Regulation In The UK Flashcards
What is the PRA & it’s general objective?
Subsidiary of BOE
Responsible for regulating deposit taking business, i.e banks, insurers, investment firms
General objective = promote safety & soundness of PRA authorised persons through;
- ensure business of such person is carried out in way to avoid adverse effects on stability of U.K financial system
- minimise adverse effects of failure that would expect to have to stability of U.K financial system
- insurance objective to secure appropriate degree of protection for policyholders
In discharging general functions, PRA must regard regulatory principles set in Financial Services Act 2012
What is the PRAs approach to regulation?
Judgement based approach
- PRA uses own judgement to determine whether financial firms are sound and stable
- insurers provide sufficient protection for policyholders
Forward-looking approach
-PRA assess firms against current & possible future risks that could arise in future /aim to intervene early stages
Focused Approach
-PRA focuses on those issues & firms that pose greater risk to stability of U.K. financial system and policyholders
What is the Financial Conduct Authority ?
Responsible for regulation of conduct for retail & wholesale markets
Successor to FSA as provided by Financial Services Act 2012 / originally given statutory powers & objectives by FSMA (U.K. Primary legislation)
What are the objectives of the FCA
Strategic objective is to ensure relevant markets function well
Operational objective:
- consumer protection
- integrity
- competition
Financial services act 2012 provides FCA must act in way which is compatible with strategic objective and advance in one or more of its operational objectives
The Consumer Protection Objective
To secure appropriate degree of protection with regard to;
- differing degrees of risk involved in transactions
- consumers expectations
- consumers experience & expertise
- general principle consumers take responsibility for their decisions
- consumers need for info/ timely/ advice= accurate/ for for purpose
- general principle those providing financial services business provide consumers with appropriate level of care (regard to risk involved & consumer capabilities)
The Integrity Objective
Protect and enhance the UK financial system
- soundness, stability, resilience
- transparent
- orderly operation
- honest & fair financial system
- no connection to financial crime/ affected by market abuse behaviour
The Competition Objective
Focuses on promoting effective competition in the interest of consumers
FCA will have regard to;
- needs to different customers using services (need for info to make informed decisions)
- accessibility for consumers (not affected by social or economic deprivation)
- ease by which consumers can change between service providers
- ease which new entrants can enter markets
- how far competition encourages innovation
FCA must discharge functions that promote effective competition for customer interests, but as long as its advances other objectives
What are the Powers of the FCA
FSMA & FSA 2012 give wide range of discretionary powers to achieve the objectives
- granting authorisation / vary terms
- withdraw authorisation
- investigate firms/ gather info to asses authorised persons
- rule making
- enforcement Powers / appoint another to inquire and issue probation orders or impose penalties
What are the general functions of the FCA
- make rules
- issue codes
- give general advice
- determine general policy & principles by reference to which it performs its functions
In discharging functions must have regard to regulatory principles
Take action to minimise extent business ran by authorised person or investment can be used for purpose connected to financial crime
What are principles of good regulation?
FSA 2012 provides FCA & PRA must follow regulatory principles:
(Good Regulator STOPS bad behaviour that would REC the economy)
1) Senior management responsibility - subject to requirements imposed under FSA 2012 in relation to compliance with those requirements (those that affect consumers)
2) Transparency of operations and functions (regulator)
3) Openness & Disclosure - desirability each regulator publish info relating to persons whom requirements are imposed by FSA 2012 as means of contributing to advancement of its objectives
4) Proportionality of burden imposed on persons/ activity to benefit / expected to result from imposition of that burden
5) Sustainable growth of U.K. economy (medium or long term)
6) Recognise differences in businesses carried on by different regulated persons (nature & objectives)
7) Efficient & economical use of resources
8) Consumer responsibility for decisions
What are the FCAs principles for business ?
(MIS FIT has a CAM so much Communicate & Cooperate)
- Market conduct (firm must observe proper standards)
- Consumer Interests (firm must pay due regard to consumer interests & treat them fairly)
- Skill, Care & Diligence taken when conducting its business
- Financial Prudence (maintain adequate financial resources)
- Integrity displayed when conducting business
- Trust for customer relationships (firm must take reasonable care to ensure suitability of advice & discretionary decisions for any customer entitled to rely upon judgement)
- Conflicts of interests managed fairly between both itself, customers & between customers (AVIOD COMPLETELY)
- Clients assesses have adequate protection when responsible for them
- Management & control (firms organise & control affairs effectively & adequate risk management systems)
- Communication with clients (firm must pay due regard to info needs of clients and communicate in way that is clear, fair & not misleading)
- Cooperate with regulators openly / disclose to any appropriate regulator anything which FCA would reasonably expect notice of)
What are the FCAs 10 supervision principles?
(MOC supervisor called JJ & has BOILS)
- Business Model & Culture examination / impact they have on consumers & market outcomes
- Open communication with industry, firms & consumers to gain deeper understanding of issues faced
- Being robust when things go wrong & fix problems / protect & compensate consumers / root causes rectified
- Joined up approach with other regulators / advisors
- consistent message FCA / engage with PRA to ensure effective independent supervision of dual regulated firms
- Judgement based approach / achieve right outcomes
- Focus on Big Issues & causes of problems / FCA focus resources on issues that have significant impact on objectives
- Ensure Fair outcomes for consumers & markets / dual consideration assessing issues according to impact on boths integrity
- Individual accountability / ensure senior management understand movpersonal responsibility for actions / held accountable for problems
- looking forward & identify potential risks & take action before serious impact
- ensure firms act in right spirt/ consider impact of actions on consumer & markets rather than complying with the letter of the law
What are the expected duties of regulators (FCA & PRA)
- In addition to following regulatory principles both have a duty to follow principles of good governance & ensure coordinated exercise of their respective functions
- Duty requires each regulator to consult with another on proposed exercise of a function that may have material adverse effect on advancement of its objectives
- Both should obtain info & advice from other regulators in connection with matters of common regulatory interest (i.e relevant info or expertise)
What are the regulatory handbooks?
Both FCA and PRA published handbooks contains relevant rules & guidance
Handbooks apply to authorised firms carrying out financial services business in the U.K.
FCA handbook contains 11 principles of business (fundamental obligations of all firms under the regulatory system)
Firms supervised by PRA are only subject to principles / reflected in handbook;
- Integrity
- skill, care & diligence
- management & control
- financial prudence
- conflicts of interest
- cooperate with regulators
Authorisation to conduct regulated activity?
FSMA contains general prohibition on carrying regulated activity in U.K unless persons doing so is a person authorised by FSMA or and exempt person
When application is made for permission to carry on regulated activity, regulator must ensure applicants satisfy & continue to meet certain threshold conditions / FSMA schedule 6
