FCA Handbook

Block 3: Business Standards

COBS?

A

Conduct of Business (Investment firms) - Day to day rules and requirements

154
Q

The FCA Handbook

Block 3: Business Standards

ICOBS?

A

Insurance Conduct of Business

155
Q

The FCA Handbook

Block 3: Business Standards

MCOB?

A

Mortgage Conduct of Business

156
Q

The FCA Handbook

Block 3: Business Standards

BCOBS?

A

Banking Conduct of Business

157
Q

The FCA Handbook

Block 3: Business Standards

CASS?

A

Client Assets - holding client money

158
Q

The FCA Handbook

Block 3: Business Standards

MAR?

A

Market Conduct - conduct and abuse

159
Q

The FCA Handbook

Block 3: Business Standards

PROD?

A

Product Intervention and Product Governance

160
Q

The FCA Handbook

In Block 3 you will find Inducements within which business standard?

What are they?

A

COBS

Indirect benefits, gifts, extras - they cannot be offered to customers, solicited or accepted

161
Q

The FCA Handbook

ICOBS:

What product categories does it cover? (3)

Year?

A

Covers General Insurance, Pure Protection and PPI

14.01.2005

162
Q

The FCA Handbook

ICOBS:

Grandfathering allowed?

A

No - had to apply for authorisation under FSA, couldn’t migrate authorisation

163
Q

The FCA Handbook

ICOBS:

Requirements? (4)

A
  • Initial Disclosure Document (IDD) or TOB
  • Production of demands and needs statement
  • Suitable requirements
  • Confirming cancellation rights
164
Q

The FCA Handbook

ICOBS

Cancellation periods:

Pure protection policies?

General insurance?

Renewal of terms?

Travel insurance?

Policies < 1 month?

Policies where performance already completed?

A

Pure protection - 30 days

General insurance - 14 days

Renewal of terms - 21 days

All others - no cancellation rights

165
Q

The FCA Handbook

MCOB - statutory regulation from 2004

What is a regulated mortgage contract?

A

Lender provides credit to individual or trustee which is secured by legal charge on UK land, on which at least 40% of the dwelling must be used by the borrower or related person

166
Q

The FCA Handbook

MCOB

What is a non-regulated mortgage contract?

A

Borrower is a company and Buy-to-Let mortgages where the house dweller is not the borrower or related person. Exception if borrower intends to occupy the property at some stage

167
Q

The FCA Handbook

MCOB

What impact did the Mortgage Credit Directive (MCD) have on Buy-to-lets (BTL) from March 2016

A

Where customers were not intending to be landlords, accidental via inheriting or couldn’t sell - have to now be treated as regulated contracts

168
Q

The FCA Handbook

MCOB

Equity Release - what are the 2 types?

A

Home Reversion Plans - buys all or part of a customer’s home at a discount (20%-60% of market value), in return given a lump sum or income. Customer pays nominal rent and can live in it until they die or move out

Lifetime mortgage - Money is secured against home, so customer retains ownership and borrows a lump sum, drawdown facility or combination. Apart from roll up and fixed repayment they pay interest on the loan monthly

169
Q

The FCA Handbook

MCOB

What is Sale and Rent Back?

A

Individuals sells home, usually at discount, obtains an agreement to remain in the property for a set period

170
Q

The FCA Handbook

MCOB

What did SRB regime introduce? (7)

A
  • A fixed term tenancy agreement of at least 5 years
  • Introducing a cooling off period 14 days
  • Banning cold-calling
  • Prohibiting use of emotive marketing terms e.g. ‘fast sale’
  • Ensuring independent valuation where valuer owes a duty of care to the consumer
  • Customers have adequate information to make an informed decision
  • Ensuring customers have checked their on-going entitlement to benefits
171
Q

The FCA Handbook

MCOB: UK Mortgage Market Reforms: Mortgage Market Review

When?

What did it seek to provide? (2)

A

April 2014

  • Provide a more stable and fairer lending environment so that borrowers are less likely to get into negative equity or default
  • Strengthen the affordability test and responsibility of the lender
172
Q

The FCA Handbook

MCOB: UK Mortgage Market Reforms: Mortgage Market Review

What did it abolish?

