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Unit 1: Regulations > REGS BIBLE Chapter 2 > Flashcards

REGS BIBLE Chapter 2 Flashcards

1
Q

What is S19 FSMA 2000

A

The General prohibition

“no person may carry on a regulated activity in the UK unless he is an authorised or exempt person”

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2
Q

How does the Regulated Activities Order (RAO) define a regulated activity?

A

A specified activity undertaken with a specified investment

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3
Q

What is an injunction?

A

Where a firm is prohibited from continuing activities

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4
Q

What is a restitution order?

A

Where a firm is instructed to pay back any losses to a client

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5
Q

What are the 3 civil law consequences of contravening S19?

A
  • Injunctions
  • Restitution orders
  • Contracts are voidable at discretion of investor
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6
Q

What are the criminal penalties for contravening S19?

A

Max 2 years imprisonment and/or unlimited fine

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7
Q

What are the 6 MiFID specified investments?

A
  • Shares/depositary receipts/warrants
  • Debt instruments eg. bonds, Gilys, loan stock, debentures, T-bills, commercial paper
  • Units in CISs
  • Options
  • Futures
  • CFDs
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8
Q

options are only covered as a specified investment if they relate to…?

A
  • Securities (stocks, bonds, shares, futures etc.)
  • Currencies
  • Certain precious metals, including gold and silver, platinum, palladium
  • Options on futures contracts and other contracts for differences
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9
Q

Under what circumstance are derivatives excluded from specified investments?

A

When used for commercial purposes

  • This means when a company uses derivatives for risk management/hedging
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10
Q

What are the non-MiFID specified investments?

A
  • Lloyd’s syndicates, insurance contracts and funeral plan contracts
  • Pensions
  • Deposits and electronic money
  • Rights to specified investments (eg. sale and repurchase agreements - REPOS)
  • Loans and other forms of credit (including consumer hire agreements)
  • Emissions auction products
  • Benchmarks
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11
Q

What does home finance include?

A
  • equity release/lifetime mortgage
  • home repurchase plan (eg. sharia mortgage)
  • regulated sale and rent back
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12
Q

What is not captured by ‘regulated mortgages’?

A

Commercial mortgages and buy-to-let mortgages

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13
Q

What are the 5 MiFID specified activities?

A
  • dealing in investments
  • arranging deals in investment
  • managing investments
  • advising on investments
  • operating an MTF or OTF
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14
Q

What is an MTF

A

A multilateral trading facility - creates a formal marketplace for trading of investments outside an exchange

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15
Q

What is an OTF

A

An organised trading facility - similar to an MTF and permits trading of derivatives and other non-equity financial instruments outside an exchange

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16
Q

What are the non-MiFID specified activities?

A
  • Safeguarding and administering investments (eg. acting as custodian)
  • Sending dematerialised instructions eg. electronic money transfer
  • Lloyd’s activities, insurance activities, and providing funeral plan contracts
  • Mortgages: provision, administration, advising and arranging
  • Home finance activities
  • Managing dormant accounts
  • Accepting deposits by way of business and accepting electronic money
  • Providing credit references or credit information services
  • Establishing, operating or winding up a CIS or pension scheme
  • Agreeing to carry on most regulated activities
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17
Q

Which notable type of insurance contract is NOT covered under specified activities

A

Car breakdown insurance

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18
Q

What types of of CIS are regulated vs unregulated?

A

Regulated: authorised, recognised, or UCITS

Unregulated: often referred to as Hedge Funds

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19
Q

What are the three types of CIS structure?

A
  • Unit trust (trust-based)
  • Open-ended Investment Company (OEIC) (company-based)
  • Investment Company with Variable Capital (ICVC)
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20
Q

What activities are excluded (from specified activities)?

A
  • Newspapers and other media (incidental advice)
  • Providing information
  • Unpaid trustees eg. nominees, executors
  • Employee share schemes
  • Group or Joint enterprises
  • Absence of holding out
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21
Q

When might a Newspaper not be excluded from specified activities?

A

In the case of tip-sheets - publications made solely to give advice

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22
Q

List 3 examples of ‘absence of holding out’

A
  • Dealing as principal and end user where no service is offered to others
  • Primary market sale or buyback
  • Derivatives for risk management (commercial purposes/hedging)
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23
Q

Give 4 examples of Not-specified investments

A
  • Property and other tangible assets (eg. gold, oil, antiques, wine)
  • Currencies (spot and forward)
  • National savings and investment products (including premium bonds)
  • Derivatives used for commercial purposes
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24
Q

What are the 6 types of exempt persons?