A

Self-certification (where you declare your income)

173
Q

The FCA Handbook

MCOB: Mortgage Credit Directive

What is it and when was it implemented in UK?

A

EU framework of conduct rules for mortgage firms applies to 1st and 2nd charge mortgages

21 March 2016

174
Q

The FCA Handbook

MCOB: Mortgage Credit Directive

Introduced ESIS - what is it and what did it replace?

A

ESIS - European Standard Information Sheet replaced KFI (21 March 2019) - show mortgage at highest interest rate in 20 year period

175
Q

The FCA Handbook

MCOB: Mortgage Credit Directive

Reflection period?

A

7 days - where adviser is not allowed to contact client (in addition to post sale cooling off period)

176
Q

The FCA Handbook

MCOB

What qualification does the FCA require mortgage sellers and advisers to have?

A

Level 3 qualification

177
Q

The FCA Handbook

What is the difference between advice and information?

A

Information - is accurate and neutral facts, with no comment or opinion

Advice - involves giving an opinion on the merits of a particular product and/ or its suitability for a particular customer

178
Q

The FCA Handbook

CASS

What did it do?

A

Segregated client money from firm’s own assets

179
Q

The FCA Handbook

CASS

How long to pay in?

Interest belongs to?

A

Close of business the next working day

Client

180
Q

The FCA Handbook

CASS

Reconciliation?

A

Reconciliation to be performed ‘as often as necessary’. In practice the FCA expect it to be done daily

181
Q

The FCA Handbook

CASS

CMAR - Client Money Asset Register - who completes?

A

CASS small firms don’t need to complete a CMAR, but large firms do via Gabriel every month

182
Q

The FCA Handbook

Market Conduct (MAR)

What prohibitions does the FCA include in MAR? (3)

A
  • Disseminating false or misleading information
  • Giving a false or misleading impression
  • Making artificial transactions
183
Q

The FCA Handbook

Market Conduct (MAR)

Is their a limitation on fines?

A

No

184
Q

The FCA Handbook

Market Conduct (MAR)

What is MAD?

A

Market Abusive Directive - resulted in EU wide market abuse regime

185
Q

The FCA Handbook

PROD

What is good product governance? (3)

A

Products that:

  • Meet the needs of one or more identifiable target markets
  • Are sold to clients in the target markets by appropriate distribution channels
  • Deliver appropriate client outcomes
186
Q

The FCA Handbook

Block 4: Regulatory Process - describes the FCAs supervisory and disciplinary functions

AUTH?

A

Authorisation - whether this is needed and how to apply for it

187
Q

The FCA Handbook

Block 4: Regulatory Process - describes the FCAs supervisory & disciplinary functions

SUP?

A

Supervision - How FCA ensures firm’s compliance

188
Q

The FCA Handbook

Block 4: Regulatory Process - describes the FCAs supervisory and disciplinary functions

DEPP?

A

Decisions, Procedure and Penalties

189
Q

The FCA Handbook

Block 5: Re-dress

DISP?

A

Complaints - Procedures firms have in place to handle complaints

190
Q

The FCA Handbook

Block 5: Re-dress

CONRED?

A

Re-dress - requirements for Arch Cru fund advice

191
Q

The FCA Handbook

Block 5: Re-dress

COMP?

A

Compensation - information about FSCS

192
Q

THE FCA Handbook

Block 5

Office of Complaints Commissioner

What does it investigate?

A

Complaints against UK regulators - FCA, PRA and Bank of England

193
Q

THE FCA Handbook

Block 5

Office of Complaints Commissioner

What is the complaint acknowledgement period?

A

Must acknowledge complaint in 3 working days and have deal with complaint within 4 weeks - report to the complainant and the FCA

194
Q

THE FCA Handbook

Block 5

Office of Complaints Commissioner

What are the options when dealing with a complaint? (5)

A
  • Exclude
  • Choose not to investigate
  • Defer
  • Not uphold
  • Uphold
195
Q

THE FCA Handbook

Block 5

Office of Complaints Commissioner

If a complaint is upheld what are the options? (4)

A
  • Regulator apology
  • Steps to remedy
  • Change to procedure
  • Compensation payment
196
Q

What are specified regulated activities which require FCA authorisation?

A
  • Banking
  • Home Finance
  • Intermediary Insurer
  • Scheme Operator
  • Investment Intermediary
  • Insurance Intermediary
  • Investment management
  • Credit-related
197
Q

Record Keeping

What are the standard periods for keeping client records and T&C records after an adviser has left the business

A

Non MiFID - 3 years

Life & Pensions - 5 years

Financial Promotions - 6 years

Pension Transfers, FSAVCs & Opt Outs - forever

198
Q

The FCA Handbook

COCON

What are the individual conduct rules and who do they apply to? (5)

A
  • Integrity
  • Due skill, care and diligence
  • Open and co-operative with the regulators
  • Consumer Interests
  • Market Conduct

​

​All employees not just regulated individuals - set basic standards of good personal conduct

199
Q

The FCA Handbook

COCON

What are Senior Management conduct rules? (4)

A
  • Firm controlled effectively
  • Compliant
  • Appropriate delegation of responsibilities
  • Disclose appropriate info to regulators
200
Q

Principles and rules

SM&CR

What is it and when and what did it replace?

A

Senior Management and Certification Regime

Replaced Approved Person Regime, changing how people working in financial services are regulated. Effective December 2019 for FCA solo regulated firms. Originally introduced to banks and BS on 7 March 2016

201
Q

Principles and rules

SM&CR

What are its aims?

A

Aims to reduce harm to consumers and market integrity by making individuals more accountable for their conduct and competence

202
Q

SM&CR

What are the two types of Senior Management Function?

A
  • Executive functions
  • Oversight functions
203
Q

SM&CR

What are the key features? (3)

A
  • Senior Managers Regime
  • Certification Regime
  • Conduct Rules
204
Q

SM&CR

Senior Managers Regime - focuses on?

A

Senior individuals who hold key roles

205
Q

SM&CR

What do firms need to do? (4)

A
  • Statement of Responsibilities (SoR) - for each key role which sets out areas of personal accountability
  • Firm Responsibilities Map - knits SoRs together
  • All SMs are pre-approved by the regulators before carrying out their roles
  • Assess for Fitness and Propriety at least annually
206
Q

Principles and rules

SM&CR

Certification Regime - applies to

A

Applies to material risk takers (ie staff who are subject to the Remuneration Code) and staff who pose a risk of significant harm to firm or customers (e.g. Advisers)

207
Q

Principles and rules

SM&CR

What do firms need to do once identified certified individuals? (4)

A
  • Assess them as fit and proper
  • Issue a certificate to each
  • Re-assess annually and issue new annual certificate
208
Q

Principles and rules

SM&CR

Conduct Rules - who do they apply to?

A

Applies directly to nearly all staff

209
Q

Principles and rules

SM&CR

What is a grandfathering notification?

A

Allowed existing staff from old Approved persons regime to be ‘grandfathered’ to an equivalent senior manager function without fresh pre-approval

210
Q

Principles and rules

SM&CR

What is the 12-week rule?

A

Allows someone to cover for a Senior Manager without being approved, where absence is temporary or reasonably unforeseen, and is for less than 12 consecutive weeks

211
Q

Principles and rules

SM&CR

Notifying FCA about Conduct Rule Breaches, how do you do it and what is the timing? (3)

A
  • For SM, notify FCA within 7 business days of concluding disciplinary action using Form D
  • Other individuals, notification yearly via GABRIEL
  • A firm needs to make an annual notification about Conduct Rules even if there haven’t been any breaches
212
Q

Serving the retail customer

Priority order of client needs? (7)

A
  • Budgeting
  • Managing debt
  • Borrowing
  • Protection
  • Retirement planning
  • Savings and investing
  • Estate and tax planning
213
Q

Principles and outcomes-based regulation

Key corporate cultural drivers? (6)