A
  • Appointed reps
  • Lloyd’s syndicate members
  • Members of Designated Professional Bodies (DPBs)
  • Recognised Investment exchanges (REIs) eg. LSE
  • Recognised Clearing Houses (RCHs)
  • Other exempted bodies eg. BoE
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25
Q

Give some examples of DPBs

A

Accountants

Actuaries

Solicitors

Surveyors

Conveyancers

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26
Q

Give two examples of RCHs

A

LCH.Clearnet, Euroclear UK & Ireland

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27
Q

Which exempt persons (from need for authorisation) are not actually classified by FSMA 2000 as exempt persons?

A

Lloyd’s syndicate members
DPBs

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28
Q

What is PERG?

A

The Perimeter guidance manual

Provides guidance on whether you need Part 4A permission

Not binding

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29
Q

What is an SUP?

A

Permission notice - Regulator has power to grant and vary permission

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30
Q

When is an SUP issued?

A

At end of process of authorisation

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31
Q

What does COND stand for?

A

Threshold conditions for Part 4A permission

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32
Q

Within what timeframe does the regulator decide whether Part 4A permission is granted?

A

6 months

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33
Q

What are the 8 COND for Part 4A permission?

A
  • Location
  • Legal status
  • Effective supervision
  • Appropriate resources
  • Appropriate non-financial resources
  • Prudent conduct
  • Suitability (fitness and propriety)
  • Business model
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34
Q

Which regulator(s) monitor the Legal status requirement of COND and why?

A

PRA

This is because it mainly relates to insurance companies which are regulated by the PRA

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35
Q

Who regulate

A
36
Q

Which regulator(s) monitor the Location requirement of COND and why?

A

Both FCA and PRA depending on which regulator the firm has applied to (so FCA for solo-regulated and PRA for dual-regulated)

37
Q

Which regulator(s) monitor the Effective supervision requirement of COND?

A

FCA for FCA firms

Both for dual-regulated

38
Q

Which regulator(s) monitor the Appropriate resources requirement of COND?

A

FCA for FCA firms

Dual regulated: FCA monitors non-financial resources and PRA looks at financial resources (prudent conduct)

39
Q

Which regulator(s) monitor the Sutiability requirement of COND?

A

FCA firms: FCA

Dual-regulated: Both

40
Q

Which regulator(s) monitor the Business model requirement of COND and why?

A

The FCA monitors this for all firms to assess whether the business model is geared towards FCA objectives

41
Q

How have many UK companies responded to loss of passporting rights across the EEA?

A

By setting up subsidiaries in EEA countries and seeking local authorisation

42
Q

What are the ‘Temporary Transitional Powers’ granted by HMT?

A

Temporary permission that allows EU firms with a branch/looking to set up a branch in the UK to continue to comply with respective EU legislation until end of temporary transitional period (currently end of 2023)

43
Q

What are Certification Functions also known as?

A

Significant Harm Functions (SHFs)

44
Q

What is the SM&CR also known as?

A

Individual accountability regime

45
Q

Which of the 4 categories of employees are subject to FIT?

A

Both SMF and SHF

46
Q

Which of the 4 categories of staff are subject to COCON?

A

SMF, SHF, and OCRS (other conduct rules staff)

47
Q

What are the Executive PRA SMFs?

A

Chief Executive function
Chief Finance function
Chief Risk function
Head of internal audit
Head of key business area
Group Entity senior

48
Q

What are the Non-executive PRA SMFs?

A

Chairperson
Senior Independent Director
Chair of Risk Committee
Chair of Audit Committee

49
Q

What are the 4 Executive FCA SMFs?

A

Executive Director
Significant Responsibility Senior Manager
MLRO
Compliance oversight

50
Q

What are the 2 Non-executive FCA SMFs?

A

Non-executive Director
Chair of the Nominations Committee

51
Q

How often does a firm have to assess fitness and propriety of CFs?

A

Annually (on appointment)

52
Q

Which public database contains information on Senior managers and Certified persons?

A

The Directory (replacing the Financial Services Register)

53
Q

What is Form A?

A

Firms must use Form A to apply for approval on behalf of Senior managers

54
Q

Within what timeframe must firms be informed of the decision on Form A?

A

90 days

55
Q

What 3 categories are tested in FIT?

A
  1. Honesty and Integrity
  2. Competence and Capability
  3. Financial soundeness
56
Q

How far back should employment history and criminal convictions be looked into for FIT?