A
  • Leadership
  • Strategy
  • Decision making and challenge
  • Controls
  • Recruitment and Training and Competence
  • Reward
214
Q

Ethics and professional standards

4 key components of a firm’s ethical culture? (4)

A
  • Leadership - from the top
  • Practices - e.g. promtion, rewards, recruitment
  • Narratives - what the firm is trying to acheive
  • Capabilities - how well equipped a firm is towards ethical behaviours
215
Q

Ethics and professional standards

Ethics framework? (4)

A
  • Commitment - code of ethics
  • Leadership - role of leaders
  • Operational - policies
  • Oversight - progress is monitored and reviewed
216
Q

Ethics and professional standards

CII code of ethics? (5)

A
  • Complinace
  • Integrity
  • Best interest of the client
  • High standards
  • Fairness
217
Q

Ethics and professional standards

CSR

What is it?

What is a materiality assessment?

A

Corporate Social Responsibility

Identify stakeholders prioritise them and focus on important issues

218
Q

Principles and rules

Complaints

Total compensation?

For complaints and actions after 01.04.2019?

For actions pre-Apr-19 but complaints after?

A

£350,000 + interest & costs

£160,000 + interest & costs

£150,000 + interest & costs

219
Q

Principles and rules

Complaints

FOS eligible complainants from 01.04.19?

A
  • Consumer
  • micro-enterprise with< 10 employees + £2 m t/o
  • Charity < £6.5 m annual income
  • Trustee of a trust with NAV < £5 m
  • CBTL
  • Guarantor
  • Small business <50 employees and £6.5 m t/o or £5 m on balance sheet
220
Q

Principles and rules

How is FOS funded? (2)

A
  • A general levy paid by all firms
  • A case fee payable by the firm to which the complaint relates
221
Q

Principles and rules

When can complaints be made to FOS?

A

Once exhausted internal complaints procedure of the firm

Refer to FOS within the earliest of:

  • 6 months of date of firm’s final decision letter
  • 6 years after the event
  • 3 years after the complainant knew they had cause to complain
222
Q

Principles and rules

Reporting requirements to FCA (SUP 16)

What is the online reporting system called?

A

Gabriel

223
Q

Principles and rules

Reporting requirements to FCA (SUP 16)

How often should complaints be reported to the FCA?

How should they be broken down? (4)

A

Twice a year

Number of complaints: -

  • Closed within or < 4 weeks
  • Closed within 8 weeks
  • Closed > 8 weeks
  • Total outstanding at the end of the reporting period
224
Q

Pinciples and rules

Reporting requirements to FCA (SUP 16)

When do you need to report an adviser to the FCA? (4)

A
  • Adviser who is no longer considered competent
  • Adviser who fails to attain appropraite qualification in time limit prescribed
  • Adviser who doesn’t comply with Statment of Principle
  • Adviser who carries out regulated activity before demonstrating necessary competence and without supervision
225
Q

Principles and rules

Money Laundering and Financial Crime

What is the three stage process for large scale money laundering? (3)

A
  • Placement - getting money in
  • Layering - moving money via complex web
  • Integration - absorbs into the economy e.g. property
226
Q

Principles and rules

Money Laundering

How long should you keep records of a client’s ID? (2)

A

5 years after the end of a customer relationship

OR

5 years from when the transaction was completed

227
Q

Principles and rules

Money Laundering

Customer Due Diligence must be carried out under ML 2017 Regulations? (4)

A
  • Establishes a business relationship
  • Carries out an occasional transaction
  • Suspects money laundering or terrorist financing
  • Doubts about the integrity of previously obtained customer information
228
Q

Principles and rules

Money Laundering

When would you carry out enhanced CDD? (2)

A
  • When the customer is not present for the transaction
  • When the customer is a politically exposed person (PEP)
229
Q

Principles and rules

Money Laundering

Explain the customer identification process? (2)

A
  • Identify client by obtaining name, address, date of birth
  • Verify information through independent documents
230
Q

Principles and rules

Money Laundering

When would you carry out simplified due diligence?

A

Business relationship or transaction is low risk

231
Q

Principles and rules

Complaints

Definition?

A

Any expression of dissatisifaction, whether oral or written and, whether justified or not, alleges that the complainant suffered financial loss, material distress or material inconvenience

232
Q

Principles and rules

Complaints

Rapid resolution complaints?

How long should complaint records be kept?

A

Complaints addressed within 3 business days

MiFID business - 5 years

Non-MiFID - 3 years

233
Q

Principles and rules

Complaint

On receipt of a complaint what is the procedure?

A
  • Acknowledge promptly in writing
  • Send copy of firm’s complaints procedure
  • Assign someone to handle the complaint
  • Provide contact details
234
Q

Principles and rules

Financial Services Compensation Scheme (FSCS)

What are the limits of compensation?

  • Deposits?
  • Investments?
  • Long-term insurance?
  • General Insurance?
  • Home Finance/ mortgages?
A
  • 100% £85,000 per person
  • 100% of £85,000
  • 100% of claim with no upper limit
  • Compulsory - 100% of claim. Non-compulsory 90% of claim with no upper limit
  • 100% of £85,000
235
Q

Principles and rules

FSCS

What is the deposit protection limit for temporary high balances?

A

Up to £1 million for 6 months

236
Q

The FCA Handbook

FCA FEES? (3 types)

A
  • Application Fees - £1,500 straight forward new firm. Significant variation in permissions (VOP), falls into new fee block at 50% of application fee. £250 flat fee for other VoPs. All non-refundable.
  • Periodic Fees - (tariff base applied to fee -block tariff rates) cover costs FCA expects to incur in undertaking its functions. Annual Funding Reuirement (AFR) is derived annually from FCAs budget. Split into an AFR per fee-block. E.g. mortgage firm = fee-block A018.
  • Special project fees
237
Q

Principles and rules

GDPR

Rights of individuals? (8)

A
  • Informed
  • Access
  • Rectification
  • Erasure
  • Restrict processing
  • Data portability
  • Object
  • Automated decision making and profiling
238
Q

Principles and rules

GDPR

Data Protection Principles? (6)

A

All personal data:

  • Processed lawfully, fairly and transparent
  • Collected for specified, explicit and legitimate purpose
  • Adequate, relevant and limited
  • Accurate and kept up to date
  • Not kept for longer than is required
  • Secure
239
Q

Principles and rules

GDPR

Who does it apply to? (2)

A
  • Data processors
  • Data controllers
240
Q

Principles and rules

GDPR

When was it adopted?

A

25 May 2018

241
Q

Regulatory advice framework

Client agreements

When is it not needed? (3)

A
  • Direct offer financial promotions
  • Life offices selling life and pensions as a principal
242
Q

Regulatory advice framework

Client agreements

What must they out? (12)

A
  • Basis for conducting business
  • Services provided
  • Payment
  • Status
  • The giving of instructions
  • Accounting
  • Withdrawal rights
  • Conflicts of interest
  • Risk warnings
  • Complaints
  • Compensation
  • Termination
243
Q

Regulatory advice framework

Client Agreements

When must they be given to a retail client? (2)

A
  • Before conducting business
  • Immediately afterwards if business conducted by distance communication
244
Q

Regulatory advice framework

Status disclosure

What must a firm provide to a retail client on first contact? (7)

A
  • Firm’s regulatory status
  • Firm’s status as independent, focused-independent or restricted
  • Details of services
  • Details of how they are paid
  • Details of loans and ownership
  • How to complain
  • Coverage by the FSCS
245
Q

Regulatory advice framework

Client’s cancellation rights

14 day cancellable investment agreements? (5)

A
  • Cash ISA
  • Collective Investment Schemes
  • Transferring a CTF
  • ISA new or transfer
  • EIS
246
Q

Regulatory advice framework

Client’s cancellation rights

30 day cancellable investment agreements? (5)

A
  • Life policies
  • Most pension annuities
  • Personal pensions or stakeholders
  • Pension transfer
  • Wrappers which include life policies
247
Q

Regulatory advice framework

Types of service? (5)

A
  • Best execution
  • Execution only
  • Limited advice
  • Non-advised sales
  • Insistent clients

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