A

employment - 6 years
criminal convictions - no limit

57
Q

What are the 6 individual (first tier) COCON?

A
  1. You must act with Integrity
  2. You must act with dues skill, care and diligence
  3. You must be open and cooperative with regulators
  4. You must pay due regard to interests of customers and treat them fairly
  5. You must observe proper standards of market conduct
  6. You must act to deliver good outcomes for retail customers
58
Q

Which individual COCON is replaced by COCON 6 where consumer duty applies?

A

COCON 4

59
Q

What are the 4 Senior Manager Conduct Rules?

A

SM1 - You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively

SM2 - You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system

SM3 - You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively

SM4 - You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice

60
Q

What are the powers of enforcement officers (S165)?

A
  • enter premises of an authorised firm without notice
  • demand documents, files, tapes, data
  • interview any employee
61
Q

Can enforcement officers investigate any employee?

A

No - they can interview any employee but only have the power to investigate approved persons

62
Q

What is the RDC?

A

The Regulatory Decisions Committee - exercises certain decision making powers on behalf of FCA/PRA but appointed by and accountable to FCA board

63
Q

Which member of the RDC is an FCA employee?

A

The chairman

64
Q

Which bodies can issue notices during the enforcement process?

A

Usually the RDC but FCA/PRA can too if issue is deemed urgent (when coming to decision under executive procedures)

65
Q

Which notices are statutory notices?

A

Warning, Decision, and Supervisory notices

66
Q

When is a decision notice issued?

A

When RDC has reviewed representations relating to a warning notice

67
Q

When can action be effective following a supervisory notice?

A

Immediately

68
Q

Which notices are made public by the RDC?

A

Final notices (final decision/supervisory)
Warning notices - requires recipient’s consent

69
Q

What makes final notices different to other notices?

A
  • Cannot be appealed against
  • Provide date action will be taken
70
Q

How many days does a firm have to appeal to the UT?

A

28 days

71
Q

What does S165 FSMA 2000 relate to?

A

Power of enforcement officers

72
Q

What Section of FSMA 2000 allows regulator to appoint third party (eg. criminal office, police) to carry out an investigation?

A

S168

73
Q

What section of FSMA 2000 allows regulator to appoint a competent person to provide the regulator with any required info?

A

S167

74
Q

What section of FSMA 2000 outlines the criminal offences under the enforcement procedure and what are they?

A

S177

  • Failure to cooperate is a criminal offence (max 2 years/unlimited fine)
  • providing false/misleading evidence is a criminal offense
75
Q

Which Section of FSMA 2000 dictates that firms must provide any information documentation within a reasonable time period?

A

S165

76
Q

What 5 disciplinary measures can the regulator take following a Final notice?

A
  • Withdrawal/variation of authorisation/approval
  • Prohibition
  • Restitution order
  • Public censure, statements of misconduct and financial penalties
  • Prosecution
77
Q

What is the Prohibition order?

A

S56 FSMA 2000 - prohibits a person from conducting particular/all regulated activities

  • can only be issued to an individual
  • can be issued by either regulator
78
Q

What do S59 and S71 FSMA 2000 dictate?

A

S59 - Controlled functions (eg. SMFs) must be approved

S71 - private person can sue for losses caused by breach of S59 - anyone can sue for losses if a prohibited person conducts a prohibited activity

79
Q

What are the Powers of intervention and enforcement FSA 2012?

A
  • FCA can ban products posing unacceptable risks to customers
  • FCA can ban financial promotions deemed to be misleading
80
Q

For how long can the FCA ban a product?

A

Up to 12 months without consultation

81
Q

Does the regulator need to go through the enforcement process to ban a misleading financial process?

A

No

82
Q

What is the Public Interest Disclosure Act (PIDA) 1998 and which SYSC does it link to?

A

Protects ability for an employee to make a protected disclosure - links to SYSC 18

83
Q

What 6 things do protected disclosures relate to?

A
  • criminal offenses
  • breach of legal requirements
  • miscarriage of justice
  • endangering health and safety
  • damage to the environment
  • concealment of the above
84
Q

What statements (relating to disclosures) must Firms adopt under PIDA 1998?

A
  • Proper way to disclose
  • Failures that warrant disclosure
  • Assurances of protected disclosure
  • Avenues of external disclosure (including FCA)
  • Penalties for making false/misleading disclosures
85
Q

Which SYSC does the T&C Sourcebook suplement?

A

SYSC 5

Unit 1: Regulations (6 decks)

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